CHAR Technologies Ltd. — Interim / Quarterly Report 2020

Jul 27, 2020

CHAR Technologies Ltd. Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 and 2019 (Expressed in Canadian Dollars) (Unaudited)

Note to Reader

The previous Financial Statements filed did not include comparative financial information in the Statement of Changes in Equity for the corresponding interim period in the immediately preceding financial year – March 31, 2019 as required by section 4.3(2)(b) of National Instrument 51-102 Continuous Disclosure Obligations. This is the reason for the refiling of the Financial Statements and this information is now included on page 4.

Notice to Reader

The accompanying unaudited condensed interim consolidated financial statements of CHAR Technologies Ltd. (the "Company") have been prepared by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed by the Company's auditors.

CHAR Technologies Ltd.

Condensed Interim Consolidated Statements of Financial Position (Expressed in Canadian Dollars) Unaudited

			As at		As at
			March 31,		September 30,
			2020		2019
ASSETS
Current assets
Cash	$		216,383	$	225,396
Amounts receivable (note 3)			394,400		538,466
Work-in-progress			113,791		244,157
Inventory (note 4)			15,472		15,227
Prepaid expenses			82,585		177,632
Total current assets			822,631		1,200,878
Property and equipment (note 5)			1,191,522		1,356,118
Right-of-use assets (note 6)			107,964		-
Goodwill			917,306		917,306
Intangible assets(note 7)			736,436		799,947
Total assets	$		3,775,859	$	4,274,249
SHAREHOLDERS' EQUITY AND LIABILITIES
Liabilities
Accounts payable and accrued liabilities (notes 8 and 15)	$		370,457	$	231,089
Lease liabilities (note 10)			28,648		-
Loan payable (note 9)			1,551		-
Deferred income tax liability			7,383		7,383
Deferred revenue			105,419		233,296
Deferred grant income (note 5)			442,022		406,286
Flow-throughpremium liability (note 11)			-		10,311
Total current liabilities			955,480		888,365
Lease liabilities (note 10)			81,580		-
Loan payable (note 9)			12,796		-
Deferred grant income (note 5)			1,125,047		1,414,141
Asset retirement obligation(note 14)			59,061		58,723
Total liabilities		$	2,233,964		2,361,229
Shareholders' equity
Share capital (note 11)			6,290,039		6,290,039
Share-based payment reserves (note 13)			527,153		412,263
Contributed surplus			53,744		53,744
Deficit			**(5,329,041) **		(4,843,026)
Total shareholders' equity			1,541,895		1,913,020
Total shareholders' equity and liabilities	$		3,775,859	$	4,274,249

Nature of business and going concern (note 1) Subsequent event (note 18)

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

CHAR Technologies Ltd.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (Expressed in Canadian Dollars) Unaudited

	Three Months Ended	Three Months Ended	Three Months Ended	Six Months Ended	Six Months Ended	Six Months Ended
	March	31,		March	31,
	2020	2019		2020	2019
Revenue
Consulting revenue	$ 437,087	$	295,501$1,032,822		$	573,128
Product sales	$ 97,256	$	2,502	$ 97,256		160,273
Total revenue	$ 534,343	$	298,003$1,130,078		$	733,401
Cost of revenue	(314,965)	(108,803)		(611,046)	(278,589)
Grossprofit	219,378		189,200	519,032		454,812
Expenses
Research and development	13,800		30,000	27,861		35,000
Professional fees	128,224		74,479	213,809		118,690
Consulting fees	29,193		84,631	29,193		156,762
Office expenses	345,005		303,538	710,201		657,775
Regulatory and filing fees	-		11,019	-		12,979
Depreciation (notes 5 and 14)	105,619		184,720	209,381		369,440
Amortization (note 7)	31,756		31,756	63,512		64,455
Share-based payments (note 13)	102,600		93,063	114,890		93,063
Reversal of flow-through liability (note 11)	-		(2,515)	(10,311)		(2,515)
	(756,197)	(810,691) (1,358,536)			(1,505,649)
Loss from operations	(536,819)	(621,491)		(839,504)	(1,050,837)
Grant income(note 5)	210,506		308,179	353,359		458,607
Net loss and comprehensive loss for theperiod	$ (326,313)	$ (313,312) $ (486,145)			$ (592,230)
Net lossper share - basic and diluted(note 12)	(0.01)		(0.01)	(0.01)		(0.01)
Weighted average common shares outstanding –
basic and diluted(note 12)	45,137,314	45,102,31445,137,314			44,525,084

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

CHAR Technologies Ltd.

