Cleantek Industries : Q3 2022 Management Discussion & Analysis

Management's Discussion and Analysis

For the three and nine months ended September 30, 2022 and 2021

MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIS OF PRESENTATION AND DESCRIPTION OF THE COMPANY

November 21, 2022 - The following Management's Discussion and Analysis ("MD&A") of the financial condition and results of operations for Cleantek Industries Inc. ("Cleantek" or the "Company" which includes references to "we", "our", "us", "its"), (formerly Raise Production Inc. ("Raise")) is a review of the operations, current financial position and condition for the three and nine months ended September 30, 2022 and 2021 and should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2022 ("Interim Financial Statements") and the audited consolidated financial statements for the years ended December 31, 2021 and 2020 ("Annual Financial Statements").

The condensed consolidated interim financial statements of Cleantek have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee. This MD&A and the unaudited condensed consolidated interim financial statements of Cleantek have been prepared by management and approved by the board of directors (the "Board") as of November 21, 2022.

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

READER ADVISORIES

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

COMPANY OVERVIEW AND STRATEGY

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

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

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

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

GOING CONCERN

The condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they become due.

In 2021, a competitor providing lighting solutions in North America initiated legal proceedings against the Company alleging patent infringement by Cleantek on a small fraction of the Company's installed HALOTM lighting units in the United States. The Company has fully responded to the asserted claim and filed a counterclaim, which was expected to go to trial in October 2022. Legal costs incurred in 2022 for the patent litigation totaled $2,984 as of September 30, 2022, which has significantly impacted the Company's available credit and cash balance as a result of the impact on cash flows from operating activities. At September 30, 2022, the Company had net working capital deficit of $1,082 (December 31, 2021 - $535 working capital surplus) which includes the current portions of lease liabilities and long-term debt with a cash balance of $616 (December 31, 2021 - $1,871).

Subsequent to September 30, 2022, the Company reached a settlement regarding the patent infringement with the competitor on November 21, 2022, with both parties vacating their lawsuits. Please see note 14 for additional details on the settlement.

However, as a result of legal costs from the patent litigation, Cleantek will require the support of its debt lender over the near term to manage current cash flow restrictions caused by the patent litigation to allow time for the Company to generate sufficient cash flows to fund its operations. Subsequent to September 30, 2022, the Company has obtained a waiver of principal payments under the Canadian Private Debt Credit Facilities for three months (October through December 2022) and is eligible to obtain an additional three month waiver (January through March 2023) if certain conditions are satisfied to the lender by January 1, 2023. While these waiver of principal payments will assist the Company in operational cash flow management, the Company will continue to require the support of its Canadian Private Debt Credit Facilities lender as the Company seeks to find an alternate debt provider or obtain an extension on the Canadian Private Debt Credit Facilities with its current lender to maintain its liquidity position as the Canadian Private Debt Credit Facilities currently mature on October 31, 2023 (see note 5) and there is not projected to be sufficient cash available to enable repayment on maturity.

Due to facts and circumstances noted above, there are material uncertainties that creates significant doubt with respect to the Company's ability to continue as a going concern. These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis were not appropriate for these financial statements, then adjustments would be necessary in the carrying value of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. These adjustments could be material.

HIGHLIGHTS FOR THE SECOND QUARTER 2022

• Cleantek generated revenue of $3,391 for Q3 2022, an increase of $1,346 or 66%, from Q3 2021 and an increase of $266 or 9% from Q2 2022. On a year-to-date basis, Cleantek generated revenues of $9,663 in the nine months ended 2022, an increase of $3,216 or 50%, from the same

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period in 2021. The increased revenue in 2022 is due to a ramp up in rental activity and increased rental prices in both sustainable lighting solutions and ZeroE dehydration;

• Cleantek's gross profit of $2,031 or 60% for Q3 2022 and $5,574 or 58% of revenue for the nine months ended 2022 was inline with target and improved when compared with gross profits of $1,100 and 54% for Q3 2021 and $3,451 and 54% for the same period in 2021;
• Cleantek's Adjusted EBITDA was $52 for Q3 2022, a decrease of $106 when compared to Q3 2021, as the increased revenue was more than offset by $1,500 of expenses associated with the patent litigation in the current quarter. On a year-to-date basis Adjusted EBITDA was $560, a decrease of $384 from the same period in 2021 as the increased revenue was more than offset by $2,984 of expenses associated with the patent litigation in the current year.
• Subsequent to September 30, 2022 the Company reached a settlement agreement on the patent litigation which will eliminate the patent litigation spending going forward. Details can be found in the Subsequent Events section within this MD&A;
• Mobile ZeroE deployment in the US has increased 267% to 11 units operating in Q3 2022 when compared to the three units in Q1 2022, and the Company continues to forecast full deployment of the fleet of 35 units before the end of 2022;
• The Company fabricated and deployed an additional four new HALO lighting systems into the US and continues to forecast the deployment of four additional HALO lighting systems over the balance of 2022 for a total of 20 new units fabricated and deployed in 2022; and,
• as at September 30, 2022 the Company had drawn $2,188 on its revolving debt facility with a remaining $274 available to be drawn; combined with $616 cash on hand, Cleantek had $890 of available liquidity.

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FINANCIAL AND OPERATIONAL HIGHLIGHTS
	Three months ended		Nine months ended
(Canadian $000's, except	September 30		September 30
per share amounts and percentages)	2022	2021	Change	2022	2021	Change
Revenue	3,391	2,045	1,346	9,663	6,447	3,216
Gross profit	2,031	1,100	931	5,574	3,451	2,123
Gross profit %	60	54	6%	58	54	4%
Net loss	(1,023)	(397)	(626)	(3,200)	(1,208)	(1,992)
Net loss per share - basic and diluted ($)	$(0.04)	$(0.02)	$(0.02)	$(0.12)	$(0.07)	$(0.05)
EBITDA(1)	(24)	(25)	1	189	1,122	(933)
Adjusted EBITDA(1)	52	158	(106)	560	944	(384)
Capital expenditures	1,310	32	1,278	2,036	309	1,727
		September 30,	December 31,
As at:			2022		2021	Change
Total assets			15,852	17,156	(1,304)
Working capital surplus/(deficit)(1)			(1,083)		535	(1,617)
Non-current debt(1,2)			9,102		7,875	(1,227)
Total non-current liabilities			9,159		7,932	(1,227)

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

OUTLOOK

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

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

• taking advantage of increased oil and gas drilling and production activity in North America to maximize utilization rates of its current fleet of sustainable lighting solutions and mobile ZeroE wastewater treatment assets;
• expanding and growing the Company's fleet of sustainable lighting solutions and mobile ZeroE wastewater treatment assets to satisfy increased demand in the oil and gas, midstream, mining, industrial and construction markets;
• leveraging Cleantek's technology to capture additional market share through organic growth of the ZeroE wastewater treatment and vaporization services;

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