Eddy Smart Home Solutions Ltd. — Audit Report / Information 2022

Jul 12, 2023

Consolidated Financial Statements

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.)

And Independent Auditor's Report thereon Years ended December 31, 2022 and 2021

KPMG LLP Commerce Place 21 King Street West, Suite 700 Hamilton ON L8P 4W7 Canada Tel 905-523-8200 Fax 905-523-2222

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Eddy Smart Home Solutions Ltd.

Opinion

We have audited the consolidated financial statements of Eddy Smart Home Solutions Ltd. (the Entity), which comprise:

• the consolidated statements of financial position as at December 31, 2022 and December 31, 2021
• the consolidated statements of loss and comprehensive loss for the years then ended
• the consolidated statements of changes in shareholders' equity/(deficiency) for the years then ended
• the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary of significant accounting policies

(Hereinafter referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2022 and December 31, 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

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

Material Uncertainty Related to Going Concern

We draw attention to Note 2 in the financial statements, which indicates that the Entity has generated a net loss of $11,800,950 and negative cash flows from operating activities of $10,335,335 for the year ended December 31, 2022 along with an accumulated deficit of $51,829,703 as at December 31, 2022. As stated in Note 2 in the financial statements, these events or conditions, along with other matters as set forth in Note 2 in the financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Entity's ability to continue as a going concern.

Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the "Material Uncertainty related to Going Concern" section of the auditor's report, we have determined the matters described below to be the key audit matters to be communicated in our auditor's report.

Determination of distinct and non-distinct performance obligations for contracts with multiple products or services

Description of the matter

We draw attention to notes 2,3, and 20 to the financial statements. Contracts with customers often include promises to deliver multiple products and services, such as hardware, installation, commissioning, monitoring and cloud hosting. Determining whether such bundled products and services are considered i) distinct performance obligations that should be separately recognized or ii) non-distinct and therefore should be combined with another product or service and recognized as a combined unit of accounting may require significant judgement.

Why the matter is a key audit matter

We identified the determination of distinct and non-distinct performance obligations for contracts with multiple products or services as a key audit matter. Significant auditor judgement was required to evaluate the Entity's significant judgements in assessing each performance obligation within a contract as distinct or non-distinct. There was significant auditor effort, involving more senior professionals, required to address this matter.

How the matter was addressed in the audit

The following are the primary procedures we performed to address this key audit matter:

For a selection of new customer contracts, we assessed the Entity's determination of distinct and non-distinct performance obligations by reading the underlying contracts, discussing the nature of the performance obligations with management, and comparing to past assessments for similar contracts and practices observed in the Entity's industry.

Other Information

Management is responsible for the other information. Other information comprises:

• the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor's report.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

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

In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditor's report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Chartered Professional Accountants, Licensed Public Accountants

The engagement partner on the audit resulting in this auditor's report is Phillip M. Collins.

Hamilton, Canada

July 11, 2023

Consolidated Statements of Financial Position

(in Canadian dollars)

	December 31,	December 31,
	2022	2021
Assets	$	$
Current assets
Cash	450,310	111,225
Restricted cash (note 4)	56,951	56,491
Accounts receivable (note 5)	1,597,421	699,156
Prepaid expenses (note 6)	3,316,347	2,084,348
Inventory (note 7)	3,055,795	1,648,619
	8,476,824	4,599,839
Costs to obtain and fulfill a contract (note 8)	2,450,243	958,011
Right-of-use assets (note 9)	266,057	470,036
Property and equipment (note 10)	339,460	279,825
Intangible assets and goodwill (note 11, 12)	3,658,621	-
	6,714,381	1,707,872
Total Assets	15,191,205	6,307,711
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 13)	5,147,941	3,344,384
Deferred revenue (note 20)	714,975	365,284
Current portion of lease liabilities (note 9)	121,797	134,227
Term loan (note 14)	-	2,556,125
Conversion derivative of term loan (note 14)	-	778,680
Demand loans (note 14)	-	3,102,666
Credit facility (note 14)	2,285,589	-
Loan payable (note 14)	80,000	-
Total Current Liabilities	8,350,302	10,281,366
Lease liabilities (note 9)	513,608	583,541
Deferred revenue (note 20)	2,387,437	830,167
Loan payable (note 14)	-	40,000
Total Liabilities	11,251,347	11,735,074
Shareholders' Equity/(Deficiency)
Share capital (note 15)	53,539,723	33,306,141
Contributed surplus (note 16)	2,187,351	1,278,134
Deficit	(51,829,703)	(40,028,753)
Accumulated other comprehensive income	42,487	17,115
Total Shareholders' Equity/(Deficiency)	3,939,858	(5,427,363)
Contingencies (note 18)
Going concern (note 2)
Subsequent events (note 28)
Total Liabilities & Shareholders' Equity	15,191,205	6,307,711

See accompanying notes to consolidated financial statements

Approved on behalf of the board of directors:

"signature" Mark Silver Director

Consolidated Statements of Loss and Comprehensive Loss

For the years ended December 31, 2022 and 2021

(in Canadian dollars)

	2022	2021
	$	$
Revenue (note 20)	2,563,852	1,222,836
Expenses
Cost of sales (note 21)	1,123,303	700,263
Selling (note 22)	1,888,969	806,504
General and administrative (note 23)	10,907,281	6,704,490
	13,919,553	8,211,257
Operating loss	(11,355,701)	(6,988,421)
Interest income	27,828	4,149
Loss on foreign exchange	(107,010)	(22,023)
Impairment of intangible assets (note 11)	(224,075)	-
Finance costs (note 24)	(141,992)	(1,004,208)
Net loss before income taxes	(11,800,950)	(8,010,503)
Income taxes (note 25)	-	-
Net loss	(11,800,950)	(8,010,503)
Other comprehensive loss:
Items that may subsequently be reclassified to income
Gain/loss on foreign currency translation, of foreign operation	25,372	(12,233)
Total comprehensive loss	(11,775,578)	(8,022,736)
Net loss per share - basic and diluted (note 26)	($0.16)	($0.26)
Weighted average number of common sharesoutstanding(note 26)
- Basic and diluted	74,170,458	30,909,398

See accompanying notes to consolidated financial statements

.

Consolidated Statements of Changes in Shareholders' Equity/(Deficiency)

For the years ended December 31, 2022 and 2021

(in Canadian dollars)

	ESHSI common and class B preferred shares			Common Shares
	Number ofESHSIcommon shares	ESHSIcommon shares	Number of ESHSIclass B preferredshares	ESHSI class Bpreferred shares	Number ofCommon Shares	Common Shares	ContributedSurplus	Accumulated	OCI Accumulated Deficit	Shareholders'Equity
Balance, December 31, 2021	61,469,428 $	29,401,826	12,594,566 $	3,904,316	-	$- $	1,278,133 $	17,115	$ (40,028,753)	$ (5,427,363)
Conversion of ESHSI common shares to CommonShares (note 15)	(61,469,428)	(29,401,826)	-	-	31,033,886	29,401,826	-	-	-	-
Conversion of ESHSI class B pref shares to CommonShares (note 15)	-	-	(12,594,566)	(3,904,316)	6,358,581	3,904,316	-	-	-	-
Private placement (note 15)	-	-	-	-	20,713,449	12,308,260	-	-	-	12,308,260
Share issue costs (note 15)	-	-	-	-	-	(981,203)	-	-	-	(981,203)
Agent warrants (note 16)	-	-	-	-	-	(478,832)	478,832	-	-	-
Conversion of Term Loan to Common Shares (note15)	-	-	-	-	5,702,936	3,421,759	-	-	-	3,421,759
Issuance of Common Shares to a developer andcustomer (note 15)	-	-	-	-	1,453,767	470,497	(470,497)	-	-	-
Common shares issued in reverse takeover (note 1,15)	-	-	-	-	2,000,000	1,200,000	-	-	-	1,200,000
Stock options assumed in reverse takeover (note 16)	-	-	-	-	-	-	73,748	-	-	73,748
Warrants assumed in reverse takeover (note 16)	-	-	-	-	-	-	47,727	-	-	47,727
Employee and director share-based comp (note 16)Share-based compensation to a developer and	-	-	-	-	-	-	773,240	-	-	773,240
customer (note 6)	-	-	-	-	-	-	6,168	-	-	6,168
Cumulative translation adjustment	-	-	-	-	-	-	-	25,372	-	25,372
Issuance of Common Shares as consideration forReed Controls acquisition (note 12, 15)	-	-	-	-	12,266,000	4,293,100	-	-	-	4,293,100
Net loss for the year	-	-	-	-	-	-	-	-	(11,800,950)	(11,800,950)
Balance, December 31, 2022	-$	-	-	$-	79,528,619 $	53,539,723 $	2,187,351 $	42,487	$ (51,829,703)	3,939,858

		ESHSI common and class B preferred shares			Common Shares
	Number ofESHSIcommon shares	ESHSI commonshares	Number ofClass BPreferredShares	Class BPreferred Shares	Number ofCommon Shares	Common Shares	ContributedSurplus	Accumulated	OCI Accumulated Deficit	Shareholders'(Deficiency)
Balance, December 31, 2020	61,169,428 $	29,397,086	10,519,566 $	3,261,066	-	$- $	13,774 $	29,348	$ (32,018,250)	683,025
Conversion of Class A Pref shares to Common shares	-	-	-	-	-	-	-	-	-	-
Share issue costs	-	-	-	-	-	-	-	-	-	-
Exercise of stock options	300,000	4,740	-	-	-	--	1,740	-	-	3,000
Class B Preferred shares issued (note 15)	-	-	2,075,000	643,250	-	-	-	-	-	643,250
Share based compensation to a developer andcustomer (note 15)	-	-	-	-	-	-	944,030	-	-	944,030
Share-based compensation (note 16)	-	-	-	-	-	-	283,553	-	-	283,553
Contributed surplus (note 16)	-	-	-	-	-	-	38,516	-	-	38,516.00
Cumulative translation adjustment	-	-	-	-	-	-	-	(12,233)	-	(12,233)
Net loss for the year	-	-	-	-	-	-	-	-	(8,010,503)	(8,010,503)
Balance, December 31, 2021	61,469,428 $	29,401,826	12,594,566 $	3,904,316	-	$-$	1,278,133 $	17,115	$ (40,028,753)	$ (5,427,363)

See accompanying notes to consolidated financial statements

Consolidated Statements of Cash Flows

For the years ended December 31, 2022 and 2021

(in Canadian dollars)

	2022	2021
	$	$
Cash provided by (used in)
Operating activities
Net loss for the year	(11,800,950)	(8,010,503)
Add items not affecting cash
Depreciation of property and equipment (note 10)	83,656	71,201
Depreciation of fulfillment assets (note 8)	247,940	142,670
Amortization of intangible assets (note 11, 12)	253,639	-
Amortization of right-of-use assets (note 9)	107,478	107,479
Loss on financial instruments (note 24)	-	349,669
Shares earned/issued to customers for exclusive supplier
arrangement (note 6)	6,168	-
Adjustment on lease modification (note 9)	96,501	-
Interest expense (note 14, 24)	198,073	652,873
Interest income	-	(4,149)
Gain on the lease modification (note 9)	51,660	-
Impairment of intangible assets (note 11)	224,075	-
Non-cash component of listing expense (note 1)	902,673	-
Stock-based compensation (note 16)	773,240	283,553
Changes in non-cash working capital	(8,855,847)	(6,407,207)
Restricted cash (note 4)	(460)	(56,491)
Accounts receivable (note 5)	(786,138)	(553,707)
Prepaid expenses (note 6)	(1,231,999)	(840,554)
Cost to obtain and fulfill a contract (note 8)	(1,709,065)	(823,050)
Inventory (note 7)	(1,294,424)	(204,666)
Deferred revenue (note 20)	1,906,961	635,543
Accounts payable and accrued liabilities (note 13)	1,635,637	2,480,831
	(1,479,488)	637,906
Net cash flow (used in) operating activities	(10,335,335)	(5,769,301)
Investing activities
Purchase of property and equipment (note 10)	(140,546)	(33,155)
Cash acquired through a Reverse Takeover (note 1)	418,802	-
Cash acquired through acquisition of Reed Controls (note
12)	105,938	-
Net cash flow from/(used in) investing activities	384,194	(33,155)
Financing activities
Proceeds from equity offering (note 1, 15)	12,308,260	643,250
Share issuance cost (note 15)	(981,203)	-
Exercise of stock options (note 16)	-	3,000
Lease payments (note 9)	(198,115)	(195,087)
Proceeds from loan payable (note 14)	-	20,000
Proceeds from term loans (note 14)	-	2,250,000
Interest paid on demand loan (note 14)	(114,088)	-
Proceeds from demand loans (note 14)	-	3,000,000
Repayment of demand loans (note 14)	(3,000,000)	-
Proceeds from credit facility (note 14)	2,250,000	-
Net cash flow from financing activities	10,264,854	5,721,163
Foreign exchange	25,372	-
Increase/(decrease) in cash during the period	339,085	(81,293)
Cash, beginning of period	111,225	192,518
Cash, end of period	450,310	111,225

See accompanying notes to consolidated financial statements 5

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

1. Nature of operations and basis of presentation

Eddy Smart Home Solutions Ltd. ("Eddy" or the "Company") formerly Aumento Capital VIII Corp. ("Aumento"), was incorporated under the Ontario Business Corporations Act on November 20, 2020 and was a Capital Pool Company ("CPC") as defined in the Policy 2.4 of the TSX Venture Exchange (the "Exchange"). Upon the closing of the Reverse Takeover (the "RTO Transaction"), Aumento changed its name to Eddy Smart Home Solutions Ltd.