Condensed Interim Consolidated Statements of Cash Flows (Expressed in Canadian Dollars) Unaudited

		Six Months Ended	Six Months Ended	Six Months Ended
			March 31,
		2020		2019
Operating activities
Net loss for the period	$	(486,015)	$	(592,230)
Adjustments for:
Share-based payments		114,890		93,063
Depreciation		209,381		369,440
Amortization		63,512		64,455
Accretion		-		660
Deferred income		-		(37,161)
Deferred grant income		(253,358)		(457,429)
Reversal of flow-through liability		(10,311)		(2,515)
Net change in non-cash working capital:
Amounts receivable		144,066		42,652
Prepaid expenses		95,047		18,627
Work-in-progress		130,366		16,284
Inventory		(245)		-
Deferred income		(127,877)		-
Accountspayable and accrued liabilities		139,368		(198,778)
Net cashprovided by (used in) operating activities		18,824		682,932
Investing activities
Purchase of property and equipment		(44,785)		175,699
Lease payments		110,228		-
Purchase of right of use assets		(107,964)		-
Net cash(used in) investing activities		42,521		175,699
Financing activities
Bank overdraft		-		102,704
Proceeds from issuance of common shares, net of costs		-		241,000
Grants received		-		354,563
Asset retirement obligation		338		-
(Repayment) of line of credit		-		(5,000)
Proceeds from loan payable		14,347		-
Repayment of loanspayable		-		-
Net cashprovided by financing activities		14,685		693,267
Net change in cash		(9,012)		(165,364)
Cash, beginning ofperiod		225,396		283,200
Cash, end ofperiod	$	**216,384 **	$	117,836

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

CHAR Technologies Ltd.

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity (Expressed in Canadian Dollars) Unaudited

	Share Capital Equity Settled Share-Based Number Payments Contributed of Shares Amount Reserve Surplus Deficit Total
Balance, September 30, 2018 Flow-through shares issued for cash (note 11) Flow-through share premium (note 11) Cancellation of shares (note 11) Share-based payments Net and comprehensive loss for theperiod	44,029,695 $ 6,055,370 $ 301,896 $ 53,744 $ (4,021,817) $ 2,389,193 1,147,619 241,000 - - - 241,000 - (28,690) - - - (28,690) (75,000) (10,315) - - 10,315 - - - 93,063 - - 93,063 - - - - (592,230) (592,230)
Balance, March 31, 2019	45,102,314$ 6,257,365 $ 394,959$ 53,744$ (4,603,732) $ 2,102,336
Balance, September 30, 2019 Share-based payments (note 13) Net and comprehensive loss for theperiod	45,137,314 $ 6,290,039 $ 412,263 $ 53,744 $ (4,843,026) $ 1,913,020 - - 114,890 - - 114,890 - - - - (486,145) (486,145)
Balance, March 31, 2020	45,137,314 $ 6,290,039 $ 527,153 $ 53,744 $ (5,329,171) $ 1,541,765

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

CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

1. Nature of business and going concern

CHAR Technologies Ltd. (the "Company" or "CHAR") is a cleantech development and services company, specializing in biocarbon development (activated charcoal “SulfaCHAR” and solid biofuel “CleanFyre”) and custom equipment for industrial air, water and organics treatment, and providing services in environmental management, site investigation and remediation, engineering, and resource efficiency. The Company is listed on the TSX Venture Exchange (the "Exchange") trading under the symbol YES.V. The Company’s head office address is 789 Don Mills Road, Suite 403, Toronto, Ontario, M3C 1T5.

