Consolidated Interim Financial Statements of MAXIM POWER CORP. for the First Quarter ended March 31, 2017 (unaudited)

Transcription

1 Consolidated Interim Financial Statements of MAXIM POWER CORP. for the First Quarter ended March 31, 2017 (unaudited)

2 FORM F2 CERTIFICATION OF INTERIM FILINGS FULL CERTIFICATE I, M. Bruce Chernoff, Interim Chief Executive Officer of Maxim Power Corp., certify the following: 1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Maxim Power Corp. (the "issuer") for the interim period ended March 31, No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. 3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. 4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer. 5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings (a) (b) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that (i) (ii) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP. 5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) published by the Committee of Sponsoring Organizations, of the Treadway Commission (COSO). Page 1 of 2

3 5.2 ICFR material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period (a) (b) (c) 5.3 N/A a description of the material weakness; the impact of the material weakness on the issuer's financial reporting and its ICFR; and the issuer's current plans, if any, or any actions already undertaken, for remediating the material weakness. 6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on January 1, 2017 and ended on March 31, 2017, that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR. Date: May 11, 2017 (signed) "M. Bruce Chernoff " M. Bruce Chernoff Interim Chief Executive Officer Page 2 of 2

4 FORM F2 CERTIFICATION OF INTERIM FILINGS FULL CERTIFICATE I, Michael R. Mayder, Senior Vice President, Finance and Chief Financial Officer of Maxim Power Corp., certify the following: 1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Maxim Power Corp. (the "issuer") for the interim period ended March 31, No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. 3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. 4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer. 5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings (a) (b) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that (i) (ii) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP. 5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) published by the Committee of Sponsoring Organizations, of the Treadway Commission (COSO). Page 1 of 2

5 5.2 ICFR material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period (a) (b) (c) 5.3 N/A a description of the material weakness; the impact of the material weakness on the issuer's financial reporting and its ICFR; and the issuer's current plans, if any, or any actions already undertaken, for remediating the material weakness. 6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on January 1, 2017 and ended on March 31, 2017 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR. Date: May 11, 2017 (signed) "Michael R. Mayder " Michael R. Mayder Senior Vice President, Finance and Chief Financial Officer Page 2 of 2

6 Condensed Consolidated Interim Financial Statements of MAXIM POWER CORP. For the First Quarter Ended March 31, 2017 (Unaudited)

7 MAXIM POWER CORP. Unaudited Condensed Consolidated Statements of Financial Position (in thousands of Canadian dollars) March 31, December 31, Note ASSETS Cash and cash equivalents 12,741 15,303 Trade and other receivables 2,881 1,856 Prepaid expenses and deposits Inventories 1,045 1,029 Risk management assets ,480 Assets held for sale 4 121, ,236 Total current assets 138, ,176 Property, plant and equipment, net 54,387 57,705 Intangible assets, net 7,137 7,538 Deferred tax assets 4,114 4,114 Other assets 8,677 8,650 Total non-current assets 74,315 78,007 TOTAL ASSETS 213, ,183 LIABILITIES Trade and other payables 8,487 9,428 Liabilities held for sale 4 33,126 32,364 Total current liabilities 41,613 41,792 Provisions for decommissioning 12,107 11,961 Other long-term liability 3,546 3,581 Deferred tax liabilities 3,368 3,368 Total non-current liabilities 19,021 18,910 TOTAL LIABILITIES 60,634 60,702 EQUITY Share capital 156, ,482 Contributed surplus 11,504 11,423 Accumulated other comprehensive income 26,731 28,172 Retained deficit (42,375) (38,790) Equity attributable to shareholders 152, ,287 Non-controlling interest TOTAL EQUITY 152, ,481 Subsequent event 13 Commitments and Contingencies 8,9 TOTAL LIABILITIES AND EQUITY 213, ,183 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

8 MAXIM POWER CORP. Unaudited Condensed Consolidated Statements of Loss and Comprehensive Loss For the three months ended March 31 (in thousands of Canadian dollars) Note Revenue 1,979 1,883 Expenses Operating 5,686 12,123 General and administrative Depreciation and amortization 1,589 1,295 Gain on commodity swaps 12 (975) - Other income, net (54) (340) Operating loss (4,808) (12,075) Finance income, net 6 (303) (2,069) Loss before income taxes (4,505) (10,006) Income tax expense (benefit) Current 6 (12) Net loss from continued operations (4,511) (9,994) Discontinued operations Net income from discontinued operations (net of tax) ,076 Net loss (3,581) (7,918) Other comprehensive loss, net of tax: Items that are or may be reclassified to net income Unrealized losses on translation of discontinued foreign operations (1,443) (9,320) Total comprehensive loss (5,024) (17,238) Net income (loss) attributable to: Non-controlling interest 4 91 Shareholders (3,585) (8,009) Net loss attributable to shareholders per share: Basic earnings 7 (0.07) (0.15) Diluted earnings (0.07) (0.15) Net loss attributable to shareholders per share continued operations: Basic earnings 7 (0.08) (0.19) Diluted earnings (0.08) (0.19) Comprehensive income (loss) attributable to: Non-controlling interest 2 70 Shareholders (5,026) (17,308) The accompanying notes are an integral part of these condensed consolidated interim financial statements.

