Next Hydrogen Solutions Inc. — Interim / Quarterly Report 2021

Aug 18, 2021

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Next Hydrogen Solutions Inc. (previously BioHEP Technologies Ltd.)

Condensed Interim Consolidated Financial Statements

For the six months ended June 30, 2021

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Condensed Interim Consolidated Statements of Financial Position As at June 30, 2021 and December 31, 2020 (in Canadian dollars)	Condensed Interim Consolidated Statements of Financial Position As at June 30, 2021 and December 31, 2020 (in Canadian dollars)
(unaudited) Assets Current Cash and cash equivalents Trade and other receivables Prepaid expenses and deposits Current income tax recoverable Inventory (note 5) Equipment (note 4, 6) Patents (note 7) Intangible assets and goodwill (note 4, 8)	Jun 30 Dec 31 2021 2020
	$52,833,069 $ 1,092,067 913,423 212,591 1,057,097 75,000 - 53,318 265,906 1,539,687
	55,069,495 2,972,663 346,415 39,482 796,051 810,375 413,641 -
	$ 56,625,602 $ 3,822,520
Liabilities Current Bank indebtedness (note 18) Trade and other payables Contingent liability (note 4) Deferred revenue (note 9) Provisions (note 10) Long-term debt Loan payable (note 12) Deferred share unit liability (note 11) Contingent liability (note 4) Deferred revenue (note 9) Provisions (note 10) Long-term debt Commitments (note 16) Shareholders' Equity Share capital (note 13) Contributed surplus (note 14) Retained deficit	$ 60,000 $ 40,000 1,015,783 287,630 14,968 - 2,443,982 1,611,807 1,453,439 557,968 101,625 33,560 5,105,256 4,885,422 - 1,523,314
	10,195,053 8,939,701 48,216 - 331,354 1,159,834 1,300,948 132,747 233,084 300,909
	12,108,655 10,533,191
	76,442,081 10,085,999 1,562,087 71,196 (33,487,221) (16,867,866)
	44,516,947 (6,710,671)
	$ 56,625,602 $ 3,822,520
On behalf of the Board ''Raveel Afzaal'' ''Allan Mackenzie''

The accompanying notes are an integral part of these condensed interim consolidated financial statements 1.

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Condensed Interim Consolidated Statements of Comprehensive Loss three and six months ended June 30, 2021 and 2020 (in Canadian dollars)	Condensed Interim Consolidated Statements of Comprehensive Loss three and six months ended June 30, 2021 and 2020 (in Canadian dollars)
(unaudited) Revenue (note 17) Direct costs Gross margin Expenses Research and development (note 15) General and administrative (note 15) Marketing and sales Provisions (note 5, 10) Loss before the following Finance costs, net (note 12) Depreciation and amortization (notes 6, 7, 8) Change in fair value of deferred share units Transaction costs (notes 3, 4, 14) Net loss and comprehensive loss	3 months 3 months 6 months 6 months ended ended ended ended June 30 June 30 June 30 June 30 2021 2020 2021 2020
	$ 59,123 - 59,123 $ 1,775 28,067 - 28,067 -
	31,056 - 31,056 1,775
	1,386,139 554,109 2,232,089 1,180,291 1,012,996 351,857 1,846,098 633,273 555,412 10,734 756,896 31,718 3,560,595 - 3,560,595 492,478
	6,515,142 916,700 8,395,678 2,337,760
	(6,484,086) (916,700) (8,364,622) (2,335,985)
	51,368 179,100 212,741 296,409 51,554 10,128 78,584 20,257 - - - 3,423 7,819,754 - 7,963,408 -
	7,922,676 189,228 8,254,733 320,089
	$(14,406,762) $ (1,105,928) (16,619,355) $ (2,656,074)
Loss per share: Basic $ (0.85) $ (0.15) $ (1.02) $ (0.40) Diluted $ (0.85) $ (0.15) $ (1.02) $ (0.40) Weighted average number of shares outstanding: (note 13) Basic 16,996,179 7,299,785 16,235,382 6,695,775 Diluted 16,996,179 7,299,785 16,235,382 6,695,775

The accompanying notes are an integral part of these condensed interim consolidated financial statements 2.