These condensed interim consolidated financial statements have been prepared on a going concern basis, which contemplates that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements. Such adjustments could be material. It is not possible to predict whether the company will be able to raise adequate financing or to ultimately attain profitable of operations. These conditions indicate the existence of material uncertainties that may cause doubt about the Company’s ability to continue as a going concern. Changes in future conditions could require material write downs of the carrying values of assets.

The Company has not yet realized profitable operations and has incurred significant losses to date resulting in a cumulative deficit of $ 5,329,041 as at March 31, 2020 (September 30, 2019 - $4,843,026). The recoverability of the carrying value of the assets and the Company’s continued existence is dependent upon the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary. While management has been historically successful in raising the necessary capital, it cannot provide assurance that it will be able to execute on its business strategy or be successful in future financing activities. As at March 31, 2020 the Company had current assets of $ 822,631 (September 30, 2019 - $1,200,878) to cover current liabilities of $ 955,480 (September 30, 2019 - $888,365).

On May 28, 2020, the Board of Directors approved these condensed interim consolidated financial statements.

2. Significant accounting policies

(a) Statement of compliance

The Company applies International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements required by IFRS as issued by the IASB.

The policies applied in these unaudited condensed interim consolidated financial statements are based on IFRSs issued and outstanding as of May 28, 2020, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim consolidated financial statements as compared with the most recent audited annual consolidated financial statements as at and for the year ended September 30, 2019, except as noted below. Any subsequent changes to IFRS that are given effect in the Company’s annual consolidated financial statements for the year ending September 30, 2020 could result in restatement of these unaudited condensed interim consolidated financial statements.

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CHAR Technologies Ltd.

Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

2. Significant accounting policies (continued)

• (b) Basis of consolidation

These unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation. The consolidated financial statements of CHAR and its wholly owned subsidiaries Char Biocarbon Inc. and Altech Environmental Consulting Ltd. are consolidated from the date that control commences until the date that control ceases.

• (c) Change in accounting policies

• IFRS 16 - Leases

In January 2016, the IASB issued IFRS 16 - Leases ("IFRS 16"), replacing IAS 17 - Leases. IFRS 16 provides a single lessee accounting model and requires the lessee to recognize assets and liabilities for all leases on its statement of financial position, providing the reader with greater transparency of an entity’s lease obligations.

At October 1, 2019, the Company adopted IFRS 16 and recognized right-of-use assets of $135,978 and lease liabilities of $135,978 (notes 6 and 10).

All leases are accounted for by recognizing a right-of-use asset and a lease liability except for:

• Leases of low value assets; and

• Leases with a duration of twelve months or less.

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by the incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

• Amounts expected to be payable under any residual value guarantee;

• The exercise price of any purchase option granted if it is reasonable certain to assess that option;

• Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

• Lease payments made at or before commencement of the lease;

• Initial direct costs incurred; and

• The amount of any provision recognized where the Company is contractually required to dismantle, remove or restore the leased asset.

Lease liabilities, on initial measurement, increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made.

Right-of-use assets are amortized on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if this is judged to be shorter than the lease term.

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 201 (Expressed in Canadian Dollars) (Unaudited)

2. Significant accounting policies (continued)

• (c) Change in accounting policies (continued)

IFRS 16 - Leases (continued)

When the Company revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortized over the remaining (revised) lease term.

(d) Critical accounting judgments and key sources of estimation uncertainty

The preparation of these condensed interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these 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 further periods if the review affects both current and future periods.

Critical areas of estimation and judgments in applying accounting policies include the following:

Going concern

As discussed in note 1, these consolidated financial statements have been prepared in accordance with IFRS on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business within the foreseeable future. Management uses judgment in determining assumptions for cash flow projections, such as anticipated financing, anticipated sales and future commitments to assess the Company’s ability to continue as a going concern. A critical judgment is that the Company continues to raise funds going forward and satisfy their obligations as they become due.