9 MAXIM POWER CORP. Unaudited Condensed Consolidated Statements of Changes in Equity For the three months ended March 31 (in thousands of Canadian dollars, except common share data) Common shares (thousands) Share capital Contributed surplus Accumulated other comprehensive gain (loss) Retained earnings (deficit) Equity attributable to shareholders Noncontrolling interest Equity at December 31, , ,482 11,423 28,172 (38,790) 157, ,481 Net income (loss) (3,585) (3,585) 4 (3,581) Stock options exercised (10) Share-based compensation Translation of foreign operations (1,441) - (1,441) (2) (1,443) Distributions to non-controlling interest (31) (31) Equity at March 31, , ,552 11,504 26,731 (42,375) 152, ,577 Total Equity at December 31, , ,248 10,686 34,138 15, , ,787 Net income (loss) (8,009) (8,009) 91 (7,918) Stock options exercised 8 28 (12) Share-based compensation Translation of foreign operations (9,299) - (9,299) (21) (9,320) Distributions to non-controlling interest (30) (30) Equity at March 31, , ,276 10,891 24,839 7, , ,752 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

10 MAXIM POWER CORP. Unaudited Condensed Consolidated Statements of Cash Flows For the three months ended March 31 (in thousands of Canadian dollars) Note Cash flows from operating activities: Net loss from continued operations (4,511) (9,994) Adjustments for items not involving cash or operations: Depreciation and amortization 1,589 1,295 Inventories write-down - 4,761 Share-based compensation Income tax expense (benefit) 6 (12) Finance income 6 (303) (2,068) Commodity price call option expired out of the money Approved emission performance credits (36) (340) Funds used in continued operating activities before changes in working capital (2,786) (6,141) Change in non-cash working capital from continued operations (219) Net cash used in operating activities from continued operations (2,538) (6,360) Cash flows from financing activities: Issuance of loans and borrowings - 4,289 Proceeds from exercise of stock options 60 - Interest paid (152) (125) Net cash generated from (used in) financing activities from continued operations (92) 4,164 Cash flows from investing activities: Proceeds from insurance recoveries, net of (property, plant and equipment additions) 1,993 (278) Change in non-cash working capital 10 (1,925) (819) Net cash generated from (used) in investing activities from continued operations 68 (1,097) Decrease in cash and cash equivalents from continued operations (2,562) (3,293) Cash and cash equivalents held at discontinued operations, beginning of period 3,535 Net increase (decrease) in cash and cash equivalents from discontinued operations 4 (1,092) 7,412 Less: Cash and cash equivalents held at discontinued operations, end of period 4 (2,443) - Cash and cash equivalents, beginning of period 15,303 5,884 Cash and cash equivalents, end of period 12,741 10,003 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

11 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 1 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 1. Reporting entity Maxim Power Corp. is incorporated in the province of Alberta, Canada. Maxim Power Corp. and its subsidiaries (together "MAXIM" or the "Corporation") is an independent power producer, which acquires or develops, owns and operates power and power related projects. The Corporation has power generation facilities in Alberta and the United States of America ("United States") as at March 31, The Corporation has presented the result of its operations in the United States as assets and liabilities held for sale and discontinued operations (note 4) and closed the sale of its United States operating segment on April 3, 2017 (note 13). The Corporation s common shares trade on the Toronto Stock Exchange under the symbol "MXG". MAXIM s registered office is Suite 1210, Avenue S.W., Calgary, Alberta, Canada, T2P 2X6. 2. Basis of preparation and statement of compliance These unaudited condensed consolidated interim financial statements are prepared in accordance with International Accounting Standard 34 Interim Financial Reporting. The unaudited condensed consolidated interim financial statements do not include all the information required for annual financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Corporation's December 31, 2016 annual audited financial statements, available at MAXIM's Board of Directors approved these unaudited condensed consolidated interim financial statements on May 11, Significant accounting policies The significant accounting policies used in the preparation of these unaudited condensed consolidated interim financial statements have been applied consistently for all periods presented and are unchanged from the policies disclosed in the notes to the consolidated financial statements for the year ended December 31, The use of judgments and estimates in the preparation of these unaudited condensed consolidated interim financial statements has been applied consistently for all periods presented and are unchanged from the judgments and estimates disclosed in the notes to the consolidated financial statements for the year ended December 31, On January 1, 2017, the Corporation adopted the amendments to Statement of Cash Flows ("IAS 7"), Income Taxes ("IAS 12") and Disclosure of Interests in Other Entities ("IFRS 12"). The adoption of these amendments had no impact to the amounts recorded in the Corporation's consolidated financial statements as of January 1, 2017 or comparative periods.

