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pure

pure Using technology to help our partners manage infrastructure critical to daily life. 2015 ANNUAL REPORT

Using technology to help our partners manage infrastructure critical to daily life.

2015 ANNUAL REPORT

pure Using technology to help our partners manage infrastructure critical to daily life. 2015 ANNUAL REPORT

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2015 at a Glance

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Why Pure?

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Financial Highlights

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Message to Shareholders

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Our Management Team

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Management’s Discussion and Analysis

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Auditors’ Report to the Shareholders

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Consolidated Financial Statements

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Notes to Financial Statements

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Corporate Information

why?

Infrastructure is the backbone of modern society. Managing it safely and effectively as it reaches the end of its design life will ensure the success of future generations.

At Pure, we work to protect the critical infrastructure necessary for everyday life. We are driven to change the way this infrastructure is managed. Our technologies and expertise are being used around the world to help manage pipeline deterioration and reduce water, wastewater and oil and gas loss. By fostering an environment that values and encourages creativity and innovation, we have become the world leader in the development and application of innovative technologies for inspection, monitoring and management of pipeline infrastructure.

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2015 at a Glance

REVENUE

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$104.4 million, up 34% year-over-year

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25% five-year CAGR (1)

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Inspection and Consulting services revenue (84% of total rev.) up 68% year-over-year, driven by acquisitions (2)

ADJUSTED EBITDA (3)

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$13.3 million compared to $15.6 million in 2014

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Return to strong and increasing cashflow expected through sharp focus on improved management processes, cost reductions and integration of acquisitions (4)

FINANCIAL POSITION

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$46.7 million of working capital; $11.1 million in cash with no debt

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Low future capital requirements

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Over two thirds of sales denominated in U.S. dollars

Geographic Diversification

By Revenue 13% Other Countries 21% Canada 66% United States
By Revenue
13%
Other
Countries
21%
Canada
66%
United States

2016 Strategic/Corporate Priorities

Revenue Breakdown

By Sector 83% Water & Wastewater 2% Bridges, Buildings & Structures 15% Oil & Gas
By Sector
83%
Water & Wastewater
2% Bridges,
Buildings
& Structures
15%
Oil & Gas
2% Bridges, Buildings & Structures 15% Oil & Gas n Organic revenue and profitability growth through

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Organic revenue and profitability growth through targeted sales, world class project execution and disciplined cost control (4) ;

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Continue to lead/win multi-year programs with major water utilities with an emphasis on turn-key asset management contracts; and

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Continue to invest in complementary, new and enhanced technologies and services;

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Through PureHM TM , continue to grow Pure’s pipeline integrity business in the oil and gas sector.

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Ongoing investment in employee development to enhance services and position Pure for success;

(1) Compounded Annual Growth Rate 2011 to 2015.

(2) Hunter McDonnell Pipeline Services business acquired October 1, 2014; Wachs Water Services acquired April 1, 2015.

(3) Adjusted EBITDA is defined as EBITDA before gains or losses on foreign exchange, earn-out provisions related to acquisitions, costs directly attributable to acquisitions, stock-based compensation expense, restructuring costs and other significant one-time expenses. See Non-GAAP Measures.

(4) See MD&A (period ended December 31, 2015) for details on Growth and Optimization Plan.

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Our water utility partners quench our thirst at every meal.

Our water utility partners quench our thirst at every meal. Using technology, we help to manage

Using technology, we help to manage critical water pipelines.

water

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Our energy transportation partners fuel our everyday needs.

Our energy transportation partners fuel our everyday needs. We help oil and gas pipelines to operate

We help oil and gas pipelines to operate with more confidence.

fuel

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Our infrastructure partners do amazing things everyday.

D . ANNUAL REPORT 2015 Our infrastructure partners do amazing things everyday. At Pure, we are
D . ANNUAL REPORT 2015 Our infrastructure partners do amazing things everyday. At Pure, we are

At Pure, we are helping them succeed.

D . ANNUAL REPORT 2015 Our infrastructure partners do amazing things everyday. At Pure, we are

Pure

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Financial Summary and Highlights

($000’s CAD, unless indicated otherwise)

ANNUAL

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2015

 

2015

2014

2013

Revenue and Earnings Revenue Adjusted EBITDA EBITDA margin (%) Profit (loss) before income taxes Profit (loss) Profit (loss) per share Basic Diluted Adjusted (1) Dividends declared

Financial position (Dec. 31) Total assets Current assets Current liabilities Current ratio Cash and cash equivalents Market capitalization of equity

Capital Expenditures Property and equipment Intangibles (2)

Weighted average number of shares outstanding Basic Diluted

TSX per share price High Low Close

104,423

77,806

60,865

13,288

15,629

12,889

13%

20%

21%

1,605

(5,852)

4,970

(134)

(3,886)

2,080

(0.00)

(0.07)

0.04

(0.00)

(0.07)

0.04

(0.03)

0.11

0.05

0.12

0.12

147,080

130,989

128,406

61,718

72,500

83,851

15,038

13,091

8,605

4.1

5.5

9.7

11,085

33,612

41,438

253,074

384,231

338,768

7,098

5,325

3,147

5,533

3,188

3,685

53,504

51,853

50,866

53,504

51,853

51,431

8.78

8.67

6.85

3.82

6.35

4.28

4.73

7.41

6.66

(1) Adjusted EPS is defined as the tax affected earnings per share adjusted for the effects of acquisitions, and any non-recurring, extraordinary items. (2) Includes capitalized development costs and $2.2 million of ERP related costs in 2015.

ANNUAL

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2015

Message to Shareholders

2015 was a landmark year for Pure. For the first time in our history, we exceeded $100 million in revenue and we have consolidated our position as the world leader in water pipeline condition assessment.

Through the acquisition of Wachs Water Services (“WWS”) on April 1, 2015 and our continuing focus on research and development, we have broadened the range of services and solutions we can provide to the water sector. We have assembled a core group of experts in the field of assessment and risk analysis of critical water and wastewater pipeline assets and we are quickly becoming recognized as the preeminent authority on issues relating to water network sustainability and associated capital planning.

Looking beyond water, our acquisition of the Hunter McDonnell Pipeline Services Inc. (“HM”) business on October 1, 2014 has allowed us to penetrate the large and established market of providing integrity services to oil and gas pipeline operators while introducing new technologies and ideas to this sector. The reputation for superior service and innovation that HM was known for has made this process easier. The PureHM team has embraced the access to capital and technical resources that Pure has brought, resulting in robust growth for this part of our business. Even in an environment of depressed oil and gas prices, the requirement to maintain integrity of the vast existing base of pipeline infrastructure provides us the opportunity to materially expand our business. We are one of the few companies with exposure to the oil and gas sector that is actually growing. Through PureHM, we intend to accelerate this growth and we are confident that our ability to offer cost-effective integrity management solutions to pipeline operators will allow us to continue this growth in the future.

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this growth in the future. PURE TECHNOLOGIES LTD. | 9 John F. Elliott President and Chief

John F. Elliott President and Chief Executive Officer

Even in an environment of depressed oil and gas prices, the requirement to maintain integrity of the vast existing base of pipeline infrastructure provides us the opportunity to materially expand our business.

The year was not without its challenges. The postponement and delay of several anticipated large projects, combined with a temporary slowdown in the WWS core business, resulted in revenue that was below our expectations with consequent margin compression. The integration of two significant acquisitions, together with the introduction of a new enterprise resource planning system, added to the excitement. Nevertheless, we took the opportunity to implement aggressive cost reductions throughout our organization and we believe that this, combined with improved management processes and a strong focus on efficient project delivery, will deliver a return to strong operating margins and increasing free cashflow in 2016 and beyond. Despite these challenges, we exited 2015 in a position of financial strength with no debt and over $11 million of cash on hand.

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The macro environment in the water infrastructure sector continues to indicate increasing momentum for our business. Several industry studies, combined with catalysts such as the Flint, Michigan lead crisis, suggest that buried infrastructure will be an increasingly important focus for the media, politicians and regulators in the future. We are perfectly positioned to benefit from this trend. Aging energy pipelines will continue to attract increasing scrutiny from regulators, and pipeline operators will be looking for additional cost efficiencies throughout their sys- tems, including integrity management. We plan to and will be an integral part of this evolution.

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The macro environment in the water infrastructure sector continues to indicate increasing momentum for our business.

I am confident that the platforms we have built in the water, wastewater and energy pipeline sectors, combined with the improved management processes we have implemented will drive aggressive revenue and margin expansion in 2016 and beyond. I want to take the opportunity to thank our dedicated and passionate employees (our “Pipeline Superheroes”!), our Board of Directors and our clients for their continuing support and inspiration.

Sincerely,

for their continuing support and inspiration. Sincerely, Jack Elliott, President & CEO Pure Technologies Ltd.

Jack Elliott, President & CEO Pure Technologies Ltd.