As described below, the Company completed the acquisition of Eddy Smart Home Solutions Inc. ("ESHSI") through an acquisition agreement ("RTO Transaction") whereby the Company acquired all of the issued and outstanding shares of 1000080686 Ontario Inc. (formerly ESHSI) on January 12, 2022, with the former shareholders of ESHSI obtaining control of the Company.

ESHSI was incorporated under the Ontario Business Corporation Act of Ontario on January 27, 2015. ESHSI is a North American provider and developer of residential and commercial smart water metering products and monitoring services, helping property owners protect, control and conserve water usage by combining water sensing devices with behavioural learning software. ESHSI operates in three segments: Single-Family Residential ("SFR"), Multi-Family Residential ("MFR") and Commercial and Institutional ("C&I").

Following the RTO Transaction, the Company is controlled by ESHSI, and as such, the transaction is accounted for as a reverse takeover of the Company by ESHSI for accounting purposes.

The historical figures presented in these consolidated financial statements represent those of ESHSI and its subsidiaries. The acquired assets and liabilities and results of operations and cash flows of Aumento are reflected only for periods from the acquisition date of January 12, 2022.

The wholly owned operating subsidiaries of the Company are Eddy Smart Home Solutions Inc., Eddy Home Inc., Eddy Home Distribution Inc., Municipal Water Savings California Corp., and Reed Controls Inc.

The Company's shares are listed on the TSX Venture Exchange under the symbol "EDY". The Company's corporate office is 5255 Yonge Street, Suite 900, Toronto, Ontario M2N 6P4.

RTO Transaction

On January 12, 2022, the Company (Aumento at the time) acquired all of the issued and outstanding securities of ESHSI in exchange for the issuance of securities of Aumento, which resulted in ESHSI becoming a wholly owned subsidiary of Aumento.

As consideration for the acquisition, each issued and outstanding common share and class B preferred share of ESHSI was cancelled and replaced by 0.504867 Common Shares of Aumento (the "Exchange Ratio"). Further, each option or warrant issued by ESHSI was exchanged for a corresponding option or warrant of Aumento on substantially the same economic terms and conditions as the original option or warrant based on the Exchange Ratio.

Following completion of the RTO Transaction, the Company had 67,262,619 Common Shares issued and outstanding on a non-diluted basis with existing shareholders of Aumento holding approximately 2.97% and ESHSI shareholders holding approximately 97.03% of the outstanding Common Shares of the Company. As a result, the transaction is considered a reverse takeover of Aumento by ESHSI. For accounting purposes ESHSI is considered the acquirer and Aumento the acquiree.

Aumento's activities prior to the acquisition were limited to management of cash resources and the maintenance of its listing, and accordingly, did not constitute a business. As a result, the RTO Transaction is considered to be outside the scope of IFRS 3 Business Combinations, and has been accounted for as an asset acquisition. Since ESHSI granted equity instruments as consideration for the acquisition, the arrangement has been accounted for under IFRS 2, Share-based Payments. Accordingly, the transaction has been accounted for at the fair value of the equity instruments granted by ESHSI to Aumento. The share capital, reserves, and deficit of Aumento at the time of the RTO Transaction have been eliminated against the fair value of the consideration and the difference has been recognized as a listing expense in the statement of loss and comprehensive loss. The capital structure recognized in the consolidated statements of financial position is that of the Company, but the dollar amount of the issued share capital prior to the RTO transaction is that of ESHSI, including the value of the Common Shares issued prior to the RTO Transaction.

In the accounting for the reverse takeover, the RTO Transaction, consideration was determined by reference to the fair value of equity the legal subsidiary, being ESHSI, would have issued to the legal parent entity, being Aumento, for the shareholders of Aumento to obtain the same percentage ownership interest of approximately 2.97% in the combined entity. The fair value of the issued equity was determined based on the most reliable and observable fair value measure being the market price per subscription receipt from a recent ESHSI private placement to third party market participants ($0.60 per subscription receipt). Each subscription receipt equals to two ESHSI common shares.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

The fair value of the consideration issued by ESHSI exceeds the fair value of the assets and liabilities acquired from Aumento on January 12, 2022 as follows:

Reverse takeover listing expense	$902,673
Cash in trust	418,802
Fair value of net assets acquired:
	$1,321,475
Aumento agent warrants assumed (note 15)	47,727
Aumento options assumed (note 15)	73,748
2,000,000 common shares at $0.60	$1,200,000
Fair value of consideration issued:

The listing expense amount of $902,673 has been recognized within general and administrative expenses.

2. Significant accounting policies

Statement of compliance

The consolidated financial statements have been prepared using accounting policies in compliance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC") applicable to the preparation of these consolidated financial statements.

The consolidated financial statements of the Company were approved by the Board of Directors on July 11, 2023.

Going concern basis of accounting

These consolidated financial statements have been prepared on a going concern basis which contemplates that the Company will continue in operation and be able to realize its assets and discharge its liabilities and commitments in the normal course of business for the foreseeable future. In assessing whether this going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt on the Company's ability to continue as a going concern, management considers all available information and actions within its control with respect to the future which is at least, but not limited to, twelve months from the end of the reporting period.

During the year ended December 31, 2022, the Company generated a net loss of $11,800,950 and negative cash flows from operating activities of $10,335,335. As at December 31, 2022, the Company has an accumulated deficit of $51,829,703. In addition, the Company failed to meet its contractual obligations for debt payments on the working capital credit facility, resulting in it becoming due on demand. As a result, these events and conditions indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern and, therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company is dependent on its ability to achieve positive cash flow from operations, to obtain the necessary equity or debt financing to continue with expansion in the water monitoring services market, including continued support from its lenders, to ultimately attain and maintain profitable operations.

These consolidated financial statements do not give effect to any adjustments to the carrying value of recorded assets and liabilities, revenue and expenses, the statement of financial position classifications used and disclosures that might be necessary should the Company be unable to continue its operations. Such adjustments could be material and there is no assurance that the Company will be successful in closing additional financings in the future or that the Company will achieve profitable operations.

Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated on consolidation.

Subsidiaries are those entities controlled by the Company. Control exists when the Company has existing rights that give it the current ability to direct the relevant activities of the subsidiary, has exposure or rights to variable returns from its involvement in the subsidiary, and has the ability to use its power to affect its returns. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences (date of acquisition) until the date that control ceases (date of disposal or loss of control). A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

Business combination

Business combinations are accounted for using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Company. In determining whether a particular set of activities and assets is a business, the Company assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.

The consideration transferred in the acquisition is generally measured at fair value at the date of acquisition, as are the identifiable net assets acquired. Acquisition-related costs are expensed as incurred. The excess of the consideration over the fair value of the net identifiable assets acquired is recorded as goodwill.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. The measurement period is the period from the date of acquisition to the date that the Company obtains complete information about the facts and circumstances that existed as of the acquisition date and is subject to a maximum period of one year.

Intangible assets and goodwill

Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets with finite lives that are acquired separately or in a business combination are recognized when they are identifiable and can be reliably measured. Intangible assets are considered to be identifiable if they arise from contractual or other right, or if they are separable (i.e., they can be disposed of either individually or together with other assets).

Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful life and assessed for impairment when there is an indication that the intangible asset may be impaired. Intangible assets with finite useful lives are amortized over the estimated useful lives using the straight-line method based as follows:

Intangible assets	Useful life
Customer relationships	7 years
Order backlog	2 years
Technology	3 years
Brand	3 years

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment of goodwill is determined by assessing the recoverable amount of each cash generating unit ("CGU") (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Impairment losses relating to goodwill cannot be reversed in future periods.

Amortization methods and useful lives and are reviewed at each reporting date and adjusted if appropriate.

Financial instruments

(i) Recognition and initial measurement

Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(ii) Classification and subsequent measurement

Financial assets:

On initial recognition, a financial asset is classified as measured at: amortized cost, FVOCI – debt investment; FVOIC – equity instrument; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

(i) It is held within a business model whose objective is to hold assets to collect contractual cash flows; and

(ii) Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

(i) It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

(ii) Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets at FVTPL:

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. The Company has not classified any financial assets as FVTPL.

Financial assets at amortized cost:

These assets are subsequently measured using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

Financial assets at FVOCI:

Debt investments at FVOCI subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Equity investments at FVOCI subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss. The Company has not classified any financial assets as FVTOCI.

Financial liabilities:

The following table summarizes the classification of the Company's financial instruments under IFRS 9:

Financial assets
Cash	Amortized cost
Accounts receivable	Amortized cost
Financial liabilities
Accounts payable and accrued liabilities	Amortized cost
Due to related parties	Amortized cost
Term loan	Amortized cost
Convertible debentures	Amortized cost

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

(iii) Derecognition

Financial assets:

The Company derecognises a financial asset when:

• (a) the contractual rights to the cash flows from the financial asset expire; or
• (b) it transfers the rights to receive the contractual cash flows in a transaction in which either:
  • (i) substantially all of the risks and rewards of ownership of the financial asset are transferred; or

(ii) the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Company enters into transactions whereby it transfers assets recognised in its statement of financial position but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised.

Financial liabilities:

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. The Company also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in the statement of profit or loss.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

(iv) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

(v) Derivative financial instruments

Derivative financial instruments are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.

Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met. Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit and loss ("FVTPL").

(vi) Convertible instruments

Convertible instruments that are considered hybrid financial instrument are recognized as a liability, with the initial carrying value of the host instrument being the residual amount of the proceeds after separating the derivative component, which is recognized at fair value. Any directly attributable transaction costs are allocated to the host and derivative components in proportion to their initial carrying amounts. Subsequent to initial recognition, the host component of the hybrid financial instrument is measured at amortized cost using the effective interest method. The derivative component of the hybrid financial instrument is measured at FVTPL. Subsequent changes in fair value are recorded in the consolidated statements of net loss and comprehensive loss.

Convertible instruments that are considered compound instruments are separated into liability and equity components based on the terms of the contract. On issuance of the convertible debentures, the fair value of the liability component is determined using a market rate for an equivalent non-convertible instrument. The proceeds are allocated to the fair value of the liability component first and the remainder of the proceeds are allocated to the conversion option that is recognized and included in equity. The liability component (net of transaction costs) is subsequently measured at amortized cost using effective interest rate method until it is extinguished on conversion or redemption. The carrying amount of the equity conversion option is not remeasured in subsequent periods.

Transaction costs are apportioned between the liability and equity components of the convertible debentures, based on the allocation of proceeds to the liability and equity components when the instruments are initially recognized.

Impairment of trade receivables and contract assets

For trade receivables and contract assets, the Company measures its credit loss allowances using the simplified expected credit loss ("ECL") model which estimates expected lifetime credit losses on initial recognition of the receivables. In determining the expected credit loss allowance, the Company utilized a provision matrix and groups trade receivables and contract assets based on shared credit characteristics and the days past due and takes into account evidence of non-payment risk, which may include account aging, previous experience and general economic conditions. The contract assets have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Company has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company's historical experience and informed credit assessment, that includes forward-looking information. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The Company considers a financial asset to be in default when:

The debtor is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realising security (if any is held); or

The financial asset is more than 90 days past due

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt securities at FVOCI are creditimpaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

Significant financial difficulty of the debtor;

A breach of contract such as a default or being more than 90 days past due;

It is probable that the debtor will enter bankruptcy or other financial reorganisation.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised in OCI.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Costs to Obtain and Fulfill a Contract

The Company capitalizes costs incurred to fulfill its contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company's performance obligation under the contract and (iii) are expected to be recovered through revenue generated under the contract. These costs primarily pertain to hardware and sales commission costs that relate to the satisfaction of a future performance obligation in the Company's contracts. Contract fulfillment costs are amortized on a straight-line basis over the expected contract term to cost of sales, which is consistent with the performance obligation of providing the water monitoring services to which the contract fulfillment asset relates (the term of the contracts is typically 84 months).

Incremental direct costs of obtaining a contract primarily include sales commissions paid to sales people and agents in connection with water monitoring service contracts. These costs are deferred and amortized on the straight-line basis over the estimated contract term. Sales commissions that relate directly to a contract with terms of 12 months or less (or nominal amounts) are immediately recognized as a cost of sale in the year incurred.

The Company will recognize an impairment loss in profit or loss to the extent that the carrying amount of the contract fulfillment asset recognized exceed the remaining amount of consideration that the entity expects to receive in exchange for the water monitoring services to which the asset relates; less the costs that relate directly to providing those goods or services and that have not been recognized as expenses.

If the impairment conditions no longer exist or have improved, the Company recognizes a reversal of some or all of an impairment loss previously recognized in profit or loss. The increased carrying amount of the contract fulfillment asset shall not exceed the amount that would have been determined (net of amortization) if no impairment loss had been recognized previously.

Inventory

The Company's inventory consists of installation supplies and equipment to be deployed to fulfill future contracts. Installation supplies are valued at the lower of cost, which is determined on a weighted average basis, and net realizable value. When the equipment comes under contract with customers it becomes a fulfillment asset. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and estimated costs necessary to make the sale. Equipment includes the cost of the individual water monitoring units. Inventory is considered for obsolescence based on current estimates of future sales and use. When circumstances that previously required inventory to be written down below cost no longer exist, the amount of the write-down is reversed.