12 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 2 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 4. Assets and liabilities held for sale and discontinued operations (a) Assets and liabilities held for sale United States On April 3, 2017, the Corporation closed the sale of the United States operating segment (note 13). At March 31, 2017, the United States operating segment comprised the following assets and liabilities: (i) Assets classified as held for sale March 31, 2017 December 31, 2016 Cash and cash equivalents 2,443 3,535 Restricted cash 1,242 1,259 Trade and other receivables 6,151 3,465 Prepaid expenses and deposits 815 1,205 Inventories 7,349 7,295 Income taxes recoverable Property, plant and equipment, net 102, ,118 Intangible assets, net Future income tax asset Other assets Total held for sale 121, ,236 (ii) Liabilities classified as held for sale March 31, 2017 December 31, 2016 Trade and other payables 7,151 5,783 Loans and borrowings, net of deferred financing costs 21,724 22,349 Provisions for decommissioning 4,251 4,232 Total held for sale 33,126 32,364 (i) US bank facility MAXIM s subsidiary, Basin Creek Equity Partners, LLC ( Basin Creek ), has a term loan with fixed interest rate of 6.95% per annum, with quarterly repayments, maturing on June 30, At March 31, 2017, Basin Creek had an outstanding balance of US$16,844 thousand (December 31, 2016 US$17,175 thousand). This loan is secured by the PP&E of the Basin Creek facility and has no financial covenants or cross default provisions with the Canadian bank facilities (note 5).

13 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 3 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 4. Assets and liabilities held for sale and discontinued operations (continued) (b) Discontinued operations United States and France The following tables represent the discontinued net income for the United States and France operating segments: Total Discontinued Operations March 31, March 31, Revenue 14,246 36,335 Expenses 12,859 32,854 Operating income 1,387 3,481 Finance expense, net Income before income taxes 927 2,533 Income tax expense (benefit) Current Deferred (28) (471) (3) 457 Net income from discontinued operations 930 2,076 Attributable to: Non-controlling interest 4 91 Shareholders 926 1,985 Net income from discontinued operations attributable to shareholders per share: Basic earnings Diluted earnings March 31, March 31, Cash flows from (used in) discontinued operations Net cash generated from operating activities ,419 Net cash used in financing activities (843) (2,869) Net cash used in investing activities (310) (2,740) Unrealized foreign exchange gain (loss) on cash (39) (398) Net cash flows for the period (1,092) 7,412

14 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 4 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 4. Assets and liabilities held for sale and discontinued operations (continued) United States Segment March 31, March 31, Revenue 14,246 13,169 Expenses 12,859 13,378 Operating income (loss) 1,387 (209) Finance expense, net Income (loss) before income taxes 927 (720) Income tax expense (benefit) Current Deferred (28) (947) (3) (763) Net income from discontinued operations Attributable to: Non-controlling interest 4 22 Shareholders France Segment March 31, March 31, Revenue - 23,166 Expenses - 19,476 Operating income - 3,690 Finance expense, net Income before income taxes - 3,253 Income tax expense Current Deferred ,220 Net income from discontinued operations - 2,033 Attributable to: Non-controlling interest - 69 Shareholders - 1,964

15 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 5 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 5. Loans and borrowings Canadian bank facilities As at March 31, 2017, Facility A is a $13,500 revolving credit facility ($13,500 December 31, 2016). Total borrowings under this facility are not to exceed the sum of 90% of the book value of the Corporation s Canadian accounts receivable balance and 50% of the book value of the Corporation s North American PP&E. As at March 31, 2017, the carrying amount of the loan was $nil (December 31, $nil) and MAXIM has issued letters of credit of $12,559 (December 31, $12,534) on the facility. The amount available to draw against Facility A at March 31, 2017 was $941 (December 31, $966). On April 3, 2017, after closing the sale of the United States operating segment, the amount available to draw against the facility was $nil and effective May 1, 2017, the Corporation amended and restated its credit agreement (note 13). As at March 31, 2017, MAXIM breached the following financial covenants in relation to its Canadian bank facilities: DSCR, minimum equity and interest coverage. On January 3, 2017, management obtained a waiver for the March 31, 2017 covenant breaches from the bank. Accordingly, the issued letters of credit of $12,559 and the $nil drawn against Facility A are unaffected by these covenant breaches as at March 31, Finance income, net March 31, 2017 March 31, 2016 Interest expense Accretion of provisions Foreign exchange gain (475) (2,194) Finance income (303) (2,068) Interest income - (1) Total finance income, net (303) (2,069) 7. Earnings per share The calculation of basic and diluted earnings per share for the three months ended March 31, 2017 was based on the net loss attributable to common shareholders and net loss attributable to common shareholders from continued operations of $3,585 and $4,511, respectively (March 31, 2016 $8,009 and $9,994, respectively) and weighted average number of common shares outstanding for the period of 54,319,075 (March 31, ,225,168). The effects of exercisable stock options on diluted earnings per share were nil for the three months ended March 31, 2017 (March 31, 2016 nil) as they were antidilutive.