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Condensed Interim Consolidated Statements of Changes in Shareholders' Equity three and six months ended June 30, 2021 and 2020 (in Canadian dollars)	Condensed Interim Consolidated Statements of Changes in Shareholders' Equity three and six months ended June 30, 2021 and 2020 (in Canadian dollars)
(unaudited) Balances, December 31, 2020 Share issuance (note 13) Warrant issuance (note 14) Option exercise (note 13) DSU settlement (notes 11, 13) Share-based compensation expense (note 14) Net loss and comprehensive loss Balances, June 30, 2021	Share Contributed Retained Capital Surplus Deficit Total
	$ 10,085,999 71,196 (16,867,866)$ (6,710,671) 64,764,802 - - 64,764,802 - 614,700 - 614,700 67,966 (22,966) - 45,000 1,523,314 - - 1,523,314 - 899,157 - 899,157 - - (16,619,355) (16,619,355)
	$ 76,442,081 1,562,087 (33,487,221)$ 44,516,947
Balances, December 31, 2019 Share repurchase Net loss and comprehensive loss Balances, June 30, 2020	$ 7,299,258 - (10,017,250)$ (2,717,992) (22,722) - - (22,722) - - (2,656,074) (2,656,074)
	$ 7,276,536 - (12,673,324)$ (5,396,788)

The accompanying notes are an integral part of these condensed interim consolidated financial statements 3.

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Condensed Interim Consolidated Statements of Cash Flows three and six months ended June 30, 2021 and 2020 (in Canadian dollars)	Condensed Interim Consolidated Statements of Cash Flows three and six months ended June 30, 2021 and 2020 (in Canadian dollars)
(unaudited) Cash flows used in operating activities Net loss Adjustments: Finance costs, net Depreciation and amortization Change in fair value of deferred share units Provisions Stock option expense Deferred share unit expense Warrant issuance Transaction costs Net change in non-cash operating working capital Interest paid Interest received Cash flows used in investing activities Acquisition of equipment (note 6) Patent costs (note 7) Acquisition of CFS (note 4) Cash flows from financing activities Issuance of shares, net (note 13) Reverse takeover costs (note 3) Cash acquired on acquisition of BioHEP Repurchase of shares (note 13) Exercise of options Proceeds from loan payable Repayment of long-term debt Proceeds from bank indebtedness (note 18) Increase in cash Cash,beginning Cash,ending	3 months 3 months 6 months 6 months ended ended ended ended June 30 June 30 June 30 June 30 2021 2020 2021 2020
	$ (14,406,762) (1,105,928) (16,619,355) $ (2,656,074) 51,368 179,100 212,741 296,409 51,554 10,128 78,584 20,256 - - - 3,423 3,560,595 - 3,560,595 492,478 676,882 - 899,157 - - - - 12,500 614,700 - 614,700 - 7,323,251 - 7,323,251 -
	(2,128,412) (916,700) (3,930,327) (1,831,008) (334,025) 229,760 (1,120,905) 231,083
	(2,462,437) (686,940) (5,051,232) (1,599,925) (3,075) - (6,253) (2,294) 11,219 168 13,586 168
	(2,454,293) (686,772) (5,043,899) (1,602,051)
	(216,981) - (263,895) - (9,382) (11,827) (25,185) (18,512) (432,570) - (432,570) -
	(658,933) (11,827) (721,650) (18,512)
	51,679,225 - 57,281,562 - (340,011) - (340,011) - 500,000 - 500,000 - - (22,722) - (22,722) - - 45,000 - - 984,390 - 1,984,390 - - - (35,777) - 40,000 20,000 40,000
	51,839,214 1,001,668 57,506,551 1,965,891
	48,725,988 303,069 51,741,002 345,328 4,107,081 297,042 1,092,067 254,783
	$ 52,833,069 $ 600,111 52,833,069 $ 600,111

The accompanying notes are an integral part of these condensed interim consolidated financial statements 4.