March 15, 2016

continuing support and inspiration. Sincerely, Jack Elliott, President & CEO Pure Technologies Ltd. March 15, 2016
continuing support and inspiration. Sincerely, Jack Elliott, President & CEO Pure Technologies Ltd. March 15, 2016
continuing support and inspiration. Sincerely, Jack Elliott, President & CEO Pure Technologies Ltd. March 15, 2016

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Our Management Team

ANNUAL REPORT 2015 Our Management Team James E. Paulson Executive Chairman Mark W. Holley Executive Vice

James E. Paulson Executive Chairman

Our Management Team James E. Paulson Executive Chairman Mark W. Holley Executive Vice President and Chief

Mark W. Holley Executive Vice President and Chief Operating Officer

Holley Executive Vice President and Chief Operating Officer Michael Higgins Senior Vice President, North America Peter

Michael Higgins Senior Vice President, North America

Michael Higgins Senior Vice President, North America Peter O. Paulson Vice Chairman and Chief Technology Officer

Peter O. Paulson Vice Chairman and Chief Technology Officer

Peter O. Paulson Vice Chairman and Chief Technology Officer Geoffrey D. Krause Chief Financial Officer Nicole

Geoffrey D. Krause Chief Financial Officer

Officer Geoffrey D. Krause Chief Financial Officer Nicole D. Springer Chief Legal Officer and Corporate

Nicole D. Springer Chief Legal Officer and Corporate Secretary

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Officer and Corporate Secretary PURE TECHNOLOGIES LTD. | 11 John F. Elliott President and Chief Executive

John F. Elliott President and Chief Executive Officer

| 11 John F. Elliott President and Chief Executive Officer Robert Budianto Senior Vice President, Engineering,

Robert Budianto Senior Vice President, Engineering, Operations and Production

Vice President, Engineering, Operations and Production Michael R. Wrigglesworth Senior Vice President,

Michael R. Wrigglesworth Senior Vice President, International

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Management Discussion and Analysis

March 15, 2016

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2015

Unless otherwise indicated, all financial information presented in this Management Discussion and Analysis (“MD&A”), including tabular amounts, is in thousands of Canadian dollars, and is prepared in accordance with International Financial Reporting Standards (“IFRS”). Reference in this MD&A to the “Company” or to “Pure” means, as the context may require, Pure Technologies Ltd. and all or some of its subsidiaries or joint ventures.

Management’s Discussion and Analysis is designed to provide the reader with a greater understanding of the Company’s business, the Company’s business strategy and performance, the Company’s expectations of the future and how the Company manages risk and capital resources. It is intended to enhance the understanding of the audited consolidated financial state- ments for the years ended December 31, 2015 and 2014 and accompanying notes (the “financial statements”), and should therefore be read in conjunction with this document. Additional information relating to the Company, including the Annual Information Form, is available on SEDAR at www.sedar.com.

NON-GAAP MEASURES

Some indicators used by the Company to analyze and evaluate its results represent non-GAAP financial measures. Consequently, they do not have a standard meaning as prescribed by GAAP, and are therefore unlikely to be comparable to similar measures presented by other issuers. Management believes that these indicators nevertheless provide useful information because they allow for the evaluation of the performance of the Company and its components based on various aspects, such as past, cur- rent and expected profitability and financial position. These non-GAAP financial measures include the following Company indicators:

EBITDA is defined as income from continuing operations before interest, income taxes and depreciation and amortization on property and equipment and intangible assets.

Adjusted EBITDA and Adjusted Profit is defined as EBITDA and/or Profit before gains or losses on foreign exchange, earn-out provisions related to acquisitions, costs directly attributable to acquisitions, stock-based compensation expense, restructuring costs, one-time training costs for the Company’s ERP implementation, and other significant one-time expenses. Management believes that adjusted EBITDA and/or profit provides an indicator as to the ongoing ability of the Company to generate cashflow through removal from EBITDA of significant non-recurring items comprised of costs directly attributable to acquisitions as well as non-cash expenses comprised of stock based compensation expense. In addition, foreign currency gains (losses) are also excluded as they are not operational in nature but rather primarily arise from fluctuations in foreign exchange rates on the Company’s foreign currency denominated monetary balances.

Adjusted EBITDA percentage is defined as Adjusted EBITDA as a percentage of revenue.

Net marketing, and net engineering and operations expenses are marketing, and engineering and operation expenses excluding depreciation and stock based compensation expense. Adjusted general and administrative expenses are general and administrative expenditures excluding stock based compensation, depreciation and non-recurring items such as trans- action costs on acquisitions and ERP training costs. These measures are provided to give readers an indication of the ongoing cash components of operating expenditures to better understand future cash needs of the business excluding the impact of new capital investment.

Readers are cautioned that EBITDA and Adjusted EBITDA, Adjusted EBITDA percentage, Adjusted Profit, Net marketing and engineering and operations expenses, and Adjusted general and administrative expenses should not be construed as alternatives to profit as determined in accordance with IFRS.

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Gross profit is defined as revenue less cost of sales. Gross margin is revenue less cost of sales divided by revenue expressed as a percentage. Cost of sales includes direct materials, sub-trades and travel related expenditures, but excludes labour.

Cash flow from operations before working capital changes is defined as the amount of cash generated from revenues excluding cash spent on capital investments, financing income or costs, and changes in current assets and current liabilities. Management believes that this measure, in conjunction with Adjusted EBITDA, provides further indication of the cash gener- ation of the business through exclusion of the impacts of timing of collection and payment of working capital.

PURE’S BUSINESS

Pure is a world leader in the development and application of innovative technologies for inspection, monitoring and manage- ment of aging physical infrastructure. From monitoring the health of large bridges and structures, to assessing the health of water, wastewater and oil & gas pipelines, the Company’s technologies and expertise are being used around the world to help manage deterioration and reduce loss. Detailed information on each of the Company’s technologies and services can be found at: www.puretechltd.com.

Pure’s main business streams consist of:

1. Sale of proprietary, real-time monitoring systems for pipelines, bridges and structures

The Company has developed and acquired innovative, one of a kind technologies which are used around the world to provide continuous remote health monitoring of critical infrastructure including bridges, buildings and water and waste- water pipelines.

Pure designs, installs, commissions and maintains all equipment it sells prior to real-time monitoring which generates recurring revenue. The high-strength steel wire, or cables of bridges, and the tendon systems in buildings and structures are continuously monitored under related contracts. In the case of large-diameter pre-stressed concrete cylinder pipe (PCCP) water and wastewater pipelines, Pure’s monitoring systems track the condition of each pipe section and can quickly alert clients to intervene when there are signs of rapid deterioration, which without intervention can lead to cata- strophic and costly pipeline ruptures. Pure also provides pig tracking services for large diameter oil and gas pipelines and is actively working to adapt the related technology to include real time and permanent monitoring of affected pipelines for environmental and condition changes.

The PCCP market represents approximately 3% of the total North American water pipeline inventory (over 862,000 miles installed – U.S. EPA, 2009). While sales of monitoring equipment to this market has and will continue to be an integral component of Pure’s total revenue, sales will likely decline as an overall percentage moving forward as Pure’s service offering expands.

Technology brief:

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SoundPrint® acoustic monitoring technology is a patented system used to provide continuous remote health monitor- ing of water and wastewater pipelines, bridges, buildings, parking structures and other infrastructure components.

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SoundPrint Acoustic Fibre-Optic (AFO) technology is a patented, acoustic fibre-optic monitoring system for struc- tural monitoring of prestressed concrete water and wastewater pipelines.

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Armadillo Tracks™ Remote Tracking Units, a PureHM technology acquired in 2014, is an internet based pig tracking and pipeline monitoring system that integrates acoustic geophones, magnetic sensors and other technologies to mon- itor pipelines for pig passages and environmental changes which could be indicative of threats to pipeline integrity.

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2. Technical services utilizing proprietary pipeline inspection, leak detection and condition assessment technologies and associated field services including proactive valve and hydrant maintenance programs

Aging pipelines, increasing costs of failures and high replacement costs are significant challenges facing pipeline owners worldwide. Pure’s leading edge technologies and services for pipeline system management for in-line and over-line indi- rect pipeline inspection and assessment address this ongoing need, providing valuable information to maximize the life of these assets, and are used to assess the current health of water and wastewater and oil and gas pipelines.

Technology brief:

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PureEM™ electromagnetic technology is a system which provides a “snapshot” of the condition of large-diameter water and wastewater transmission pipelines. PureEM technology can be used to inspect PCCP (and all other types of concrete pipe) and metallic pipelines.

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SmartBall® in-line inspection technology is a patented, innovative leak detection system. It consists of a free-swim- ming ball with an instrumented aluminum core capable of detecting and locating very small acoustic events in water, wastewater and oil and gas pipelines. It can also log pressure and temperature. The SmartBall system can be inserted in a pipeline and travels with the water or oil flow for many hours, collecting information over several kilometers of pipeline in a single deployment. SmartBall Pipe Wall Assessment® (PWA) technology identifies and locates pipe wall stress within metallic pipelines and has all the original features of the SmartBall technology.

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Sahara® in-line inspection system is a patented, leak detection and high resolution video inspection system used for detecting and locating leaks, gas pockets, illegal taps and other anomalies in water and wastewater pipelines. Inspections are conducted while the pipeline remains in service by inserting tethered sensors into the line. Additional enhancements have been made to this inspection platform including the aforementioned PWA technology.

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PipeDiver® in-line inspection system is an innovative, free-swimming condition assessment platform specifically designed for in-service inspection of water and wastewater pressure pipelines. In conjunction with PureEM sensor arrays, the system can be used to inspect PCCP (and all other types of concrete pipe) and metallic pipe.

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PureRobotics® inspection system is a powerful modular robotic pipeline inspection platform capable of performing long-range multi-sensor inspections in dry pipe or while submerged.

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PureMFL™ is an electromechanical method of non-destructive testing used to detect, locate and quantify corro- sion-induced wall loss in metallic pipe. This technique, commonly known as “smart pigging” has been actively used in the oil and gas sector for over 40 years. Pure has enhanced the technique to provide higher resolution and has adapted it for use in metallic water pipelines.

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Armadillo Tracks™ Remote Tracking Units, described previously, are used to track pipeline pigs and to benchmark inline inspections to allow correlation of anomalies inside the buried pipeline with above ground features on the right of way. Armadillo Tracks can be used to track the SmartBall technology, PureMFL, and can also be used to track and benchmark any inline inspection or “smart pig” used in the oil and gas or water industry.

