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pure Using technology to help our

partners manage infrastructure


critical to daily life.

2015 AN N UAL R E PO R T
1 2015 at a Glance
2 Why Pure?
8 Financial Highlights
9 Message to Shareholders
11 Our Management Team
12 Managements Discussion and Analysis
34 Auditors Report to the Shareholders
35 Consolidated Financial Statements
39 Notes to Financial Statements
64 Corporate Information

why?Infrastructure is the backbone of modern society.


Managing it safely and effectively as it reaches
the end of its design life will ensure the success
of future generations.

At Pure, we work to protect the critical infrastructure necessary for everyday life. We
are driven to change the way this infrastructure is managed. Our technologies and
expertise are being used around the world to help manage pipeline deterioration and
reduce water, wastewater and oil and gas loss. By fostering an environment that values
and encourages creativity and innovation, we have become the world leader in the
development and application of innovative technologies for inspection, monitoring
and management of pipeline infrastructure.
ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 1

2015 at a Glance
REVENUE FI NAN CIAL POSITI O N
n $104.4 million, up 34% year-over-year n $46.7 million of working capital; $11.1 million in cash

n 25% five-year CAGR (1) with no debt


n Low future capital requirements
n Inspection and Consulting services revenue (84% of total
rev.) up 68% year-over-year, driven by acquisitions (2)
n Over two thirds of sales denominated in U.S. dollars

( 3)
ADJ USTE D E B ITDA
n $13.3 million compared to $15.6 million in 2014
n Return to strong and increasing cashflow expected through
sharp focus on improved management processes, cost
reductions and integration of acquisitions(4)

Geographic Diversification Revenue Breakdown


By Revenue By Sector

13%
Other
Countries
83%
Water & Wastewater

21%
Canada 2% Bridges,
66% Buildings
United States & Structures

15%
Oil & Gas

2016 Strategic/Corporate Priorities


n Organic revenue and profitability growth through n Continue to lead/win multi-year programs with
targeted sales, world class project execution and major water utilities with an emphasis on turn-key
disciplined cost control (4); asset management contracts; and
n Continue to invest in complementary, new and n Through PureHMTM, continue to grow Pures
enhanced technologies and services; pipeline integrity business in the oil and gas sector.
n Ongoing investment in employee development to
enhance services and position Pure for success;

(1) C
 ompounded Annual Growth Rate 2011 to 2015.
(2) Hunter McDonnell Pipeline Services business acquired October 1, 2014; Wachs Water Services acquired April 1, 2015.
(3) A
 djusted EBITDA is defined as EBITDA before gains or losses on foreign exchange, earn-out provisions related to acquisitions, costs directly attributable to
acquisitions, stock-based compensation expense, restructuring costs and other significant one-time expenses. See Non-GAAP Measures.
(4) See MD&A (period ended December 31, 2015) for details on Growth and Optimization Plan.
2 | PU R E T E C H N O LO G I E S LT D. ANNUAL REPORT 2015

Our water utility partners quench


our thirst at every meal.

Using technology, we help to


manage critical water pipelines.

water
ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 3
4 | PU R E T E C H N O LO G I E S LT D. ANNUAL REPORT 2015

Our energy transportation


partners fuel our everyday needs.

We help oil and gas pipelines to


operate with more confidence.

fuel
ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 5
6 | PU R E T E C H N O LO G I E S LT D. ANNUAL REPORT 2015

Our infrastructure partners do


amazing things everyday.

At Pure, we are helping


them succeed.

Pure
ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 7
8 | PU R E T E C H N O LO G I E S LT D. ANNUAL REPORT 2015

Financial Summary and Highlights


($000s CAD, unless indicated otherwise)

2015 2014 2013


Revenue and Earnings
Revenue 104,423 77,806 60,865
Adjusted EBITDA 13,288 15,629 12,889
EBITDA margin (%) 13% 20% 21%
Profit (loss) before income taxes 1,605 (5,852) 4,970
Profit (loss) (134) (3,886) 2,080
Profit (loss) per share
Basic (0.00) (0.07) 0.04
Diluted (0.00) (0.07) 0.04
Adjusted(1) (0.03) 0.11 0.05
Dividends declared 0.12 0.12
Financial position (Dec. 31)
Total assets 147,080 130,989 128,406
Current assets 61,718 72,500 83,851
Current liabilities 15,038 13,091 8,605
Current ratio 4.1 5.5 9.7
Cash and cash equivalents 11,085 33,612 41,438
Market capitalization of equity 253,074 384,231 338,768
Capital Expenditures
Property and equipment 7,098 5,325 3,147
Intangibles(2) 5,533 3,188 3,685
Weighted average number of shares outstanding
Basic 53,504 51,853 50,866
Diluted 53,504 51,853 51,431
TSX per share price
High 8.78 8.67 6.85
Low 3.82 6.35 4.28
Close 4.73 7.41 6.66

(1) Adjusted EPS is defined as the tax affected earnings per share adjusted for the effects of acquisitions, and any non-recurring, extraordinary items.
(2) Includes capitalized development costs and $2.2 million of ERP related costs in 2015.
ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 9

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

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

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

The year was not without its challenges. The postponement and delay of several
anticipated large projects, combined with a temporary slowdown in the WWS core
business, resulted in revenue that was below our expectations with consequent
margin compression. The integration of two significant acquisitions, together
with the introduction of a new enterprise resource planning system, added to the
excitement. Nevertheless, we took the opportunity to implement aggressive cost
reductions throughout our organization and we believe that this, combined with
improved management processes and a strong focus on efficient project delivery,
will deliver a return to strong operating margins and increasing free cashflow in
2016 and beyond. Despite these challenges, we exited 2015 in a position of financial
strength with no debt and over $11 million of cash on hand.
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The macro environment in the water infrastructure sector continues to indicate The macro environment
increasing momentum for our business. Several industry studies, combined with in the water infrastructure
catalysts such as the Flint, Michigan lead crisis, suggest that buried infrastructure
sector continues to indicate
will be an increasingly important focus for the media, politicians and regulators
increasing momentum for
in the future. We are perfectly positioned to benefit from this trend. Aging energy
pipelines will continue to attract increasing scrutiny from regulators, and pipeline
our business.
operators will be looking for additional cost efficiencies throughout their sys-
tems, including integrity management. We plan to and will be an integral part of
this evolution.

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

Sincerely,

Jack Elliott, President & CEO


Pure Technologies Ltd.

March 15, 2016


ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 11

Our Management Team

James E. Paulson Peter O. Paulson John F. Elliott


Executive Chairman Vice Chairman and President and
Chief Technology Officer Chief Executive Officer

Mark W. Holley Geoffrey D. Krause Robert Budianto


Executive Vice President Chief Financial Officer Senior Vice President,
and Chief Operating Officer Engineering, Operations
and Production

Michael Higgins Nicole D. Springer Michael R. Wrigglesworth


Senior Vice President, Chief Legal Officer and Senior Vice President,
North America Corporate Secretary International
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Management Discussion and Analysis


March 15, 2016

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

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

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

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

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

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

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

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

M A N A G E M E N T S D I S C U S S I O N & A N A LY S I S
ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 13

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

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

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

Pures main business streams consist of:

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

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

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

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

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

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

M A N A G E M E N T S D I S C U S S I O N & A N A LY S I S
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2. Technical services utilizing proprietary pipeline inspection, leak detection and condition assessment
technologies and associated field services including proactive valve and hydrant maintenance programs
Aging pipelines, increasing costs of failures and high replacement costs are significant challenges facing pipeline owners
worldwide. Pures leading edge technologies and services for pipeline system management for in-line and over-line indi-
rect pipeline inspection and assessment address this ongoing need, providing valuable information to maximize the life
of these assets, and are used to assess the current health of water and wastewater and oil and gas pipelines.

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

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

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

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

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

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

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

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

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

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 15

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

3. Specialized engineering services in areas related to asset management, primarily in the area of
pipeline condition assessment for water and wastewater infrastructure
Pure provides its clients with actionable information for the proactive management of their underground assets. Its inno-
vative Assess and Address strategy, which uses advanced analytical modeling and risk analysis fed by data collected
by Pures inspection and monitoring technologies, is increasingly being adopted by water and wastewater utilities as a
cost-effective alternative to conventional asset replacement strategies.

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

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

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

Pure focuses on the following strategic priorities:


n 
Revenue and profitability growth through targeted sales, world class execution and disciplined cost control;
n 
Investment in complementary, new and enhanced technologies and services;
n 
Investment in employee development to enhance services and position Pure for success; and
n 
Selective and accretive acquisitions that enhance Pures technology portfolio and increase market penetration.

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G ROW TH AN D COST O P TIM IZ ATIO N PL AN


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

Growth in revenue by investing in sales resources:


n 
Pure has hired nine of twelve planned sales people to address targeted sales force improvements for broader service
line and regional coverage within North America. Training of these new hires is currently underway with expected
benefits to begin showing early in 2016;
n 
Since acquisition on October 1, 2014, PureHM has added four sales and business development individuals to promote
the divisions best-in-class services to the oil and gas pipeline integrity market.

Focused Reduction in Operating and Administrative Costs


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

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

Efficiency Initiative 2015 Impact 2016 Impact

Voluntary attrition and n 


Fourth quarter departures had n 
$ 2.6 million annual reduction to fixed
involuntary staff departures annual salaries of $2.4 million E&O costs
without replacement
n 
Severance costs included in n 
H
 ourly work force of WWS will be
restructuring provision used to add capacity in busier periods

Reduction in Employee Share n 


None n 
$ 1.0 million total reduction to operat-
Purchase Plan ing expenses
n 
I mplemented effective January 1, 2016

Consolidation of WWS shared n 


Cost of severances and expected n 
$ 1.1 million annualized G&A cost
services future losses under lease commit- reductions to commence in the second
ments accrued as restructuring half of 2016
provision

Restructuring certain outsourced n 


Arrangements modified in 2015 n 
$ 1.0 million reduction in marketing
relationships and international costs
n 
No cost savings in 2015
office costs

Closure of Salt Lake City office n 


None n 
$ 0.3 million annual reduction in
E&O costs.
n 
O
 ffice was closed in Q1 2016

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 17

The remaining additional operational and administrative improvements being undertaken in 2016 include:
n 
Improved project management through better process, governance and performance management systems. Much
of this work is underway in conjunction with the Companys ERP implementation, expected to go live in the second
quarter of 2016;
n 
Strengthening short and medium term project forecasting and scheduling to facilitate better resource (human and
capital) management and asset allocation and expense optimization. Progress has been made with respect to organi-
zational planning with further refinements in 2016; and
n 
Continued rationalization of non-essential and discretionary expenditures including spending on corporate initia-
tives without compromising future growth or execution of Pures business strategy.