Notes to Condensed Interim Consolidated Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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1. CORPORATE INFORMATION

Founded in 2007, Next Hydrogen Solutions Inc. ("Next Hydrogen" or the "Company") is a designer and manufacturer of electrolyzers that use water and electricity as inputs to generate clean hydrogen for use as an energy source. Next Hydrogen's unique cell design architecture supported by 38 patents enables high current density operations and superior dynamic response to efficiently convert intermittent renewable electricity into green hydrogen on an infrastructure scale. Following successful pilots with Atomic Energy Canada Limited and Canadian Tire Corporation, Next Hydrogen is scaling up its technology to deliver commercial solutions to decarbonize transportation and industrial sectors.

The Company's registered head office is at 102-2680 Matheson Blvd E, Mississauga, Ontario, L4W 0A5 and was incorporated on February 11, 2014 under the British Columbia Business Corporations Act. The Company changed its name from "BioHEP Technologies Ltd." to "Next Hydrogen Solutions Inc." on June 24, 2021.

The common shares of the Company trade on the TSX Venture Exchange under the symbol "NXH".

2. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”) and interpreted by the IFRS Interpretations Committee (“IFRIC”). These condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the most recent annual financial statements of the Company, including the notes thereto, for the year ended December 31, 2020.

These condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on August 17, 2021.

Basis of Measurement

These condensed interim consolidated financial statements have been prepared on a going concern basis using historical cost.

Functional and Presentation Currency

These condensed interim consolidated financial statements are presented in Canadian dollars, which is the Company's functional currency. All financial information presented has been rounded to the nearest dollar, except per share amounts and where otherwise indicated.

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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Basis of Consolidation

The condensed interim consolidated financial statements consolidate the accounts of the Company and its subsidiary, Next Hydrogen Corporation. Subsidiary is an entity over which the Company has the power to govern financial and operating policies. Subsidiary is fully consolidated from the date on which control is obtained by the Company, and are deconsolidated from the date control ceases. Fully consolidated means that all transactions with the subsidiary and any intercompany balances, gains or losses with the subsidiary has been eliminated on consolidation. The accounting policies have been applied consistently by the subsidiary.

The Company's subsidiary is wholly-owned, is domiciled in Canada and is in the renewable energy and product development industries.

Business combinations

The acquisition method of accounting is used to account for business combinations. The cost of an acquisition is measured at the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition costs are expensed as incurred. The excess of the cost of the acquisition over the fair value of the acquisition's identifiable assets and liabilities is recorded as goodwill. If the acquisition cost is less than the fair value of the assets and liabilities acquired, the difference is recognized directly in the consolidated statements of comprehensive loss. Contingent liability is included in total consideration and is recognized at its fair value as at the acquisition date. Subsequent changes in fair values are adjusted against the cost of the acquisition where they qualify as measurement period adjustments.

Intangible assets

Intangible assets are measured at cost less accumulated amortization and accumulated impairment losses. If intangible assets are acquired through a business combination, costs are measured fair value. Costs include costs that are directly attributable to bringing the asset to a working condition for its intended use. Intangible assets with finite useful lives are amortized on a straight-line basis over its estimated useful life beginning when the asset is ready for its intended use and recorded on the consolidated statements of comprehensive loss. The Company assesses the useful lives, residual values and amortization methods annually and recognize the effects of changes in estimates in the consolidated statements of comprehensive loss prospectively.

Amortization of intangible assets is provided for using the following useful lives:

Licensing agreement	2 years
Non-competition agreement	2 years
Customer list	11 years

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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Change in Accounting Estimates

On January 1, 2021, the Company changed its method of depreciation and amortization for equipment and patents from a declining balance basis to a straight-line basis over the estimated useful lives of the assets. This change in accounting estimate better reflects the expected pattern of consumption of future economic benefits embodied in these assets. Depreciation of equipment and amortization of patents is now provided for using the following useful lives:

ation of equipment and ves:	amortization of
Computer hardware	3 years
Equipment	10 years
Patents	8 - 22 years

The effect of this change on current and future depreciation and amortization expense is as follows:

follows:
Increase (decrease) in: Depreciation Amortization	2021 2022 2023 2024 Later
	$ 6,165 7,374 4,196 (3,579) $ (14,156) $ 49,386 50,683 51,928 53,123 $ (205,120)

Critical Accounting Estimates and Significant Judgments

The preparation of condensed interim consolidated financial statements in accordance with IFRS, requires management to make judgments that affect the application of accounting policies and the interpretation of accounting standards, and to make estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Management makes estimates based on specific facts or circumstances as well as past experiences. Management periodically reviews its estimates and underlying assumptions and as adjustments become necessary, they are reported in profit and loss in the period in which they become known. Due to the inherent uncertainty involved with making such estimates, actual results could differ from those reported.