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Spectrum XLI™ technology, a PureHM technology acquired in 2014, is a patented, advanced and comprehensive above ground indirect auditable inspection system for buried pipelines, combining global positioning and geograph- ic information system mapping, depth of cover, depth of water, gas leak detection, cathodic protection survey, coating condition assessment, and more.

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PipeWISE™ is an integrity data management software that is specifically designed to manage inspection data for pipelines, to facilitate correlation of inspection and repair data, and for the analysis of the pipelines fitness for service.

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Wachs Valve and Hydrant Services (“WWS”), acquired by Pure on April 1, 2015, provides proactive valve and hydrant maintenance programs among other complementary services, utilizing a fleet of vehicles with specialized equipment and a trained workforce. Locating and maintaining valves and hydrants is critical in minimizing the impact area around a water pipe failure. The combined Pure and WWS offering provides a unique risk mitigation strategy and allows water utilities to manage their network with increased confidence.

3. Specialized engineering services in areas related to asset management, primarily in the area of pipeline condition assessment for water and wastewater infrastructure

Pure provides its clients with actionable information for the proactive management of their underground assets. Its inno- vative Assess and Address™ strategy, which uses advanced analytical modeling and risk analysis fed by data collected by Pure’s inspection and monitoring technologies, is increasingly being adopted by water and wastewater utilities as a cost-effective alternative to conventional asset replacement strategies.

As part of its services, Pure provides an integrated utility data solution known as PureNet™. PureNet is a proprietary software solution that consolidates information from existing utility databases such as billing systems, hydraulic models, workload programs and maintenance management systems into one platform to improve efficiency. The solution is able to merge pipeline condition assessment and monitoring data into the platform to provide operators with valuable and comprehensive information on asset condition and to facilitate a risk based approach to inspection prioritization.

4. Recurring revenue

Pure generates recurring revenue as a result of its monitoring installations, using the proprietary monitoring equipment listed above, including data analysis and site maintenance, and from technology licensing contracts.

STRATEGY

Pure’s mission is to promote a sustainable future by providing owners and users of critical infrastructure with innovative, cost effective solutions that reduce the risk and consequence of failures and maximize value. Using complementary busi- ness streams, the Company provides its clients with a comprehensive understanding of the condition of their infrastructure assets, ultimately allowing for proactive management and asset optimization at a fraction of the cost of complete replacement programs.

Pure focuses on the following strategic priorities:

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Revenue and profitability growth through targeted sales, world class execution and disciplined cost control;

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Investment in complementary, new and enhanced technologies and services;

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Investment in employee development to enhance services and position Pure for success; and

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Selective and accretive acquisitions that enhance Pure’s technology portfolio and increase market penetration.

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GROWTH AND COST OPTIMIZATION PLAN

As discussed in the third quarter of 2015, Pure is undertaking several specific measures to increase sales, particularly in slower periods, enhance workforce flexibility to better align with project timing volatility and drive operational efficiencies without sacrificing quality or its ability to deliver on long term growth expectations. These measures include, but are not limited to:

Growth in revenue by investing in sales resources:

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Pure has hired nine of twelve planned sales people to address targeted sales force improvements for broader service line and regional coverage within North America. Training of these new hires is currently underway with expected benefits to begin showing early in 2016;

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Since acquisition on October 1, 2014, PureHM has added four sales and business development individuals to promote the division’s best-in-class services to the oil and gas pipeline integrity market.

Focused Reduction in Operating and Administrative Costs

Management is implementing a plan to drive operational and administrative improvements with a target of optimizing the work force and cost of project delivery by mid-2016. This is expected to result in annualized cost efficiencies of between $6 and $8 million.

To date, Pure has completed or commenced the following efficiency initiatives, the impacts of which in 2015 and 2016 are outlined below:

Efficiency Initiative

2015 Impact

2016 Impact

Voluntary attrition and involuntary staff departures without replacement

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Fourth quarter departures had annual salaries of $2.4 million

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$2.6 million annual reduction to fixed E&O costs

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Severance costs included in restructuring provision

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Hourly work force of WWS will be used to add capacity in busier periods

Reduction in Employee Share Purchase Plan

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None

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$1.0 million total reduction to operat- ing expenses

 

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Implemented effective January 1, 2016

Consolidation of WWS shared services

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Cost of severances and expected future losses under lease commit- ments accrued as restructuring provision

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$1.1 million annualized G&A cost reductions to commence in the second half of 2016

Restructuring certain outsourced relationships and international office costs

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Arrangements modified in 2015

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$1.0 million reduction in marketing costs

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No cost savings in 2015

Closure of Salt Lake City office

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None

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$0.3 million annual reduction in E&O costs.

 

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Office was closed in Q1 2016

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The remaining additional operational and administrative improvements being undertaken in 2016 include:

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Improved project management through better process, governance and performance management systems. Much of this work is underway in conjunction with the Company’s ERP implementation, expected to go live in the second quarter of 2016;

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Strengthening short and medium term project forecasting and scheduling to facilitate better resource (human and capital) management and asset allocation and expense optimization. Progress has been made with respect to organi- zational planning with further refinements in 2016; and

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Continued rationalization of non-essential and discretionary expenditures including spending on corporate initia- tives without compromising future growth or execution of Pure’s business strategy.

Pure's management believes execution of this plan will result in a more focused and productive business which will result in an improved service to our customers, a dynamic and flexible work environment for employees and an increased return to our investors.

The Company made significant strides in 2015 in establishing a foundation for growth in 2016 and beyond, more than doubling its workforce through two acquisitions since 2014, broadening its service offerings and expanding its customer base in its core water business, the wastewater sector and the oil and gas sector. As integration concludes and sales and execution of the aforementioned initiatives take hold, the Company expects EBITDA margins to return to or exceed its stated target of 20%.

OUTLOOK

In 2015, Pure continued to develop its core North American water, wastewater and oil and gas markets while remaining opportunistic in its international expansion activities. Over the last two years, Pure has grown its revenues by 71%, both organically and through the acquisitions of PureHM and WWS, to $104.4 million in the current year from $60.9 in 2013. As a consequence, the Company spent much of 2015 with a heavy internal focus on the integration of PureHM and WWS, process redesign and executing on the aforementioned growth and cost optimization plan. Core to continued growth is providing the highest quality of service delivery and project management, resulting in increased profitability, whilst reducing near term and inter-quarter volatility in revenues and profit margins. This focus is within the context of the Company’s long-term growth strategy of being the leading provider of pipeline condition assessment and network management services in both the water and oil and gas industries.

The strength of Pure’s financial position, combined with strong cash flow and low capital requirements provides a financial foundation that will facilitate this growth plan execution. Additionally, Pure has benefited from a strengthening U.S. dollar, in which over two thirds of sales are denominated. Pure ended the year with $11.1 million of cash, excluding $0.8 million of restricted cash, and $46.7 million of working capital, an increase of $1.3 million in cash and $1.1 million of working capital from the third quarter of 2015. Pure expects these balances to grow through 2016 as revenue and profitability increase.

In the Americas’ water and wastewater sector, revenues grew by 42% or $22.2 million over 2014. A $27.2 million increase in inspection and consulting services more than offset a $6.5 million reduction in equipment sales activity. Excluding WWS and the impact of foreign exchange, inspection and consulting revenues in the Americas region grew by 15% over last year (33% inclusive of the impact of the strong U.S. dollar) despite contract delays in the first quarter on the renewal of a significant program in the U.S. Inspection and consulting revenues in the Americas are expected to increase in 2016 on account of a strong U.S. dollar, and delivery on two significant programs in the U.S.

WWS, acquired in the second quarter of 2015, is a key part of the Americas’ growth strategy. It expands Pure’s services towards a full network management offering, including valve, hydrant and non-revenue water (NRW) services and broadens Pure’s customer base to include more small and medium sized utilities. The combination of Pure and WWS forms the platform for significant growth in 2016 and beyond. Revenues and resulting EBITDA margins from WWS were negatively impacted by the loss of certain sales personnel, the timing of awards of certain projects and integration activities. Specific efforts to refocus the

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business development activities combined with the elimination of certain administrative cost redundancies in mid-2016 are expected to result in improved performance in 2016.

As a result of our recent acquisitions and investment in strategic initiatives for wastewater and metallic pipe condition assess- ment, Pure is moving quickly away from past dependency on a small number of large projects to a broader and more diverse revenue mix. This should lead to less revenue volatility as the Company grows.

Internationally, Pure continues to build a foothold in key strategic markets as several regions turn their attention towards the benefits of condition assessment over capital replacement. International revenues declined 27% from 2014 mainly as a result

of project deferrals in Mexico. Low oil and gas prices have impacted the Mexican economy resulting in ongoing governmen-

tal budget constraints. This has stalled work on Pure’s inspection and monitoring program for the agency responsible for bulk water supply to Mexico City. Consequently, approximately $6.0 million of anticipated projects and revenue for 2015 was

deferred. The timing and likelihood of these projects at this point, however, is unknown.

In Europe and Africa, the investment in a new Regional Director, combined with an increasing industry focus on condition assessment, is beginning to pay dividends with the first PipeDiver project in Europe executed in 2015 and with the expectation for more in 2016 as part of a multi-year program. Long-term programs also continue in Australia and Asia, where Pure has restructured and optimized shared regional resources while continuing to pursue strategic opportunities. In the Middle East, Pure’s leak detection contracts in Qatar and Saudi Arabia have demonstrated the validity of the Company’s technology in the region and are expected to facilitate expansion within the region.

A

critical component of the Company’s strategy, however, is to minimize overhead internationally given the current variability

in

project size and duration, while increasing the number of project opportunities to offset project scheduling risk. Measures

already taken, as discussed previously, are expected to reduce overall sales and marketing expense in 2016 without adversely affecting Pure’s capacity to pursue high-value opportunities overseas.