Deferred taxes

The calculation of deferred taxes is based on assumptions which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Deferred tax recorded is also subject to uncertainty regarding the magnitude of non-capital losses available for carry forward and of the balances in various tax pools. By their nature, these estimates are subject to measurement uncertainty, and the effect on the financial statements from changes in such estimates in future period could be material. Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets are reviewed at each statement of financial position date and adjusted to the extent that it is no longer probable that the related tax benefit will be realized.

Useful lives of property and equipment and intangibles

The Company reviews the estimated useful lives of property and equipment and intangibles with finite useful lives at the end of each year and assesses whether the useful lives of certain items should be shortened or extended, due to various factors including technology, competition and revised service offerings. During the year ended September 30, 2019, the Company was not required to adjust the useful lives of any assets based on the factors described above.

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three Months and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

2. Significant accounting policies (continued)

(d) Critical accounting judgments and key sources of estimation uncertainty (continued)

Business combinations

In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied.

Share-based payments

The Company estimates the fair value of convertible securities such as warrants and options using the Black-Scholes option pricing model which requires significant estimation around assumptions and inputs such as expected term to maturity, expected volatility and expected dividends.

3. Amounts receivable

		March 31,		September 30,
		2020		2019
Trade receivables	$	211,220	$	254,624
Government grant receivable (note 5)		175,000		175,000
HST receivable		8,180		108,842
Total amounts receivable	$	394,400	$	538,466

4. Inventory

The Company’s inventory consists of activated carbon acquired from third parties for the purposes of selling to the Company’s customers or using in the operations of the engineering services.

• 8 -

CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

5. Property and Equipment

				Asset
		Computer	Production	Retirement	Building
Cost		Equipment	Equipment	Cost	and Kiln	Total
Balance, September 30, 2018	$	7,955 $	41,852 $	56,430 $	1,446,512 $ 1,552,749
Additions		13,013	-	-	186,612	199,625
Balance, September 30, 2019		20,968	41,852	56,430	1,633,124	1,752,374
Additions		-	16,769	-	-	16,769
Balance, December 31, 2019	$	20,968 $	58,621 $	56,430 $	1,633,124 $ 1,769,143
Balance March 31, 2020	$	20,968 $	58,621 $	56,430 $	1,633,24	$ 1,769,143

					Asset
		Computer	Production		Retirement	Building
Accumulated depreciation		Equipment	Equipment		Cost	and Kiln		Total
Balance, September 30, 2018	$	1,160 $	38,005	$	1,576 $	-	$	40,741
Depreciation		6,232	3,847		18,810	326,626		355,515
Balance, September 30, 2019		7,392	41,852		20,386	326,626		396,256
Additions		3,486	838		4,702	81,656		90,682
Balance, December 31, 2019	$	10,878 $	42,690	$	25,088 $	408,282	$	486,938
Balance March 31, 2020	$	10,878 $	42,690	$	25,088 $	408,282	$	486,938
					Asset
		Computer	Production		Retirement	Building
Net book value		Equipment	Equipment		Cost	and Kiln		Total
Balance, September 30, 2019	$	13,576$	-	$	**36,044$ **	1,306,498	**$ **	1,356,118
Balance, December 31, 2019	$	10,090 $	15,931	$	31,342 $	1,224,842	$	1,282,205
Balance March 31, 2020	$	10,090 $	15,931	$	31,342 $	1,224,842	$	1,282,205

The Kiln consists of the SulfaCHAR production system which commenced operation in October 2018. On December 10, 2014, the Company entered into a funding agreement with SD Natural Gas Fund supported by Sustainable Development and Technology Canada (“SDTC”) and the Canadian Gas Association to execute on a project to build a 1 tonne per day SulfaCHAR production system. Further to that funding agreement, a Contribution Agreement was signed on November 9, 2015. The grant supports $750,000 to be paid according to stipulated milestones.

The 1 tonne a day SulfaCHAR production system project was also co-funded through Ontario Centres of Excellence (“OCE”). OCE approved a $1,000,000 non-repayable grant on June 28, 2017 towards the project following the milestones of the SD Natural Gas Fund. Disbursements are subordinate to SD Natural Gas fund approvals and payments.