16 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 6 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 8. Commitments (a) Continuing operations (i) Milner Power Limited Partnership ("MPLP") is responsible for the decommissioning and reclamation of the power station lands at the Milner generating facility and the present value of these amounts have been recorded in provisions. The Balancing Pool has agreed to reimburse MPLP for the first $15,000 in decommissioning expense, the present value of which has been recorded in other assets. Should there be a material breach of environmental laws by MPLP during the period of ownership, then MPLP is required to contribute fully to the incremental costs caused by such material breach. (ii) The Corporation has entered into a natural gas transportation service agreement from January 1, 2018 to December 31, 2026 for the Deerland peaking station development project whereby it is committed to reimburse out-of-pocket costs of the counterparty for the construction of the project. The maximum authorization of expenditure is $1,570 and $15 has been incurred by the counterparty as at March 31, The Corporation has an additional commitment of $798 regarding the service portion of the contract. (b) Discontinued operations The Corporation, through its US subsidiaries, has entered into various operating and maintenance contracts for fixed monthly fees which escalate by the amount of inflation on an annual basis. These contracts expire between 2017 and 2026 with commitments totaling US$9,672 thousand. 9. Contingencies (a) Contingent liabilities The Corporation operates in a regulatory and commercial environment that exposes it to regulatory, contractual and litigation risks. As a result, the Corporation is involved in certain disputes and legal proceedings, including litigation, arbitration, and regulatory investigations. Such cases are subject to many uncertainties, and the outcomes are often difficult to predict, including the impact on operations or on the financial statements, particularly in the earlier stages of a case. In certain circumstances, to avoid the expense and distraction of legal proceedings, the Corporation may, based on a cost-benefit analysis, enter into a settlement even though denying any wrongdoing. The Corporation makes provisions for cases brought against it when, in the opinion of management after seeking legal advice, it is probable that a liability exists, and the amount can be reliably estimated. The Corporation has closed the sale of the France operating segment. Under the agreement, the Corporation continues to be subject to the claims received for 1,700 thousand in additional costs from suppliers in France. Costs in relation to these claims and potential claims are only recognized when they become probable and based on the information presently known, it is the view of the Corporation that these claims and potential claims are without merit. Further under the agreement, the Corporation is subject to performance criteria of certain generating units in the France operating segment until October 31, The Corporation is responsible to reimburse the buyer of the France operating segment for penalties incurred until that time up to a maximum of 1,500 thousand. In addition, the Corporation is subject to customary closing indemnities until December 2, 2019 to a maximum claim of 3,500 thousand.

17 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 7 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 9. Contingencies (continued) Costs in relation to these claims and potential claims are only recognized when they become probable and based on the information presently known, it is the view of the Corporation that no liability currently exists. The actual outcome of these claims and potential claims, including the timing and amount of any cash outflow or the possibility of reimbursements, is not yet determinable. (b) Contingent assets Through its Decision 790-D ("Decision"), released September 28, 2016, the Alberta Utilities Commission ("AUC") asserted its position on several preliminary matters related to remedy under Module C of Milner Power Inc.'s complaint relating to the Alberta Electric System Operator ( AESO ) Line Loss Rule. The Decision confirms the Corporation's view that the AUC's proceedings will establish compensation to Milner Power Inc. that will include an accounting for the time value of money. The Corporation estimates that overpayments of approximately $42,000 were made by Milner Power Inc. to the AESO for the period January 1, 2006 to March 31, 2017, based on calculations established by information currently available on the public record. As at March 31, 2017, the implementation date of the new rule under Module B and the amount and timing of compensation under Module C cannot be determined. Under the agreement for the sale of the France operating segment, the Corporation is eligible for compensation up to 6.0 million, contingent upon a change in law in France which benefits the Corporation s cogeneration units. The change in law must occur no later than June 1, As at March 31, 2017, the timing and amount of compensation cannot be determined. 10. Change in non-cash working capital March 31, March 31, Operations Trade receivables Prepaid expenses and deposits Inventories (16) 1,044 Trade payables and other current liabilities (718) (2,080) 248 (219) March 31, March 31, Investing Trade and other payables (1,925) (819) (1,925) (819)