The Company continues to capitalize on its PureHM acquisition, which is Pure’s fastest growing business segment with pro forma organic growth in 2015 of 12% over 2014. In the fourth quarter of 2015, organic growth over the same period of 2014 was 57% as product acceptance increased for both the Spectrum XLI and SmartBall technology for the oil and gas sector. The focus of PureHM’s growth strategy includes expansion into the U.S. and other western states, resulting in large contracts being awarded in California; increasing services to existing clients; and targeting of other major pipeline companies for new business. A proactive approach to sales in this division is resulting in an increased amount of work being booked into the first quarter of 2016 relative to the same period of 2015.

The Company continues to invest in research and development initiatives that are focused on increasing the capability and efficiency of Pure’s technology platforms in both the water and oil and gas sectors. Pure anticipates commercialization of several of these initiatives in late 2016 and 2017 with corresponding positive impacts on revenue and profitability.

SELECTED ANNUAL INFORMATION

Summary of Consolidated Financial Results

($000’s CAD, except per share amounts)

For the year ended December 31

2015

2014

2013

Revenue Profit (loss) for the year Per share – basic Per share – diluted Per share – dividends declared Total assets

104,423

77,806

60,865

(134)

(3,886)

2,080

(0.00)

(0.07)

0.04

(0.00)

(0.07)

0.04

0.12

0.12

147,080

130,989

128,406

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REPORT

2015

OVERVIEW OF 2015 RESULTS

Summary of Consolidated Financial Results

($000’s CAD, unless otherwise indicated and per share amounts)

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For the year ended December 31

2015

2014

$ Change

% Change

Revenue Cost of sales

104,423

77,806

26,617

34

25,522

17,506

8,016

46

Gross profit 2 Gross margin (%) 2 Operating Expenses 1 Adjusted EBITDA 2 Adjusted EBITDA (%) 2 Profit (loss) for the year Per share – basic Per share – diluted Cash Flow from Operations Before Working Capital Changes 2 Adjusted Profit for the year 2 Total assets

78,901

60,300

18,601

31

76

78

79,672

53,833

25,839

48

13,288

15,629

(2,341)

(15)

13

20

(134)

(3,886)

3,752

(97)

(0.00)

(0.07)

(0.00)

(0.07)

11,359

14,243

(2,884)

(20)

(1,394)

5,767

(7,161)

(124)

147,080

130,989

16,091

12

1. Excludes Libya accounts receivable, restructuring, and other provisions, and loss or gains on asset disposals.

2. See Non-GAAP Measures.

Total revenue is derived from several product groups, each with varying gross margins and which, in isolation or in combina- tion, is subject to volatility in part due to contract timing, seasonality and the unique needs of clients.

While revenue grew by 34% to $104.4 million over $77.8 million in 2014, actual performance was lower than the Company’s expectations. Of this $26.6 million increase, $24.9 million was due to the WWS and PureHM acquisitions, which each contrib-

uted $15.3 and $9.6 million in incremental revenue, respectively. Excluding the acquisitions, revenues increased 2% over 2014.

A 33% increase in inspection and consulting revenues in the Americas region due to organic growth of 15% and the benefit of

a strong U.S. dollar was substantially offset by lower equipment sales in the Americas and reduced International revenues. It is

important to note that inspection and consulting revenue included the negative impact of a two quarter delay in the renewal

of a significant contract in the U.S. and a one quarter delay in implementing master service agreements in PureHM, which

was acquired in the fourth quarter of 2014. Both these delays have since been remedied. International revenues were negatively impacted by a lack of activity in Mexico due to adverse economic conditions. In 2014, the Mexico region contributed $5.9 million compared to nil in 2015.

Gross margin percentage for 2015 was 76% compared to 78% in 2014. Gross margin decreased in 2015 compared to the prior year as a result of a greater proportion of lower margin inspection and consulting revenues, mainly due to pass through costs in Australia and the inclusion of lower margin revenues from WWS. Pure expects that, with the inclusion of WWS and PureHM, gross margins will continue to be slightly lower relative to historical averages due to the higher direct cost bases of these businesses.

Operating expenses, excluding gains on asset disposal and changes in provisions, for the year ended December 31, 2015 were $79.7 million or 76% of revenue, compared to $53.8 million or 69% of revenue for 2014. The increase reflects: (1) $16.6 million of incremental costs attributable to the PureHM and WWS businesses; (2) increased average headcount, relative to prior year, as a result of hiring of salaried personnel in the second half of 2014 to support future growth; (3) the adverse impact of a weakening Canadian dollar; and (4) $0.7 million of direct costs of acquiring WWS incurred in the second quarter. Pure is committed to

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2015

improving the efficiency of its operating expenditures, as previously explained, with corresponding restructuring costs of $1.4 million in 2015. Restructuring activities in 2014 associated with certain management changes totaled $1.1 million.

The Company recorded Adjusted EBITDA of $13.3 million or 13% of revenues in 2015 compared to Adjusted EBITDA of $15.6 million or 20% in 2014. Despite overall increased revenues, the impact of a slower first quarter combined with a higher fixed cost base, discussed previously, resulted in a reduction in Adjusted EBITDA on a full year basis. Cash flow from operations before working capital changes decreased to $11.4 million (2014 – $14.2 million) for the same reasons as the changes in Adjusted EBITDA.

Management believes the growth and cost optimization plans, discussed previously, will result in improvements in the Company’s efficiency metrics.

The 2015 loss of $0.1 million (2014 – $3.9 million loss) included a $1.6 million recovery on the accounts receivable from a customer in Libya, which was fully provided for in 2014. The loss in 2014 was driven by the inclusion of the $12.7 million provision taken on the Libyan customer’s accounts receivable. Profits were impacted by first quarter losses resulting from slow integration of PureHM and the impact of a higher fixed cost base on seasonally slow project delivery, which is being remedied as previously discussed. The impact of non-deductible costs on current taxes is magnified in the current year given the lower level of profitability.

The 2014 Adjusted profit of $5.8 million decreased to a loss of $1.4 million in 2015. The decrease reflects the EBITDA changes above, combined with $3.2 million in additional depreciation, a result of the increased asset base from acquisitions, and higher stock based compensation.

RESULTS FROM OPERATIONS

Revenue – Product Groups

($000’s CAD)

For the year ended December 31

2015

2014

$ Change

% Change

Equipment sales Inspection and consulting services Monitoring, licensing and technical support

7,730

17,516

(9,786)

(56)

87,280

51,846

35,434

68

9,413

8,444

969

11

Total

104,423

77,806

26,617

34

Total revenue grew by 34% for the year ended December 31, 2015 as compared to the prior year. The increase is primarily due to incremental revenue from the PureHM ($9.6 million) and WWS ($15.3 million since acquisition on April 1) acquisitions combined with increased inspection and consulting revenue and the impact of a strong U.S. dollar. These increases were partially offset by lower equipment sales in the year.

Equipment Sales Equipment sales declined for the year ended December 31, 2015 to $7.7 million from $17.5 million in 2014. The decrease reflects a lower level of installation activity in Canada, the United States and Mexico. In 2014, a significant portion of equipment sales related to projects in Mexico, which are not expected to recur until there are improvements in the Mexican economy. Lower sales were slightly offset by the sale of AFO equipment to Pure Technologies China Ltd. (“PTCL”) in the first quarter. Pure owns 50% of PTCL and it is accounted for using the equity method.

MANAGEMENT’S

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REPORT

2015

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Inspection and Consulting Services Inspection and consulting services revenue for 2015 was $87.3 million, an increase of $35.4 million or 68% from 2014 revenue. Excluding the impacts of the acquisitions of PureHM and WWS, which contributed $9.5 million and $15.3 million of incre- mental revenue, respectively, inspection and consulting services revenue for 2015 grew by $10.6 million or 20% as a result of increased activity in the Americas as well as the impact of a weakening Canadian dollar.

Inspection and consulting services revenues were $63.0 million from the Americas region in 2015 compared to $35.8 million in 2014. Of the $27.2 million increase, $15.3 million is attributable to the acquisition of WWS, with the balance due to increased inspection and consulting activity in the U.S. and the benefit of a strong U.S. dollar. Excluding the impact of the strong U.S. dollar, inspection and consulting revenues grew organically by 15% in the Americas region.

Pure generated $13.5 million in the current year from oil and gas inspection and consulting services compared to $4.4 million in 2014, due primarily to the acquisition of PureHM on October 1, 2014.

International inspection and consulting revenue decreased by $0.9 million to $10.7 million for the year. The decline from 2014 is due to the previously noted reduction in activity in Mexico along with lower than expected activity in South Africa. In 2015, international revenues were mostly from targeted areas in Europe, Australia, Asia and the Middle East where the Company has focused its marketing efforts.

Overall, there continues to be a shift by water and wastewater utilities towards the implementation of proactive asset manage- ment strategies versus cost prohibitive pipeline replacement programs. The pace of this transition, however, varies by region and by country. Pure expects this shift will ultimately drive additional deployments of the Company’s technologies into water and wastewater pipelines in the future.

Monitoring, Licensing & Technical Support Revenue from this product group grew 11% to $9.4 million for the year ended December 31, 2015 compared to $8.4 million in 2014. Increases in 2015 revenues were mainly a result of licensing sales in the international and PureHM segments. North American revenues have grown to offset reductions in international monitoring revenue mainly due to reduced activity in Libya, which accounted for $0.3 million of revenue in 2014, and the aforementioned delays in Mexico.

The continued sale of new water pipeline monitoring systems in the Americas is expected to contribute to this product group in the future.

