Denarius Metals — Interim / Quarterly Report 2021

Aug 13, 2020

E. S. I. ENVIRONMENTAL SENSORS INC.

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

For the three months ended June 30, 2020 and 2019

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Introduction

The following Management Discussion and Analysis (“MD&A”) of ESI Environmental Sensors Inc. (the “Company” or “ESI”) has been prepared by management, in accordance with the requirements of National Instrument of 51-102 as at August 7, 2020 and should be read in conjunction with the unaudited condensed interim financial statements for the three months ended June 30, 2020 and 2019, the audited annual financial statements for the years ended March 31, 2020 and 2019 and the related notes contained therein which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The information contained herein is not a substitute for detailed investigation or analysis on any particular issue. The information provided in this document is not intended to be a comprehensive review of all matters and developments concerning the Company. The Company is presently a “Venture Issuer” as defined in NI 51-102. Additional information relevant to the Company’s activities can be found on SEDAR at www.sedar.com and the Company’s website at www.esica.com. All dollar amounts are quoted in Canadian dollars, the reporting and functional currency of the Company, unless specifically noted.

The Company is a reporting issuer in British Columbia and Alberta and is listed on the NEX board of the TSX Venture Exchange (the “Exchange” or “TSX-V”) under the symbol ESV.H.

Forward-Looking Information

Certain statements made in this MD&A including without limitation, statements relating to ESI’s expectations concerning future revenues and earnings, product development, market conditions and the sufficiency of capital and liquidity, constitute forward looking statements. These forward looking statements are subject to risks and uncertainties, many of which are beyond ESI’s control. Actual results or events may differ materially from ESI’s expectations. In such an event, ESI intends to seek additional funding through public or private financings, arrangements with corporate partners, and from other sources. No assurance can be given that additional funding will be available on favourable terms, or at all. If adequate capital is not available, ESI may have to substantially reduce or eliminate expenditures in its operations. ESI does not undertake or accept any obligation to release publicly any updates or revisions to any forward looking statements to reflect changes in ESI’s expectations, except as required by applicable securities laws.

To the extent possible, management implements strategies to reduce or mitigate risks and uncertainties associated with the business. The Company is not in an industry where bad debts present a major business risk.

Company Overview

ESI’s patented and proprietary technologies are incorporated into a range of products, primarily sensors, accessories and associated hardware and software, which together are used in water management applications. These applications include irrigation control, crop management, turf management, environmental management applications, mining, forestry, silviculture, scientific research, and various civil and municipal engineering applications including slope stability and landfill monitoring. The Company is currently reviewing various strategic acquisition opportunities.

Significant Events

In July 2020, The Company’s board of directors has approved a consolidation of the Company's common share capital on a one-for-seven basis and a change of name to ESV Resources Ltd. The Company currently has 20,346,755 common shares outstanding and, following completion of the share consolidation, it is expected to have approximately 2,906,680 shares outstanding.

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In connection with completion of the share consolidation, the Company intends to offer up to 21,428,570 post-share consolidation units (each, a "Unit") by way of non-brokered private placement (the "Private Placement"). The Units will be offered at a price of $0.07 per share, for gross proceeds of up to $1,500,000. Each Unit will consist of one post-share consolidation common share and one-quarter-of-one transferable share purchase warrant (each whole warrant, a "Warrant"). Each Warrant will entitle the holder to acquire an additional post-share consolidation common share at a price of $0.10 for a period of twelve months.

The Company intends to use the net proceeds of the Private Placement to pay down existing trade payables, to cover the costs associated with the share consolidation and name change, to satisfy continuous disclosure and regulatory obligations, and to evaluate potential strategic acquisition opportunities. In connection with completion of the Private Placement, the Company may pay finders' fees to eligible parties who have assisted in introducing subscribers to the Company.

In addition to the Private Placement, the Company also intends to settle (the "Debt Settlement") outstanding indebtedness of up to $300,000, owing to certain arms-length creditors, through the issuance of up to 4,285,714 post-share consolidation common shares at a price of $0.07 per share.

All securities to be issued in connection with the Private Placement, and the Debt Settlement, will be subject to a four-month-and-one-day statutory hold period in accordance with applicable securities laws and the policies of the TSX Venture Exchange. Completion of the share consolidation, the name change, the Private Placement and the Debt Settlement, remains subject to the approval of the TSX Venture Exchange. Completion of the share consolidation is also subject to the Company meeting certain public distribution requirements prescribed by the TSX Venture Exchange.

Results of Operations

Three months ended June 30, 2020

Expenses:

Expenses were $7,314 for the three months ended June 30, 2020 versus $8,171 for the prior period. The Company recorded professional fees $7,065 (2019 - $355) relating to legal fees incurred during the period. The Company also recorded office and miscellaneous expenses of $nil (2019 - $3,932) and transfer agent and filing fees of $202 (2019 - $3,884).

Liabilities

Trade and other payables were $1,707,461 (March 31, 2020 - $1,699,107) and loans payable were $226,833 (March 31, 2020 - $226,833).