• a) Revenue recognition: In accounting for revenue, management must review each contract and allocate the transaction price to the various performance obligations based on the expected costs for each performance obligation. The estimated costs are largely based on budgeted costs or quotes for costs and anticipated labour hours to complete the task.

• b) Provisions: Provisions for warranty and onerous contracts are recognized at management's best estimate of the expenditures required to settle the Company's obligation. The estimated costs are largely based on budgeted costs or quotes for costs and anticipated labour hours to complete the task.

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Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

• c) Impairment of patents: Patents are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired. To determine whether patents are impaired, management must estimate the recoverable amount.

• d) Share-based compensation: The fair value of share-based compensation expense is estimated using the Black-Scholes option pricing model and relies on a number of estimates, such as the expected life of the option, the volatility of the underlying share price of similar companies and the risk free rate of return.

• e) Depreciation and impairment of equipment: Estimates of useful lives for depreciation is based on management's judgment of the expected productive lives and planned uses for each respective asset. Equipment is assessed for impairment when events or circumstances indicate that the Company may not be able to recover its carrying value.

• f) Impairment of trade and other receivables: An allowance for lifetime expected credit losses is established based on specific account identification. Management regularly analyzes its approach and exposure to credit loss based on analysis of all relevant current information as well as historical trends.

• g) Taxes: Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxation authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

3. REVERSE TAKEOVER TRANSACTION

On June 24, 2021, the Company acquired all of the common shares of BioHEP Technologies Ltd. ("BioHEP") by way of a three-cornered amalgamation between Next Hydrogen Corporation and a wholly-owned subsidiary of BioHEP ("FinCo"), forming a subsidiary of BioHEP (the "RTO"). Pursuant to the amalgamation, all of the outstanding common shares of Next Hydrogen Corporation and the wholly-owned subsidiary were canceled and the holders received an equal amount of common shares of BioHEP. Prior to the RTO, BioHEP spun-out all assets and liabilities less $500,000 in cash, consolidated its common shares on the basis of one postconsolidation share for every 13.3 pre-consolidation shares, and changed its name to "Next Hydrogen Solutions Inc.".

In connection with the RTO, FinCo completed a non-brokered private placement of subscription receipts for gross proceeds of $27,000,000 and a brokered private placement of subscription receipts for gross proceeds of $28,545,000. Each subscription receipt was sold at a price of $10 and was exchanged for one common share of the Company upon completion of the RTO. Share issuance costs of $3,865,774 were deducted from gross proceeds.

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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In accordance with IFRS 2, Share-Based Payment, the RTO has been accounted for as a reverse acquisition that does not constitute a business, in which Next Hydrogen Corporation is being identified as the acquirer of BioHEP. All of the outstanding common shares of BioHEP were acquired by Next Hydrogen Corporation in exchange for 748,324 common shares valued at $10 per share. The excess of the fair value of identifiable net assets acquired over the share consideration issued is considered as payment for listing and has been included in transaction costs on the condensed interim consolidated statements of comprehensive loss. The Company has completed the purchase price allocation over the identifiable net assets of BioHEP and has determined that the fair value of net assets acquired and the resulting reverse takeover cost is as follows:

Total identifiable net assets acquired Total share consideration Reverse takeover cost	500,000 7,483,240
	6,983,240

As market prices for shares issued as part of the RTO were not available at the time of acquisition, the fair value of the equity instruments issued was based on an arm's length transaction between knowledgeable, willing parties. The valuation was consistent with the price of subscription receipts that FinCo issued as part of a non-brokered and brokered private placement that were completed on April 28, 2021. All relevant factors and knowledge of the Company and its industry were considered at the time of acquisition, when making assumptions as part of the valuation of these shares.