Gross Profit and Margins

($000’s CAD, unless otherwise indicated)

For the year ended December 31

2015

2014

$ Change

% Change

Revenue Cost of sales

104,423

77,806

26,617

34

25,522

17,506

8,016

46

Gross profit Gross margin (%)

78,901

60,300

18,601

31

76

78

Cost of sales includes direct materials, contract labour, sub-trades and travel related expenditures. The internal labour used to generate such revenue is included in engineering and operations expense. Gross margins decreased to 76% in 2015 from 78% in 2014 as gross margin percentages in 2015 were largely impacted by the addition of WWS to the sales mix and significant flow through subcontractor costs on a project in Australia that increased reported revenues and cost of sales. Additionally, in the fourth quarter management evaluated the estimated warranty provision as the Company has a longer-term understanding of costs incurred and forecast of future warranty costs, and adjusted the provision by $0.7 million which had a positive impact on current year gross margin. Prior year gross margins benefited from sales with a significantly lower proportion of flow-through expenditures.

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The Company’s total revenue is derived from product groups which may be, in isolation and/or in combination, subject to volatility in part due to contract timing, seasonality and the unique needs of clients. Furthermore, gross margin is calculated by combining the effects of varying margin in each product group that make up total revenue. Given these factors, gross margin can vary over shorter time periods given more pronounced changes in sales mix.

Operating Expenses

($000’s CAD)

For the year ended December 31

2015

2014

$ Change

% Change

Marketing Engineering and operations General and administrative Research and development

13,742

11,431

2,311

20

38,777

24,450

14,327

59

26,331

16,391

9,940

61

822

1,561

(739)

(47)

 

79,672

53,833

25,839

48

The Company’s operating expenses are largely fixed and have increased over the prior year due to planned increases in salaried workforce capacity in the latter half of 2014 to support expected operational growth, one time acquisition costs related to WWS, impacts of foreign exchange on U.S. denominated costs as well as higher depreciation and stock based compensation costs.

Total operating expenses for the year increased by $25.8 million over the prior year. As previously noted, the increase reflects incremental operating expenses related to PureHM and WWS, acquired on October 1, 2014 and April 1, 2015, respectively, increased depreciation, higher stock based compensation costs, and the impact of the weakening Canadian dollar on U.S. dollar denominated costs. Additionally, the Company incurred acquisition costs related to WWS in the second quarter. Each of these is discussed in more detail below in its respective expense category.

Marketing

($000’s CAD)

For the year ended December 31

2015

2014

$ Change

% Change

Marketing expenses Depreciation Stock based compensation

13,742

11,431

2,311

20

(22)

(18)

(4)

22

(302)

(315)

13

(4)

Net marketing expenses

13,418

11,098

2,320

21

In 2015, marketing expenses were $13.7 million compared to $11.4 million in 2014. Increases in marketing expenses related to PureHM and WWS, $0.5 million and $1.0 million, respectively, were offset by the impact of restructuring activities under- taken in the second and third quarters of 2014 which resulted in the subsequent allocation of costs of certain personnel to general and administrative expense. Additional increases related to the increase in the U.S. dollar, and hiring of additional marketing resources in 2015.

Further details on business development initiatives within Pure’s major regions can be found in the reportable segment sum- mary below.

Engineering and Operations

($000’s CAD)

For the year ended December 31

2015

2014

$ Change

% Change

Engineering and operations Depreciation Stock based compensation

38,777

24,450

14,327

59

(6,267)

(3,592)

(2,675)

74

(602)

(523)

(79)

15

Net engineering and operations expenses

31,908

20,335

11,573

57

MANAGEMENT’S

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2015

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For the year ended December 31, engineering and operations expenses increased to $38.8 million in 2015 from $24.5 million in 2014. WWS and PureHM contributed $7.2 million and $4.5 million, respectively, to the increase. The increase over the prior year was also a result of the hiring of additional personnel during the second half of 2014 to service existing contracts and to execute the Company’s anticipated future growth plans, higher depreciation charge as a result of prior year investments in tools and equipment, and the impact of foreign exchange on U.S. dollar denominated expenses. As a percentage of revenue, engineering and operations expense increased to 37% in 2015 from 31% in 2014 largely due to the impact of the increase in fixed costs on first and second quarter revenues. It is expected that as a result of cost optimization plans underway, the fixed portion of these costs will reduce and engineering and operations expense will be more variable with activity levels.

General and Administration

($000’s CAD)

For the year ended December 31

2015

2014

$ Change

% Change

General and administration Depreciation Stock based compensation Acquisition costs Training costs

26,331

16,391

9,940

61

(3,423)

(2,225)

(1,198)

54

(1,501)

(573)

(928)

162

(749)

(352)

(397)

113

(42)

(42)

100

Adjusted general and administration

20,616

13,241

7,375

56

As at the end of December, general and administrative costs increased from $16.4 million in 2014 to $26.3 million in 2015. Half of the increase is attributable to an additional $2.9 million and $2.1 million of incremental costs related to the PureHM and WWS acquired businesses with the remainder being attributable to the aforementioned increased depreciation and stock based compensation costs, one-time WWS acquisition costs and the impact of foreign exchange on foreign denominated costs. Training costs, adjusted above, relate to direct costs associated with the Company’s ERP implementation. Additional training costs are expected in the first half of 2016. In addition, general and administrative expenses increased as a result of the reclassification of certain personnel costs from marketing to general and administrative expense following restructuring activities in the second quarter of 2014.

Research and Development (R&D) R&D expenses were $0.8 million in 2015 compared to $1.6 million in 2014. Throughout the year, the Company capitalized $2.8 million of development expenditures (net of $1.5 million of tax credits and grants received), primarily associated with ongoing development of Pure’s existing technologies and platforms.

Libyan accounts receivable, restructuring, and other provisions In 2014, Pure provided $12.7 million for customers in Libya whom have been unable to pay outstanding invoices due to the escalating conflicts in the country. Additionally, $1.1 million of expense was incurred on account of restructuring of Company executives and a $0.5 million provision was accrued relating to certain employee tax withholding issues in the U.S.

In the current year, the Company has incurred or provided for $1.4 million for: severance for involuntary departures under the Company’s cost optimization plan; expected severance costs associated with the consolidation of shared services of WWS; and expected future losses under WWS’s lease obligations. These costs related to restructuring activities below the executive level and are not expected to recur and were offset by the recovery of $1.6 million of previously provided for Libyan accounts receivable.

Foreign Exchange Gain

Foreign exchange gain for the year ended December 31, 2015 totaled $1.9 million, largely arising from the impact of a weakening Canadian dollar on Canadian dollar denominated intercompany funding of Pure’s foreign subsidiaries, compared to a foreign exchange gain of $1.7 million in 2014. The gain was a function of a higher decline in the Canadian dollar on USD working

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capital balances held in Canada. The Company is continuing to evaluate its overall cash and foreign currency management strategies to minimize such volatility. An additional $6.3 million translation adjustment, which is included in comprehensive income, was recognized in 2015 (2014 – $0.1 million). The adjustment is more pronounced than the prior year due to both the weakening Canadian dollar and a higher net asset position (the basis for translation), of the Company’s foreign subsidiaries due to increased investment and activity and mainly as a result of the WWS acquisition.

Income Taxes

Income tax expense consisted of a $1.7 million expense for 2015 compared to recovery of $2.0 million in 2014. The increase in effective tax rate in 2015 is on account of: the impact of permanent differences such as non-deductible stock based compen- sation; unrecognized deferred tax assets in certain foreign subsidiaries; and adjustments to prior period tax balances from current period assessments, which, given their size relative to current year profit before taxes results in a higher effective tax rate than the prior year. In 2014, the Company increased its deferred income tax asset and recovery in the amount of $0.8 million for a correction arising from a misallocation of Scientific Research and Experimental Development and operating loss deductions relating to 2010 – 2013.

EBITDA, Adjusted EBITDA and Adjusted Profit (see Non-GAAP Measures)

($000’s CAD)

For the year ended December 31

2015

2014

Profit (loss) for the year Depreciation and amortization Net finance (income) expense Income tax expense (recovery)

(134)

(3,886)

10,359

7,151

116

(154)

1,739

(1,966)

EBITDA

12,080

1,145

Foreign exchange gain Stock-based compensation Management restructuring Acquisition costs Training costs Libyan accounts receivable provision (recovery)

(1,944)

(1,697)

2,552

1,553

1,371

1,053

749

352

42

(1,562)

13,223

Adjusted EBITDA

13,288

15,629

For the year ended December 31

2015

2014

Profit (loss) before tax Foreign exchange gain Restructuring costs Acquisition costs Training costs Libyan accounts receivable provision (recovery)

1,605

(5,852)

(1,944)

(1,697)

1,371

1,053

749

352

42

(1,562)

13,223

Adjusted Profit before tax Income tax expense

261

7,079

1,655

1,312

Adjusted profit (loss)

(1,394)

5,767

Adjusted EPS

(0.03)

0.11

The Company recorded adjusted EBITDA of $13.3 million in 2015 (2014 – $15.6 million). The reasons for the change have been discussed in the preceding sections. Adjusted profit decreased from adjusted profit of $5.8 million in 2014 to a $1.4 million adjusted loss in 2015. The change in profitability is a result of noted revenue and cost factors, and higher depreciation and stock based compensation in 2015.

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2015

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REPORTABLE SEGMENT SUMMARY

Pure’s business operations span over 40 countries around the world. The Company’s technologies, related services and cus- tomer base have grown dramatically over the past several years through a combination of in-house technical advancements, increased brand recognition, organic growth and selective acquisitions. The Company has over a dozen regional offices to support activities in its major markets. Business development activities, with a view to strengthen and diversify the Company’s revenues and operations, remain a key strategic initiative of Pure. The following tables illustrate revenue and profitability by major market segment before factoring in corporate expenditures such as shared services, corporate administration, research and development, and taxes. Further details can be found in Note 3 in the Company’s financial statements.