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

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Selected Quarterly Financial Data

	June 30,	March 31,	December 31,	September 30,
	2020	2020	2019	2019
Income (Loss)	(7,314)	(7,210)	(2,420)	(4,461)
Basic and fully diluted earnings (loss) per share	(0.00)	(0.00)	(0.00)	(0.00)
	June 30,	March 31,	December 31,	September 30,
	2019	2019	2018	2018
Income (Loss)	(8,171)	(120,356)	(101,066)	(102,792)
Basic and fully diluted earnings (loss) per share	(0.00)	(0.00)	(0.00)	(0.01)

Liquidity, Capital Resources, and Financial Instruments

At June 30, 2020, the Company had a working capital deficiency of $1,931,301 (March 31, 2020 - $1,923,987) and accumulated deficit of $29,313,629 (March 31, 2020 - $29,306,315). Cash management has been and continues to be a priority for the Company and every effort is being made to minimize liquidity challenges.

The Company’s condensed interim financial statements have been prepared on a going concern basis which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is substantial doubt about the Company’s ability to continue as a going concern because the Company has experienced significant losses and negative cash flow from operations over a number of years and has a working capital deficiency and a deficiency in assets. The Company's ability to meet its obligations in the ordinary course of business is dependent upon its ability to establish profitable operations and positive cash flows from operating activities or to obtain additional funding through public or private equity financing, debt, collaborative or other arrangements. There can be no assurances that financing will be available or be available on reasonable terms. Management is of the opinion that sufficient working capital will be obtained from future cash flows to meet the Company’s liabilities and commitments as they become payable. The condensed interim financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the Company is unable to continue as a going concern, assets and liabilities would require restatement to a liquidation basis, which would differ materially from the going concern basis.

Related party transactions

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company.

There were no related party transactions for the periods ended June 30, 2020 and 2019.

Risks and Uncertainties

The Company operates in a competitive and rapidly changing environment that involves a number of risks. To the extent possible, management implements strategies to reduce or mitigate risks and uncertainties associated with our business. Following are some of the principal risk factors:

Cash flow and Liquidity

The Company will manage liquidity risk through raising sufficient funds through the receipt of loans, the issuance of common shares, or the issuance of convertible debt in order to meet

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financial obligations. Liquidity risk can arise through excess of financial obligations over available financial assets due at any point in time. The Company currently has negative working capital and has suffered liquidity problems in previous years.

Financing

The Company will require additional financing in order to continue to operate and make further investments in product development, research and marketing. The ability of the board and management to arrange financing in the future will depend in part upon prevailing capital market conditions, as well as the Company’s business success.

Dependence on Key Personnel

The Company’s future success will depend on the quality of its key management. The loss of the services of such persons, or the inability to attract quality personnel, could materially adversely impact the Company’s business operations and prospects.

Foreign Exchange Risk

Fluctuations in the exchange rate between Canadian and other foreign currencies, and especially the U.S. dollar, could have a material effect on the Company’s business, financial condition and results of operations. The Company is not exposed to any significant foreign exchange risk.

COVID-19

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, have adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.

Disclosure for Venture Issuers Without Significant Revenue

A breakdown of the Company’s expenses is disclosed in the condensed interim financial statements for the period ended June 30, 2020 to which this MD&A relates.

Outstanding Shares, Stock Options, and Warrants

As at the date of this report, the Company had the following outstanding:

• 20,346,755 common shares

• No stock options outstanding

• No warrants outstanding

Proposed Transactions

There are no proposed transactions that have not been disclosed herein.

Critical Accounting Estimates

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

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disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual reports could differ from management’s estimates.

Contingent liabilities

• (a) Indemnification:

The Company is party to a variety of agreements in the ordinary course of business under which it may be obligated to indemnify a third party with respect to certain matters. The impact on the Company’s future financial results is not subject to reasonable estimation because considerable uncertainty exists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred material costs related to these types of indemnifications.

• (b) Contingencies:

The Company has provided for certain amounts that are in dispute or in the process of being negotiated for settlement.

Internal Controls Over Financial Reporting

Changes in Internal Control over Financial Reporting (“ICFR”)

In connection with National Instrument 52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings (“NI 52-109”) adopted in December 2008 by each of the securities commissions across Canada, the Chief Executive Officer and Chief Financial Officer of the Company will file a Venture Issuer Basic Certificate with respect to financial information contained in the unaudited interim financial statements and the audited annual financial statements and respective accompanying Management’s Discussion and Analysis. The Venture Issue Basic Certification does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting, as defined in NI52-109.

Management’s Responsibility for Financial Statements

The information provided in this report, including the financial statements, is the responsibility of management. In the preparation of these statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the financial statements.

Other MD&A Requirements

Additional disclosure of the Company’s technical reports, material change reports, news releases and other information can be obtained on SEDAR at www.sedar.com.

Recent Accounting Policies

There are no recent accounting policies applicable to the June 30, 2020 condensed interim financial statements.

Financial Instruments

Please refer to the June 30, 2020 condensed interim financial statements on www.sedar.com.

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