In addition to the reverse takeover cost above, transaction costs of $340,011 were incurred in connection with the RTO, other than costs associated with the financing, and have been expensed under transaction costs.

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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4. BUSINESS COMBINATION

In order to expand its service offering, on April 1, 2021 the Company acquired the assets of Cleanfuel Systems Inc. ("CFS"), a hydrogen system integration and service company focused on delivering energy solutions through system design, component integration and development, and engineering solutions. The following table presents the preliminary purchase price allocation over the identifiable net assets and goodwill of CFS:

ocation over the identifiable net assets and goodwill of CFS:
Equipment Licensing agreement Non-competition agreement Customer list Net asset acquired Cash Contingent consideration Total consideration Goodwill	$ 58,640 12,000 138,650 204,260
	$ 413,550
	432,570 63,184
	495,754
	$ 82,204

From the date of acquisition, CFS contributed revenue of $59,123 and net income of $31,055. Had Next Hydrogen acquired the company on January 1, 2021, CFS would have contributed revenue of $123,147 and net income of $64,684.

The contingent consideration was recorded at its fair value which represents the probabilityweighted determination of the Company's earn-out obligation to pay with a range of $65,955 and $119,020.

Goodwill represents the value of the acquired workforce and related processes and knowledge. It is expected that the entire amount of goodwill will be deductible for tax purposes. Transaction costs of $25,458 were expensed and included in transaction costs on the condensed interim consolidated statements of comprehensive loss.

5. INVENTORY

INVENTORY
Spare parts Work in progress Onerous contract provision	Jun 30 Dec 31 2021 2020
	$ 376,480 153,338 970,561 2,467,484 (1,081,135) (1,081,135)
	$ 265,906 1,539,687

During the quarter, $1,496,923 in work in progress was written off to provisions.

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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6. EQUIPMENT

EQUIPMENT
Cost Balances, December 31, 2020 Additions Disposals Balances, June 30, 2021 Accumulated depreciation Balances, December 31, 2020 Depreciation Disposals Balances, June 30, 2021 Net carrying amounts At December 31, 2020 At June 30, 2021	Equipment under Computer Equipment Construction Hardware Total
	$ 243,029 - 10,711 $ 253,740 122,190 112,139 89,081 323,410 (2,000) - (7,364) (9,364)
	363,219 112,139 92,428 567,786
	205,394 - 8,864 214,258 8,922 - 6,680 15,602 (2,000) - (6,489) (8,489)
	$ 212,316 - 9,055 $ 221,371
	$ 37,635 - 1,847 $ 39,482 $ 150,903 112,139 83,373 $ 346,415

7. PATENTS

TENTS
Balances, December 31, 2020 Additions Amortization Balances, June 30, 2021	Accumulated Cost Amortization Net
	$ 1,000,351 189,976 $ 810,375 25,185 - 25,185 - 39,509 (39,509)
	1,025,536 229,485 796,051

8. INTANGIBLE ASSETS AND GOODWILL

ANGIBLE ASSETS AND GOODWILL
Balances, December 31, 2020 Additions Amortization Balances, June 30, 2021	Intangible Assets Goodwill Net
	$ - - $ - 354,910 82,204 437,114 (23,473) - (23,473)
	331,437 82,204 413,641

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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9. DEFERRED REVENUE

DEFERRED REVENUE	DEFERRED REVENUE	DEFERRED REVENUE
Maintenance Advances on and warranty Service contracts with obligations obligations no satisfied in process in place obligations Balances, December 31, 2020 93,493 - 2,678,148 Payments received - 18,475 - Revenue recognized - (14,780) - Balances, June 30, 2021 $ 93,493 3,695 2,678,148 Current portion PROVISIONS Onerous contracts Warranty Balances, December 31, 2020 105,574 585,141 Additions 2,063,672 - Utilized - - Balances, June 30, 2021 $ 2,169,246 585,141 Current portion			Total
	93,493 - 2,678,148 - 18,475 - - (14,780) -		2,771,641 18,475 (14,780)
	$ 93,493 3,695 2,678,148 Onerous contracts Warranty 105,574 585,141 2,063,672 - - - $ 2,169,246 585,141		2,775,336 2,443,982
			$ 331,354
			Total
		105,574 585,141 2,063,672 - - -	690,715 2,063,672 -
		$ 2,169,246 585,141	2,754,387 1,453,439
			$ 1,300,948

10. PROVISIONS

11. DEFERRED SHARE UNIT LIABILITY

On February 10, 2021, 761,657 deferred share units ("DSUs") valued at $2 per unit were converted into common shares and the plan was discontinued.