Prior year SmartBall inspection and licensing revenues related to oil and gas pipelines in the Americas have been reflected in the PureHM segment to align with current year presentation. Additionally, the results of Mexico and South America have moved to the International segment to conform to changes in the management reporting structure within Pure.

($000’s CAD)

For the year-ended December 31, 2015

Americas

International

PureHM

Total

Revenue Equipment sales Inspection and consulting services Monitoring, licensing & technical support

5,852

1,679

199

7,730

63,023

10,734

13,523

87,280

6,117

1,548

1,748

9,413

 

74,992

13,961

15,470

104,423

Profit before corporate expenditures and taxes

21,508

64

3,685

25,257

($000’s CAD)

For the year-ended December 31, 2014

Americas

International

PureHM

Total

Revenue Equipment sales Inspection and consulting services Monitoring, licensing & technical support

12,386

5,011

119

17,516

35,792

11,628

4,426

51,846

4,663

2,477

1,304

8,444

 

52,841

19,116

5,849

77,806

Profit before corporate expenditures and taxes

20,536

7,086

2,938

30,560

The Americas

The Americas segment revenue grew by 42% to $75.0 million in 2015 from $52.8 million in 2014. 2015 growth was primarily driven by the $15.3 million of incremental revenue from the WWS acquisition. Increased inspection and consulting work and the strong U.S. dollar on U.S. based revenues more than offset lower equipment sales. Excluding foreign exchange impacts, inspection and consulting revenues increased 15% which offset a 57% decline in equipment sales. Americas’ revenue continues to be driven by the successful Assess and Address approach where pipeline condition assessment and isolated spot repairs are implemented. This approach mitigates pipeline risk for significantly reduced capital costs as compared to the conventional approach of complete replacement.

While delivering this growth, the Americas segment strengthened its geographical regions by further developing its regional operational capacity, business development resources, and management strength. Increasing capabilities in geographical regions will allow Pure to develop deeper and longer lasting client relationships and also to ensure the business is prepared to deliver on anticipated growth.

The marketing efforts in the Americas continue to focus on diversification in both services offered and client distribution. Pure’s metallic pipe initiative is focused on developing pipeline management solutions for metallic water mains which consti- tute approximately 65% of water mains in the U.S. (source: AWWA Distribution Survey 2002).

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The Americas business segment continues to integrate WWS into Pure’s service offerings. WWS’s client base is composed largely of small and medium sized utilities, providing an entrance point for Pure to place significant focus on a segment that is currently underserved by Pure.

International

Internationally, Pure continues to see opportunities for growth in its regional markets. The 2015 annual revenue decreased to $14.0 million from $19.1 million for 2014. The primary reason for the decrease is the previously mentioned project delays in Mexico. In 2016, much of Pure’s international growth is expected to be driven mainly from the European region. International activity has historically been driven by large projects, however, resulting in inter-quarter and year over year volatility.

During the third quarter of 2015, Pure’s first European PipeDiver project was executed. This followed a successful SmartBall inspection for the same client, performed with Pure’s UK partner earlier in the year. Additional inspections using both technology platforms are planned in Europe for 2016 as utilities work on risk mitigation and capital spending optimization strategies.

Pure’s Australia office had combined revenues from multiple services of approximately $4.3 million in 2015 compared to $3.9 million in 2014. Projects included PureEM and SmartBall inspections for water and wastewater pipelines, along with specialized engineering services.

In the Middle East, operations continued under the long term contract in Qatar, contributing regular and predictable revenue to the region, with further potential opportunities being evaluated in the water and wastewater markets.

Pure delivered its first AFO project to China in 2015 via PTCL. China has approximately 20,000 km of PCCP, making it one of the world’s biggest markets for Pure’s specialized solutions. Elsewhere in Asia, where reducing leakage is a major focus for water utilities, Pure’s large diameter leak detection solutions are being used to manage large NRW programs.

PureHM

The PureHM segment includes revenues from inspections of oil and gas pipelines using the Armadillo Tracks remote tracking, Spectrum XLI, SmartBall technology, and the PipeWISE technologies and equipment sales. In 2015, PureHM had revenues of $15.5 million (2014 – $5.8 million) and profit, before corporate expenditures and taxes, of $3.7 million (2014 – $2.9 million). Revenues were generated primarily on services being performed in Canada and California.

PureHM’s strategy for 2015 was to grow its legacy business of oil and gas pipeline inspections organically and by offering enhanced service offerings to new and existing clients. Geographic expansion is being leveraged through existing Pure offices in the U.S. Growth in 2015 was a result of significant project awards in the U.S., and through organic growth with PureHM’s existing clients in Canada. Two of PureHM’s major technologies, Spectrum XLI and Armadillo Tracks remote tracking, were only commercialized in 2013, therefore, these new and innovative solutions will continue to be introduced to the market in 2016.

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SUMMARY OF QUARTERLY RESULTS

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($000s Canadian dollars, unless otherwise indicated)

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Revenue Adjusted EBITDA (see non-GAAP measures) Profit (loss) for the year Profit (loss) per share – basic – diluted Weighted average common shares outstanding – basic – diluted

30,787

29,559

29,411

14,666

6,895

3,883

4,595

(2,085)

677

1,076

416

(2,303)

0.01

0.02

0.01

(0.04)

0.01

0.02

0.01

(0.04)

53,822,149

52,531,536

52,504,834

52,693,817

54,073,387

54,366,100

54,441,080

52,693,817

($000s Canadian dollars, unless otherwise indicated)

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Revenue Adjusted EBITDA (see non-GAAP measures) Profit (loss) for the year Profit (loss) per share – basic – diluted Weighted average common shares outstanding – basic – diluted

27,614

17,118

20,454

12,620

8,716

2,120

4,218

575

(4,729)

(218)

454

607

(0.09)

(0.00)

0.01

0.01

(0.09)

(0.00)

0.01

0.01

52,216,626

51,857,137

51,680,871

51,453,458

52,216,626

51,857,137

52,715,291

52,589,878

Fourth Quarter Results

Revenue for the quarter was $30.8 million compared to $27.6 million in the comparable quarter last year, an increase of 11%. The fourth quarter resulted in Adjusted EBITDA of $6.9 million and profit of $0.7 million compared to Adjusted EBITDA of $8.7 million and a $4.7 million loss in the fourth quarter of 2014.

Revenues increased compared to prior year on account of incremental revenue from WWS of $4.3 million, a 57% increase in fourth quarter PureHM revenues, and the aforementioned impact of a strong U.S. dollar. These increases were more than offset by lower equipment sales in 2015 and a significant inspection in South Africa in 2014 that did not recur in 2015.

Operating costs in the fourth quarter increased from the prior year as a result of the increase in headcount to execute on the Company’s growth, the acquisition of WWS, as well as the increase in depreciation on account of prior period capital investment, also undertaken to support growth.

For many customers, Pure has evolved into a long-term trusted solution provider as opposed to a single technology vendor or one-off project manager. As a result, the product mix is dependent on unique customer needs, scheduling and project planning, which may create the impression of volatility in a single product group for a particular quarter; reviewing total yearly revenue may be a better reflection of performance over time versus quarterly comparisons or reviewing each product group in isolation.

MANAGEMENT’S

DISCUSSION

&

ANALYSIS

28

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T E C H N O L O G I E S

L T D .

LIQUIDITY AND CAPITAL RESOURCES

ANNUAL

REPORT

2015

Net Cash Position

Maintaining a strong financial position with net cash sufficient to meet expected operating, investing and financing plans is a key financial objective of the Company.

The Company’s cash position as at December 31, 2015 was $11.1 million, excluding $0.8 million of restricted cash, compared to $33.6 million at December 31, 2014. The decrease is primarily attributable to the acquisition of WWS on April 1, 2015 for which cash consideration was USD $13.5 million and the payment of $6.4 million in dividends during the year. The decline in cash also reflects the timing of cash receipts from sales, timing of certain annual pre-paid expenditures, and capital investments offset by cash received on the exercise of employee stock options.

The Company closed the WWS acquisition on April 1, 2015 and funded the purchase with cash on hand and with shares issued or to be issued from treasury. The Company expects that in 2016 it will generate cashflow from operations that is more than sufficient to finance its 2016 capital spending.

On July 22, 2015, the Company entered into a secured credit facility (the “Facility”) with a Canadian Chartered Bank (the “Lender”). The Facility consists of: (i) a revolving facility of $10.0 million, (ii) a letter of credit facility of $10.0 million, (iii) a risk management facility of $2.0 million, (iv) a credit card facility of $1.0 million; and (v) an uncommitted accordion facility for acquisitions of $20.0 million. Other than the accordion facility, the Facility is committed for 3 years and payable in full on maturity. The revolving credit facility is subject to a borrowing base comprised of certain accounts receivable and inventory amounts. Interest and standby fees are tiered based on the Company’s debt to earnings before interest, depreciation and amortization ratio. No funds have been drawn on the Facility as at the date hereof. Further details on the Facility are available in Note 12 of the Company’s financial statements.

The obligations and indebtedness under the Facility are secured by all of the assets of the Company and its material subsidiar- ies and are subject to covenants customary to credit facilities of a similar nature to the Facility.

At December 31, 2015, $1.5 million in letters of credit were issued on the new letter of credit facility and $0.8 million of cash was restricted to secure outstanding historical letters of credit and credit cards. Since year end, the Company issued $0.8 million in letters of credit on the new facility to replace the historical letters of credit. There were no amounts outstanding on the other facilities at December 31, 2015.