The milestones are as follows:

Milestone 1: Design and Fabrication of a 1 tonne per day SulfaCHAR production system. Funding from SDTC $351,227 and OCE $237,759. This milestone was completed on July 28, 2017.

Milestone 2: Commissioning and initial operation of the 1 tonne a day SulfaCHAR production system. Funding

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CHAR Technologies Ltd.

Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

from SDTC $189,692 and OCE $441,759. This milestone was completed on October 31, 2018.

Milestone 3 (Final): Testing of the use of SulfaCHAR for biogas cleaning and agricultural applications. Funding from SDTC $134,081 and OCE $220,482. This milestone has not been completed

• 9 -

CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

5. Property and Equipment (continued)

There is a 10% holdback which will be released on acceptance of final report. The holdback consists of $75,000 from SDTC and $100,000 from OCE (note 3).

On January 23, 2018, the Company received approval for $1,062,385 from the Government of Ontario through the Low Carbon Innovation Fund (“LCIF”) for the commercialization of “Cleanfyre”, a carbon neutral coal replacement. The Company received payments of $531,193 and $371,835 for milestones 1 and 2, respectively. The next payment will be disbursed as stipulated in the agreement.

The milestones are as follows:

Milestone 1: Consistent production of 1 tonne batches of Cleanfyre that meet the technical specifications of Industrial partners. Funding from LCIF $531,193. This milestone has been completed.

Milestone 2: 20 tonne field trial of Cleanfyre. Funding from LCIF $371,835. This milestone has not been completed.

In addition, LCIF will grant the Company yearly disbursement of $53,119 on annual reporting metrics. These will be received in March 2021, March 2022 and March 2023.

The grants received from SDTC, OCE and LCIF have been deferred as deferred grant income until the completion of the construction. The grant income will be recognized on systematic basis consistent with the amortization of the related assets.

		March 31,		September 30,
		2020		2019
Grant received from SDTC	$	675,000	$	675,000
Grant received from OCE		1,000,000		900,000
Holdback (note 3)		75,000		175,000
Grant received from LCIF		903,027		903,027
Recognized asgrant income		(1,085,958)		(832,600)
Total deferred grant income		1,567,069		1,820,427
Less currentportion		**(442,022) **		(406,286)
Long-termportion	$	**1,125,047 **	$	1,414,141

The holdback consist of grants held by SDTC and OCE to be released on the completion of all milestones.

On December 16, 2016, the Company entered into a contribution agreement with Public Works and Government Services Canada for the estimated cost of $465,270. The contribution is for certain engineering research projects. Since all expenditures incurred for this project have been expensed, the Company has recognized this grant income on systematic basis based on the related expenses recognized in the profit and loss. The Company for this regard $1,179 was recognized as grant income in the consolidated statements of loss and comprehensive loss for the year end September 30, 2019.

The Company entered into a Project Agreement with Northumberland Business Development Assistance Corp. ("NBDA") on January 17, 2019, where NBDA had received funding from the Government of Canada to accelerate promising technology startups and innovation-driven SMEs, and had agreed to make a non-repayable matching contribution up to $30,000 to the Company upon the Company successfully raising up to $30,000 in private investments. Since the Company completed a private placement on December 31, 2018 for gross process of $241,000 (note 11), the full amount of $30,000 was recognized as grant income in the consolidated statements of loss and comprehensive loss for the year end September 30, 2019.

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three Months and Six Months Ended December 31, 2019 (Expressed in Canadian Dollars) (Unaudited)

6. Right-of-use Assets

	Office space	Office space
		and land
Balance - October 1, 2019	$	-
Additions		135,978
Amortization		(13,079)
Balance - December 31, 2019	$	122,899
Amortization		(14,935)
Balance March 31,2020	$	107,964