Foreign currencies

The Company's presentation currency is the Canadian dollar.

Functional currency is determined for each of the Company's entities.

The Company has a subsidiary in the United States whose functional currency is the US Dollar. All other entities within the Company have a Canadian dollar function currency. On consolidation, the assets and liabilities of each foreign entity are translated into Canadian dollars at the rate of exchange prevailing at the reporting date. Revenue and expense items are translated at the average rate of the exchange for the year. Unrealized translation gains and losses are recorded as cumulative translation adjustments, which are included in other comprehensive income/(loss) ("OCI") which is a component of shareholders' equity.

Transactions in currencies other than an entities functional currency are recognized at the rates of exchange prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Foreign exchange differences are recognized in profit or loss in the period in which they arise.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Property and equipment

Items of property and equipment are measured at cost, and subsequently measured at cost less accumulated depreciation and accumulated impairment losses, if any. Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company. Depreciation is recognized on a straight-line bases at rates designed to apportion the cost of the asset over their useful lives as follows:

Computer equipment	5 years
Office equipment	5 years
Furniture and fixtures	5 years
Leasehold improvements	lease term

The estimated useful lives and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Items of property and equipment are derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of items of property and equipment are determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Repairs and maintenance costs that do not improve or extend productive life are recognized in profit or loss in the period in which the costs are incurred.

Internally generated intangible assets

The Company's invests in the research & development of proprietary software algorithms for the effective monitoring of water flow rates and identification of leaks. The Company is also continuously developing added features and solutions, as well as increasing the functionality and enhancement of optimizer algorithms.

Expenditures on research activities are recognized as an expense in the period in which they were incurred.

Internally generated intangible assets arising from development phase of an internal project are recognized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to complete development and to use or sell the asset.

The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Where no internally generated intangible asset can be recognized, development expenditures are recognized in profit or loss in the period in which it is incurred.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Impairment of non-financial assets

The Company assesses the recoverable amount of non-financial assets, at each reporting date, for indicators of impairment. If these indications exist the Company estimates the recoverable amount for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or cash generating unit ("CGU") exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount which is the higher of fair value less costs of disposal and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are considered or an appropriate valuation model is used.

The Company bases its impairment calculation on most recent budgets and/or forecast calculations, which are prepared for the Company's CGUs or group of CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five to seven years.

An impairment loss is recognized in the statement of profit or loss if the carrying amount of an asset or CGU exceeds its recoverable amount. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, a previously recognized impairment loss is reversed when there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited to its recoverable amount and cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss.

Leases

At the inception of an arrangement, the Company assesses whether the arrangement is, or contains, a lease. An arrangement is, or contains, a lease if the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To determine whether an arrangement conveys the right to control the use of an identified assets, the Company assesses whether:

the arrangement involves the use of an identified asset;

the Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and

the Company has the right to direct the use of the asset.

The Company recognizes right-of-use assets ("ROA") and a lease liability at the lease commencement date. The ROA is initially measured at cost comprised of the initial lease liability adjusted for any lease payments made at or before commencement date, plus initial direct costs incurred less lease incentives received. ROA are subsequently depreciated using the straight-line method from commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives or right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurement of the lease liability. The Company applies an exemption for short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). A lessee can apply this practical expedient on a lease-by-lease basis.

Lease liabilities are initially measured at amortised cost using the effective interest method, incorporating unpaid lease payments at the commencement date, and discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Each lease liability is subsequently increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of each lease liability is remeasured if modifications such as, a change in lease payments or a change in the assessment of an option to purchase the underlying asset arises. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Provisions

A provision is recognized in the statement of financial position when the Company has a legal or constructive obligation, as a result of a past event, and it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured using managements best estimate as to the outcomes, based on known facts, risks and uncertainties at the reporting date.

Revenue recognition

The Company accounts for revenue from contracts with customers using the following process: (1) identify the contract with customers (2) identify the performance obligations in the contract (3) determine the transaction price (4) allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices ("SSP") of each distinct good or service promised in the contract (5) recognize revenue when the relevant criteria are met for each performance obligation.

The Company provides water monitoring solutions to its customers. A customer contract is accounted for as revenue only when it is probable that the Company will collect the consideration due under the contract for water monitoring services provided. Over the contract term the Company considers if there are indications of a significant change in facts and circumstances that result in it being no longer probable that the Company will collect the promised consideration under the contract for water monitoring services provided, which are typically billed monthly.

The Company considers that non-payment of the recurring amount due for a period greater than 3 months is an indication that it is no longer probable the consideration will be collected for future water monitoring services provided and revenue recognition for that contract ceases at that point. Revenue is recognized upon transfer of control of products or services to customers at an amount that reflects the consideration the Company expects to receive in exchange for the products or services. The transaction price is measured based on the consideration specified in a contract with a customer, including any variable consideration, net of any discounts or rebates paid or payable to the customer. Non-cash consideration, including shares and warrants, received or receivable from the customer or paid or payable to a customer is measured at fair value at the date of contract inception. Variable consideration is estimated and recognized as revenue only to the extent it is highly probable that a significant reversal in the cumulative revenue for the contract will not occur.

The Company enters contracts that contain multiple products and services such as hardware, installation, commissioning, and cloud hosting. The Company evaluates these arrangements to identify the performance obligations for revenue recognition purposes based on whether the product or service is distinct from some or all of the other products or services in the arrangement. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the Company's promise to transfer the good or service is separately identifiable from other promises in the contractual arrangement with the customer.

The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price ("SSP") basis. The SSP reflects the price the Company would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers. The Company estimates the SSP using either the expected cost plus a margin or residual approach. Estimating SSP requires judgement that could impact the amount and timing of revenue recognized.

For its Single-Family Residence ("SFR") segment, the Company has made significant judgements in determining that the sale of hardware is not a distinct performance obligation for separate revenue recognition as the hardware, installation, commissioning, and monitoring services are integrated together to fulfill the performance obligation to customers which is satisfied over time. Some SFR contracts require a non-refundable upfront fee in addition to a monthly fee and month-to-month term. These contracts contain a material right for a period that is equal to the average customer life. The material right provides for the continuation of the Company's integrated smart water monitoring service and as such forms part of the integrated smart water monitoring service performance obligation. Revenue is recognized as the Company provides its integrated smart water monitoring services to its customers on a straight-line basis over the contract term/average customer life, as the Company satisfies a portion of its performance obligation each day it provides the smart monitoring service.

For its Multi-Family Residence ("MFR") and Commercial & Institutional ("C&I") segments, a portion of the Company's integrated smart water monitoring contracts require installation for some parts of the hardware. These installation services can be performed by third parties and therefore are recognized as a separate performance obligation. Installation revenue is recognized as revenue over time based on the proportion of installation services performed. Consistent with the SFR segment, the Company has made significant judgements in determining that sale of hardware is not a distinct performance obligation for separate revenue recognition as the hardware, technical installation, commissioning, and monitoring services are integrated together to fulfill the integrated smart water monitoring performance obligation to customers which is satisfied over the contract term as the Company satisfies a portion of its performance obligation each day it provides the smart water monitoring service.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

The acquisition of Reed introduced a new product line with different water monitoring contracts. The promises within the contract are less integrated than the Eddy branded solution and the following performance obligations relevant during the period have been identified:

• ⦁ General hardware: revenue is recognized when control of the non-propriety hardware has transferred.
• ⦁ Installation of general hardware: recognized as revenue over time based on the proportion of services performed.

⦁ Deployment of smart water products: Involves the commissioning and installations of the proprietary Reed hardware and software recognized as revenue over time based on the proportion of services performed.

⦁ Cloud hosting: allows customers to access data collected by the solution and is provided on a subscription basis. Revenue from the cloud hosting subscriptions is recognized on a straight-line basis over the term of the subscription.

Under all contracts, the timing of revenue recognition often differs from contract payment schedules, resulting in revenue that has been recognized but not billed. These amounts are included in other receivables. Amounts billed in accordance with customer contracts, but not yet recognized, are recorded and presented as part of deferred revenue.

Share-based payments

The Company grants stock options to employees, directors, officers, and professional services providers.

Stock options granted to employees are measured at fair value at the grant date and recognized as compensation expense over the vesting period of the underlying options with a corresponding increase in contributed surplus. The fair value of options is determined using the Black-Scholes option pricing model which incorporates all the market vesting conditions.

Stock options granted to non-employees are measured at the fair value of the goods or services received except where the fair value cannot be estimated, in which case it is measured at the fair value of the equity instrument granted at the date the entity obtains the goods or the counterparty renders service.

The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

Upon exercise of stock options, consideration received on exercise of these equity instruments is recorded as share capital and the related share-based payment reserve is transferred to share capital.

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards), than all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree's awards and the extent to which the replacement awards relate to pre-combination service.

Taxation

Income tax expense of the Company comprises current and deferred taxes.

Deferred tax is recorded using the asset-liability method, providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided for the initial recognition of assets and liabilities that affect neither accounting nor taxable loss, and differences relating to investments in subsidiary to the extent that they will not likely reverse in the foreseeable future. The amount of deferred tax is based on the expected manner of realization or settlement of carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

The Company offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Loss per share

Basic loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of common shares outstanding during each of the years presented. Class A preferred shares and Class B preferred shares are not considered to be ordinary shares as the common shares are more subordinated to these classes of shares.

Diluted loss per share is calculated by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. In order to determine diluted loss per share, it is assumed that any proceeds from the exercise of dilutive stock options would be used to repurchase common shares at the average market price during the period. The diluted loss per share calculation excludes any potential conversion of Class A preferred shares, Class B preferred shares, stock options, warrants and convertible debt that would increase earnings per share or decrease loss per share.

Share capital

Incremental costs directly attributable to the issuance of capital stock are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.

Non-redeemable preference shares are classified as equity, because they bear discretionary dividends, do not contain any obligations to deliver cash or other financial assets and do not require settlement in a variable number of the Company's equity instruments. Discretionary dividends thereon are recognised as equity distributions on approval by the Company's shareholders.

Related party transactions

Parties are considered to be related if one party has the ability, directly, or indirectly, to control or jointly control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

Government grants

Government grants related to assets are initially recognized as deferred revenue at fair value if there is reasonable assurance that the grant will be received and the Company will comply with the conditions associated with the grant. Grants related to the acquisition of assets are recognised in profit or loss as other income on a systematic basis over the useful life of the asset. Grants that compensate the Company for expenses incurred are recognised in profit or loss as other income on a systematic basis in the periods in which the expenses are recognised, unless the conditions for receiving the grant are met after the related expenses have been recognised. In this case, the grant is recognised when it becomes receivable. Government loans are analyzed to determine whether they qualify as grants or are required to be treated as financial liabilities.

Future changes

The Company is still assessing the impact of adopting these amendments on its future financial statements.

Classification of Liabilities as Current or Non-current (Amendments to IAS 1, Presentation of Financial Statements)

The amendments to IAS 1 provide a more general approach to the classification of liabilities based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent should be based on rights that are in existence at the end of the reporting period and align the wording in all affected paragraphs to refer to the right to defer settlement by at least twelve months and make explicit that only rights in place at the end of the reporting period should affect the classification of a liability. The amendments are effective for annual reporting periods beginning on or after January 1, 2024 and are to be applied retrospectively.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Non-current Liabilities with Covenants (Amendments to IAS 1)

The amendments to IAS 1 specify that only covenants with which an entity is required to comply on or before the reporting date affect the classification of a liability as current or non-current. In addition, an entity has to disclose information in the notes that enables users of financial statements to understand the risk that non-current liabilities with covenants could become repayable within twelve months. The amendments are effective for annual reporting periods beginning on or after January 1, 2024 and are to be applied retrospectively.

Disclosure of Accounting Policies (Amendments to IAS 1)

The amendments to IAS 1 require an entity to disclose its material accounting policies instead of its significant accounting policies. The amendments clarify that accounting policy information is material if users of an entity's financial statements would need it to understand other material information in the financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and are to be applied prospectively.

Definition of Accounting Estimates (Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors)

The amendments to IAS 8 provide guidance to assist entities in distinguishing between accounting policies and accounting estimates. The amendments replace the definition of a change in accounting estimates with the definition of accounting estimates. Under the new definition, accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty. The amendments also clarify that a change in accounting estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors. The amendments are effective for annual periods beginning on or after January 1, 2023 and are to be applied prospectively.

3. Accounting judgements, estimates and assumptions

Management makes judgements, estimates and assumptions in the application of the Company's accounting policies. These may affect the carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the periods presented. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant, the results of which form the basis of the valuation of assets and liabilities that are not readily apparent from other sources. The estimates and the underlying assumptions are reviewed on an ongoing basis.

Judgements

As the basis for its judgements, management uses estimates and related assumptions which are based on previous experience and various commercial, economic and other factors that are considered reasonable under the circumstances. These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. Actual outcomes may differ from these estimates under different assumptions and conditions.