MANAGEMENT’S

DISCUSSION

&

ANALYSIS

ANNUAL

REPORT

2015

PURE

TECHNOLOGIES

LTD.

|

29

Financial Position

The following chart highlights significant changes in the Condensed Consolidated Interim Statements of financial position from December 31, 2014 to December 31, 2015.

($000s Canadian dollars)

Increase/(Decrease)

Primary factors explaining change

Cash and cash equivalents

(22,527)

See Statement of Cash Flows

Accounts receivable

9,914

Increase due to increased activity, timing of collections and addition of accounts receivable of WWS

Inventory

565

Increase in work in process due to higher activity, offset by decrease in raw materials on hand

Property and equipment, and Intangible assets

8,080

Acquisition of WWS, equipment additions, development expenditures, and infrastructure, including $2 million of spend on the Companies ERP implementation investment offset by depreciation

Goodwill

19,049

Acquisition of WWS

Accounts payable and accrued liabilities

2,314

Increase due to acquisition of WWS, offset by timing of payments

Non current liabilities

2,019

Expected future losses on lease commitments and non- current portion of warranty provision

Share Capital

11,056

Common Shares to be issued as consideration for acquisition of WWS, and exercise of employee options

Statements of Cash Flow

The following chart highlights significant changes in the Statements of Cash Flows for the year ended December 31, 2015 compared to 2014.

($000s Canadian dollars)

2015

2014

Primary factors explaining change

Provided by (used in):

   

Operating activities

9,501

11,131

Increased fixed cost structure on expanded and growing operations with seasonal revenues, the impact of integration activities on acquired businesses combined with timing of working capital

Financing activities

(4,283)

(2,658)

Higher occurrence of stock option exercises in 2014 com- pared to 2015 and movement of funds to restricted cash

Investing activities

(27,948)

(16,556)

Acquisition of WWS combined with increased investment in equipment and development initiatives

Other Long Term Obligations

The Company leases a number of facilities and office equipment under operating leases which typically run for a period of 5 years. Some lease payments are increased every one to two years to reflect market rental rates.

($000’s CAD)

< 1 year

1 – 3 years

4 – 5 years

Total

Accounts payable and accrued liabilities Operating leases

13,497

13,497

3,195

5,255

3,088

11,538

Total contractual obligations

16,692

5,255

3,088

25,035

MANAGEMENT’S

DISCUSSION

&

ANALYSIS

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L T D .

ANNUAL

REPORT

2015

Off Balance-Sheet Arrangements

The Company applies the equity method of accounting for its investment in PTCL. PTCL has net cumulative losses of $0.6 million (December 31, 2014 – $1.0 million) and as such have not been recognized in these financial statements as the account- ing book value of the Company’s investment in PTCL is negative. Pure has an account receivable of $1.8 million (2014 – $0.9 million) from the joint arrangements for sales and funding current operations, and no allowance has been taken on the receivable as operations are growing in China. Approximately $0.6 million of this receivable was received after year-end. PTCL had revenues of $1.7 million in 2015 (2014 – $0.6 million) and operating income of $0.5 million (2014 – $0.2 million), and a net working capital deficit of $0.7 million (2014 – $0.8 million).

Outstanding Share Data

 

March 15,

December 31,

December 31,

2016

2015

2014

Common shares Common shares to be issued Stock options Deferred share units Performance share units

53,327,122

53,321,620

52,287,600

3,557,291

3,609,460

4,351,070

74,529

74,529

118,750

118,750

CRITICAL ACCOUNTING ESTIMATES

The Company’s consolidated financial statements are prepared in accordance with IFRS, which require us to apply judgment when making estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the finan- cial statements, the reported amounts of revenues and expenses of the reporting period, as well as disclosures made in the accompanying notes to the financial statements. The estimates and associated assumptions are based on past experience and other factors that are considered relevant. Actual results could differ from these estimates. The following are the Company’s most critical accounting estimates, which are those that require management’s most challenging, subjective and complex judgments, requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The application of these and other accounting policies are described more fully in Note 3 in the December 31, 2015 audited consolidated financial statements.

Valuation of Libyan Accounts Receivable

As at December 31, 2015, a total of $11.1 million (2014 – $12.7 million) was due from customers located in Libya. The Company’s assessment of its ability to collect its accounts receivable in Libya required significant judgment as current instability in the region had an adverse impact on its customer’s ability to pay its outstanding accounts receivable. At December 31, 2014, man- agement assessed the ability to receive payment from its customer and concluded that, although management is actively pursuing collection of these debts, until sufficient evidence to the contrary exists, a full provision against the $12.7 million in outstanding debts was necessary. In April 2015, $1.6 million of accounts receivable was received and accordingly reversed the associated provision related to the collected receivables in the first quarter. Any future changes in the assessment will have a positive impact on profit or loss if the provision is reversed upon cash collection or receipt of other evidence indicating that collection is likely.

Restructuring Provision

Management has made estimates in its restructuring provision related to the expected cost of severance and retention for employees impacted, and the future cost of contracts that are expected to become onerous. Management believes the provision recorded at the end of 2015 is complete based on plans in place. Should plans or costs change, the provision and associated restructuring expense could increase or decrease.

MANAGEMENT’S

DISCUSSION

&

ANALYSIS

ANNUAL

REPORT

2015

PURE

TECHNOLOGIES

LTD.

|

31

Revenue Recognition

Revenues under certain contracts provide for receipt of payment based on achieving defined milestones. Revenues are rec- ognized under these contracts based on management’s estimate of progress achieved against these milestones or on the pro- portionate performance method of accounting. Changes in management’s estimated proportion of performance or costs to complete a contract may result in an adjustment to previously recognized revenues.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of assets and liabilities and their respective income tax bases (temporary differences) and for loss carry-forwards. Key estimates in accounting for income taxes include the assessment of probability of realizing tax benefits, and the estimate of tax rate at the time of reversal of temporary differences.

The effect on deferred income tax assets and liabilities, of a change in tax rates, is included in income tax expense or recovery in the period that includes the substantive enactment date. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Goodwill and Asset Impairment

The carrying amounts of the Company’s non-financial assets other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually. This requires estimates and assumptions regarding discount rates and cash flows. The use of different assumptions in applying the discounted cash flows method could result in different fair values and, consequently, different carrying amounts for long- lived assets as well as results of operations.

NEW STANDARDS AND NOT YET ADOPTED

On July 24, 2014, the IASB issued IFRS 9, “Financial Instruments” (“IFRS 9”) to replace International Accounting Standard 39, “Financial Instruments: Recognition and Measurement.” IFRS 9 is effective for years beginning on or after January 1, 2018.

In May 2014, the IASB published IFRS 15, “Revenue From Contracts With Customers” (“IFRS 15”) replacing IAS 11, “Construction Contracts”, IAS 18, “Revenue” and several revenue-related interpretations. IFRS 15 establishes a single revenue recognition framework that applies to contracts with customers. The standard requires an entity to recognize revenue to reflect the transfer of goods and services for the amount it expects to receive, when control is transferred to the purchaser. Disclosure requirements have also been expanded. The new standard is effective for annual periods beginning on or after January 1, 2018. The standard may be applied retrospectively or using a modified retrospective approach.

In January 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”), which requires entities to recognize lease assets and lease obligations on the balance sheet. For lessees, IFRS 16 removes the classification of leases as either operating leases or finance leases, effectively treating all leases as finance leases. Certain short-term leases (less than 12 months) and leases of low-value assets are exempt from the requirements, and may continue to be treated as operating leases. Lessors will continue with a dual lease classification model. Classification will determine how and when a lessor will recognize lease revenue, and what assets would be recorded. IFRS 16 is effective for years beginning on or after January 1, 2019, with early adoption permitted if IFRS 15 has been adopted.

Early adoption of these standards is permitted. The Company does not intend to early adopt these standards and is currently evaluating the impact of these new standards on the Financial Statements.

MANAGEMENT’S

DISCUSSION

&

ANALYSIS

32

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T E C H N O L O G I E S

L T D .

ANNUAL

REPORT

2015

DISCLOSURE AND INTERNAL CONTROLS

In compliance with the Canadian Securities Administrators’ National Instrument 52-109 (“NI 52-109”), the Company has filed with applicable Canadian securities regulatory authorities, certificates signed by its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) that, among other things, report on the design and effectiveness of disclosure controls and procedures and the design of internal controls over financial reporting.

Disclosure Controls and Procedures

Disclosure controls and procedures have been designed under the supervision of the CEO and CFO, with the participation of other management, to provide reasonable assurance that all relevant information required to be disclosed by the Company is

recorded, processed, summarized and reported on a timely basis to senior management, as appropriate, to allow timely deci- sions regarding required public disclosure. Pursuant to NI 52-109, as of December 31, 2015, an evaluation of the effectiveness

of the Company’s disclosure controls and procedures were carried out under the supervision of the CEO and CFO. Based on

this evaluation, the CEO and the CFO concluded that the design and operation of these disclosure controls and procedures

were effective.

Internal Controls Over Financial Reporting

The Company’s CEO and CFO are responsible for designing internal controls over financial reporting (“ICFR”) or causing them to be designed under their supervision to provide reasonable assurance regarding the reliability of the Company’s finan- cial reporting and the preparation of financial statements in accordance with IFRS. Internal controls over financial reporting, no matter how well designed, have inherent limitations and may not prevent or detect all misstatements. Therefore, ICFR can provide only reasonable assurance with respect to financial statement preparation. As at December 31, 2015, an evalua- tion was carried out of the effectiveness of the design and operation of internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting. Based on that evaluation, the Company’s CEO and CFO have concluded that, as at December 31, 2015, the design and operation of controls over financial reporting was effective. These evaluations were conducted in accordance with the standards established in Committee of Sponsoring Organizations of the Treadway Commission framework in Internal Control – Integrated Framework (2013), and the requirements of NI 52-109.