7. Intangible assets

		Purchased			Customer
Cost		Technology	Patents	Relationship		Backlog		Total
Balance, September 30, 2019
and December 31, 2019	**$ **	1,180,000$	6,230	$	42,000$	3,700	**$ **	1,231,930
		Purchased			Customer
Accumulated amortization		Technology	Patents	Relationship		Backlog		Total
Balance, September 30, 2018	$	295,000 $	-	$	6,260 $	2,757	$	304,017
Amortization		118,000	623		8,400	943		127,966
Balance, September 30, 2019		413,000	623		14,660	3,700		431,983
Amortization		29,500	156		2,100	-		31,756
Balance, December 31, 2019	$	442,500 $	779	$	16,760 $	3,700	$	463,739
Amortization		29,500	156		2,100	-		31,756
Balance March 31, 2020	$ 472,000 $		935	$	18,860 $	3,700	$	495,495
		Purchased			Customer
Net book value		Technology	Patents	Relationship		Backlog		Total
Balance, September 30, 2019	$	767,000$	5,607	$	27,340$	-	$	799,947
Balance, December 31, 2019	$	737,500 $	5,451	$	25,240 $	-	$	768,191
Balance March 31, 2020	$	708,000 $	5,295	$	23,140 $	-	$	736,435

8. Accounts payable and accrued liabilities

		March 31,		September 30,
		2020		2019
Trade accounts payable (note 15)	$	**326,881 **	$	170,608
Accrued liabilities		**43,576 **		60,481
Total accountspayable and accrued liabilities	$	370,457	$	231,089

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

9. Loan Payable

During the three months ended December 31, 2019, the Company obtained an auto loan for the purchase of a vehicle. The table below is a summary of the continuity of the auto loan:

		March 31, 2020
Balance, beginning of the period	$	15,123
Addition		0
Repayments		(775)
Balance, end of the period	$	14,348
Current portion	$	2,152
Non-current portion	$	12,196

The terms of the auto loan are follows: principal: $16,769, annual interest rate: 6.14%, maturity: October 17, 2024 and bi-weekly instalments of $150.

10. Lease Liabilities

On October 1, 2019, the Company adopted IFRS 16. As at October 1, 2019, the Company recognized right-of-use asset of $135,978 and lease liability of $135,978. The Company did not apply IFRS 16 on a fully retrospective basis.

The Company recorded right-of-use assets (note 6) and lease liabilities for office space and land in the statement of financial position as at December 31, 2019. At the commencement date of the leases, the lease liabilities were measured at the present value of the lease payments that were not paid at that date. The lease payments are discounted using an interest rate of 10%, which is the Company's incremental borrowing rate.

The continuity of lease liabilities is presented in the table below:

		Office space
		and land
Balance - October 1, 2019	$	-
Additions		135,978
Accretion expense		2,570
Leasepayments		(14,523)
Balance - December 31, 2019	$	124,025
Accretion expense		2,986
Leasepayments		(16,784)
Balance - March 31, 2020	$	110,227
Current portion	$	28,647
Non-current portion	$	81,580

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

11. Share capital

(a) Authorized share capital

Unlimited number of common shares, with no par value.

(b) Issued common shares

	Number of Shares	Amount
Balance, September 30, 2018	44,029,695 $	6,055,370
Flow-through shares issued for cash (i)	1,147,619	241,000
Flow-through share premium (i)	-	(28,690)
Cancellations of shares(ii)	(75,000)	(10,315)
Balance, December 31, 2018	45,102,314$	6,257,365
Balance, September 30, 2019 and March 31, 2020	45,137,314$	6,290,039

(i) On December 31, 2018, CHAR closed a private placement for 1,147,619 flow-through shares at a price of $0.21 per flow-through share for gross proceeds of $241,000. The flow-through shares were issued at a premium to the market price in recognition of the tax benefits accruing to subscribers.

(ii) During the three months ended December 31, 2018, the Company cancelled 75,000 common shares. The shares were originally issued in 2013 to a shareholder who also provided legal services to the Company. The shares were cancelled as settlement of a disagreement with respect to the consideration paid to the shareholder for the services provided to the Company.