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

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

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

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

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

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

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

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

Internationally, Pure continues to build a foothold in key strategic markets as several regions turn their attention towards the
benefits of condition assessment over capital replacement. International revenues declined 27% from 2014 mainly as a result
of project deferrals in Mexico. Low oil and gas prices have impacted the Mexican economy resulting in ongoing governmen-
tal budget constraints. This has stalled work on Pures inspection and monitoring program for the agency responsible for
bulk water supply to Mexico City. Consequently, approximately $6.0 million of anticipated projects and revenue for 2015 was
deferred. The timing and likelihood of these projects at this point, however, is unknown.

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

A critical component of the Companys strategy, however, is to minimize overhead internationally given the current variability
in project size and duration, while increasing the number of project opportunities to offset project scheduling risk. Measures
already taken, as discussed previously, are expected to reduce overall sales and marketing expense in 2016 without adversely
affecting Pures capacity to pursue high-value opportunities overseas.

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

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

SE LEC TE D AN NUAL INFO R MATIO N

Summary of Consolidated Financial Results


($000s CAD, except per share amounts)
For the year ended December 31 2015 2014 2013
Revenue 104,423 77,806 60,865
Profit (loss) for the year (134) (3,886) 2,080
Per share basic (0.00) (0.07) 0.04
Per share diluted (0.00) (0.07) 0.04
Per share dividends declared 0.12 0.12
Total assets 147,080 130,989 128,406

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 19

OVE RVIEW OF 2015 R ESULTS

Summary of Consolidated Financial Results


($000s CAD, unless otherwise indicated and per share amounts)
For the year ended December 31 2015 2014 $ Change % Change
Revenue 104,423 77,806 26,617 34
Cost of sales 25,522 17,506 8,016 46
Gross profit 2 78,901 60,300 18,601 31
Gross margin (%) 2 76 78
Operating Expenses 1 79,672 53,833 25,839 48
Adjusted EBITDA 2 13,288 15,629 (2,341) (15)
Adjusted EBITDA (%) 2 13 20
Profit (loss) for the year (134) (3,886) 3,752 (97)
Per share basic (0.00) (0.07)
Per share diluted (0.00) (0.07)
Cash Flow from Operations Before
Working Capital Changes 2 11,359 14,243 (2,884) (20)
Adjusted Profit for the year 2 (1,394) 5,767 (7,161) (124)
Total assets 147,080 130,989 16,091 12
1. Excludes Libya accounts receivable, restructuring, and other provisions, and loss or gains on asset disposals.
2. See Non-GAAP Measures. Why do they have biz in Libya?

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

While revenue grew by 34% to $104.4 million over $77.8 million in 2014, actual performance was lower than the Companys
expectations. Of this $26.6 million increase, $24.9 million was due to the WWS and PureHM acquisitions, which each contrib-
uted $15.3 and $9.6 million in incremental revenue, respectively. Excluding the acquisitions, revenues increased 2% over 2014.
A 33% increase in inspection and consulting revenues in the Americas region due to organic growth of 15% and the benefit of
a strong U.S. dollar was substantially offset by lower equipment sales in the Americas and reduced International revenues. It is
important to note that inspection and consulting revenue included the negative impact of a two quarter delay in the renewal
of a significant contract in the U.S. and a one quarter delay in implementing master service agreements in PureHM, which
was acquired in the fourth quarter of 2014. Both these delays have since been remedied. International revenues were negatively
impacted by a lack of activity in Mexico due to adverse economic conditions. In 2014, the Mexico region contributed $5.9
million compared to nil in 2015.

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

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

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

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

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

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

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

R ESULTS FROM O PE R ATIO NS

Revenue Product Groups


($000s CAD)
For the year ended December 31 2015 2014 $ Change % Change
Equipment sales 7,730 17,516 (9,786) (56)
Inspection and consulting services 87,280 51,846 35,434 68
Monitoring, licensing and technical support 9,413 8,444 969 11
Total 104,423 77,806 26,617 34

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

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

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 21

Inspection and Consulting Services


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

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

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

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

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

Monitoring, Licensing & Technical Support


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

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

Gross Profit and Margins


($000s CAD, unless otherwise indicated)
For the year ended December 31 2015 2014 $ Change % Change
Revenue 104,423 77,806 26,617 34
Cost of sales 25,522 17,506 8,016 46
Gross profit 78,901 60,300 18,601 31
Gross margin (%) 76 78

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

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22 | P U R E T E C H N O L O G I E S L T D . ANNUAL REPORT 2015

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

Operating Expenses
($000s CAD)
For the year ended December 31 2015 2014 $ Change % Change
Marketing 13,742 11,431 2,311 20
Engineering and operations 38,777 24,450 14,327 59
General and administrative 26,331 16,391 9,940 61
Research and development 822 1,561 (739) (47)
79,672 53,833 25,839 48

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

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

Marketing
($000s CAD)
For the year ended December 31 2015 2014 $ Change % Change
Marketing expenses 13,742 11,431 2,311 20
Depreciation (22) (18) (4) 22
Stock based compensation (302) (315) 13 (4)
Net marketing expenses 13,418 11,098 2,320 21

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

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

Engineering and Operations


($000s CAD)
For the year ended December 31 2015 2014 $ Change % Change
Engineering and operations 38,777 24,450 14,327 59
Depreciation (6,267) (3,592) (2,675) 74
Stock based compensation (602) (523) (79) 15
Net engineering and operations expenses 31,908 20,335 11,573 57

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

General and Administration


($000s CAD)
For the year ended December 31 2015 2014 $ Change % Change
General and administration 26,331 16,391 9,940 61
Depreciation (3,423) (2,225) (1,198) 54
Stock based compensation (1,501) (573) (928) 162
Acquisition costs (749) (352) (397) 113
Training costs (42) (42) 100
Adjusted general and administration 20,616 13,241 7,375 56

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

Research and Development (R&D)


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

Libyan accounts receivable, restructuring, and other provisions


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

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

Foreign Exchange Gain


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

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24 | P U R E T E C H N O L O G I E S L T D . ANNUAL REPORT 2015

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

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

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


($000s CAD)
For the year ended December 31 2015 2014
Profit (loss) for the year (134) (3,886)
Depreciation and amortization 10,359 7,151
Net finance (income) expense 116 (154)
Income tax expense (recovery) 1,739 (1,966)
EBITDA 12,080 1,145
Foreign exchange gain (1,944) (1,697)
Stock-based compensation 2,552 1,553
Management restructuring 1,371 1,053
Acquisition costs 749 352
Training costs 42
Libyan accounts receivable provision (recovery) (1,562) 13,223
Adjusted EBITDA 13,288 15,629
Earnings are quite dirty.

For the year ended December 31 2015 2014


Profit (loss) before tax 1,605 (5,852)
Foreign exchange gain (1,944) (1,697)
Restructuring costs 1,371 1,053
Acquisition costs 749 352
Training costs 42
Libyan accounts receivable provision (recovery) (1,562) 13,223
Adjusted Profit before tax 261 7,079
Income tax expense 1,655 1,312
Adjusted profit (loss) (1,394) 5,767
Adjusted EPS (0.03) 0.11

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

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R E PO R TABLE SEGM E NT SUMMARY


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

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

($000s CAD)
For the year-ended December 31, 2015 Americas International PureHM Total
Revenue
Equipment sales 5,852 1,679 199 7,730
Inspection and consulting services 63,023 10,734 13,523 87,280
Monitoring, licensing & technical support 6,117 1,548 1,748 9,413
74,992 13,961 15,470 104,423
Profit before corporate expenditures and taxes 21,508 64 3,685 25,257

($000s CAD)
For the year-ended December 31, 2014 Americas International PureHM Total
Revenue
Equipment sales 12,386 5,011 119 17,516
Inspection and consulting services 35,792 11,628 4,426 51,846
Monitoring, licensing & technical support 4,663 2,477 1,304 8,444
52,841 19,116 5,849 77,806
Profit before corporate expenditures and taxes 20,536 7,086 2,938 30,560

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

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

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

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

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

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

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

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

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

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

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

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 27

SUMMARY OF QUARTERLY RESULTS

($000s Canadian dollars, unless otherwise indicated) Q4 2015 Q3 2015 Q2 2015 Q1 2015
Revenue 30,787 29,559 29,411 14,666
Adjusted EBITDA (see non-GAAP measures) 6,895 3,883 4,595 (2,085)
Profit (loss) for the year 677 1,076 416 (2,303)
Profit (loss) per share
basic 0.01 0.02 0.01 (0.04)
diluted 0.01 0.02 0.01 (0.04)
Weighted average common shares outstanding
basic 53,822,149 52,531,536 52,504,834 52,693,817
diluted 54,073,387 54,366,100 54,441,080 52,693,817

($000s Canadian dollars, unless otherwise indicated) Q4 2014 Q3 2014 Q2 2014 Q1 2014
Revenue 27,614 17,118 20,454 12,620
Adjusted EBITDA (see non-GAAP measures) 8,716 2,120 4,218 575
Profit (loss) for the year (4,729) (218) 454 607
Profit (loss) per share
basic (0.09) (0.00) 0.01 0.01
diluted (0.09) (0.00) 0.01 0.01
Weighted average common shares outstanding
basic 52,216,626 51,857,137 51,680,871 51,453,458
diluted 52,216,626 51,857,137 52,715,291 52,589,878

Fourth Quarter Results


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

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

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

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

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LIQUID IT Y AN D C APITAL R ESOURCES

Net Cash Position


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

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

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

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

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

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

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 29

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

($000s Canadian dollars) Increase/(Decrease) Primary factors explaining change


Cash and cash equivalents (22,527) See Statement of Cash Flows
Accounts receivable 9,914 Increase due to increased activity, timing of collections and
addition of accounts receivable of WWS
Inventory 565 Increase in work in process due to higher activity, offset by
decrease in raw materials on hand
Property and equipment, and 8,080 Acquisition of WWS, equipment additions, development
Intangible assets expenditures, and infrastructure, including $2 million of
spend on the Companies ERP implementation investment
offset by depreciation
Goodwill 19,049 Acquisition of WWS
Accounts payable and accrued 2,314 Increase due to acquisition of WWS, offset by timing of
liabilities payments
Non current liabilities 2,019 Expected future losses on lease commitments and non-
current portion of warranty provision
Share Capital 11,056 Common Shares to be issued as consideration for acquisition
of WWS, and exercise of employee options