Judgements, made by management in the application of IFRS that have a significant impact on the consolidated financial statements relate to the following:

Revenue recognition

Contracts with customers often include promises to deliver multiple products and services, such as hardware, installation, commissioning, monitoring and cloud hosting. Determining whether such bundled products and services are considered i) distinct performance obligations that should be separately recognized or ii) non-distinct and therefore should be combined with another product or service and recognized as a combined unit of accounting may require significant judgement. The determination of the standalone selling prices ("SSP") for distinct performance obligations can also require judgement and estimates, as the SSP is an estimate of the price that would be charged if the distinct product or service was sold separately in similar circumstances and to similar customers.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Going concern

The determination as to the Company's ability to continue as a going concern is dependent on its ability to secure debt and equity financing, and to achieve profitable operations. Certain judgements were made when determining if and when the Company will secure debt and equity financing and achieve profitable operations and that there are material uncertainties regarding the Company's ability to continue as a going concern (see note 1 – Going Concern).

Determination of CGUs and allocation of goodwill

For the purposes of assessing impairment of non-financial assets, the Company must identify CGUs. Assets and liabilities are grouped into CGUs at the lowest level of separately identified cash flows. Determination of what constitutes a CGU is subject to management judgement. The composition of a CGU can directly impact the recoverability of non-financial assets included within the CGU. Management has determined that there are two CGUs (Eddy and Reed), and the identifiable cash flows of these CGUs are used for impairment testing of the Company's intangible assets and property and equipment.

Management is required to use judgement in determining which assets or group of assets make up appropriate CGUs for the level at which intangible assets and goodwill with indefinite lives are tested for impairment. A CGU is defined as the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.

For the purpose of impairment testing, goodwill must be allocated to each CGU or group of CGUs that are expected to benefit from the synergies of the business combination. Initial allocation and possible reallocation of goodwill to a CGU or a group of CGUs requires judgement.

Estimates

Critical accounting estimates are those that require management to make assumptions about matters that are highly uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially have a material impact on the Company's financial results where a different estimate or assumption is used.

Expected credit losses

The Company recognizes an amount equal to the lifetime expected credit loss ("ECL") on trade receivables and contract assets. Loss allowances are measured based on historical experience and associated credit risk and rate of default applicable to customers. The Company primarily estimates this rate based on the credit rating and historical experience with the customer and aging. The amount of ECL is sensitive to changes in circumstances of forecast economic conditions.

Useful lives of property and equipment and intangible assets and goodwill

Depreciation of property and equipment and amortization of intangible assets is dependent upon estimates of useful lives and residual value which are determined through the use of assumptions. Fixed assets under contract are depreciated over the shorter of the estimated useful or the contract term. Estimates of residual value and useful lives are based on data and information from various sources including industry practice and historic experience. Although management believes the estimated useful lives of the Company's property and equipment are reasonable, changes in estimates could occur, affecting the expected useful lives and salvage values of the property and equipment.

Impairment

In assessing the value of intangible assets or non-financial assets for potential impairment, assumptions are made regarding the fair value of the CGU. These calculations require the use of estimates. If these estimates change in the future, the Company may be required to record additional impairment charges related to intangible assets and goodwill.

Determining whether an impairment has occurred requires the valuation of the respective assets or CGU's, for which the Company estimates the recoverable amount. For intangible assets and goodwill, the recoverable amount is estimated using the enterprise fair value, consistent with the determination of the CGU. The calculation is based on assumptions including, but not limited to, the cash flow growth rate and the discount rate.

Share-based compensation

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. In estimating the fair value, management is required to make certain assumptions and estimates such as the expected life of options, volatility of the Company's future share price, risk-free rate, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in different outcomes.

Convertible loans

The allocation of the proceeds from the issuance of convertible loans between its components, and the subsequent remeasurement of the conversion right embedded derivative requires management to use estimates (which is the market rate for the equivalent instruments). In determining the fair value of the host debt component (which was deemed to be the most reliable measure), the Company estimated the market interest rate for an equivalent non-convertible instrument, and deducted the conversion derivative on term loan from the fair value of the convertible loan. An option pricing model is used to determine the fair value of the conversion right embedded derivative and at each reporting date which requires management to make certain assumptions and estimates. Changes in assumptions used to estimate fair value could result in different outcomes.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Business combination

Significant estimates and assumptions are required to determine the purchase price allocation of business combinations including the determination and valuation of intangible assets.

Fair value

When measuring the fair value of an asset or a liability, the Company uses observable market data to the extent possible. Fair values are categorized into different levels of fair value hierarchy based on the inputs in the valuation techniques as follows:

• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 2:
• Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable Level 3:

The carrying values of cash and cash equivalents, accounts receivables, other receivables, accounts payables and accrued liabilities, deferred revenue, deferred rent, due to related parties, term loan and convertible debentures, due to the short-term nature of these instruments approximated their fair value. There has been no significant change in credit and market interest rates since the date of their issuance.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

4. Restricted cash

The Company has an externally imposed restriction related to credit card borrowing limits, requiring the Company to maintain cash balances to support these facilities, which amounted to $56,951 (2021 - $56,491).

5. Accounts receivable

	December 31,	December 31,
	2022	2021
	$	$
Accounts receivable	1,774,110	797,318
Expected credit losses	(176,689)	(98,162)
	1,597,421	699,156

6. Prepaid expenses

	December 31,	December 31,
	2022	2021
	$	$
Deposits on inventory purchases	2,079,324	933,006
Prepaid expenses	267,944	168,797
Prepaid customer incentive (notes 15)	969,079	982,545
	3,316,347	2,084,348

During January 2019, the Company entered into an exclusive supplier agreement with a developer and customer of the Company which committed the Company to issue 2,879,505 Eddy Common Shares to the customer upon installation of 5,000 leak detection equipment units. On December 15, 2021, the Company entered into an addendum (the "Addendum") to amend the exclusive supplier agreement. Pursuant to the Addendum, the Company agreed to issue, or cause to be issued, 750,000 Common Shares which are contingent on the developer permitting the Company to installed equipment in at least 12,500 units (5,000 units prior to the Addendum) of its condominium projects. As each unit is installed, the Company recognized a reduction to revenue based on the relative proportion of the share consideration expected to be provided to the developer. For the year ended December 31, 2022, the Company installed 1,886 units (2021 - 983 units). For the year ended December 31, 2022, based on units installed the Company recorded $6,168 (December 31, 2021 - $3,195), as a reduction to revenue and an increase to contributed surplus.

The Addendum also provided upfront consideration in the form of shares and warrants. The incremental value assigned to the upfront share and warrant consideration provided by the Addendum amounted to $982,545 (notes 15, 16) and was initially recognized in prepaid expenses. The prepaid balance is amortized against revenue as units are installed under the terms of the Addendum. For the year ended December 31, 2022, amortization of the prepaid amounted to $13,466, based on the installed units. This was recorded as an amortization of the prepaid item and a reduction to revenue. Total units installed as at December 31, 2022 amounted to 4,189 units (December 31, 2021 - 2,303 units).

7. Inventory

	December 31,	December 31,
	2022	2021
	$	$
Installation supplies	291,220	235,395
Water monitoring equipment	2,837,919	1,758,104
Provision for inventory	(73,344)	(344,880)
	3,055,795	1,648,619

Inventory provision

	$	$
Beginning of year balance	(344,880)	(579,610)
Inventory write-off	78,181	333,940
Reversal of inventory provision	245,072	-
Increase in inventory provision	(51,717)	(99,210)
End of year balance	(73,344)	(344,880)

December 31, 2022

December 31, 2021

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

8. Costs to obtain and fulfill a contract

Cost to obtain and fulfill a contract consisted of the following:

	December 31,	December 31,
	2022	2021
	$	$
Cost
Opening balance	2,138,461	1,315,411
Addition from business combination
(note 12)	31,107	-
Additions	1,709,065	823,050
Balance, end of year	3,878,633	2,138,461
	December 31,	December 31,
	2022$	2021$
Accumulated depreciation
Opening balance	(1,180,450)	(1,037,780)
Depreciation (note 21)	(247,940)	(142,670)
Balance, end of year	(1,428,390)	(1,180,450)

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

9. Leases

The Company leases a building for its office space and a warehouse to store inventory. The lease for office space runs for a period of 7 years and the lease for the warehouse is a month-to-month basis which is treated as short term lease. The office lease includes an option to renew for an additional period of the same duration after the end of the current lease term on May 31, 2026 which has not been included in the lease term. The Company also leases office equipment with lease terms of five to seven years. In some cases, the Company has the option to purchase the assets at the end of the contract term. During 2019, the Company received a total inducement from the lessor, related to an office lease, in the amount of $192,840. The discount rate inherent in the lease was 10%, which approximates its incremental borrowing rate ("IBR").

On December 14, 2022, the Company's office lease was amended to provide rent relief with respect to the Company's rental arears which amounted to $296,357 excluding HST ("arrears") at the time of amendment. The amendment provided that if the Company pays all remaining rents as due, and is not in default, then upon the last of the following (i) end of lease term on May 31, 2026 and (ii) repayment of 50% of the arrears, the landlord shall forgive the Company with the remaining 50% of the arrears. This amendment was treated as a modification to the original lease. The Company remeasured the lease liability by discounting revised cashflows (which includes remaining leases payments on date of modification as per original lease agreement and 50% of arears that management expect to pay on expiry of lease term) using a revised IBR of 14% on date of modification, with a corresponding adjustment of $96,501 to the right-of-use asset.

The remaining 50% of arrears amounting to $148,178, which will be forgiven only on meeting the above specified conditions, is recognized in accounts payable and accrued liabilities on the statement of financial position at amortized cost of $92,098 with discounting impact of $56,080 recorded as finance income on the statement of loss and comprehensive loss (note 23).

Right-of-use assets

	Equipment	Office	Total
	$	$	$
Balance at December 31, 2020	4,519	572,996	577,515
Amortization charge for the year	(1,695)	(105,783)	(107,478)
Balance at December 31, 2021	2,824	467,212	470,036
Lease modification	-	(96,501)	(96,501)
Amortization charge for the year	(1,695)	(105,783)	(107,478)
Balance at December 31, 2022	1,129	264,928	266,057

Lease liabilities
	December 31,	December 31,
	2022	2021
Opening balance	717,768	836,117
Accretion for the period	64,092	76,738
Payment for the period	(198,115)	(195,087)
Lease modification	51,660	-
	635,405	717,768
	December 31,	December 31,
	2022	2021
Maturity analysis - contractual undiscounted cash flow
Less than one year	203,219	198,328
One to five years	628,286	683,324
More than five years	-	-
Total undiscounted lease liabilities	831,505	881,652
Less amount representing interest	(196,100)	(163,883)
Lease obligation - discounted	635,405	717,768
Current	121,797	134,227
Non-current	513,608	583,541
Lease liabilities	635,405	717,768

Amount recognized in consolidated statement of loss and comprehensive loss

	December 31,	December 31,
	2022	2021
Short term rental expenses (*)	66,000	78,000
Finance income	56,080	-
Accretion for the period	64,092	76,738
Amortization on right-of-use assets	107,478	107,478

Amount recognized in consolidated statement of cash flows

	December 31,	December 31,
	2022	2021
Cash outflow for leases included in financing activities	198,115	195,087

(*) The Company leases warehouse space on a month-to-month basis.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

10. Property and equipment

Property and equipment consists of the following:

						December 31, 2022
		Furniture and	Office	Computer	Leasehold
	Vehicles	fixtures	equipment,	hardware	improvements	Total
	$	$	$	$	$	$
Cost
Balance at December 31, 2021	-	73,011	7,957	43,707	356,714	481,389
Addition from business combination
(note 12)	-	-	-	2,745	-	2,745
Additions	98,554	-	-	41,992	-	140,546
Balance at December 31, 2022	98,554	73,011	7,957	88,444	356,714	624,680
		Furniture and	Office	Computer	Leasehold
	Vehicles	fixtures	equipment,	hardware	improvements	Total
	$	$	$	$	$	$
Accumulated depreciation
Balance at December 31, 2021	-	(44,931)	(4,241)	(8,123)	(144,269)	(201,564)
Depreciation	(4,926)	(14,610)	(1,590)	(14,410)	(48,120)	(83,656)
Balance at December 31, 2022	(4,926)	(59,541)	(5,831)	(22,533)	(192,389)	(285,220)
Net book value at December 31,
2022	93,628	13,470	2,126	65,911	164,325	339,460
						December 31, 2021
		Furniture and	Office	Computer	Leasehold
	Vehicles	fixtures	equipment,	hardware	improvements	Total
	$	$	$	$	$	$
Cost
Balance at December 31, 2020	-	73,011	7,957	10,552	356,714	448,234
Additions	-	-	-	33,155	-	33,155
Balance at December 31, 2021	-	73,011	7,957	43,707	356,714	481,389
		Furniture and	Office	Computer	Leasehold
	Vehicles	fixtures	equipment,	hardware	improvements	Total
	$	$	$	$	$	$
Accumulated depreciation
Balance at December 31, 2020	-	(30,328)	(2,247)	(1,652)	(96,136)	(130,363)
Depreciation	-	(14,603)	(1,994)	(6,471)	(48,133)	(71,201)
Balance at December 31, 2021	-	(44,931)	(4,241)	(8,123)	(144,269)	(201,564)
Net book value at December 31,
2021	-	28,080	3,716	35,584	212,445	279,825

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

11. Intangible assets and goodwill

Intangible assets and goodwill consisted of the following:

						December 31, 2022
	Customer
	relationships Order backlog		Technology	Brand	Goodwill	Total
	$	$	$	$	$	$
Cost
Balance at December 31, 2021	-	-	-	-	-	-
Addition from business combination
(note 12)	215,000	401,000	301,000	165,000	3,054,335	4,136,335
Impairment	-	-	(135,165)	(88,910)	-	(224,075)
Balance at December 31, 2022	215,000	401,000	165,835	76,090	3,054,335	3,912,260

	Customer
	relationship Order backlog		Technology	Brand	Goodwill	Total
	$	$	$	$	$	$
Accumulated depreciation
Balance at December 31, 2021	-	-	-	-	-	-
Amortization	(20,154)	(131,561)	(65,835)	(36,089)	-	(253,639)
Balance at December 31, 2022	(20,154)	(131,561)	(65,835)	(36,089)	-	(253,639)
Net book value at December 31,
2022	194,846	269,439	100,000	40,001	3,054,335	3,658,621

At the time of acquisition, Reed's forecasted cash's flows included several contracts considered to have a high probability of being won. As at year end, most of these contracts were lost, representing an impairment indicator.