18 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 8 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 11. Segmented information MAXIM is an independent power producer engaged in the development, ownership and operation of power generation facilities and the sale of electricity and heat. During the three months ended March 31, 2017, the Corporation operated in two reportable segments with power generation facilities located in Canada and the United States. For each of the segments, results are reviewed regularly by the Corporation s CEO to make decisions about resources to be allocated to the segments and to assess their performance. The France operating segment ceased to be strategic segment in 2016 as a result of the closed sale of this business segment. The Corporation has modified the composition of the reportable segments. March 31, 2017 Canada Corporate amounts Subtotal Discontinued operations from United States Total consolidated Revenues from external customers 1,979-1,979 14,246 16,225 Operating income (loss) (4,372) (436) (4,808) 1,387 (3,421) March 31, 2016 Canada Corporate amounts Subtotal Discontinued operations from United States Discontinued operations from France Total consolidated Revenues from external customers 1,883-1,883 13,169 23,166 38,218 Operating income (loss) (11,240) (835) (12,075) (209) 3,690 (8,594) 12. Fair value and financial instruments The fair value measurement of a financial instrument or derivative contract is included in one of three levels as follows: - Level I: unadjusted quoted prices in active markets for identical assets or liabilities - Level II: inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly - Level III: inputs for the asset or liability that are not based on observable market data (unobservable inputs) The Corporation s financial assets and financial liabilities that are not risk management contracts or loans and borrowings are all classified as Level I under the fair value hierarchy as they are based on unadjusted quoted prices in active markets for identical instruments. (a) Commodity risk management swaps and option March 31, 2017 March 31, 2016 Realized gain on commodity swaps 1,295 - Realized loss on commodity option (378) - Net realized gain on commodity swaps and option 917 Unrealized gain on commodity swaps 58 - Total gain on commodity swaps and option 975 -

19 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 9 For the three months ended March 31, 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 12. Fair value and financial instruments (continued) The fair value of the commodity swaps are classified as Level II under the fair value hierarchy as the fair values are based on observable market data. MAXIM determined the fair value of the swaps by applying the market approach using market settled forward prices as reported by the Natural Gas Exchange for forward contracts of comparable term at the reporting date. For the three months ended March 31, 2017, the unrealized gain on commodity price swaps was $58 (March 31, nil). For the three months ended March 31, 2017, the realized gain on commodity risk management swaps and option was $917 (March 31, nil). At March 31, 2017, the Corporation had no commodity swaps or options outstanding. (b) Foreign exchange risk management swap and options The Corporation, in the discontinued United States operating segment, is exposed to foreign currency exchange risk from the divestment of the operating segment where proceeds are denominated in currencies other than the functional currency of the Corporation. The Corporation manages this exposure by entering into a foreign currency swap or purchasing put options, for a portion of the proceeds. The fair value of the foreign currency swap and put options are classified as Level II under the fair value hierarchy as the fair values are based on observable market data. At March 31, 2017, the Corporation has a US$78,000 thousand swap to lock-in a portion of the sales proceeds at an exchange rate at $ in the Corporation's functional currency. For the three months ended March 31, 2017, the unrealized gain, recognized in discontinued operations, on the foreign currency swap was $242 (March 31, $nil). At March 31, 2017, the Corporation had no put options with expiry dates in the future. For the three months ended March 31, 2017, the Corporation realized a net loss of $1,092 (March 31, $nil) upon the expiry of two put options expiring March 24, 2017, consisting of the amortization of premiums paid of $1,378, partially offset by proceeds on exercise of $286. These amounts have been recognized in discontinued operations. 13. Subsequent event On April 3, 2017, the Corporation closed its previously announced agreement with Hull Street Energy, LLC for the sale of the Corporation's United States operating segment for net proceeds of approximately US$84.0 million. Upon close, the Corporation was required, under its Canadian bank facilities, to fully cash collaterize all outstanding letters of credit (note 5). The amount available to draw against this facility at April 3, 2017 was reduced to $nil. In addition, the Corporation is subject to customary closing indemnities until April 3, 2018 to a maximum claim of US$8.8 million. Costs in relation to these claims and potential claims are only recognized when they become probable and based on the information presently known, it is the view of the Corporation that no liability currently exists. Effective May 1, 2017, the Corporation amended and restated its credit agreement with the Bank of Montreal to a demand facility that will fully cash collaterize up to $8.0 million of letters of credit. The Corporation currently has $8.0 million of outstanding letters of credit outstanding and this amount was deposited into a restricted bank account maintained by the bank.