Statements of Cash Flow


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

($000s Canadian dollars) 2015 2014 Primary factors explaining change


Provided by (used in):
Operating activities 9,501 11,131 Increased fixed cost structure on expanded and growing
operations with seasonal revenues, the impact of integration
activities on acquired businesses combined with timing of
working capital
Financing activities (4,283) (2,658) Higher occurrence of stock option exercises in 2014 com-
pared to 2015 and movement of funds to restricted cash
Investing activities (27,948) (16,556) Acquisition of WWS combined with increased investment
in equipment and development initiatives

Other Long Term Obligations


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

($000s CAD) < 1 year 1 3 years 4 5 years Total


Accounts payable and accrued liabilities 13,497 13,497
Operating leases 3,195 5,255 3,088 11,538
Total contractual obligations 16,692 5,255 3,088 25,035

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Off Balance-Sheet Arrangements


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

Outstanding Share Data

March 15, December 31, December 31,


2016 2015 2014
Common shares 53,327,122 53,321,620 52,287,600
Common shares to be issued
Stock options 3,557,291 3,609,460 4,351,070
Deferred share units 74,529 74,529
Performance share units 118,750 118,750

CR ITIC AL ACCOUNTING ESTIMATES


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

Valuation of Libyan Accounts Receivable


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

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

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 31

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

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

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

Goodwill and Asset Impairment


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

N EW STAN DAR DS AN D NOT YET ADO P TE D


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

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

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

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

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32 | P U R E T E C H N O L O G I E S L T D . ANNUAL REPORT 2015

D ISCLOSUR E AN D INTE R NAL CO NTROL S


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

Disclosure Controls and Procedures


Disclosure controls and procedures have been designed under the supervision of the CEO and CFO, with the participation of
other management, to provide reasonable assurance that all relevant information required to be disclosed by the Company is
recorded, processed, summarized and reported on a timely basis to senior management, as appropriate, to allow timely deci-
sions regarding required public disclosure. Pursuant to NI 52-109, as of December 31, 2015, an evaluation of the effectiveness
of the Companys disclosure controls and procedures were carried out under the supervision of the CEO and CFO. Based on
this evaluation, the CEO and the CFO concluded that the design and operation of these disclosure controls and procedures
were effective.

Internal Controls Over Financial Reporting


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

It should be noted that while the Companys Chief Executive Officer and Chief Financial Officer believe that the Companys
disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the
Companys disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud.
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met.

R ISK S AN D UNCE R TAINTIES


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

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 33

C AUTIO N R EGAR DING FO RWAR D - LOO K ING STATE M E NTS


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

These forward-looking statements include, but are not limited to, statements regarding:
n the timing of new and existing projects;

n new market opportunities;

n the Companys ability to generate future cash flows;

n the Companys ability to capitalize on future growth opportunities, sales growth and cost optimization and rational-
ization initiatives;
n the Companys ability to successfully integrate and leverage its strategic acquisitions;

n anticipated trends in the Companys revenue streams;

n expectations of customers future needs;

n customers acceptance of and confidence in the Companys existing technologies;

n the success and impact of the Companys new technologies; and

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

Factors that could cause actual results to differ materially from these forward-looking statements include, among others:
n the costs and timing of projects;

n the Companys ability to deliver services in a timely and cost effective manner;

n changes in technology;

n changes in the demand for the Companys services;

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

n changes in general economic conditions;

n reliance on and retention of key personnel; and

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

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

ADDITIO NAL INFO R MATIO N


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

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Auditors Report to the Shareholders


To the Shareholders of Pure Technologies Ltd.

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

Managements Responsibility for the ConsolidatedFinancial Statements


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

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

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

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

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

Chartered Accountants

March 15, 2016


Calgary, Canada

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ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 35

Consolidated Statements of Financial Position


Stated in thousands of Canadian dollars
As at December 31 2015 2014
Note
Assets
Current assets
Cash and cash equivalents 4 $ 11,085 $ 33,612
Restricted cash 790
Accounts receivable 4,5 38,263 28,349
Inventory 6 10,040 9,475
Prepaid expenses 4 1,540 1,064
61,718 72,500
Deferred tax asset 16 7,501 7,757
Property and equipment 4,7 15,349 10,822
Intangible assets 4,8 17,009 13,456
Goodwill 4,9 45,503 26,454
Total assets $ 147,080 $ 130,989
Liabilities
Current liabilities
Accounts payable and accrued liabilities 4 $ 13,497 $ 11,183
Deposits on sales contracts 388 513
Provisions and other current liabilities 11,12 1,153 1,395
15,038 13,091
Non-current liabilities 2,762 743
Total liabilities $ 17,800 $ 13,834
Shareholders equity
Share capital 13 139,061 128,005
Contributed surplus 14 6,238 4,913
Translation reserve 8,099 1,826
Deficit (24,118) (17,589)
Total shareholders equity 129,280 117,155
Total shareholders equity and liabilities $ 147,080 $ 130,989

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

On behalf of the Board:

James E. Paulson Michael M. Kanovsky


Director Director

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Consolidated Statements of Comprehensive Income (Loss)


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

For the year ended December 31 2015 2014


Note
Revenue
Equipment sales $ 7,730 $ 17,516
Inspection and consulting services 87,280 51,846
Monitoring, licensing and technical support 9,413 8,444
Total revenue 104,423 77,806
Cost of sales 25,522 17,506
Gross profit 78,901 60,300
Expenses
Marketing 13,742 11,431
Engineering and operations 38,777 24,450
General and administration 26,331 16,391
Research and development 822 1,561
Gain on asset disposal (357) (106)
Libyan accounts receivable, restructuring, and other provisions 5,11 (191) 14,276
79,124 68,003
Results from operating activities (223) (7,703)
Finance income (expense) (116) 154
Foreign exchange gain 1,944 1,697
1,828 1,851
Profit (loss) before income taxes 1,605 (5,852)
Income taxes
Current expenses 16 1,454 1,686
Deferred expenses (recovery) 16 285 (3,652)
1,739 (1,966)
Loss for the year (134) (3,886)
Foreign currency translation adjustment 6,273 48
Comprehensive income (loss) for the year $ 6,139 $ (3,838)
Loss per share
Basic (0.00) (0.07)
Diluted (0.00) (0.07)
Weighted average number of shares outstanding
Basic 53,503,764 51,852,530
Diluted 53,503,764 51,852,530

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

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Consolidated Statements of Changes in Equity


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

Number of
Common Share Contributed Translation Total
Shares Capital Surplus Reserve Deficit Equity

As at December 31, 2013 51,330,699 $ 120,887 $ 4,572 $ 1,778 $ (7,436) $ 119,801


Shares reserved for issuance as
payment for acquisition (Note 4) 2,000 2,000
Exercise of options (Note 14) 956,901 3,906 3,906
Transfer on exercise of options 1,212 (1,212)
Stock-based compensation (Note 14) 1,553 1,553
Foreign currency translation
adjustment 48 48
Loss for the year (3,886) (3,886)
Dividends declared (Note 15) (6,267) (6,267)
As at December 31, 2014 52,287,600 $ 128,005 $ 4,913 $ 1,826 $ (17,589) $ 117,155

Shares reserved for issuance as


payment for acquisition (Note 4) 7,266 7,266
Issuance of reserved shares (Note 4) 378,241
Exercise of options (Note 14) 655,779 2,902 2,902
Transfer on exercise of options 888 (888)
Stock-based compensation (Note 14) 2,213 2,213
Foreign currency translation
adjustment 6,273 6,273
Loss for the year (134) (134)
Dividends declared (Note 15) (6,395) (6,395)
As at December 31, 2015 53,321,620 $ 139,061 $ 6,238 $ 8,099 $ (24,118) $ 129,280

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

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Consolidated Statements of Cash Flows


Stated in thousands of Canadian dollars

For the year ended December 31 2015 2014


Note
Cash flows from operating activities
Loss for the year $ (134) $ (3,886)
Adjustments for:
Depreciation and amortization 7,8 10,359 7,151
Stock-based compensation 14 2,552 1,553
Gain on disposal of assets (357) (106)
Net finance (income) expense 116 (154)
Unrealized foreign exchange gain (1,354) (1,572)
Income tax expense (recovery) 1,739 (1,966)
Libyan accounts receivable provision (recovery) 5 (1,562) 13,223
11,359 14,243
Changes in non-cash working capital
Accounts receivable (4,078) (5,570)
Inventory (267) (1,756)
Prepaid expenses (22) 416
Accounts payable and accrued liabilities 3,132 5,488
Deposits on sales contracts (399) (507)
Net interest received (paid) (89) 154
Income tax paid 16 (135) (1,337)
Cash from operating activities 9,501 11,131
Cash flows from financing activities
Proceeds received on stock option exercise 2,902 3,906
Transfer of funds to restricted cash (790)
Repayment of automobile loan 4 (297)
Dividends paid 15 (6,395) (6,267)
Cash used in financing activities (4,283) (2,658)
Cash flows from investing activities
Additions to property and equipment 7 (7,098) (5,325)
Business acquisitions, net of cash acquired 4 (15,945) (8,719)
Proceeds on sale of property and equipment 628 676
Additions to intangible assets 8 (5,533) (3,188)
Cash used in investing activities (27,948) (16,556)
Net decrease in cash and cash equivalents (22,730) (8,083)
Cash and cash equivalents, beginning of year 33,612 41,438
Effect of foreign exchange 203 257
Cash and cash equivalents, end of year $ 11,085 $ 33,612

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

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Notes to Consolidated Financial Statements

1. COM PANY I N FO R M ATI O N:

Reporting entity
Pure Technologies Ltd. (Pure or the Company) is a publicly-traded company, listed on the Toronto Stock Exchange
under the trading symbol PUR, incorporated under the laws of the Province of Alberta and domiciled in Canada with
a registered office located at 3rd Floor, 705 11 Avenue SW, Calgary, Alberta, T2R 0E3.

The consolidated financial statements (the financial statements) of the Company as at December 31, 2015 and 2014
and for year ended December 31, 2015 and 2014 comprise the Company and its subsidiaries and joint arrangements. The
financial statements were approved and authorized for issue on March 15, 2016 by the Board of Directors.