It should be noted that while the Company’s Chief Executive Officer and Chief Financial Officer believe that the Company’s

disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Company’s disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud.

A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the

objectives of the control system are met.

RISKS AND UNCERTAINTIES

Investors should carefully consider the risks and uncertainties described above and in Pure’s Annual Information Form, for the year ended December 31, 2015, which remain substantively unchanged. The risks and uncertainties described in Pure’s Annual Information Form are not the only ones it faces. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect its business. For a more complete discussion of the risks and uncertainties which apply to Pure’s business and its operating results, please see the Company’s Annual Information Form and other filings with Canadian securities regulatory authorities (www.sedar.com).

MANAGEMENT’S

DISCUSSION

&

ANALYSIS

ANNUAL

REPORT

2015

PURE

TECHNOLOGIES

LTD.

|

33

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This MD&A includes forward-looking statements, including, without limitation, statements containing the words “should”, “believe”, “anticipate”, “may”, “plan”, “will”, “continue”, “intend”, “expect”, “estimate” and other similar expressions. These statements constitute “forward-looking information” within the meaning of applicable Canadian securities laws. These state- ments are based on the Company’s current expectations, estimates, forecasts and assumptions. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other important factors that could cause the Company’s actual performance to be materially different from that projected.

These forward-looking statements include, but are not limited to, statements regarding:

n

the timing of new and existing projects;

n

new market opportunities;

n

the Company’s ability to generate future cash flows;

n

the Company’s ability to capitalize on future growth opportunities, sales growth and cost optimization and rational- ization initiatives;

n

the Company’s ability to successfully integrate and leverage its strategic acquisitions;

n

anticipated trends in the Company’s revenue streams;

n

expectations of customers’ future needs;

n

customers’ acceptance of and confidence in the Company’s existing technologies;

n

the success and impact of the Company’s new technologies; and

n

other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions and results.

Factors that could cause actual results to differ materially from these forward-looking statements include, among others:

n

the costs and timing of projects;

n

the Company’s ability to deliver services in a timely and cost effective manner;

n

changes in technology;

n

changes in the demand for the Company’s services;

n

the regulatory and political environments in the jurisdictions where the Company operates;

n

changes in general economic conditions;

n

reliance on and retention of key personnel; and

n

other risks identified in the filings made by the Company with securities regulatory authorities.

Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this document are made only as of the date hereof and the Company does not undertake to publicly update these forward-looking statements to reflect new information, future events or otherwise, except as required by applicable laws.

ADDITIONAL INFORMATION

Additional information relating to Pure can be found on its website at www.puretechltd.com. The continuous disclosure materials of the Company, including its annual MD&A and Consolidated Audited Financial Statements, Annual Information Form, Information Circular, and press releases issued by the Company, are also available through the Company’s website www.puretechltd.com or directly through the SEDAR system at www.sedar.com.

MANAGEMENT’S

DISCUSSION

&

ANALYSIS

34

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T E C H N O L O G I E S

L T D .

Auditors’ Report to the Shareholders

To the Shareholders of Pure Technologies Ltd.

ANNUAL

REPORT

2015

We have audited the accompanying consolidated financial statements of Pure Technologies Ltd., which comprise the consolidated statements of financial position as at December 31, 2015 and December 31, 2014, the consolidated statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Pure Technologies Ltd. as at December 31, 2015 and December 31, 2014, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

Chartered Accountants

Financial Reporting Standards. Chartered Accountants March 15, 2016 Calgary, Canada CONSOLIDATED FINANCIAL

March 15, 2016 Calgary, Canada

CONSOLIDATED

FINANCIAL

STATEMENTS

ANNUAL

REPORT

2015

PURE

TECHNOLOGIES

LTD.

|

35

Consolidated Statements of Financial Position

Stated in thousands of Canadian dollars

As at December 31

2015

2014

Assets Current assets Cash and cash equivalents Restricted cash Accounts receivable Inventory Prepaid expenses

Note

   

4

$ 11,085

$ 33,612

790

4,5

38,263

28,349

6

10,040

9,475

4

1,540

1,064

 

61,718

72,500

Deferred tax asset Property and equipment Intangible assets Goodwill

16

7,501

7,757

4,7

15,349

10,822

4,8

17,009

13,456

4,9

45,503

26,454

Total assets

$ 147,080

$ 130,989

Liabilities Current liabilities Accounts payable and accrued liabilities Deposits on sales contracts Provisions and other current liabilities

4

$ 13,497

$ 11,183

388

513

11,12

1,153

1,395

 

15,038

13,091

Non-current liabilities

2,762

743

Total liabilities

$ 17,800

$ 13,834

Shareholders’ equity Share capital Contributed surplus Translation reserve Deficit

13

139,061

128,005

14

6,238

4,913

8,099

1,826

(24,118)

(17,589)

Total shareholders’ equity

129,280

117,155

Total shareholders’ equity and liabilities

$ 147,080

$ 130,989

The accompanying notes are an integral part of these consolidated financial statements.

On behalf of the Board:

consolidated financial statements. On behalf of the Board: James E. Paulson Director Michael M. Kanovsky Director

James E. Paulson Director

On behalf of the Board: James E. Paulson Director Michael M. Kanovsky Director CONSOLIDATED FINANCIAL

Michael M. Kanovsky Director

CONSOLIDATED

FINANCIAL

STATEMENTS

36

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T E C H N O L O G I E S

L T D .

ANNUAL

REPORT

2015

Consolidated Statements of Comprehensive Income (Loss)

Stated in thousands of Canadian dollars (except for share and per share amounts)

For the year ended December 31

2015

 

2014

Revenue Equipment sales Inspection and consulting services Monitoring, licensing and technical support

Note

   

$ 7,730

$

17,516

87,280

51,846

9,413

8,444

Total revenue Cost of sales

 

104,423

 

77,806

25,522

17,506

Gross profit

78,901

 

60,300

Expenses Marketing Engineering and operations General and administration Research and development Gain on asset disposal Libyan accounts receivable, restructuring, and other provisions

 

13,742

11,431

38,777

24,450

26,331

16,391

822

1,561

(357)

(106)

5,11

(191)

14,276

 

79,124

 

68,003

Results from operating activities Finance income (expense) Foreign exchange gain

 

(223)

 

(7,703)

(116)

154

1,944

1,697

 

1,828

 

1,851

Profit (loss) before income taxes Income taxes Current expenses Deferred expenses (recovery)

 

1,605

 

(5,852)

16

1,454

1,686

16

285

(3,652)

 

1,739

 

(1,966)

Loss for the year

(134)

 

(3,886)

Foreign currency translation adjustment

6,273

48

Comprehensive income (loss) for the year

$ 6,139

$

(3,838)

Loss per share Basic Diluted Weighted average number of shares outstanding Basic Diluted

 

(0.00)

 

(0.07)

(0.00)

(0.07)

53,503,764

51,852,530

53,503,764

51,852,530

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED

FINANCIAL

STATEMENTS

ANNUAL

REPORT

2015

PURE

TECHNOLOGIES

LTD.

|

37

Consolidated Statements of Changes in Equity

Stated in thousands of Canadian dollars (except for number of common shares)

 

Number of

Common

Share

Contributed

Translation

 

Total

Shares

Capital

Surplus

Reserve

Deficit

Equity

As at December 31, 2013 Shares reserved for issuance as payment for acquisition (Note 4) Exercise of options (Note 14) Transfer on exercise of options Stock-based compensation (Note 14) Foreign currency translation adjustment Loss for the year Dividends declared (Note 15)

51,330,699

$

120,887

$

4,572

$

1,778

$

(7,436)

$ 119,801

2,000

2,000

956,901

3,906

3,906

1,212

(1,212)

1,553

1,553

48

48

(3,886)

(3,886)

(6,267)

(6,267)

As at December 31, 2014

52,287,600

$

128,005

$

4,913

$

1,826

$

(17,589)

$ 117,155

Shares reserved for issuance as payment for acquisition (Note 4) Issuance of reserved shares (Note 4) Exercise of options (Note 14) Transfer on exercise of options Stock-based compensation (Note 14) Foreign currency translation adjustment Loss for the year Dividends declared (Note 15)

7,266

7,266

378,241

655,779

2,902

2,902

888

(888)

2,213

2,213

6,273

6,273

(134)

(134)

(6,395)

(6,395)

As at December 31, 2015

53,321,620

$ 139,061

$

6,238

$

8,099

$ (24,118)

$ 129,280

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED

FINANCIAL

STATEMENTS

38

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T E C H N O L O G I E S

L T D .

Consolidated Statements of Cash Flows

Stated in thousands of Canadian dollars

ANNUAL

REPORT

2015

For the year ended December 31

 

2015

2014

 

Note

   

Cash flows from operating activities Loss for the year Adjustments for:

$

(134)

$ (3,886)

Depreciation and amortization Stock-based compensation Gain on disposal of assets Net finance (income) expense Unrealized foreign exchange gain Income tax expense (recovery) Libyan accounts receivable provision (recovery)

7,8

10,359

7,151

14

2,552

1,553

(357)

(106)

116

(154)

(1,354)

(1,572)

1,739

(1,966)

5

(1,562)

13,223

Changes in non-cash working capital Accounts receivable Inventory Prepaid expenses Accounts payable and accrued liabilities Deposits on sales contracts Net interest received (paid) Income tax paid

   

11,359

14,243