20 MANAGEMENT S DISCUSSION AND ANALYSIS The following Management s Discussion and Analysis ("MD&A") is dated May 11, 2017 and should be read in conjunction with the unaudited condensed consolidated interim financial statements of Maxim Power Corp. ("MAXIM" or the "Corporation") for the three month period ended March 31, The MD&A should also be read in conjunction with the audited consolidated financial statements and MD&A for the year ended December 31, MAXIM prepares its unaudited condensed consolidated interim financial statements in accordance with International Accounting Standards ("IAS") 34 Interim Financial Reporting, under International Financial Reporting Standards ("IFRS"), as set out in Part 1 of the Handbook of the Canadian Institute of Chartered Accountants ("GAAP"). In this MD&A, MAXIM also reports certain non-gaap measures. See page 17 for an explanation of non-gaap measures. Capitalized and abbreviated terms that are used but not otherwise defined herein are defined in the Glossary of Terms. Throughout this MD&A, dollar amounts within tables are in thousands of Canadian dollars unless otherwise noted. TABLE OF CONTENTS FORWARD-LOOKING INFORMATION... 2 OVERALL PERFORMANCE... 3 RESULTS OF CONTINUING OPERATIONS CANADA SEGMENT... 5 ASSETS AND LIABILTIIES HELD FOR SALE AND DISCONTINUED OPERATIONS... 7 LIQUIDITY AND CAPITAL RESOURCES... 9 OUTLOOK ACQUISITION AND DEVELOPMENT INITIATIVES ENVIRONMENTAL AND CLIMATE CHANGE LEGISLATION SELECTED QUARTERLY FINANCIAL INFORMATION NON-GAAP MEASURES CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES NEW ACCOUNTING PRONOUNCEMENTS TRANSACTIONS WITH RELATED PARTIES CONTROLS AND PROCEDURES OTHER INFORMATION GLOSSARY OF TERMS... 22

21 FORWARD-LOOKING INFORMATION Certain information in this MD&A is forward-looking information ("FLI") and is subject to important risks and uncertainties. The results or events predicted in this information may differ from actual results or events. Factors which could cause actual results or events to differ materially from current expectations include the ability of the Corporation to implement its strategic initiatives, the availability and price of energy commodities, government and regulatory decisions, power plant availability, competitive factors in the power industry and prevailing economic conditions in the regions that the Corporation operates. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "project", "predict", "potential", "could", "might", "should" and other similar expressions. The Corporation believes the expectations reflected in forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. These forward-looking statements speak only to the date of this MD&A. The Corporation disclaims any intention or obligation to update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise except as required pursuant to applicable securities laws. Readers are cautioned that management's expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. With respect to forward-looking statements contained within this MD&A, MAXIM has made the following assumptions as at the date of this MD&A: Management forecasts that cash flows for operating and administrative expenses will be funded by its existing cash on hand. Management forecasts that cash flows for development capital will be funded by both its existing cash on hand and future anticipated financing based upon current budgets and forecasts. Management has determined that it is no longer economically feasible to continue operating the H.R. Milner generating facility ("M1") as a coal-fired facility for the foreseeable future until Alberta power prices increase. Management continues to evaluate its options in regards to operating the facility solely on natural gas in its current state or the expansion of M1 into a 236 MW natural gas-fired facility under the Milner expansion project ("M3"). Development projects, including Deerland Peaking Station ("Deerland"), Buffalo Atlee, M3, Milner 2 ("M2") and Summit Coal ("SUMMIT") are based upon current estimates of capital cost, projected returns on investment, the duration of the regulatory approval process, and the ability to obtain the necessary financing. MAXIM estimates total development capital expenditures from continuing operations of $0.6 million to be incurred in These costs are based upon estimates and may differ from the actual costs to complete or revisions in the program scope. In determining potential development sites, management estimates future power prices in Alberta. The actual future power prices in these areas may be different from expected. MAXIM anticipates all necessary provincial and federal regulations for environmental and climate change legislation will be met. Changes to environmental legislation and operational issues may affect the ability of MAXIM to comply with regulations. As previously disclosed in the MD&A for the year ended December 31, 2016, the Corporation expected resolution of the entire cooling tower insurance claim by the end of During the first quarter of 2017, MAXIM concluded negotiations with its insurance providers related to the cooling tower at M1. MAXIM anticipates that it will maintain a working capital surplus over the next twelve months. Page 2