Nature of operations
Pure is a world leader in the development and application of innovative technologies for inspection, monitoring and
management of physical infrastructure including water and hydrocarbon pipelines, buildings and bridges. Pures oper-
ations are seasonal, impacted by scheduling of public utility clients and winter weather on operations in North America.

Basis of presentation
These financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).

Use of estimates and judgments


The preparation of the financial statements in conformity with IFRS requires the Companys management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets and liabilities, income and expenses. Actual results could differ from those estimates.

The 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 if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods.

In the application of the Companys accounting policies, which are described in note 2, management is required to
make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.

Critical judgments in applying accounting policies


The following are the critical judgments, apart from those involving estimations (see note 2(d)(ii) below), that manage-
ment has made in the process of applying the Companys accounting policies and that have the most significant effect
on the amounts recognized in the financial statements.

(a) Revenue Recognition


Revenues under certain contracts provide for receipt of payment based on achieving defined milestones. Revenues
are recognized under these contracts based on managements estimate of progress achieved against these milestones

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40 | P U R E T E C H N O L O G I E S L T D . ANNUAL REPORT 2015

or on the proportionate performance method of accounting. Changes in managements estimated costs to complete
a contract may result in an adjustment to previously recognized revenues.

(b) Goodwill
The values associated with goodwill involve significant estimates and assumptions, including those with respect to
the determination of cash generating units (CGUs), future cash inflows and outflows, discount rates, and asset
lives. At least annually, the carrying value of goodwill is reviewed for potential impairment. Among other things,
this review considers the recoverable amounts of the CGUs based on the higher of value in use or fair value less cost
to sell using discounted estimated future cash flows. These significant estimates require considerable judgment,
which could affect the Companys future results if the current estimates of future performance and fair values
change.

(c) Income Tax


The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred
income tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and
their carrying amounts reported in the financial statements. Deferred income tax assets also reflect the benefit of
unutilized tax losses that can be carried forward to reduce income taxes in future years. Such method requires the
exercise of significant judgment in determining whether or not the Companys deferred tax assets are probable of
recovery from taxable income of future periods and therefore, can be recognized in the financial statements. Also,
estimates are required to determine the expected timing upon which tax assets will be realized and upon which
tax liabilities will be settled.

Key sources of estimation uncertainty


The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the
end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.

(a) Valuation of certain accounts receivable


The Companys assessment of its ability to collect its accounts receivable in Libya, described in Note 5, required
judgement as continued instability in the region has had an adverse impact on its customers ability to pay its
outstanding accounts receivable. Management made a judgement with respect to the ability to receive payment
from its customer, and concluded that until sufficient evidence to the contrary exists, a full provision against
outstanding debts is necessary. A change in this judgment in future periods will have a positive impact on profit or
loss if the provision is reversed upon cash collection or receipt of other evidence indicating that collection is likely.

(b) Useful lives of property and equipment


As described in note 2(d), the Company reviews the estimated useful lives of property and equipment and intangi-
ble assets at the end of each annual reporting period. During the financial year, management determined that the
useful lives still approximated the economic lives of the assets.

(c) Allowance for doubtful accounts


The Company reviews the accounts receivable aging reports at the end of each reporting period to determine
whether an allowance for doubtful accounts is required based on available information at the time. Collectability
is assessed on a customer by customer basis.

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(d) Provisions
Management has made estimates for restructuring provision related to the expected cost of severance and reten-
tion for employees impacted, and the future cost of contracts that are expected to become onerous. Management
believes the provision recorded in the fourth quarter of 2015 is complete based on plans in place.

Provisions set aside for warranty exposures are estimated based on historical experience under contractual war-
ranty obligations or specific provisions created in respect of expected repair and warranty costs. Management
believes the provided warranty provisions is sufficient.

Should plans or costs change, the provisions and associated expenses could increase or decrease.

(e) Key assumptions used in discounted cash flow projections


Key assumptions used in the calculation of impairment tests and valuation of intangibles acquired and contingent
considerations arising in business combinations are discount rates, growth rates, and other assumptions. Please see
note 9 for more detail on these assumptions.

2. SI G N I FI C ANT ACCOU NTI N G P O LI CI E S

The accounting policies set out below have been applied consistently to the Company and its subsidiaries for all periods
presented in these financial statements, unless otherwise indicated.

(a) Basis of consolidation


(i) Subsidiaries
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in
the financial statements from the date that control exists until the date that control ceases. Control is achieved
when the Company has the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.

Significant subsidiaries of the Company include:


n PureHM Inc. (100%, Canada)
n PureHM U.S. Inc. (100%, USA)
n Pure Technologies U.S. Inc. (100%, USA)
n Pure Engineering Service Inc. (100%, USA)
n Wachs Valve and Hydrant Services, LLC (100%, USA)
n Pure Technologies (Aus) Pty. Ltd. (100%, Australia)
n Pure Technologies (UK) Ltd. (100%, UK)

(ii) Joint arrangement


The Companys operations in Hong Kong, China, Macau, and Taiwan are conducted through Pure
Technologies (China) Limited, which is a joint ownership with Balama Prima Engineering Co Ltd (the joint
arrangement). The Company has rights only to its 50% interest in the net assets of the arrangement and
accounts for its interest using the equity method.

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(iii) Transactions eliminated on consolidation


Intercompany balances and transactions are eliminated in preparing the financial statements.

(iv) Business combinations


Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration for each ac-
quisition is measured at the date of acquisition, as the aggregate of the fair values of assets given, liabilities
incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquirer.
Assets and liabilities acquired are measured at fair value. Acquisition-related costs are recognized in profit or
loss as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent con-
sideration is classified as equity, then it is not re-measured and settlement is accounted for within equity.
Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

(b) Revenue recognition


The Company generates revenue from system sales and installation, inspection services, consulting and engineer-
ing services, and monitoring and technical support contracts. Revenue is only recognized when there is persuasive
evidence of an arrangement, significant risks and rewards of ownership have been transferred to the customer,
collection is probable and the amount of revenue can be measured reliably.

Revenues under certain contracts provide for receipt of payment based on achieving defined milestones. Revenues
are recognized under these contracts based on managements estimate of progress achieved against these mile-
stones or on the proportionate performance method of accounting. Changes in managements estimated costs to
complete a contract may result in an adjustment to previously recognized revenues.

Revenue from monitoring and technical support contracts is recognized on a straight-line basis over the term of
the contract.

Revenue from inspection and consulting services is recognized when the services are provided.

When a contract contains more than one separately identifiable component, consideration is allocated to the sep-
arate components based on relative fair values.

(c) Inventories
Raw materials and work in progress inventories are measured at the lower of cost and net realizable value following
the specific item method.

The cost of inventories is based on the first-in-first-out principle, and includes expenditures incurred in acquiring
the inventories, production or conversion costs and other costs incurred. In the case of manufactured inventories
and work in progress, cost includes materials. Costs of materials are determined on an average per unit basis.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses. In establishing any impairment of inventory, management estimates the likeli-
hood that inventory carrying values will be affected by changes in market demand, technology and design, which
would impair the value of inventory on hand.

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(d) Property and equipment


(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and any impairment
losses. Cost comprises the purchase price or construction cost and any costs directly attributable to making
that asset capable of operating as intended. The purchase price or construction cost is the aggregate amount
paid and the fair value of any other consideration given to acquire the asset. The cost of self-constructed assets
includes the cost of materials, subcontractors, direct labour, and any costs directly attributable to making that
asset capable of operating as intended.

When parts of items of property and equipment have different useful lives, those components are accounted
for as separate items of property and equipment.

Any gain or loss on disposal of an item of property and equipment (calculated as the difference between the net
proceeds from disposal and the carrying amount of the item) is recognized in profit or loss.

(ii) Depreciation
Property and equipment are depreciated from the date of acquisition or, in respect of internally constructed
assets, from the time an asset is completed and ready for use.

Depreciation is provided using the straight-line method less residual value at the following estimated useful
lives:
Pipeline equipment 3 to 5 years
Field equipment 5 to 10 years
Computer and other equipment 3 years

Each assets estimated useful life, residual value and method of depreciation are reviewed and adjusted if
appropriate at each financial year-end. Any such change would be considered a change in estimate and as such
would be accounted for prospectively, without retroactive restatement of prior periods. No depreciation is
charged on assets under construction.

(iii) Subsequent costs


Subsequent expenditure on property and equipment are capitalized only when it increases the future economic
benefits embodied in the specific asset to which it relates.

(e) Intangible assets


(i) Recognition and measurement
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses.

(ii) Amortization
Intangible assets are amortized using the straight-line method, over the following estimated useful lives:
Intellectual Property 5 to 10 years
Customer contracts and relationships 1 to 5 years
Employment contracts and non-compete agreements 3 to 5 years

Intellectual property includes the cost of patents, trademarks, licences, proprietary software, technical draw-
ings, and other assets associated with the Companys technology portfolio.

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The estimated useful lives, residual values and amortization method are reviewed and adjusted if appropriate
at each financial year-end. Any such change would be considered a change in estimate and as such would be
accounted for prospectively, without retroactive restatement of prior periods.

(iii) Subsequent costs


Subsequent expenditure on intangible assets are capitalized only when it increases the future economic
benefits embodied in the specific asset to which it relates. All other expenditures, including expenditure on
internally generated goodwill and brands, is recognized in profit or loss as incurred.

(f) Goodwill
Goodwill is recognized as the fair value of the consideration transferred, including the recognized amount of any
non-controlling interest in the acquiree, less the fair value of the identifiable assets acquired and liabilities as-
sumed, as of the acquisition date. Subsequent to initial recognition, goodwill is measured at cost less accumulated
impairment losses.

Goodwill acquired in a business combination is allocated to groups of cash generating units that are expected to
benefit from the synergies of the combination.

(g) Impairment
Financial assets
A financial asset not accounted for at fair value is assessed at each reporting date to determine whether there is
objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as
a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an
impact on the estimated future cash flows for that asset that can be estimated reliably.

The Company considers evidence of impairment for financial assets measured at amortized cost (receivables) at a
specific asset level. An impairment loss in respect of a financial asset measured at amortized cost is calculated as
the difference between the carrying amount and the present value of the estimated future cash flows. Losses are
recognized in profit or loss and reflected in an allowance account against receivables. When an event occurring
after the impairment was recognized causes the amount of impairment loss to decrease, the decrease in impair-
ment loss is reversed through profit or loss.