The Company has two CGUs, Reed and Eddy. Reed is its own CGU as it represents a separate business operation within the Eddy group with distinct cash flows. The loss of forecasted contracts during the year had a direct impact on the valuation of the Brand and Technology intangible assets included in the Reed CGU as well as the Reed CGU as a whole. Goodwill from the acquisition of Reed, which has a carrying value of $3,054,335, has been allocated entirely to the Eddy CGU and therefore the Eddy CGU is required to be tested for impairment annually.

The recoverable amount of the Brand and Technology intangible assets was determined using a relief from royalty method (FVLCD). Key assumptions used were forecasted revenue, royalty rate, and discount rate. The assumptions used reflect past experience, internal data, and external sources of information, including construction timeline and executed contracts. The carrying value of the Brand and Technology intangible assets exceeded their recoverable value resulting in an impairment charge of $224,075.

The recoverable amount for the Reed and Eddy CGUs were estimated based on a five-year discounted cash flow model (value in use). Key assumptions include projected gross profit, discount rate and terminal growth rate. The gross margins applied over the five-year period range from 63% to 80% and have been determined based on past experience, internal data, and external sources of information. The applied discount rates of 16.4% and 22.8% for the Reed and Eddy CGUs, respectively, were determined based on a weighted average cost of capital calculation that made use of a capital asset pricing model to estimate the required return on equity and a 95% equity to 5% debt capital structure due to limited amount of tangible capital assets and ratios for guidelines companies. A terminal growth rate of -2% was used for the Reed CGU consistent with the attrition assumption used in the original purchase price allocation limited new project installation. For the Eddy CGU a 2.5% terminal growth rate was applied and determined based on a Gordon growth model. The recoverable amounts for the Reed and Eddy CGUs were estimated to be $1.7M and $12.4M respectively.

The Company considered its market capitalization and a range of revenue multiples in assessing and concluding on the recoverable amount of the Eddy and Reed CGUs. The Company has concluded that a reasonable possible change in key assumptions for both the Reed and Eddy CGU would not cause the carrying amount to exceed the recoverable amount.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

12. Acquisition of Reed Controls Inc.

On May 4, 2022, the Company through a share purchase agreement acquired a 100% ownership interest in Reed Controls Inc. ("Reed"). Reed develops a robust water management technology platform of hardware and cloud software to manage water related risk, converge water and accelerate Internet of Things ("IoT") adoption among global plumbing manufacturers. The primary reason for the acquisition is to allow the Company to expand the product offering with a greater focus on commercial solutions for smart water metering products and monitoring services. The total purchase price for the transaction was $4,293,100 which was paid through the issuance of 12,266,000 common shares ("Share Consideration"). The Share Consideration is subject to a twenty-four (24) month lock-up period, provided that the Share Consideration will be released from the lock-up requirements, in equal proportions, on the first business day following each of the four, six, nine, twelve, fifteen, eighteen and twenty-one month anniversaries of the closing date. The Share Consideration was subject to a statutory four month hold period.

The acquisition constituted a business combination and was accounted for under the acquisition method and Reed's operating results have been included in these consolidated financial statements since the acquisition date. Since the acquisition date, $597,928 in revenue and $381,199 of loss was included in the consolidated statements of loss and comprehensive loss. The Company recorded $78,765 of transaction costs, associated with the acquisition, in general and administrative expenses.

The allocation of the purchase price is as follows:

Technology (note 11)

Brand (note 11)

	$
Cash	105,938
Accounts receivable	112,127
Inventory	112,752
Property and equipment (note 10)	2,745
Cost to obtain and fulfill a contract (note 8)	31,107
Intangible assets (note 11)	1,082,000
Goodwill (note 11)	3,054,335
Accounts payable and accrued liabilities	(167,904)
Loans payable (note 14)	(40,000)
	4,293,100
Intangible assets includes the estimated fair values of:
	$
Customer relationships (note 11)	215,000
Order backlog (note 11)	401,000

Trade and other receivables represent gross contractual amounts receivable of $112,127 less management's best estimate of allowance for credit losses of $nil.

301,000 165,000 1,082,000

The fair value of intangible assets acquired has been determined using valuation techniques that require estimation of future earnings, future net cash flows, and discount rates. Changes in estimates and assumptions used could have a material impact on the amount of goodwill recorded and the amount of amortization expense recognized in earnings in future periods.

Goodwill is primarily attributed to the expected synergies arising from the acquisition, the expertise and reputation of the assembled management and workforce, and sales growth potential. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

13. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities consist of the following:

	December 31,	December 31,
	2022	2021
	$	$
Accounts payables	3,492,628	2,697,667
Payroll accrual	188,619	107,925
Developer and customer commission accrual	96,595	31,515
Warranty reserve	89,120	27,887
Accrued liabilities	1,280,979	479,389
	5,147,941	3,344,384

14. Debt facilities

The following table depicts activity in debt related financial instruments for the year.

			Conversionderivative of
		Term loan	term loan	Demand loan	Credit facility	Loan payable
	Note	$	$	$	$	$
Opening balance, December 31, 2020		250,000	-	-	-	30,000
Proceeds from issuance, January 6,
2021	B	1,750,000	-	-	-	-
Conversion derivative on term loan,January 6, 2021		(177,835)	177,835	-	-	-
Proceeds from issuance, June 4,	B
2021	B	500,000	-	-	-	-
Gain on amendment, June 4, 2021	B	(19,840)	-	-	-	-
Proceeds from issuance,
September 3, 2021	C	-	-	1,500,000	-	-
Gain on amendment, September
14, 2021	B	(221,337)	-	-	-	-
Proceeds from issuance, October 7,
2021	C	-	-	1,500,000	-	-
Proceeds from loan payable,
November 29, 2021	D	-	-	-	-	10,000
Revaluation of conversion
derivative on term loan, Dec. 31,
2021	B	-	600,845	-	-	-
Accrued interest for the year	C	475,137	-	102,666	-	-
Ending balance, December 31, 2021		2,556,125	778,680	3,102,666	-	40,000
Accrued interest	B, C	18,070	-	11,422	-	-
Conversion of the term loan to
ESHSI common shares, January
12, 2022	B, C	(2,574,195)	(778,680)	-	-	-
Repayment of demand loan,
January 13, 2022	C	-	-	(3,114,088)	-	-
Loan payable, assumed on				-
acquisition of Reed, May 4, 2022	D	-	-		-	40,000
Proceeds from credit facility	A	-	-	-	2,250,000	-
Accrued interest on credit facility, for				-
the year	A	-	-		35,589	-
Ending balance, December 31, 2022		-	-	-	2,285,589	80,000

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

A - Credit facility

On October 17, 2022, the Company entered into a loan agreement with an arm's length private lender (the "Lender") for a $1,500,000 revolving credit facility (the "Facility"), to be used for working capital purposes. This Facility bears interest at a rate of 8% (increasing to 14% upon any default) per annum and will mature in two years, from the date of the agreement. The Company has also agreed to enter into a general security agreement (which is subject to TSX Venture Exchange approval) providing for a first charge security against its assets for the Facility. There were no fees paid in connection with the Facility.

On December 23, 2022, the Company amended the loan agreement entered into on October 17, 2022, increasing the amount of the facility to $3,000,000. As at December 31, 2022, the Company has drawn $2,250,000 on this Facility. See subsequent events note 28.

Since entering into the credit facility on October 17, 2022, the Company has not made interest payments and effective October 31, 2022, the Company was in default and began accruing interest at 14% per annum. As at December 31, 2022, the Company accrued interest amounting to $35,589, which is reflected in the carrying amount of the Facility.

B - Term loans

On January 12, 2022, prior to the RTO Qualifying Transaction closing, the term loan principal of $2,500,000 and accrued interest of $211,018 was converted into 11,295,908 ESHSI common shares, which were subsequently exchanged into 5,702,936 Common Shares (on the exchange basis of 0.504867 Common Shares for every one ESHSI common share held). Upon conversion an accounting loss of $68,899 was recognized.

On January 6, 2021, the Company issued a convertible loan, to several shareholders, for interim financing in the amount of $2,000,000, (due on demand deposit received in advance on December 4, 2020 in the amount of $250,000, with remaining proceeds advanced at the time of executing the convertible loan agreement on January 6, 2021, in the amount of $1,750,000), maturing on September 30, 2021, bearing interest at 9% per annum and payable at maturity. The loan has conversion rights, in the event the Company completes a raise of equity prior to the termination date, the lenders have the right, at their option, to have their share of the loan converted into shares of the borrower at a twenty percent discount to the amount paid for the shares by the other participants in the equity raise.

The conversion feature is considered a derivative as it is not on a fixed-for-fixed basis and has been recorded at fair value. The embedded derivative associated with the conversion feature is Level 3 (see note 19) on the fair value hierarchy and amounted to $177,835 on initial recognition, subsequently being remeasured to $778,680 as at December 31, 2021. The fair value of the conversion derivative of the term loan was determined by discounting the accrued interest of the convertible loan held to maturity by the estimated market yield on a straight debt (non-convertible) for an issuance of similar term and credit quality.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

On June 4, 2021, the convertible loan was increased by $500,000 (for a total of $2,500,000), with the same terms as stated for the January 6, 2021 loan. The modification associated with this transaction resulted in recognizing a gain of $19,840.

On September 14, 2021, the convertible loan was amended to extend the maturity date to February 28, 2022 (from September 30, 2021). The modification associated with this transaction resulted in recognizing a gain of $221,338.

During 2021, the accrued interest of the 9% per annum lending rate amounted to $205,257 (2020 - $1,721) on the term loans of $2,500,000 (2020 - $250,000) and is reflected in the carrying value of the term loans.

C - Demand loans

On September 3, 2021, the Company established a demand loan with several shareholders, in the amount of $1,500,000 at 9% per annum, payable on demand. On January 13, 2022, following the completion of the RTO Transaction the Company repaid the September 3, 2021 tranche of the Demand Loan of $1,500,000 in principal plus accrued interest of $50,129.

On October 7, 2021, the Company entered into a loan agreement with an arm's length private lender for $1,500,000, interest at 1% per month (minimum three months of interest payments), with principal and interest due on demand. The fee in consideration for this loan was $15,000 (reflected in accounts payable and accrued liabilities and finance costs). On January 13, 2022, following the completion of the RTO Transaction the Company repaid the October 7, 2021 tranche of the Demand Loan of $1,500,000 in principal plus accrued interest of $48,958.

D - Loan payable

During 2021, the Company received the Canada Emergency Business Account ("CEBA") loan in the amount of $20,000, which was provided interest free with 33% of the amount forgivable if repaid on or before December 31, 2023. With the completion of the acquisition (see note 12), the CEBA loan amount increased by $40,000. The Company intends to fully repay the outstanding balance of $80,000 on or before December 31, 2023, and resulting in $40,000 being forgiven consistent with the benefits previously recognized.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

15. Share capital

The Company's authorized share capital included an unlimited number of common shares with no par value. The following Common Shares were issued and outstanding as at December 31, 2022.

	ESHSI common and class B preferred shares					Common Shares
	Number of ESHSIcommon shares		ESHSI commonshares	Number of ESHSIclass B preferredshares		ESHSI class Bpreferred shares	Number of Common	Shares Common Shares
Balance, December 31, 2021	61,469,428 $		29,401,826	12,594,566 $		3,904,316	-	$-
Conversion of ESHSI common shares toCommon SharesConversion of ESHSI class B pref shares	(61,469,428)		(29,401,826)	-		-	31,033,886	29,401,826
to Common Shares	-		-	(12,594,566)		(3,904,316)	6,358,581	3,904,316
Private placement	-		-	-		-	20,713,449	12,308,260
Share issue costs	-		-	-		-	-	(981,203)
Agent warrants	-		-	-		-	-	(478,832)
Conversion of Term Loan to CommonSharesIssuance of Common Shares to a	-		-	-		-	5,702,936	3,421,759
developer and customer	-		-	-		-	1,453,767	470,497
Common shares issued in reversetakeover	-		-	-		-	2,000,000	1,200,000
Acquisition of Reed (note 12)							12,266,000	4,293,100
Balance, December 31, 2022	-	$	-	-	$	-	79,528,619 $	53,539,723

On May 4, 2022, the Company acquired 100% of Reed Controls Inc. ("Reed"). The total purchase price for the transaction was $4,293,100. The purchase price was paid through the issuance of 12,266,000 common shares on May 4, 2022 (see note 12).