12. LOAN PAYABLE

AN PAYABLE
Balance, December 31, 2020 Accrued interest Accretion expense Balance, June 30, 2021	$ 4,885,422 95,201 124,633
	$ 5,105,256

The loan accrued interest of 4% and accretion expense was recorded using an effective interest rate of 13.17%. The loan balance of $5,105,256 was repaid subsequent to the reporting period as the Company completing an equity financing in excess of $30 million, triggering a maturity event.

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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13. SHARE CAPITAL

Authorized

Unlimited number of common shares with no par value.

Unlimited number of common shares with no par value.
Issued Balances, December 31, 2020 Shares issued/assumed on RTO (note 3) Shares issued as part of equity financing Settlement of DSUs Exercise of stock options Balances, June 30, 2021	Common Share Shares Capital # $
	12,743,951 10,085,999 748,324 7,483,240 8,554,500 57,281,562 761,657 1,523,314 75,000 67,966
	22,883,432 76,442,081

On January 21, 2021, the Company completed a non-brokered private placement for 3,000,000 class A common shares at a price of $2 per share. Transaction costs of $397,663 were deducted from equity.

On February 10, 2021, the Company settled 761,657 DSUs valued at $2 per unit in exchange for 761,657 class A common shares.

On February 10, 2021, 75,000 stock options were exercised for gross proceeds of $45,000. $22,966 was reallocated from contributed surplus as part of this transaction.

On April 28, 2021, FinCo completed a non-brokered private placement of subscription receipts for total gross proceeds of $27,000,000 and a brokered private placement of subscription receipts for gross proceeds of $28,545,000, where each subscription receipt was sold at a price of $10 per unit. Subscription receipts were converted to common shares of the Company on completion of the RTO on June 24, 2021. Transaction costs of $3,865,774 were deducted from equity.

On June 24, 2021, the Company issued 748,324 common shares at a price of $10 per share in connection with its acquisition of BioHEP. In connection with the RTO, both class A and class B common shares of Next Hydrogen Corporation were exchanged for common shares of the Company on a one-to-one basis.

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

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(in Canadian dollars)

The weighted average number of common shares outstanding has been calculated as follows:

Issued common shares Effect of issued common shares Weighted average number of common shares	3 months 3 months 6 months 6 months ended ended ended ended June 30 June 30 June 30 June 30 2021 2020 2021 2020
	22,883,432 9,453,701 22,883,432 9,453,701 (5,887,253) (2,153,916) (6,648,050) (2,757,926)
	16,996,179 7,299,785 16,235,382 6,695,775

No adjustments to loss or the weighted average number of shares for the effects of dilutive potential ordinary shares were necessary. Dilutive potential ordinary shares are financial instruments or contracts that may entitle its holder to ordinary shares, where the conversion, exercise or issuance of the financial instrument or warrant would result in a reduction in earnings per share or an increase in loss per share.

14. CONTRIBUTED SURPLUS

The Company offers a stock option plan for the benefit of certain directors, employees and consultants. The plan is administered by the Board of Directors and the maximum number of shares which may be issued under this plan may not exceed 20% of the number of issued and outstanding shares of the Company. Each stock option entitles its holder to receive one common share upon exercise and all options expire 5 years from issuance.

During the period ended June 30, 2021, 1,425,000 stock options were granted with an exercise price of $2, with 725,000 vesting over three years and 700,000 tied to specific performance criteria. Of the total stock options outstanding, 1,675,000 were issued to key management.

Subsequent to the reporting period, 811,626 stock options were granted, 496,626 of which was to key management.