Non-financial assets
The carrying amounts of the Companys non-financial assets other than inventories are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the assets re-
coverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives, the recoverable
amount is estimated annually.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell.
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.

For the purposes of impairment testing, assets that cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash
inflows of other groups of assets. CGUs, to which goodwill has been allocated, reflects the lowest level at which
goodwill is monitored for internal reporting purposes.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount. Impairment losses are recognized in profit (loss). Impairment losses recognized in respect of the CGUs

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are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the
carrying amounts of the other assets in the unit on a pro-rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized
in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized. The Company performs the annual review of goodwill as at December 31 of each year or more
often if events or changes in circumstances indicate that it might be impaired.

(h) Research and development


Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge
and understanding is expensed as incurred.

Development activities involve a plan or design for the production of new or substantially improved products or
processes. Development expenditure is capitalized only if development costs can be measured reliably, the prod-
uct 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 expenditure cap-
italized includes the cost of materials, direct labour, and overhead costs that are directly attributable to preparing
the asset for its intended use. It is measured at cost less accumulated amortization and accumulated impairment
losses. Other development expenditure is recognized in profit or loss as incurred.

Government assistance received in the form of grants for research and development activities are applied as a
reduction of the cost of the related property and equipment or as a reduction of the applicable research and devel-
opment expenses when there is a reasonable assurance of their ultimate collection.

(i) Foreign currency


(i) Functional and presentation currency
The individual financial statements of each entity within the Company are presented in the currency of the
primary economic environment in which the entity operates (its functional currency). For the purposes of
the financial statements, the results and financial position of each entity within the Company are translated
into Canadian dollars (CAD), which is the functional currency of the Company and the presentation for
the financial statements. The Companys subsidiaries in the United States, Mexico, Australia, Abu Dhabi,
Philippines, and the United Kingdom have United States dollar (USD), Mexican peso (MXP), Australian
dollar (AUD), Abu Dhabi dinar (AED), Philippine peso (PHP), and British pound (GBP) functional
currencies, respectively.

(ii) Foreign currency transactions and balances


In preparing the financial statements of the Company and its subsidiaries, transactions in currencies other
than the entitys functional currency are recorded at the rates of exchange prevailing at the dates of trans-
actions. At each period end, monetary items denominated in foreign currencies are translated at the rates
prevailing at the period end date. Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differ-
ences are recognized in profit (loss) in the period in which they arise.

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(iii) Foreign operations


The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acqui-
sition, are translated to the Canadian dollar at exchange rates at the reporting date. The income and expenses
of foreign operations are translated to Canadian dollar at the average rates for the period. Such exchange
differences arising on consolidation are recognized initially in other comprehensive income and reclassified
from equity to profit (loss) on disposal or partial disposal or in the event of impairment of the net investment.

(j) Financial Instruments


A financial instrument is any contract that creates a financial asset of one entity and a financial liability or equity
instrument to the other entity. Financial instruments are initially measured at fair value and are classified as one
of the following: fair value through profit or loss, available for sale, held to maturity, loans and receivables or other
financial liabilities.

Financial assets and liabilities classified as fair value through profit or loss are measured at fair value with gains and
losses being recognized as profit or loss during the period they occur. Financial assets classified as available-for-sale
are measured at fair value with unrealized gains and losses, net of tax, being recognized in other comprehensive
income or loss until the asset is sold, or if an unrealized loss is considered other than temporary, the unrealized
loss is recognized as a loss during the period it occurs. Financial assets classified as held-to-maturity and loans and
receivables and financial liabilities classified as other liabilities are measured at amortized cost using the effective
interest rate method. Transaction costs directly attributable to the acquisition or issue of a financial asset or liabil-
ity not measured at fair value are added to the carrying value of the respective financial asset or liability. The fair
value of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate
their carrying values due to their short term to maturities.

Loans and receivables include cash and cash equivalents and accounts receivables. Other financial liabilities in-
cludes accounts payable and accrued liabilities.

The financial statements have been prepared on the historical cost basis, except for held for trading financial assets,
which are measured at fair value with changes in fair value recorded in earnings.

The Company uses a hierarchy ranking that reflects the significance and transparency of the inputs used to mea-
sure the fair values of financial assets and liabilities. The three levels of the fair value hierarchy are:

Level 1 determined by reference to quoted prices in active markets for identical financial assets and liabilities;

Level 2 inputs to the valuations, other than quoted prices, are observable for the financial assets and liabili-
ties, either directly or indirectly; and

Level 3 inputs to the valuations are based on inputs that are not observable for the financial assets and
liabilities.

Non-derivative financial assets


The Company has the following non-derivative financial assets:

(i) Cash and cash equivalents


Cash and cash equivalents comprise cash balances and short term investments with original maturities of
three months or less.

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(ii) Accounts receivable


Accounts receivable are financial assets with fixed or determinable payments. Such assets are recognized ini-
tially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, accounts
receivable are measured at amortized cost using the effective interest method, less any impairment loss.

Non-derivative financial liabilities


Financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially
on the trade date at which the Company becomes a party to the contract to the contractual provisions of the
instrument.

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or
expire.

The liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

(k) Leases
Rental payments made under operating leases are recorded as expenses on a straight line basis over the term of the
related lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term
of the lease.

(l) Income tax


Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or
loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other
comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates en-
acted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabil-
ities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized
for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not
a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to
investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse
in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on
the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the
reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or
on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.

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(m) Per share amounts


Basic and diluted per share amounts are calculated using the weighted average number of shares outstanding
during the period. Basic per share amounts are calculated by dividing the profit or loss attributable to ordinary
shareholders of the Company by the weighted average number of shares outstanding during the period. Diluted
per share amounts are determined by adjusting the profit or loss attributable to shareholders and weighted average
of shares outstanding for the effects of all dilutive potential share options.

(n) Share-based payment transactions


Equity-settled share-based payments to employees are measured at the fair value of the equity instrument granted.
An option valuation model is used to fair value stock options issued to employees on the date of grant. The market
value of the Companys shares on the date of the grant is used to determine the fair value of the equity-based share
units issued to employees.

The initial fair value of equity-settled share-based payments is recognized as compensation expense with a corre-
sponding increase in equity reserves over the related service period provided to the Company. Estimates related to
vesting conditions are reviewed regularly with any adjustments recorded to compensation expense. On the vesting
date, the Corporation revises, if necessary, the estimate to equal the number of equity instruments ultimately
vested and adjusts the corresponding compensation expense and equity reserves accordingly.

Market conditions attached to certain equity-settled share-based payments are taken into account when estimat-
ing the fair value of the equity instruments granted. Upon exercise or settlement of equity-based instruments,
consideration received, if any, together with amounts previously recorded in the equity reserves, are recorded as
an increase in share capital.

Cash-settled share-based payments are measured based on the fair value of the cash liability. The amount deter-
mined is recorded as compensation expense at the date of the grant. The liability is re-measured each period with
a corresponding adjustment to the related compensation expense until the date of settlement.

(o) Segmented reporting


An operating segment is a component of the Company that engages in business activities from which it may
earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the
Companys other components. All operating segments operating results are reviewed regularly by the Companys
CEO to make decisions about resources to be allocated to the segment and assess its performance and for which
discrete financial information is available.

Segmented results that are reported to the CEO include items directly attributable to a segment as well as those
that can be allocated on a reasonable basis. Unallocated items are comprised mainly of corporate costs, interest
and income tax provisions.

New standards and interpretations not yet adopted


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

In May 2014, the IASB published IFRS 15, Revenue from Contracts with Customers (IFRS 15) replacing IAS
11, Construction Contracts, IAS 18, Revenue and several revenue related interpretations. IFRS 15 establishes a
single revenue recognition framework that applies to contracts with customers. The standard requires an entity to
recognize revenue to reflect the transfer of goods and services for the amount it expects to receive, when control is

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transferred to the purchaser. Disclosure requirements have also been expanded. The new standard is effective for
annual periods beginning on or after January 1, 2018.

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

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

3. SEG M E NTE D I N FO R M ATI O N

Segment revenues and segment profit (loss) represent the primary financial measures used by senior management in
assessing performance and allocating resources, and include revenues, cost of sales and expenses for which manage-
ment is held accountable. All of the segmented revenues reported below are from external customers. There were no
inter-segment sales reported in the periods presented. Revenues earned from SmartBall inspections and licencing for
oil and gas pipelines have been reflected in the PureHM segment in 2014 to conform with the current period presenta-
tion. Additionally, the results of Mexico and South America have moved to the International segment to conform with
changes in the management reporting structure within Pure.

($000s CAD)
For the year-ended December 31, 2015 Americas International PureHM Total
Revenue
Equipment sales $ 5,852 $ 1,679 $ 199 $ 7,730
Inspection and consulting services 63,023 10,734 13,523 87,280
Monitoring, licensing & technical support 6,117 1,548 1,748 9,413
74,992 13,961 15,470 104,423
Profit before corporate expenditures, other
expenses, and taxes 21,508 64 3,685 25,257
Corporate expenditures and other expenses
Marketing 2,189
Engineering and operations 9,629
General and administrative 13,388
Research and development 822
Gain on asset disposal (357)
Net finance expense 116
Foreign exchange gain (1,944)
Libyan AR and other provisions 1,371 (1,562) (191)
Profit before taxes $ 1,605

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($000s CAD)
For the year-ended December 31, 2014 Americas International PureHM Total
Revenue
Equipment sales $ 12,386 $ 5,011 $ 119 $ 17,516
Inspection and consulting services 35,792 11,628 4,426 51,846
Monitoring, licensing & technical support 4,663 2,477 1,304 8,444
52,841 19,116 5,849 77,806
Profit before corporate expenditures,
other expenses, and taxes 20,536 7,086 2,938 30,560
Corporate expenditures and other expenses
Marketing 1,629
Engineering and operations 9,492
General and administrative 12,464
Research and development 1,561
Gain on asset disposal (106)
Net finance income (154)
Foreign exchange gain (1,697)
Libyan AR and other provisions 500 12,723 13,223
Loss before taxes $ (5,852)

As at December 31, 2015, Americas comprised 94% of total non-current assets, excluding deferred tax assets (December 31,
2014: 93%).