22 OVERALL PERFORMANCE Highlights and Notable Events On April 3, 2017, the Corporation closed its previously announced sale of the United States operating segment to Hull Street Energy, LLC for net proceeds of approximately US$84.0 million. Upon close, the Corporation was required, under its Canadian bank facilities, to fully cash collaterize all outstanding letters of credit for approximately $12.6 million. As of the date of this MD&A, this amount was reduced to $8.0 million upon cancellation of an outstanding letter relating to the sale of the France operating segment. The amount available to draw against this facility at April 3, 2017 was $nil. In addition, the Corporation will utilize US$5.3 million to fulfill obligations under the Federal Energy Regulatory Commission ("FERC") Stipulation and Consent Agreement ("Settlement Agreement") previously disclosed on September 26, The remainder of the proceeds will be held by MAXIM for strategic corporate purposes. MAXIM is currently evaluating the electricity market transition being undertaken by the Government of Alberta ("GoA"). This includes a shift from the current "energy only market" to a "capacity market" to attract investment needed to support this transition. The government estimates $25.0 billion of new investment in electricity generation is required to meet the electricity needs of a growing province and to support the transition toward cleaner sources of energy mandated by the federal and provincial governments. During April 2017, MAXIM reduced the headcount at its corporate head office by 21%, primarily as a result of the sale of the U.S. operating segments. On May 1, 2017, MAXIM provided notice to the Alberta Electric System Operator ("AESO") to temporarily suspend the generation of electricity at M1 effective July 28, The decision to temporarily suspend the operations at M1 was due to continued record low Alberta power prices, which have undermined profitability for a prolonged period. Laying-up M1 operations will result in a 75% reduction of plant staff through a combination of layoffs and severances for an undetermined period. Prior to suspension, M1 will remain available to the AESO as a long lead time asset and it is unlikely that the unit will be dispatched. MAXIM is currently maintaining a smaller operating team to undertake maintenance and repairs for a possible resumption of generation as power market conditions improve. A significant improvement in Alberta power prices will be required to justify resuming operations. Page 3

23 Key Performance Indicators ("KPI") Three months ended March 31 ($000's, unless otherwise noted) Revenue Continuing operations 1,979 1,883 Discontinued operations 14,246 36,335 Total 16,225 38,218 Adjusted EBITDA (1) Continuing operations (3,186) (5,802) Discontinued operations 1,145 11,348 Total (2,041) 5,546 Net (income) loss attributable to shareholders Continuing operations (4,511) (9,994) Discontinued operations 926 1,985 Total (3,585) (8,009) Basic and diluted net income (loss) per share attributable to shareholders ($ per share) Continuing operations (0.08) (0.19) Discontinued operations Total (0.07) (0.15) FFO (1) Continuing operations (2,786) (6,141) Discontinued operations 2,164 11,490 Total (622) 5,349 Total assets 213, ,875 Loans and borrowings Continuing operations - - Discontinued operations 21,724 68,881 Total 21,724 68,881 Total generation (MWh) (2) 84,460 89,668 Average Alberta market power price ($ per MWh) Average Milner realized power price ($ per MWh) (3) Average Northeast U.S. realized (1) (2) (3) Select financial information was derived from the unaudited condensed consolidated interim financial statements and is prepared in accordance with GAAP, except adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") and funds from operating activities before changes in working capital ("FFO"). Adjusted EBITDA is provided to assist management and investors in determining the Corporation s operating performance. Adjusted EBITDA and FFO does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. FFO is provided to assist management and investors in determining the Corporation s cash flows generated from operations before the cash impact of working capital fluctuations. Refer to the Non-GAAP Measures section of this MD&A for reconciliations between non-gaap financial measures and comparable measures calculated in accordance with GAAP. Total generation represents generation from continuing operations. Includes proportionate share of $0.9 million of realized gains from commodity risk management swaps and option from January 1, 2017 to March 31, As the plant ran at a weighted average of 39 MWh from January 1, 2017 to March 31 only 26% or $0.5 million of the gain is incorporated into the realized price in addition to physical electricity revenues. Financial Results The Corporation's KPI's are significantly impacted by the sale of the United States and France operating segments and notice provided to temporarily suspend operations at M1. As a result of this, beginning in the second quarter of 2017, the Corporation will no longer report on Adjusted EBITDA, FFO and other KPI's that it no longer uses to measure operating performance. For comparative purposes, the Corporation will continue to separately illustrate the impact of discontinued operations of the United States and France from continuing operations on remaining KPI's. The financial results of the Canada segment are presented as continuing operations and the financial results of the U.S. and France operating segment are presented as assets and liabilities held for sale and discontinued operations to illustrate the impact to the Corporation of the sale of the non-canada segments. Refer to the Assets and Liabilities Held for Sale and Discontinued Operations section on page 7 for a discussion on the financial results of discontinued operations. Page 4