The following table summarizes information about stock options outstanding as at June 30, 2021:

		Options	Weighted Avg	Options
Exercise	Price	Outstanding	Remaining Life	Exercisable
	$	#	#	#
$	0.60	575,000	4.1	250,000
$	1.00	150,000	4.3	150,000
$	2.00	1,425,000	4.6	275,000
$	1.56	2,150,000	4.5	675,000

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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The estimated fair value of stock options issued during the period was calculated using the Black-Scholes option pricing model with the following assumptions: i) the expected life of each stock option is 3 years; ii) the risk free rate is between 0.18% and 0.55%; iii) the dividend yield will be $NIL; and iv) expected volatility is between 72.23% and 75.52%. Included in expenses is a share-based compensation expense of $899,157 (2020 - $NIL).

On April 8, 2021, the Company issued 150,000 warrants with an exercise price of $10 in connection with potential future transactions. The estimated fair value of warrants issued during the period was $614,700 and the expense was included in transaction costs. The value was calculated using the Black-Scholes option pricing model with the following assumptions: i) expected life of 2 years; ii) risk free rate of 0.53%; iii) dividend yield of $NIL; and iv) expected volatility of 75.52%.

Volatility was determined using an average of comparable companies' historical trading data over a period equal to the expected life of the warrants. Variables used in the Black-Scholes option pricing model are based on highly subjective assumptions and any change in the assumptions can materially affect the fair value estimate.

15. RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2021, the Company paid $1,025,045 (2020 - $813,588) for research and product development work to Carlsun Energy Solutions Inc., which is owned by an individual that was director of the Company until RTO. Following, the company ceased to be a related party. In addition, included in prepaid expenses and deposits as at June 30, 2021 is $75,000 prepaid to this company.

Related parties include shareholders with a significant ownership interest in the Company and key management. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

Included in operating expenses are the following wages and consulting fees paid to key management:

agement:
Salaries and benefits Share-based compensation expense	3 months 3 months 6 months 6 months ended ended ended ended June 30 June 30 June 30 June 30 2021 2020 2021 2020
	$ 231,087 93,893 483,741 $ 217,822 $ 494,837 - 680,895 $ -

Board of directors and executive officers are deemed to be key management.

Notes to Condensed Interim Financial Statements three and six months ended June 30, 2021 and 2020

(in Canadian dollars)

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16. COMMITMENTS

The Company has committed to renting new office space effective September 1, 2021. Future minimum lease payments on this lease are expected to be approximately $2,028,000 over a period of ten years.

17. SEGMENTED INFORMATION AND MAJOR CUSTOMERS

The Company mainly operates in one segment, being the development and sale of electrolyzers and balance of plant equipment. On April 1, 2021, the Company acquired a hydrogen system integration and service company, which contributed to 100% of the Company's revenues. However, as this business has nominal assets, no discrete cost information and is not reviewed internally by decision makers separately from the rest of the business, segmented results have not been presented.

All of the Company's assets are located in Canada. During the period ended June 30, 2021 and 2020, one customer provided 75% (2020 - 100%) of the Company's revenues.

18. COVID-19 INFORMATION

As the duration and impact of the COVID-19 pandemic to the global economy is indeterminable, it is not possible to reliably estimate the length and severity of COVID-19 related impacts on the financial results and operations of the Company. The Company will continue to closely monitor the situation as it develops day-to-day and will take further actions, if necessary, to ensure the wellbeing of our workforce, customers, suppliers and other stakeholders, as well as minimize disruption to the Company's progress.

The Company applied for the Canada Emergency Business Account ("CEBA"), which provides an interest-free and partially forgivable loan of up to $60,000 to small businesses. This has been classified as bank indebtedness, and an additional $20,000 was received during the first quarter. Of the total amount, $20,000 is forgivable if the balance is repaid by December 31, 2022.

The Company will continue to review all programs offered by the Government and ensure that it applies for all appropriate support. The Company's exposure to supply chain risk and hiring risk was heightened during the pandemic, which the Company continues to monitor regularly in order to mitigate these risks. The Company does not expect any material changes to other risk factors, although a prolonged period of precautionary measures may delay the Company's ability to execute on its goals in a timely manner.