The Company provides its products and services in a number of geographical locations. The revenue in those locations
is as follows:

($000s CAD) 2015 2014


United States $ 68,938 $ 40,674
Canada 21,524 17,897
Australia 4,321 3,878
China 1,300
South Africa 862 3,749
Mexico 101 5,920
Libya 287
Other countries 7,377 5,401
Consolidated revenue $ 104,423 $ 77,806

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4. BUSI N ESS ACQU ISITI O NS

Wachs Water Services


On April 1, 2015, Pure, through its wholly-owned subsidiary Pure Holding Inc., acquired the business of Wachs Valve
and Hydrant Services LLC, a privately held company operating as Wachs Water Services (WWS) headquartered
in Buffalo Grove, Illinois (the Acquisition). WWS is a leading provider of flow control maintenance and support,
leak detection, and related asset management services to the water sector in the United States. The purchase has been
accounted for as follows:

($000s CAD)
Cash (USD $13.5 million) $ 16,899
878,640 common shares (1) 7,266
Total purchase consideration $ 24,165
Cash $ 954
Accounts receivable 5,194
Prepaid expenses 360
Property and equipment (2) 2,408
Tradenames 327
Non-competition agreements 465
Customer relationships 1,483
Goodwill (expected to be tax deductible) (2) 16,204
Accounts payable and other current liabilities (2) (3,230)
$ 24,165
(1) The 878,640 common shares had a market value of $7.3 million on acquisition date and are issuable in equal tranches on each of the 6, 12 and
18 month anniversaries of the closing date of the transaction. 292,880 common shares were issued on October 1, 2015.
(2) Since the issuance of the third quarter financial statements, management corrected the previously presented purchase equation of WWS.
WWS had various arrangements for its truck leases and certain ones previously identified as operating leases meet the definition of capital
leases. This correction increased property and equipment and corresponding lease obligation by $0.5 million, and operating lease expenses
recorded in cost of sales subsequent to acquisition of $0.2 million was reduced and replaced by $0.2 million of depreciation. The second
adjustment was the identification of $0.2 million of payroll liabilities not previously accrued, the offsetting adjustment was an increase to
goodwill. These adjustments are not considered to be material to the financial statements of Pure as a whole, and have been reflected in the
year-end financial statements.

Goodwill is attributable to the trained employees joining the Company, and value attributable to adding to Pures un-
derground asset management service offering, and allowing for comprehensive asset management solutions to clients
as well as increasing Pures exposure to the currently underserved small and medium sized utilities markets.

The Company incurred $0.7 million of transaction cots to complete the Acquisition.

Since acquisition, WWS has contributed $15.3 million of revenue and $0.1 million of loss before tax. Had the acquisition
taken place on January 1, 2015, WWS would have contributed an additional USD $4.2 million of revenue and USD $0.2
million of net income before tax to the Companys results.

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Hunter McDonnell Pipeline Services


On October 1, 2014, the Company acquired a business by way of the purchase of the net assets of Hunter McDonnell
Pipeline Services Inc. and its affiliated Companies (collectively HM), a leading provider of technology-driven integrity
services to the oil and gas pipeline industry. The purchase has been accounted for as follows:

($000s CAD)
Cash $ 6,036
256,082 common shares (1) 2,000
Total purchase consideration $ 8,036
Prepaid expenses $ 36
Inventory 788
Property and equipment 1,614
Patents 1,827
Customer relationships 1,071
Non-competition agreements 480
Goodwill ($1.8 million is expected to be deductible for tax purposes) 2,585
Automobile loans (repaid in October 2014) (297)
Deferred tax liabilities (68)
$ 8,036
(1) The 256,082 common shares had a market value of $2.0 million on acquisition date and are issuable in equal tranches on each of the first,
second, and third anniversaries of the closing date of the transaction. 85,361 common shares were issued on October 1, 2015.

Had the acquisition taken place on January 1, 2014, PureHM would have contributed $11.1 million of revenue and $2.2
million of net income before tax to the Companys 2014 results.

Costs directly attributable to the acquisition of $0.3 million were included in general and administrative expenses
in 2014.

Goodwill is attributable to the trained employees joining the Company, and value in the operational plan of the com-
bined entities, including the accelerated expansion into the oil and gas pipeline sector and the expected synergies
resulting from using HMs technologies to track Pures SmartBall technology.

South African asset purchase


In November 2014, Pure purchased the assets of a private Company for 1.3 million. The assets included intellectual
property (technology and software), testing and validation information, non-competition agreements, and inspection
equipment which are located in South Africa. The acquisition provided Pure with access to historical inspection data
of a large utility in South Africa and a subcontractor workforce available to conduct future inspections. Pure allocated
the purchase price as $1.8 million to intangible assets and $0.1 million to property and equipment in 2014. These assets
generated $0.2 million of revenue and net income before tax for the period ended December 31, 2015 (2014 $nil).

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5. ACCOU NT S R ECE IVAB LE

At December 31, 2015, a total of $11.1 million was due from one customer located in Libya (December 31, 2014: $12.7
million). In December 2014, the Company recorded a full valuation allowance against these receivables given the high
degree of uncertainty in the country due to the increasing conflict and lack of significant payment on these receivables
to date. Unrest in the country severely disrupted local working conditions, and as a result the customers had been
physically unable to process payments to Pure at the Libyan bank. While the customer had reaffirmed their intent to
pay outstanding amounts and continue working with Pure, the customer had been unable to make payments on the
outstanding invoices due to the escalating conflict in Libya.

In April, 2015, $1.6 million of these receivables was collected, and as such, the Company reversed its allowance related
to the collected receivables. Given the continuing uncertainty in the region, the Company has maintained its allowance
on the unpaid receivables and any amounts collected in future periods will be recognized in comprehensive income in
the period of, or when there is greater assurance of, collection.

6. I NV E NTO RY

December 31 December 31,


($000s CAD) 2015 2014
Raw materials 5,816 4,865
Work in progress 4,224 4,610
$ 10,040 $ 9,475

For the year ended December 31, 2015, $11.8 million of raw materials and work in progress was recognized as cost of
sales (2014: $10.5 million). Approximately $0.1 million of inventory was written down in the current period (2014: $0.1
million).

7. PRO PE R T Y AN D EQU I PM E NT

($000s CAD)

Pipeline Office
Cost equipment equipment Total
Balance at January 1, 2014 $ 19,073 $ 5,320 $ 24,393
Additions 2,170 3,155 5,325
Acquired (Note 4) 1,714 1,714
Disposals (1,507) (16) (1,523)
Effect of movements in exchange rates 427 (99) 328
Balance at December 31, 2014 $ 21,877 $ 8,360 $ 30,237
Additions 3,841 3,257 7,098
Acquired (Note 4) 1,568 840 2,408
Disposals (475) (3) (478)
Effect of movements in exchange rates 2,082 476 2,558
Balance at December 31, 2015 $ 28,893 $ 12,930 $ 41,823

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($000s CAD)
Pipeline Office
Accumulated depreciation equipment equipment Total
Balance at January 1, 2014 $ 12,440 $ 3,333 $ 15,773
Depreciation for the year 2,737 1,148 3,885
Disposals (952) (1) (953)
Effect of movements in exchange rates 378 332 710
Balance at December 31, 2014 $ 14,603 $ 4,812 $ 19,415
Depreciation for the year 4,098 1,821 5,919
Disposals (205) (2) (207)
Effect of movements in exchange rates 1,099 248 1,347
Balance at December 31, 2015 $ 19,595 $ 6,879 $ 26,474

($000s CAD)
Pipeline Office
Carrying amounts equipment equipment Total
At December 31, 2014 $ 7,274 $ 3,548 $ 10,822
At December 31, 2015 $ 9,298 $ 6,051 $ 15,349

8. I NTAN G I B LE A SSE T S

($000s CAD)
Intellectual
Cost Property Other Total
Balance at January 1, 2014 $ 9,962 $ 7,121 $ 17,083
Additions 3,188 3,188
Acquired (Note 4) 4,001 1,151 5,152
Effect of movements in exchange rates 28 13 41
Balance at December 31, 2014 $ 17,179 $ 8,285 $ 25,464
Additions 5,533 5,533
Acquired (Note 4) 2,275 2,275
Effect of movements in exchange rates 63 182 245
Balance at December 31, 2015 $ 22,775 $ 10,742 $ 33,517

($000s CAD)
Intellectual
Accumulated depreciation Property Other Total
Balance at January 1, 2014 $ 5,502 $ 3,365 $ 8,867
Depreciation for the year 2,516 750 3,266
Effect of movements in exchange rates (134) 9 (125)
Balance at December 31, 2014 $ 7,884 $ 4,124 $ 12,008
Depreciation for the year 3,145 1,295 4,440
Effect of movements in exchange rates 10 50 60
Balance at December 31, 2015 $ 11,039 $ 5,469 $ 16,508

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($000s CAD)
Intellectual
Carrying amounts Property Other Total
At December 31, 2014 $ 9,295 $ 4,161 $ 13,456
At December 31, 2015 $ 11,736 $ 5,273 $ 17,009

The amortization of intangible assets is included under general and administration expenses on the consolidated state-
ment of comprehensive income.

9. G O O DWI LL

($000s CAD)
Cost
Balance at January 1, 2014 $ 23,546
Effect of movements in exchange rates 323
Acquisition of HM (Note 4) 2,585
Balance at December 31, 2014 $ 26,454
Effect of movements in exchange rates 2,845
Acquisition of WWS (Note 4) 16,204
Balance at December 31, 2015 $ 45,503

The Company performed its annual impairment test which resulted in no impairments. For the purpose of impairment
testing, goodwill is allocated to the Companys CGUs. The aggregate value of goodwill attributable to each CGU is as
follows:

December 31, December 31,


($000s CAD) 2015 2014
Americas $ 38,749 $ 18,513
International 4,125 5,356
PureHM 2,629 2,585
45,503 26,454

The Company determines the recoverable amount for all its CGUs based on value-in-use, determined as the discounted
future cash flows generated from the Companys continuing use of the CGU. The primary sources of cash flow informa-
tion are derived from past experience, historical trends, actual operating results, the budget and business plan for the
immediate year, and the Companys five year strategic plan. Cash flows are extrapolated using growth rates between
0 and 20% with adjustments reflecting an expectation of a recovery in the general economy, forecasted changes in the
CGUs respective markets and in the overall macro-economic environment and represents the Companys best estimate
of the set of economic conditions that are expected to exist over the forecast period. Gross margin and operating costs
were estimated with respect to the Companys current and budgeted costs, and increased with respect to the revenue
growth and inflation. The pre-tax discount rate applied to cash flow projections ranged from 10 and 15%. The Company
has not noted any reasonably possible changes in key assumptions which would result in the carrying amount of good-
will to exceed the recoverable amount.