On October 12, 2021, ESHSI completed the second tranche of a private placement (these funds were held in escrow until the closing of the Qualifying Transaction on January 12, 2022), issuing an additional 2,898,499 subscription receipts for aggregate gross proceeds of $1,739,099. Including the subscription receipts sold under the First Tranche, the Company issued an aggregate of 20,513,768 subscription receipts for aggregate gross proceeds of $12,308,260 under the private placement, which resulted in the issuance of 20,713,449 Common Shares in connection with the RTO Transaction, based on the exchange ratio of 0.504867 per ESHI common share.

On September 14, 2021, ESHSI completed the first tranche of a private placement for an aggregate of 17,615,269 subscription receipts amounting to gross proceeds of $10,569,161 (the "First Tranche"). Each subscription receipts entitles the holder to two ESHSI common shares. These funds were held in escrow until the completion of the Qualifying transaction on January 12, 2022.

The term loan principal of $2,500,000 and accrued interest of $211,018 was converted into 11,295,908 ESHSI common shares, which were subsequently exchanged into 5,702,936 Common Shares (on the exchange basis of 0.504867 Common Shares for every one ESHSI common share held).

Prior to the completion of the RTO Transaction, 61,469,428 ESHSI common shares were issued and outstanding and 12,594,566 ESHSI class B preferred shares were issued and outstanding. Upon closing of the RTO Transaction, on January 12, 2022, the issued and outstanding ESHSI common shares and class B preferred shares were exchanged for 0.504867 Common Shares.

On December 15, 2021, the Company entered into an addendum (the "Addendum") to amend an exclusive supplier agreement (see notes 6, 16). Pursuant to the Addendum, the Company agreed to issue, or cause to be issued, 1,453,767 Common Shares upon the consummation of the RTO Transaction to a developer and customer of the Company. The Addendum is accounted for as a modification to a customer contract and based on the terms of the Addendum, is required to be accounted for as a termination of the existing contract and creation of a new contract. IFRS 15 requires the increase in consideration promised by the contract modification to be applied prospectively over the remaining performance obligation. To determine the incremental value of the share consideration provided by the Addendum, the fair value of the new shares to be issued was first determined to be $872,260 based on a fair value per share of $0.60 as at December 15, 2021. The fair value of the original share consideration, which was contingent on achieving 5,000 unit installs), was determined to be $401,763 as at December 15, 2021 based on a fair value per share of $0.60. The difference between the amended share consideration and the original share consideration earned of $470,497 represents the incremental value provided by the Addendum and was reflected in prepaid expenses at the date of amendment.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Aumento had 2,000,000 common shares issued and outstanding prior to the completion of the RTO Transaction.

Upon completion of the RTO transaction, approximately 71% of the Common Shares calculated on a non-dilutive basis, are subject to a contractual restriction on transfer pursuant to the terms of a lock-up agreement entered into by certain holders of ESHSI securities and ESHSI. The Common Shares subject to such a lock-up agreement may not be transferred until the day that is 24-months following the effective date of the RTO Transaction, provided that 12.5% of the Common Shares will be released on transfer on the first business day following each of the three, six, nine, twelve, fifteen, eighteen, twenty-first and twenty-four month anniversaries of the effective date of the RTO Transaction. As at December 31, 2022, approximately 45% of these shares are subject to lock-up.

Upon the completion of the acquisition of Reed, the Share Consideration was subject to a twenty-four (24) month lock-up period, provided that the Share Consideration will be released from the lock-up requirements on the first business day following each of the four, six, nine, twelve, fifteen, eighteen and twenty-one month anniversaries of the closing date. As at December 31, 2022, approximately 75% of the Share Consideration is subject to lock-up (see note 12).

The following ESHSI common shares were issued and outstanding as at December 31, 2021:

ESHSI common and class B preferred shares
				Number of ESHSI
	Number of ESHSI		ESHSI common	class B preferred		ESHSI class B
	common shares		shares	shares		preferred shares		Amount
Balance, January 1, 2021	61,169,428	$	29,397,086	10,519,566	$	3,261,066	$	32,658,152
Exercise of stock options	300,000		4,740	-		-		4,740
Class B preferred shares issued	-		-	2,075,000		643,250		643,250
Balance, December 31, 2021	61,469,428	$	29,401,826	12,594,566	$	3,904,316	$	33,306,142

During 2021, 2,075,000 ESHSI class B preferred shares for $643,250 were issued.

During the forth quarter of 2021, an aggregate of 300,000 ESHSI options were exercised at a price of $0.01 per ESHSI common share, and were subsequently exchanged for 0.504867 Common Shares, upon the completion of the RTO Transaction.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

16. Share-based compensation

Stock options

The Company has adopted an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion and in accordance with the TSX Venture Exchange, grant to directors, officers, employees and technical consultants to the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares of the Company. Options will be exercisable for a period to be determined by the Board of Directors, but not exceeding 10 years.

On August 4, 2022, the Company granted options to a director of the Company to purchase up to 80,000 Common Shares at a price of $0.60 per share with the expiry date of August 4, 2027. These options vested 33% upon issuance, 33% one year after issuance and 33% two years after issuance. The fair value of these options was estimated at $15,024 using the Black-Scholes options pricing model (with the following assumptions: dividend yield 0%, risk-free rate 2.79%, volatility 121%, term of 5-years).

On May 26, 2022, the company granted options to a number of employees of the Company to purchase up to 425,587 Common Shares at a price of $0.60 per share with the expiry date of May 26, 2032. These options vested 33% upon issuance, 33% one year after issuance and 33% two years after issuance. The fair value of these options was estimated at $106,783 using the Black-Scholes options pricing model (with the following assumptions: dividend yield 0%, risk-free rate 2.62%, volatility 123%, term of 5-years).

On May 4, 2022, the company granted options to two employees of the Company to purchase up to 1,000,000 Common Shares at a price of $0.60 per share with the expiry date of May 4, 2031. These options vested 33% upon issuance, 33% one year after issuance and 33% two years after issuance. The fair value of these options was estimated at $228,100 using the Black-Scholes options pricing model (with the following assumptions: dividend yield 0%, risk-free rate 2.74%, volatility 123%, term of 5-years).

On May 4, 2022, the company granted options to an employee of the Company to purchase up to 380,000 Common Shares at a price of $0.60 per share with the expiry date of May 4, 2031. These options vested 48% upon issuance, 26% one year after issuance and 26% two years after issuance. The fair value of these options was estimated at $105,678 using the Black-Scholes options pricing model (with the following assumptions: dividend yield 0%, risk-free rate 2.74%, volatility 123%, term of 5-years).

On January 12, 2022, the company granted options to the directors of the Company to purchase up to 420,000 Common Shares at a price of $0.60 per share with the expiry date of January 12, 2027. These options vested 33% upon issuance, 33% one year after issuance and 33% two years after issuance. The fair value of these options was estimated at $216,552 using the Black-Scholes options pricing model (with the following assumptions: dividend yield 0%, risk-free rate 1.52%, volatility 130%, term of 5-years).

On February 10, 2022, the company granted options to a director of the Company to purchase up to 80,000 Common Shares at a price of $0.60 per share with the expiry date of February 10, 2027. These options vested 33% upon issuance, 33% one year after issuance and 33% two years after issuance. The fair value of these options was estimated at $30,976 using the Black-Scholes options pricing model (with the following assumptions: dividend yield 0%, risk-free rate 1.81%, volatility 125%, term of 5-years).

On February 10, 2022, the company granted options to certain employees of the Company to purchase up to 227,190 Common Shares at a price of $0.60 per share with the expiry date of February 10, 2032. These options vested 33% upon issuance, 33% one year after issuance and 33% two years after issuance. The fair value of these options was estimated at $87,968 using the Black-Scholes options pricing model (with the following assumptions: dividend yield 0%, risk-free rate 1.81%, volatility 125%, term of 5-years).

Following the closing of the RTO Transaction each ESHSI option outstanding immediately before the closing date was exchanged for the equivalent number of Company options based on the exchange rate of 0.504867. The Company options plan is governed by the Company's incentive stock option plan and have the same terms and conditions with respect to vesting, expiry date and otherwise as were applicable in respect of such ESHSI options.

On June 1, 2021, the company granted ESHSI options to an officer of the Company to purchase up to 250,000 ESHSI common shares at a price of $0.33 per share with the expiry date of June 30, 2031. These options vested 33% one year after issuance, 33% two years after issuance and 33% three years after issuance. The fair value of these options was estimated at $59,675 using the Black-Scholes options pricing model (the with following assumptions: exercise price $0.65, volatility 0.96%, risk free rate 0.91% and 5-year term).

On May 28, 2021, the company granted ESHSI options to an officer of the Company to purchase up to 750,000 ESHSI common shares at a price of $0.33 per share with the expiry date of May 28, 2031. These options vested 33% one year after issuance, 33% two years after issuance and 33% three years after issuance. The fair value of these options was estimated at $179,025 using the Black-Scholes options pricing model (with the following assumptions: exercise price $0.65, volatility 96%, risk free rate 0.92%, and 5-year term).

On April 30, 2021, the company granted ESHSI options to an employee of the Company to purchase up to 1,000,000 ESHSI common shares at a price of $0.33 per share with the expiry date of April 30, 2031. These options vested 33% one year after issuance, 33% two years after issuance and 33% three years after issuance. The fair value of these options was estimated at $238,700 using the Black-Scholes options pricing model (with the following assumptions: exercise price $0.65, volatility 96%, risk free rate 0.93% and term of 5 years).

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

On February 17, 2021, Aumento granted 200,000 stock options under its incentive plan entitling their holders to purchase 200,000 Aumento common shares at a price of $0.50 for a period of five years from their date of issuance. Upon the closing of the RTO Transaction, these options were assumed by the Company and valued using the Black-Scholes option pricing model (with the following assumptions: dividend yield 0%, risk-free rate 0.18%, volatility of 113%, expected term of 2-years), the fair value attributed to these options was $73,748. These options vested immediately.

On January 4, 2021, the company granted ESHSI options to certain officers and employees of the Company to purchase up to 450,000 ESHSI common shares at a price of $0.31 per share with the expiry date of January 4, 2031. These options vested on issuance and the fair value of these options was estimated at $99,000 using the Black-Scholes options pricing model (with the following assumptions: exercise price $0.61, volatility 94%, risk free rate 0.39% and a term of 5-years).

The following assumptions were used in arriving at the grant-date fair value associated with the stock options:

	December 31, 2022	Prior years
Exercise price	$0.50 to $0.60	$0.02 to $0.65issuance
Risk-free rate	1.52% to 2.79%	0.39% to 1.46%
Expected life	5 years	5 years
Expected volatility	121% to 130%	70% to 96%
Expected dividends	Nil	Nil

	December 31, 2022		December 31, 2021
		Weighted			Weighted
	Number of	average	Number of	Number of	average
	options	exercise price	ESHSI options	options	exercise price
Outstanding, beginning of year	1,706,450	$0.47	1,350,000	681,570	$0.02
Options granted	2,612,777	$0.60	450,000	227,190	$0.61
Options issued, reverse takeover	200,000	$0.50	2,000,000	1,009,734	$0.65
Exercised	-	-	(300,000)	(151,460)	$0.02
Forfeiture	(123,817)	$0.61	(120,000)	(60,584)	$0.02
Expired	(36,667)	$0.60	-	-	-
Outstanding, end of period	4,358,743	$0.55	3,380,000	1,706,450	$0.47
Number of options exercisable	2,070,407	$0.47	1,147,500	579,335	$0.26

The following options were issued and outstanding as at December 31, 2022:

	Number of	Number of
	options	options	Exercise
Expiry date	outstanding	exercisable	price
May 4, 2031	1,380,000	513,334	$0.60
May 26, 2032	395,587	131,865	$0.60
February 10, 2032	227,190	75,730	$0.60
June 1, 2031	126,216	42,072	$0.65
May 28, 2031	378,651	126,217	$0.65
April 30, 2031	504,867	168,289	$0.65
January 4, 2031	176,704	176,704	$0.61
September 29, 2029	469,528	469,528	$0.02
August 4, 2027	80,000	26,667	$0.60
February 10, 2027	80,000	26,667	$0.60
January 12, 2027	340,000	113,334	$0.60
February 16, 2026	200,000	200,000	$0.50
Number of options outstanding and exercisable	4,358,743	2,070,407	-

For the year ended December 31, 2022, employee and directors stock based compensation expense amounted to $773,240 (2021 - $283,553). The employee and director stock base compensation expense that was allocated to general and administrative expenses amounted to $522,307 (2021 - $65,377), to cost of sales $130,035 (2021 - $76,278) and selling expenses $120,898 (2021 - $141,898).