24 Adjusted EBITDA and FFO have increased and net loss attributable to shareholders decreased in the first quarter of 2017 when compared to The changes in these financial measures are primarily due to realized gains on Alberta commodity swaps and lower fuel costs as the coal being consumed at M1 has no carrying value. RESULTS OF CONTINUING OPERATIONS CANADA SEGMENT Production Summary of generation: Three months ended March 31 MWh MWh Total MWh generation 84,460 89,668 Revenue Summary of revenue by segment: Three months ended March 31 ($000's) Revenue (1) 1,979 1,883 (1) All revenues from continuing operations are electricity sales at spot prices Revenue in first quarter of 2017 was $2.0 million, which is comparable to the same period in Plant Operations Summary of plant operations expense by type: Three months ended March 31 ($000's) Fuel O&M Total Inventories write-down Fuel O&M Total Total 1,382 4,304 5,686 4,761 2,111 5,251 12,123 Percent 24% 76% 100% 39% 17% 43% 100% First quarter operations and maintenance ("O&M") expenses decreased $1.0 million or 19%, from $5.3 million in 2016 to $4.3 million in 2017, primarily as a result of fixed operating cost savings from cost cutting initiatives. Fuel expenses in the first quarter of 2017 decreased from $2.1 million in 2016 to $1.4 million in 2017, which is a decrease of $0.7 million or 33% primarily due to lower per unit fuel costs of coal as the inventory value was written down to $nil as at December 31, This was partially offset by a higher consumption and per unit fuel cost of natural gas. During the first quarter of 2016, inventories of coal and spare parts related to coal-fired generation were written down by $4.2 million and $0.6 million, respectively, to net realizable value. General and Administrative Expense Three months ended March 31 ($000's) Total general and administrative expense First quarter general and administration expense decreased $0.4 million or 44%, from $0.9 million in 2016 to $0.5 million in 2017, primarily due to lower personnel costs at the corporate office. Depreciation and Amortization Expense Three months ended March 31 ($000's) Total depreciation and amortization expense 1,589 1,295 Depreciation expense in the first quarter of 2017 was $1.6 million, which is comparable to the same period in Page 5

25 Gain on Commodity Risk Management Swaps and Option Three months ended March 31 ($000's) Realized gain on commodity swaps 1,295 - Realized loss on commodity option (378) - Unrealized gain on commodity swaps 58 - Total gain on commodity swaps In the first quarter of 2017, MAXIM recorded a net $1.0 million gain on commodity swaps on fixed for floating firm financial swap agreements and a call option agreement at M1. The swap agreements were for the period of January 2017 to March These swaps required MAXIM to pay the counterparties a floating price based on the Alberta Power Pool price and in turn MAXIM received a fixed price per MWh for 75 MW of power. Since inception of the swaps, Alberta spot prices have settled lower than the fixed swap price and the Corporation has a realized gain of $1.3 million in The call option agreement was for the period of January 2017 to March This agreement was for a 50 MW commodity price call option at $50 per MW on an average daily basis in order to reduce variable Alberta power price exposure. As a result of low Alberta price's the call option expired out of the money on March 31, 2017 and the cost of the option was realized. At March 31, 2017, the Corporation had no commodity swaps or options outstanding. Other Income, Net Three months ended March 31 ($000's) Other income, net Net other income in the first quarter of 2017 decreased from $0.3 million in 2016 to $0.1 million in The decrease is primarily due to Emission Performance Credits pertaining to Alberta's greenhouse gas reduction program ("Emission Performance Credits") for 1,445 tonnes in 2015 and 17,005 tonnes in 2014, approved and recognized in the first quarter of 2017 and 2016, respectively. Finance Income, Net Three months ended March 31 ($000's) Interest expense Accretion of provisions Foreign exchange gain (475) (2,194) Finance income (303) (2,068) Interest income - (1) Total finance income, net (303) (2,069) Net finance income in the first quarter of 2017 decreased from $2.1 million in 2016 to $0.3 million in The decrease is primarily due to a decrease of foreign exchange gains from $2.2 million in 2016 to $0.5 million in 2017, which is caused primarily by the net impact of foreign exchange rate movement for US dollars and Euros (2016 only) on foreign intercompany liabilities held in Canada. These foreign exchange gains and losses are offset in other comprehensive income. Income Tax Expense (Benefit) Three months ended March 31 ($000's) Current tax expense (benefit) 6 (12) Total income tax expense (benefit) 6 (12) Income tax expense in the first quarter of 2017 was $nil, which is comparable to the same period in Financial Position The Corporation's Statements of Financial Position at March 31, 2017 and a pro-forma after closing the sale of the U.S. operating segment have been provided in the Outlook section of the MD&A on page 12. Page 6