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10. J O I NT AR R AN G E M E NT

The Company applies the equity method of accounting for its investment in Pure Technologies (China) Limited
(PTCL). PTCL has net cumulative losses of $0.6 million (December 31, 2014 $1.0 million) and as such has not
been recognized in these financial statements as the accounting book value of the Companys investment in PTCL is
negative. The Company has a $1.8 million receivable due from the joint arrangement. The Company has a $1.8 million
receivable due from the joint arrangement of which $0.6 million was collected after year-end. No allowance has been
taken on the receivable as operations are growing in China.

11. CO NSTRUC TIV E O B LIGATI O NS AN D R ESTRUC TU R I N G PROV ISI O N

In 2014, the Company recognized a $0.5 million provision relating to a potential constructive obligation made upon
the discovery of under-reported employee income to foreign tax authorities for certain employees in prior periods. The
Company committed to assist the affected employees in remedying any incremental employee tax liability. This was a
one-time charge included on the statement of comprehensive income for the period ended December 31, 2014.

In 2015, $0.4 million of this provision was paid to foreign tax authorities and employees for penalties incurred leaving a
remaining balance of $0.1 included in other provisions as at December 31, 2015.

During the year, the company recorded $1.4 million in restructuring charges, comprised of $0.2 million in current
period severance costs, and a $1.2 million provision for 2016 planned severance costs and expected future losses under
lease commitments.

12. BAN K LOAN FACI LIT Y

On July 22, 2015, the Company entered into a bank facility with a Canadian Chartered Bank (the Lender), comprised
of a $10 million revolving credit facility, $10 million letter of credit facility, $2 million risk management facility and
$1 million credit card facility, as well as an uncommitted $20 million accordion facility for acquisitions. Except for
the accordion facility, all the facilities are committed for three years and payable in full on maturity. The revolving
credit facility is subject to a borrowing base comprised of certain accounts receivable and inventory amounts. Interest
and standby fees are tiered based on the Companys debt to earnings before interest, depreciation and amortization
(EBITDA) ratio.

The Lender has a general security agreement with a first ranking interest over the Companys assets. Covenants are
considered normal for similar bank facilities and by industry standards. Financial covenants include a maximum debt
to EBITDA ratio, and a minimum free cash flow to debt service payment ratio.

At December 31, 2015, $1.5 million in letters of credit were issued on the new letter of credit facility and $0.8 million of
cash was restricted to secure outstanding historical foreign letters of credit and credit cards. No amounts were drawn
on the other facilities as at December 31, 2015. Subsequent to year-end, the historical foreign letters of credit were
re-issued under the new facility.

13. SHAR E C APITAL

The authorized share capital of the Company consists of an unlimited number of voting common shares without par
value and an unlimited number of preferred shares issuable in series without par value.

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14. STO CK- BA SE D COM PE NSATI O N

The Company has a stock option plan (the Plan) whereby the aggregate number of shares reserved for issuance shall
not exceed 10% of the issued and outstanding common shares (calculated on a non-diluted basis) as at the time of grant
of any options. Options granted vest 1/3 every year over a 3 year period from the date of grant and expire 5 years from
grant. All options are to be settled by physical delivery of shares. Under the Plan, the Board of Directors may, at its dis-
cretion, grant options to purchase shares in the Company to certain employees, officers and directors of the Company.
The exercise price is determined by the Board of Directors.

The number and weighted average exercise prices of share options are as follows:

Number Weighted average


of options exercise price
Balance at January 1, 2014 3,916,649 $ 4.53
Granted 1,525,000 7.62
Exercised (956,901) 4.10
Forfeited (133,678) 4.90
Balance at December 31, 2014 4,351,070 $ 5.70
Granted 171,000 8.11
Exercised (655,779) 4.41
Forfeited (256,831) 5.95
Balance at December 31, 2015 3,609,460 $ 6.03
Exercisable at December 31, 2015 2,184,481 $ 5.18

Stock options granted during the period had a weighted average grant date fair value of $2.19 (2014: $1.94). The fair
value of each option granted is estimated using the Black-Scholes option pricing model assuming: a 3.5 year expected
life (2014: 3 years); a 1% dividend yield; a 1% risk free interest rate (2014: 1%); and a 40% expected volatility (2014: 38%).

For the year ended December 31, 2015, stock-based compensation costs included in comprehensive income totalled $2.2
million (2014 $1.6 million). These amounts are included under marketing, engineering and operations, general and
administration, and research and development expenses on the consolidated statement of comprehensive income (loss).

The following table summarizes information about options outstanding at December 31, 2015:

Options outstanding Options exercisable


Weighted
average
remaining Weighted Weighted
Number contractual average Number average
Exercise price of options life (years) exercise price of options exercise price
$ 3.00 $ 4.00 489,904 0.9 $ 3.28 489,904 $ 3.28
$ 4.01 $ 5.00 676,262 1.9 4.26 672,929 4.26
$ 5.01 $ 6.00 844,794 2.9 5.90 544,852 5.90
$ 6.01 $ 7.00 5,000 4.6 6.57
$ 7.01 $ 8.00 1,382,500 3.9 7.61 456,794 7.60
$ 8.01 $ 9.00 211,000 4.1 8.18 20,002 8.10

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Deferred Share Units


During 2015, the Company initiated a deferred share unit (DSU) plan for its non-executive Directors. Under the
terms of the DSU plan, DSUs awarded will vest immediately and will be settled with cash in the amount equal to the
closing price of the Companys common shares on the date the director resigns from the Board.

The fair value of the liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently,
at each reporting date between grant date and settlement date, the fair value of the liability is remeasured with any
changes in fair value recognized in profit or loss for the period. There were 74,529 DSUs outstanding at December 31,
2015 with a fair value of $0.3 million which is included in non-current liabilities on the statement of financial position.

Performance Share Units


The Company has a performance share unit plan (PSU) for Executive Officers of the Company. Under the terms
of the PSU Plan, PSUs granted vest at the end of a three-year term. At the end of the three year term, the Executive
Officers will be awarded either cash or shares at the discretion of the Board of Directors, calculated based on certain
revenue and EBITDA related performance conditions. Upon vesting, it is the intention of the Board of Directors to
settle all PSUs currently outstanding in common shares of the Company and as such the PSUs have been accounted for
in shareholders equity.

The fair value of the PSUs on the date of issuance, calculated with reference to managements estimate of meeting the
performance conditions, is expensed over the vesting period. Management has estimated it will achieve the target per-
formance levels for Revenue Growth and EBITDA. Accordingly, $0.2 million was expensed during the year attributable
to the 118,750 PSUs granted on May 15, 2015.

15. D IV I D E N DS

Declared Paid Dividend per Share $000s


March 2, 2015 March 31, 2015 $ 0.03 $ 1,571
June 1, 2015 June 30, 2015 0.03 1,578
September 1, 2015 September 30, 2015 0.03 1,632
December 1, 2015 December 31, 2015 0.03 1,614
$ 0.12 $ 6,395

On March 1, 2016 the Board of Directors declared a quarterly dividend of $0.03 per common share to be payable on
March 31, 2016.

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16. I N COM E TA XES

($000s CAD) 2015 2014


Current tax expense:
Current period $ 2,230 $ 1,877
Change in estimates (776) (191)
1,454 1,686
Deferred tax expense:
Origination and reversal of temporary differences (863) (3,787)
Change in unrecognized temporary differences 176 169
Change in estimates 972 (34)
285 (3,652)
Total income tax expense (recovery) $ 1,739 $ (1,966)

The reconciliation of the effective tax rate is as follows:

($000s CAD) 2015 2014


Profit (loss) before taxes $ 1,605 $ (5,852)
Combined statutory income tax rates (25%) 26% 25%
Expected income tax provision 413 (1,481)
Non-deductible expenses 864 33
Effect of change in tax rates (145) (938)
Effect of tax rates in foreign jurisdictions 235 446
Change in unrecognized temporary differences 176 169
Change in estimates 196 (226)
Other 31
Income tax expense (recovery) $ 1,739 $ (1,966)

The tax rate consists of the combined federal and provincial statutory tax rates for the Company and its subsidiaries for
the years ended December 31, 2015 and 2014. The combined federal and provincial tax rate increased to 25.75% in 2015
from 25.31% in 2014 due to the Alberta corporate tax rate increasing from 10% to 12% effective July 1, 2015.

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Recognized deferred tax assets and liabilities consist of the following:

($000s CAD)
December 31, 2015 Assets Liabilities Net
Operating losses $ 3,133 $ $ 3,133
Research and development expenditures 4,792 4,792
Property and equipment 339 (835) (496)
Intangible assets (1,639) (1,639)
Other 2,076 (365) 1,711
Deferred taxes $ 10,340 $ (2,839) $ 7,501

($000s CAD)
December 31, 2014 Assets Liabilities Net
Operating losses $ 3,762 $ $ 3,762
Research and development expenditures 4,549 4,549
Property and equipment 236 (520) (284)
Intangible assets (1,620) (1,620)
Other 1,887 (537) 1,350
Deferred taxes $ 10,434 $ (2,677) $ 7,757

Deferred tax assets have not been recognized in respect of the following items:

($000s CAD) 2015 2014


Deductible temporary differences $ 255 $ 246
Tax losses 336 169
Unrecognized deferred tax assets $ 591 $ 415

The following tables summarize the movement of temporary differences during the period:
Foreign
Exchange/
Balance Acquired Balance
January Recognized in in business December 31,
($000s CAD) 1, 2015 profit or loss combination 2015
Operating losses $ 3,762 $ (629) $ $ 3,133
Research and development expenditures 4,549 243 4,792
Property and equipment (284) (212) (496)
Intangible assets (1,620) (19) (1,639)
Other 1,350 332 29 1,711
Net deferred taxes $ 7,757 $ (285) $ 29 $ 7,501

Foreign
Exchange/
Balance Acquired Balance
January 1, Recognized in in business December 31,
($000s CAD) 2014 profit or loss combination 2014
Operating losses $ 738 $ 3,024 $ $ 3,762
Research and development expenditures 3,602 947 4,549
Property and equipment (211) (73) (284)
Intangible assets (873) (679) (68) (1,620)
Other 917 433 1,350
Net deferred taxes $ 4,173 $ 3,652 $ (68) $ 7,757

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17. FI NAN CIAL I NSTRUM E NT S

The Board of Directors has overall responsibility for the establishment and oversight of the Companys risk manage-
ment framework.