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Warrants

The following assumptions were used in arriving at the grant-date fair value associated with the warrants:

	December 31, 2022	Prior years
Exercise price	$0.50 to $0.63	$0.61 to $1.30issuance
Risk-free rate	0.58% to 1.2%	0.94%
Expected life	3 - 5 yrs	3 years
Expected volatility	95% to 100%	70%
Expected dividends	Nil	Nil

	December 31, 2022		December 31, 2021
		Weighted		Weighted
	Number of	average	Number of	average
	warrants	exercise price	warrants	exercise price
Outstanding, beginning of year	1,957,000	$0.63	57,000	$1.30
Warrants granted	1,324,255	$0.60	1,900,000	$0.61
Warrants issued, reverse takeover	100,000	$0.50	-	-
Outstanding, end of period	3,381,255	$0.61	1,957,000	$0.63
Number of warrants exercisable	3,381,255	$0.61	1,957,000	$0.63

The following warrants were issued and outstanding as at December 31, 2022:

Expiry date	Number ofwarrantsoutstanding	Number ofwarrantsexercisable	Exerciseprice
January 12, 2025	1,324,255	1,324,255	$0.60
December 15, 2024	1,900,000	1,900,000	$0.61
February 17, 2026	100,000	100,000	$0.50
May 23, 2023	57,000	57,000	$1.30
Number of warrants outstanding and exercisable	3,381,255	3,381,255	$0.61

ESHSI warrants outstanding immediately prior to the closing of the RTO Transaction were exchanged for 0.504867 warrants exercisable to purchase one Common Share at a purchase price equal to the exercise price of the ESHSI warrant divided by 0.504867. The warrants shall have the same terms and conditions with respect to the expiry time and otherwise as were applicable in respect of such ESHSI warrants.

The Company had issued 113,000 ESHSI warrants (with an exercise price of $1.30) as partial compensation for its equity raises. 57,000 of these warrants remain outstanding and expire on May 23, 2023.

On December 15, 2021, the Company entered into an addendum (the "Addendum") to amend an exclusive supplier agreement (see note 6 and 15). As part of the Addendum, the Company issued warrants to purchase 1,900,000 Common Shares upon consummation of the RTO Transaction. The warrants have an exercise price of $0.61 and are exercisable for a period of three years from the date of issuance. The Addendum is accounted for as a modification to a customer contract and based on the terms of the Addendum, is required to be accounted for as a termination of the existing contract and creation of a new contract. IFRS 15 requires the increase in consideration promised by the contract modification to be applied prospectively over the remaining performance obligation. To determine the incremental value of the warrants provided by the Addendum, the fair value of the amended warrants was first determined to be $567,802 using the Black-Scholes options pricing model (with the following assumptions: exercise price of $0.61, volatility of 77%, risk free rate of 1.02% and term of 3 -years). The fair value of the original warrants as at December 15, 2021 was then determined to be $55,754 using the Black-Scholes options pricing model (with the following assumptions: exercise price of $1.98, weighted average volatility of 70%, risk free rate of 0.94% and a term of 1.5 years). The difference between the amended warrants and the original warrants of $512,048 represents the incremental value provided by the Addendum was reflected in prepaid expense at the date of the amendment. The prepaid balance is amortized against revenue as, as units are installed under the terms of the Addendum (see note 6).

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Pursuant to the terms of the Agency Agreement, (the "Agency Agreement") ESHSI paid to the Agents: (i) a cash commission equal to 7.0% of the aggregate gross proceeds of the Private Placement, other than in respect of any Subscription Receipts sold to members of a president's list provided by ESHSI (the President's List Purchases"), which commission is 3.5% of the gross proceeds from President's List Purchasers; and (ii) such number of warrants (the "Agents Warrants") as is equal to 7.0% of the number of Subscription Receipts sold pursuant to the Private Placement, other than any Subscription Receipts sold to President's List Purchasers, which commission is 3.5% of the number of Subscription Receipts sold to the President's List Purchasers. Each Agents' warrant is exercisable for two ESHSI common shares at a price of $0.60 until the date that is 36 months from the date of satisfaction or waiver, as applicable, of certain conditions (the "Escrow Release Conditions"). Upon the completion of the RTO Transaction, each Agent received warrants that were exchanged for 0.504867 agents' warrants exercisable to purchase Common Shares at a purchase price equal to the issue price divided by 0.504867 for a period of 36 months following the date of Escrow Release Conditions were satisfied (January 12, 2022).

The Agent received 1,337,145 warrants, which have a fair value of $478,832 using the Black-Scholes options pricing model (with the following assumptions: exercise price $0.60, expected term of 3-years, volatility of 95% and risk-free rate of 1.2%).

On February 17, 2021, Aumento granted 100,000 warrants to the agents, exercisable within 60 months at an exercise price of $0.50 per share. Upon the closing of the RTO Qualifying Transaction, these warrants were assumed by the Company and valued using the Black-Scholes option pricing model (with the following assumptions: dividend yield 0%, risk-free rate 0.39%, volatility of 121%, term of 4-years), the fair value attributed to these warrants was $47,727. These warrants vested immediately.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

17. Related party transactions and balances

During the year ended December 31, 2022, the Company incurred expenses amounting to $112,984 (2021 - $nil), for installation and plumbing work from a company related to a key management person and shareholder of the Company. Included in accounts payable as at December 31, 2022 is an amount owing of $79,431 (2021 - $nil).

During the year ended December 31, 2022, the Company incurred expenses amounting to $1,080 (2021 - $nil), for supplies from a company related to a key management person and shareholder of the Company. Included in accounts payable as at December 31, 2022 is an amount owing of $nil (2021 - $nil).

Key management personnel compensation

The compensation awarded to key management personnel is as follows:

September 30,September 30,	December 30,	December 30,
20222021	2022	2021
$$	$	$
Salaries, fees and other short-term benefits305,208197,365	1,471,397	1,070,125
Stock-based compensation (note 16)99,1030	637,576	218,948
404,311197,365	2,108,973	1,289,073

Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company defines key management personnel as being the directors and key employees.

18. Contingencies

The Company, from time to time, may be subject to various legal proceedings and complaints arising in the normal course of business. These proceedings primarily include matters related to employment laws, various provincial regulations governing debt collection and contractual obligations. The Company has liability insurance coverage in excess of certain limits from various insurance carriers, which cover in part many of these matters. It is the Company's policy to accrue for amounts related to these legal matters when it is probable a liability has been incurred and an amount is reasonably estimable.

On September 14, 2021, a former employee filed a $267,000 claim relating to wrongful dismissal by the Company. This claim was settled on March 24, 2022, for an amount of $48,000.

On March 3, 2022, a claim was filed in the amount of $175,000 against the Company, relating to an employee breaching post-employment obligation and fiduciary obligations. The Company believes that there is no merit to this claim.

On April 12, 2022, the Company initiated a claim against a former service provider seeking damages of approximately $1,300,000. On April 29, 2022, the Company received a statement of defense and counterclaim in the amount of $1,526,817, which is provided for in accounts payable and accrued liabilities.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

19. Risk management

The Company is exposed to the symptoms and effects of global economic conditions and other factors that could adversely affect its business, financial condition, and operating results. Many of the risk factors are beyond the Company's direct control. The Company's management and Board of Directors plan an active role in monitoring the Company's key risks and in determining the polices that are best suited to manage these risks.

Covid

Public health crises, such as COVID-19, may have a material adverse impact on the Company's operations. The Company has experienced business and operational interruptions relating to COVID-19 and other such events outside of the Company's control, which reduced the ability to commence new revenue contracts. The COVID-19 pandemic and the resulting government measures have impacted the Company's business and operations and may have a material adverse impact on the Company's business.

The Company received a subsidy (see note 23). The Company received the CEBA interest free loans (see note 14). The full extent of the impact of the COVID-19 outbreak on the Company's business is not known at this time.

Capital and risk management

The Company's objective and polices for managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes changes based on economic conditions, risks that impact the consolidated operations and future significant capital investment opportunities. In order to maintain or adjust its capital structure, the Company may issue new equity instruments or considers other financing opportunities. (See notes 14, 15 and 28).

The Company is exposed to a variety of financial risks by virtue of its activities: market risk, credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board of Directors has overall responsibility for the determination of the Company's capital and risk management objectives and policies while retaining ultimate responsibility for them. The Company's overall capital and risk management program has not changed throughout the year. It focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. Risk management is carried out by the finance department under policies approved by the Board of Directors. The finance department identifies and evaluates financial risks in close cooperation with management.

Credit risk

Credit risk is the risk one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company's main credit risks relate to its trade accounts receivable. The Company installs residential and commercial water leak mitigation technology at its customers locations in the normal course of its operations.

Management of the Company monitors the creditworthiness of its customers by performing background checks on all new customers focusing on publicity, reputation in the market, and relationships with customers and other vendors. Further, management monitors the frequency of payments from ongoing customers and performs frequent reviews of outstanding balances.

Provisions for outstanding balances are established based on forward-looking information and revised when there are changes in circumstances that would create doubt over the receipt of funds. Such reviews are conducted on a continued basis through the monitoring of outstanding balances as well as the frequency of payments received. Accounts receivables are completely written off once management determines the probability of collection to be remote. Such reviews are conducted on a forward-looking basis and reviewed when changes in client or economic circumstances exist that would create doubt over the receipt of funds within the next twelve months. For the year ended December 31, 2022, $95,696 receivables were written off (2021 - $55,459 in receivables were written off). The amounts that were written off are still subject to collection enforcement activity. Payment terms are usually 30 days after the invoice is issued.

The following tables present the provision for credit losses in the accounts receivable based on the Company's operating sectors: Single-Family Residence ("SFR"), Multi-Family Residence ("MFR") and Commercial & Institutional ("C&I").

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

The provision for credit losses on accounts receivable as at December 31, 2022:

Accounts receivable	Current	60 - 120 days	Over 120 days	Total
SFR$	262,461	$29,475	$1,363	$293,299
MFR	557,860	480,083	5,418	1,043,361
C&I	134	436,805	610	437,549
$	820,455	$946,363	$7,391	$1,774,209
Provision for credit losses	Current	60 - 120 days	Over 120 days	Total
$SFR	11,483	$14,737	$1,022	$27,242
MFR	32,370	72,013	1,354	105,737
C&I	7	43,680	122	43,809
$	43,860	$130,430	$2,498	$176,788
Accounts receivable, net				$1,597,421

The provision for credit losses on accounts receivable as at December 31, 2021:

Accounts receivable	Current	60 - 120 days	Over 120 days	Total
SFR	$200,854	$1,526	$1,428	$203,808
MFR	332,282	18,492	41,236	392,010
C&I	201,500	-	-	201,500
	$734,636	$20,018	$42,664	$797,318
Provision for credit losses	Current	60 - 120 days	Over 120 days	Total
SFR	$39,643	$763	$1,071	$41,477
MFR	33,635	2,774	10,201	46,610
C&I	10,075	-	-	10,075
Expected credit losses	$83,353	$3,537	$11,272	$98,162
Accounts receivable, net				$699,156
Changes in the provision for expected credit losses result from the following:
Balance - December 31, 2021				$98,162
Net allowance recognized as an expense				113,433
Receivable written off				(34,807)
Balance - December 31, 2022				$176,788

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Currency risk

The Company generates sales of product in Canadian and U.S. dollars and incurs its expenses in both U.S. and Canadian dollars and is therefore exposed to risk from changes in foreign currency rates. In addition, the Company holds financial assets and liabilities in U.S. dollars that expose the Company to foreign exchange risks. The Company does not utilize any financial instruments or cash management policies to mitigate the risks arising from changes in foreign currency rates.

Currency risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. A portion of the Company's income is generated in US dollars and is subject to currency fluctuations. The performance of the Canadian dollar relative to the US dollar could positively or negatively affect the Company's income. Thus, the Company may from time to time, experience losses resulting from fluctuations in the value of its foreign currency translations, which could adversely affect its operating results. Currency risk is not hedged.

Regarding currency exposure, if the Canadian dollar had been 5% stronger/weaker versus the US dollar for the year ended December 31, 2022, with all other variables held constant, income for the period would have been $1,230 higher/lower (2021 – $612).

For the year ended December 31, 2022, approximately 11% (2021 – 27%) of the Company's total sales were in US dollars. Consequently, some assets are exposed to foreign exchange fluctuations.

As at December 31, 2022, operating cash was $94,038 (US $69,432) and accounts receivable of $17,918 (US $13,229). As at December 31, 2021, operating cash was $80,282 (US $63,324) and accounts receivable of $20,091 (US $15,847).

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is subject to interest rate risk with respect to its cash and cash equivalent; however, the risk is minimal because of their short-term maturity. All of the Company's interest-bearing debt instruments have fixed interest rates and are not subject to interest rate cash flow risk.

Liquidity risk

Liquidity risk is the risk the Company will encounter difficulty in meeting the obligations associated with its financial liabilities. The Company is exposed to this risk mainly in respect of its accounts payable, due to related parties and accruals. The Company prepares cash flow forecasts to monitor its cash flow needs in order to manage its liquidity risk. The Company manages liquidity risk through managing contractual maturities based on cash flow forecasts. The Company mitigates this risk through credit facilities and loan agreements (see subsequent events note 28).

Contractual obligations as at December 31, 2022 are due as follows:

		Less than 6
	Total	months	6 - 12 months	1 - 3 years	4 - 5 years
Accounts payable and accrued liabilities
(note 13)	5,147,941	3,439,907	1,526,816	89,120	92,098
Credit facility	2,285,589	2,285,589	-	-
Lease obligation, office (note 9)	830,029	98,863	102,880	628,286	-
Lease obligation, equipment (note 9)	1,476	1,105	371	-	-
Loan payable (note 14)	80,000	-	80,000	-	-
	8,345,035	5,825,464	1,710,067	717,406	92,098

Accounts payable and accrued liabilities includes a warranty provision of $89,120 (December 31, 2021 - $27,887), related to water monitoring equipment.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

Fair value of financial instruments

The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, and demand loans approximate their carrying amounts largely due to the short-term maturities of these instruments and are considered to be Level 1 fair value estimates.