The Companys risk management policies are established to identify and analyze the risks faced by the Company, to
set appropriate risk limits and controls, and to monitor risk and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and the Companys activities. The Company,
through its training and management standards and procedures, aims to develop a disciplined and constructive control
environment in which all employees understand their roles and obligations. The Companys Audit Committee oversees
how management monitors compliance with the Companys risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the risks faced by the Company.

(a) Credit risk


Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Companys receivables from customers.
The Companys exposure to credit risk is influenced mainly by the individual characteristics of each customer.
Management has established a credit policy under which each new customer is analyzed individually for credit-
worthiness before the Companys standard payment and delivery terms and conditions are offered. The Companys
review includes external ratings, where available, and in some cases bank references. The demographics of the
Companys customer base, including the default risk of the industry and country, in which customers operate, has
less of an influence on credit risk. The Company has no individually significant concentration of credit risk.

($000s CAD)
2015 Gross Allowance Net
Current $ 11,222 $ $ 11,222
Past due 31 - 60 days 7,284 7,284
Past due 61 - 90 days 4,175 4,175
Over 90 days (Note 5) 19,701 (11,935) 7,766
Accrued revenues 6,730 6,730
Other receivables 1,086 1,086
Balance, end of year $ 50,198 $ (11,935) $ 38,263

($000s CAD)
2014 Gross Allowance Net
Current $ 11,741 $ $ 11,741
Past due 31 - 60 days 1,928 1,928
Past due 61 - 90 days 3,178 3,178
Over 90 days (Note 5) 15,338 (12,976) 2,362
Accrued revenues 8,302 8,302
Other receivables 838 838
Balance, end of year $ 41,325 $ (12,976) $ 28,349

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(b) Liquidity risk


The Company is exposed to liquidity risk from the potential inability to generate or obtain sufficient cash and
cash equivalents in a timely manner to satisfy its financial liabilities as they come due. The Company manages
liquidity risk by ensuring, to the extent possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage
to the Companys reputation.

The following are the Companys contractual obligations as at December 31, 2015:

Less than 1 to 5 More than


2015 ($000s CAD) one year years 5 years Total
Accounts payable and accrued liabilities $ 13,497 $ $ $ 13,497
Operating leases 3,195 8,343 4,118 15,656
Total contractual obligations $ 16,692 $ 8,343 $ 4,118 $ 29,153

Less than 1 to 5 More than


2014 ($000s CAD) one year years 5 years Total
Accounts payable and accrued liabilities $ 11,183 $ $ $ 11,183
Operating leases 1,981 7,433 1,579 10,993
Total contractual obligations $ 13,170 $ 7,433 $ 1,579 $ 22,176

(c) Market risk


Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the
Companys income or the value of its holdings of financial instruments. The objective of market risk management
is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

Interest rate fluctuations do not have a material impact on the Companys income or the value of its holdings of
financial instruments.

The Company has an exposure to foreign currency exchange rates on sales and purchases that are denominated in
currency other than the respective functional currencies of the Companys subsidiaries.

The following tables show the breakdown of the Companys significant foreign currency denominated financial
instruments, denominated in thousands of Canadian dollars. All other factors being equal, a 1% change in the
Canadian dollar would have a $0.3 million impact on profit or loss before tax (2014 $0.3 million).

For the year-ended December 31, 2015 USD GBP MXP AUD AED
Cash and cash equivalents 6,159 92 58 548 399
Accounts receivable 24,516 1,672 435 636 1,222
Accounts payable and accrued liabilities (6,970) (335) (204) (459) (278)
23,705 1,429 289 725 1,343

For the year-ended December 31, 2014 USD GBP MXP AUD AED
Cash and cash equivalents 6,665 231 5,551 1,310 714
Accounts receivable 13,295 1,362 451 315 1,366
Accounts payable and accrued liabilities (5,087) (179) (316) (284) (146)
14,873 1,414 5,686 1,341 1,934

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(d) Capital management


The Companys objectives in terms of capital management are to maintain a sound financial position and to ensure
financial flexibility in order to maintain its capacity for growth. The Boards policy is to maintain a strong capital
base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
Management monitors the return on capital to shareholders.

The Companys capital is composed of its shareholders equity and its primary uses are to finance acquisitions,
increases in non-cash working capital and capital expenditures for capacity expansion and research and devel-
opment. The Company believes that current cash balances and future funds generated through its operations
will be sufficient to meet cash requirements currently and for the foreseeable future. If the Company were to
experience a significant reduction in its cash flows from operations, it currently has a variety of options for raising
capital for short-term cash needs, including an unused demand bank loan facility. There were no changes in the
Companys approach to capital management during the year ended December 31, 2015 compared to the year ended
December 31, 2014.

18. E XPE NSES BY NATU R E

($000s CAD) 2015 2014


Personnel expenses $ 49,278 $ 32,086
Depreciation and amortization 10,359 7,151
Office 5,121 4,196
Consulting and legal 5,902 4,937
Travel and meals 3,482 2,941
Advertising and Promotion 1,054 754
Stock-based compensation 2,552 1,553
Acquisition costs 749 352
Other expenses 818 810
Libyan accounts receivable, restructuring, and other provisions (191) 13,223
$ 79,124 $ 68,003

19. O PE R ATI N G LE A SES

Non-cancellable operating lease rentals are payable as follows:

($000s CAD) 2015 2014


Less than one year $ 3,195 $ 1,981
Between one and five years 8,343 7,433
More than five years 4,118 1,579
$ 15,656 $ 10,993

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

20. K E Y M ANAG E M E NT PE R SO N N E L COM PE NSATI O N

Key management personnel compensation was $6.9 million (2014 $5.5 million) in salary and short-term employee
benefits and $0.9 million in stock based compensation (2014 $0.8 million). In addition to their salaries, key manage-
ment personnel receive employee benefits, including parking, and are entitled to participate in the Companys share
purchase plan.

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Corporate Information

B OAR D O F D I R E C TO R S O FFI CE R S AU D I TO R S
James E. Paulson James E. Paulson KPMG LLP
Executive Chairman 3100, 205 5th Avenue SW
Peter O. Paulson
Calgary, Alberta T2P 4B9
John F. Elliott Peter O. Paulson
Vice Chairman and BAN K
Raymond D. Crossley
Chief Technology Officer Bank of Montreal
Sara C. Elford
350 7th Avenue SW
John F. Elliott
Charles W. Fischer Calgary, Alberta T2P 3N9
President and
Michael M. Kanovsky Chief Executive Officer R E G I S T R AR AN D T R AN S FE R AG E N T
Scott I. MacDonald Computershare Trust
Mark W. Holley
David H. McDermid Executive Vice President and Company of Canada
Chief Operating Officer 600, 530 8th Avenue SW
Calgary, Alberta T2P 3S8
Geoffrey D. Krause
Chief Financial Officer S TO CK E XCH AN G E LI S T I N G
TSX Exchange
Nicole D. Springer Symbol: PUR
Chief Legal Officer and
Corporate Secretary

Robert Budianto
Senior Vice President
Engineering, Operations and
Production

Michael Higgins
Senior Vice President, North America

Michael R. Wrigglesworth
Senior Vice President, International
ANNUAL REPORT 2015 PU R E T E C H N O LO G I E S LT D. | 65

Corporate Information

H E AD O FFI CE PU R E T E CH N O LO G I E S ( AUS) P T Y. LT D.
3rd Floor 7/7-12 Pyrmont Bridge
705 11th Avenue SW Pyrmont, New South Wales,
Calgary, Alberta, Canada T2R 0E3 2009 Australia
Telephone: (403) 266-6794 Telephone: 61 2 9550 1777
Toll-Free (North America): Fax: 61 2 8022 3990
1-855-280-PURE (7873)
Fax: (403) 266-6570 PU R E AB U D H AB I
Email: investor.relations@puretechltd.com P.O. Box 108726
Website: www.puretechltd.com Al Odaid Office Tower, 11th Floor,
Airport Road, Abu Dhabi, United Arab Emirates
PU R E T E CH N O LO G I E S U. S. I N C Telephone: 971 2 4146772
Suite D Fax: 971 2 4146600
8920 State Route 108
PU R E T E C H N O LO G I E S (C H I N A) LT D.
Columbia, Maryland, USA 21045
Telephone: (443) 766-7873 10th Floor, Hing Lung Commercial Building
Fax: (443) 766-7877 68-74 Bonham Strand
Sheung Wan, Hong Kong
PU R E I N S PE C T I O N T E CH N O LO G I E S SA D E C V Telephone: (852) 2345 5538
Calle El Olivo No.88 Fax: (852) 8148 7764
Col. Florida
PU R E H M I N C .
Deleg. Alvaro Obregon
Mexico D.F. CP 01030 Building 3, 9703 45 Ave NW
Telephone: (55) 5559-1078 Edmonton, Alberta, Canada T6E 5V8
Telephone: (780) 436-4400
PI PE LI N E T E CH N O LO G I E S PH I LI PPI N E S CO R P. Toll Free: 1-866-434-7872
Unit 1505 Cityland 10 Fax: (780) 989-0040
Tower 1
H.V. Dela Costa Street PU R E H M U. S. I N C .
Makati City, Philippines 1209 Suite 190, 1400 N Sam Houston Parkway E
Telephone: +63 (917) 898-7873 Houston, Texas, USA 77032
Fax: +63 (2) 621.0853 Toll Free: 1-866-434-7872

WACH S WAT E R S E RV I CE S
801 Asbury Drive
Designed and produced by Rhino Corporate Communications Inc.

Buffalo Grove, IL, USA 60089


Telephone: (224) 357-2600
Fax: (847) 415-2196

PU R E T E CH N O LO G I E S M I SS I SSAU G A
Unit 7, 5055 Satellite Drive
Mississauga, Ontario, Canada L4W 5K7
Telephone: (905) 624-1040
Toll-free: 1-877-275-7742
Fax: (905) 624-4777
PURE TECHNOLOGIES LTD.
3rd Floor, 705 11 Avenue SW
Calgary, Alberta, Canada T2R 0E3
Telephone: (403) 266-6794
Fax: (403) 266-6570

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Toll Free (North America): 1-855-280-PURE (7873)
Email: investor.relations@puretechltd.com
www.puretechltd.com

printed in Canada