The fair value of the term loans (host liability) and loan payable are estimated at a specific point in time, based on relevant market information. This estimate is based on quoted market prices for the same of similar issues or on the current rates offered to the Entity for similar financial instruments subject to similar risk and maturities. Fair value measurements of these instruments were estimated using Level 2 inputs.

The fair value of the Company's conversion derivative of term loan was determined using a probability weighted expected return method as quoted market prices or third-party consensus pricing information is not available. In applying this method, an expected payment was determined under two potential scenarios, each payment was then weighted by an estimated probability of the corresponding scenario occurring, and then the probability weighted payments were discounted to the valuation date and summed. The probability of a liquidity event occurring and discount rate represents Level 3 inputs. The scenarios probability ranged from 80%-100% as at December 31, 2021, the annual discount rate ranged from 22% - 26%, the timing of liquidity event was considered to be at maturity date given the instrument has a short life.

The following table summarizes the sensitivity impact to the embedded derivative fair value from a change in certain assumptions:

Input	Relationship between the key unobservable inputs and fair
Scenario probability	Depending on the scenario the probability is applied to, a change inthis input can either increase or decrease the estimated fair valueIncrease (decrease) of the discount rate would decrease (increase)the estimated fair value respectively.
Discount rate
December 31, 2022		Level 1	Level 2	Level 3	Total
Conversion derivative of term loan		-	-	-	-
	$	-$	-$	-$	-
December 31, 2021		Level 1	Level 2	Level 3	Total

Prior to the RTO Qualifying Transaction closing on January 12, 2022, the term loan principal of $2,500,000 and accrued interest was converted into ESHSI common shares (see note 15).

Conversion derivative of term loan - - ($ 778,680) ($ 778,680)

$ - $ - ($ 778,680) ($ 778,680)

During the year ended December 31, 2022 and year ended December 31, 2021, there were no transfers between Level 1, Level 2 or Level 3 fair value measurements.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

20. Revenue

The table below summarizes the various distinct performance obligations in the Company's contracts with customers that impact revenue during the year and when we recognize revenue.

Performance obligations from contracts with customers	Timing of the satisfaction of the performance obligation
Integrated smart water monitoring	Once monitoring has begun, over the contract term
Installation of general hardware	Based on the proportion of services performed
Deployment of smart water products	Over time based on the proportion of services performed
General hardware	When control of the product has transferred
Cloud hosting	As the service is provided (usually monthly)

September 30,	September 30,December 31,	December 31,
2022	20212022	2021
Integrated smart water monitoring	1,344,605	1,222,836
Installation of general hardware	621,314	-
Deployment of smart water products	51,405	-
General hardware	412,381	-
Cloud hosting	134,147	-
	2,563,852	1,222,836

Deferred revenue

Deferred revenue is comprised of upfront prepayments received for certain water leak detection monitoring services, which are recognized over the contract term (which averages five years).

The table below summarizes the deferred revenue balances.

September 30,September 30,	December 31,	December 31,
20222021	2022	2021
Opening balance	1,195,451	559,908
Additions	4,098,831	822,356
Recognitions	(2,191,870)	(186,813)
Balance end of year	3,102,412	1,195,451

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

21. Cost of sales

September 30,September 30,	December 31,	December 31,
20222021	2022	2021
$$	$	$
Stock-based compensation (note 16)--	130,035	76,278
Materials and labour141,5114,393	482,629	49,659
Provision for inventory (note 7)--	(193,355)	99,210
Warehouse rent (note 9)16,50016,500	66,000	66,000
Monitoring service27,6455,909	147,701	82,786
Depreciation on costs to obtain and fulfill a contract (note 8)72,70330,942	247,940	142,670
Licensing and network fees56,51216,216	242,353	183,660
314,87173,960	1,123,303	700,263

22. Selling

September 30,September 30,	December 31,	December 31,
20222021	2022	2021
$$	$	$
Salaries and commissions327,836158,855	1,143,170	393,391
Marketing promotions19,1317,150	100,014	91,512
Stock-based compensation (note 16)--	120,898	141,898
Commission to developer and customer20,37145,513	94,972	59,880
Sales commission	156,563	6,305
Warranty reserve26,42726,597	165,477	107,324
General44,0254,553	107,875	6,194
437,790242,668	1,888,969	806,504

The Company has an agreement with a developer and customer to pay 12% of the net revenue derived from the provision of water monitoring products and services related to condominium projects, during 2022 that amounted to $94,251 (2021 - $59,880).

23. General and administrative

September 30,September 30,	December 31,	December 31,
20222021	2022	2021
$$	$	$
Wages and benefits1,020,827934,069	4,364,823	3,276,301
Consulting expense364,018261,626	1,308,165	969,696
Professional fees118,8891,523,480	1,518,356	1,696,836
IT maintenance	208,563	133,726
Dues and subscriptions	377,354	195,502
Provision for expected credit losses (note 19)14,35667,374	78,626	57,766
Stock-based compensation (note 16)130,02673,763	522,307	65,377
Depreciation on property and equipment (note 10)20,24618,020	83,656	71,201
Amortization of intangible assets (note 11)76,113-	253,639	-
Amortization on right-of-use assets (note 9)26,87026,870	107,478	107,478
Listing expense (note 1)--	902,673	-
Administrative633,501123,173	1,181,641	130,606
2,404,8463,028,375	10,907,281	6,704,490

During 2021, the Company received a subsidy during the COVID-19 pandemic of $36,152 to cover part of the employee wages (recognized in wages and benefits), and a subsidy of $30,419 related to the head office rent (recognized in administrative expenses).

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

24. Finance costs

		September 30,December 31,	December 31,
	Reference	20212022	2021
	$	$$	$
Interest on working capital loan	Note 14	35,589	-
Modification gains, increased convertible loan	Note 14	-	(19,840)
Modification gains, extended maturity of convertible loan	Note 14	-	(221,337)
Loans payable, gain on repayment	Note 14	-	(10,000)
Conversion derivative on term loan - January 12, 2022	Note 14	-	(177,835)
Remeasurement of conversion derivative on term loan	Note 14	-	778,680
Finance income	Note 9	(56,080)	-
Remeasurement of conversion derivative on term loan	Note 14	68,899	475,137
Interest on term loan	Note 14	18,070	-
Interest on demand loan	Note 14	11,423	102,666
Interest on lease obligations	Note 9	64,092	76,737
	0	0141,992	1,004,208

25. Income taxes

Provision for income taxes:

The combined tax rate is determined using the substantively enacted tax rates as at December 31, 2022 and 2021. A reconciliation to the provision for income tax reported in the consolidated statement of loss and comprehensive loss is summarized as follows:

	December 31,	December 31,
	2022	2021
	$	$
Rate reconciliation
Loss before income taxes	(11,800,950)	(8,010,503)
Canadian and Ontario statutory income tax rate	26.5%	26.5%
Income tax recovery computed at the statutory rates	(3,127,252)	(2,122,783)
Permanent differences	5,139	79,142
Stock option expense	223,536	-
Other	(83,504)	-
Change in unrecognized deductible temporary differences	3,242,100	2,043,641
Share issue cost in equity	(260,019)	-
Deferred income tax recovery	-	-

	December 31,	December 31,
	2022	2021
	$	$
Unrecognized deferred tax assets
Operating losses carried forward	53,434,605	37,285,233
Depreciable capital assets	782,033	2,018,056
Share issuance costs / deferred financing fees	1,575,785	32,232
Expected credit losses	97,306	-
Costs to obtain and fulfill a contract	(2,331,977)	(53,011)
Total unrecognized temporary differences	53,557,752	39,282,510

The company has incurred loss for income tax purposes of approximately $53,434,605 (2021 - $37,285,233), of which approximately US $2,182,075 (2021 - US $2,160,000) relate to the US operations, available to reduce future years' income for tax purposes which expire between 2033 and 2042. The potential tax benefit of these loses has not been recognized.

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

26. Net loss per share

	2022	2021
	$	$
Net loss for the year	(11,800,950)	(8,010,503)
Weighted average number of common shares outstanding	74,170,458	30,909,398
Basic and diluted loss per share	($0.16)	($0.26)

On January 12, 2022, the Company completed the RTO Transaction and a share exchange from ESHSI common shares and class B preferred shares to Common Shares (see note 1, 16). On May 4, 2022, the Company acquired 100% of Reed Controls Inc. (see note 12). As at December 31, 2022, 79,528,619 Common Shares were outstanding.

Following the closing of the RTO Transaction each ESHSI common share outstanding immediately before the effective date was exchanged for a number of Common Shares equal to the number of ESHSI common shares multiplied by 0.504867.

Diluted

Diluted income per share is calculated by adjusting the weighted average number of Common Shares outstanding to assume conversion of all dilutive potential Common Shares. For the year ended December 31, 2022 and 2021, the Company's source of potential dilution to the Common Shares are stock options, warrants and convertible debentures (see note 16). For the year ended December 30, 2022, an adjustment related to 469,526 (2021 - 511,177) in-the-money stock options have been excluded from the calculation of diluted earnings per share as they were anti-dilutive. As a result, diluted earnings per share is equal to basic earnings per share for the year ended December 31, 2022 and 2021.

27. Segment reporting

Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. For the purpose of segment reporting, the Company's Chief Executive Officer (CEO) is the Chief Operating Decision Maker (CODM).

The Company operates in three operating segments, which are based on the Company's organizational structure and how the information is reported internally on a regular basis. These operating segments are managed separately because they require different sales and marketing strategies. The Company's revenue is generated from its customers in the following market sectors: single-family residence ("SFR"), multi-family residence ("MFR") and customer & industrial ("C&I"). The Company's revenue is generated from customers in Canada and the USA.

Information related to each reportable segment is set out below. Segment profit and loss information is used to measure performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries.

The Company's results by operating segments are as follows:

Year ended December 31, 2022	SFR	MFR	C&I	Corporate	Total
	$	$	$	$	$
Revenue	569,841	1,945,317	48,694	-	2,563,852
Cost of sales (note 21)	249,665	852,304	21,334	-	1,123,303
Selling (note 22)	419,842	1,433,251	35,876	-	1,888,969
General and administrative (note 23)	-	-	-	10,907,281	10,907,281
Interest income	-	-	-	(27,828)	(27,828)
Loss on foreign exchange	-	-	-	107,010	107,010
Impairment (note 11)				224,075	224,075
Finance costs (note 24)	-	-	-	141,992	141,992
Income taxes (note 25)	-	-	-	-	-
Net loss	(99,666)	(340,238)	(8,517)	(11,352,530)	(11,800,950)
Year ended December 31, 2021	SFR	MFR	C&I	Corporate	Total
	$	$	$	$	$
Revenue	684,494	532,707	5,635	-	1,222,836
Cost of sales (note 21)	482,660	213,605	3,999	-	700,263
Selling (note 22)	555,887	246,012	4,605	-	806,504
General and administrative (note 23)	-	-	-	6,704,490	6,704,490
Interest income	-	-	-	(4,149)	(4,149)
Loss on foreign exchange	-	-	-	22,023	22,023
Finance costs (note 24)	-	-	-	1,004,208	1,004,208
Income taxes (note 25)	-	-	-	-	-
Net loss	(354,053)	73,090	(2,969)	(7,726,572)	(8,010,503)

Notes to Consolidated Financial Statements

Years ended December 31, 2022 and 2021

The Company's revenue by geography are as follows:

	December 31,	December 31,
	2022	2021
	$	$
Canada	2,286,485	883,064
USA	277,367	339,772
Total	2,563,852	1,222,836
The Company's total assets by geography are as follows
	December 31,	December 31,
	2022	2021
	$	$
Canada	15,148,872	6,260,435
USA	42,333

28. Subsequent events

On February 8, 2023, a claim which was filed on May 10, 2022 (see note 18) in the amount of $250,000 against the Company, by an employee relating to wrongful dismissal was settled for an amount of $24,000.

Total 15,191,205 6,307,711

On March 10, 2023, the Company increased its credit facility (see note 14) of $3,000,000 to $5,000,000. The Company is in the process of entering into a security pledge subject to TSX Venture Exchange approval. There were no fees paid in connection with the Facility. The Company intends to use the net proceeds from the financing largely for working capital purposes, to deploy its contracted revenue backlog and general corporate expenses. As of the date of these financial statements the draw on the facility amounted to $4,643,554.

On March 31, 2023, The Company entered into a loan agreement with a non arm's length lender (the "Lender") for a $1,500,000 revolving credit facility (the "Facility"). This Facility bears interest at a rate of 8% (increasing to 14% upon any default) per annum and will mature in two years. This Facility has no security pledges and there were no fees paid in connection with the Facility. As of the date of these financial statements the draw on this Facility amounts to $1,000,000.

On June 14, 2023, a claim was filed in the amount of $184,000 against the Company, relating to wrongful dismissal of an employee. The Company believes that there is no merit to this claim and will defend its position and has not included an accrual in its provision for this claim.

On June 14, 2023, a claim was filed in the amount of $710,000 against the Company, relating to wrongful dismissal of an employee. The Company believes that there is no merit to this claim and will defend its position and has not included an accrual in its provision for this claim.