For the purposes of calculation any premium related to the issuance of the flow-through units, the Company compared the market price of its shares to the subscription price of flow-through shares to determine if there was a premium paid on the flow-through shares. As a result, the Company’s flow-through liability on issuance of flow through shares in connection with private placements is as follows:

		March	31,		September	30,
		2020			2019
Balance, beginning	$	10,311		$	-
Additions		-			28,690
Reversal		**(10,311) **			(18,379)
Balance, ending	$	-		$	10,311

12. Net loss per common share

Basic and diluted loss per share are as follows for the periods presented:

	Three Months Ended	Three Months Ended	Six Months Ended	Six Months Ended
	March	31	March 31,
	2020	2019	2020	2019
Numerator:
Net loss	$ (326,313)	$ (313,312) $(486,145)		$ (592,230)
Denominator
Weighted average number of common shares
- basic and diluted	45,137,314	45,102,314	45,137,314	44,525,084
Net lossper share - basic and diluted	(0.01)	(0.01) $	**(0.01) ** $	(0.01)

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

13. Stock options

The following table reflects the continuity of stock options for the periods presented:

	Number of Weighted Average Stock Options Exercise Price($)
	Balance, September 30, 2018 and December 31, 2018 2,030,000 0.19
	Balance, September 30, 2019 and December 31, 2019 3,009,125 0.19
	Balance March 31, 2020 4,039,125 0.17

The following table reflects the actual stock options issued and outstanding as of March 31, 2020:

		Weighted Average		Number of
		Remaining	Number of	Options	Number of
	Exercise	Contractual	Options	Vested	Options
Expiry Date	Price($)	Life(years)	Outstanding	(exercisable)	Unvested
August 25, 2021	0.1725	1.65	660,000	660,000	-
January 27, 2022	0.18	2.08	715,000	495,000	220,000
January 18, 2023	0.22	3.05	620,000	620,000	-
January 28, 2024	0.20	4.08	936,000	480,000	456,000
August 16, 2024	0.16	4.63	78,125	78,125	-
January 30,2025	0.115	4.83	930,000	625,000	305,000
February27,2025	0.15	4.90	100,000	100,000	-
	0.17	3.19	4,039,125	3,058,125	981,000

Share-based payment reserve

The share-based payment reserve records items recognized as stock-based compensation expense and other share-based payments until such time that the stock options or warrants are exercised, at which time the corresponding amount will be transferred to share capital.

On January 30, 2020, the Company granted 930,000 stock options to directors, officers, employees and consultants of the Company. The stock options may be exercised for a period of five years at a price of $0.115 per share. These stock options vest as follows: 525,000 stock options vested immediately and 405,000 stock options vest based on the achievement of specific performance criteria and EBITDA milestones

14. Asset retirement obligation

The following table shows the movement for the asset retirement obligation:

			March	31,		September	30,
			2019			2019
Balance,	beginning	$	58,723		$	57,403
Accretion			338			1,320
**Balance, **	ending	$	59,061		$	58,723

The Company’s asset retirement obligation consists of costs associated with SulfarCHAR production system (note 5). The land and building where the Company is building the project is leased from a third party for three years. According to the lease agreement, the Company must dismantle and remove all its equipment at the completion of the lease. In calculating the fair value of the Company’s asset retirement obligations, the Company used a risk-free rate of 2.3% and an inflation rate of 2%. The majority of the expenditures are expected to occur in or after 2020.

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three and Six Months Ended March 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

15. Related party balances and transactions

Related parties include the Board of Directors, close family members and enterprises that are controlled by these individuals as well as certain persons performing similar functions. The transactions with related parties are as follows:

		Six Months	Six Months	Ended
		March	31,	2020,
		2020		2019
Marrelli Support Services Inc. ("MSSI") (i)	$	14,270	$	12,000
DSA Corporate Services ("DSA") (ii)	$	4,560	$	4,252
1456087 Ontario Inc. ("1456087") (iii)	$	30,000	$	30,000
Merko-Nicholson Inc. ("Merko-Nicholson") (iv)	$	6,000	$	30,000
Numbers & Co.(v)	$	30,000	$	30,000

(i) The former Chief Financial Officer of the Company was a senior employee of MSSI.

(ii) DSA is affiliated with MSSI through a common officer. DSA provides corporate secretarial services. As at March 31, 2020, DSA was owed $2,545 (September 30, 2019 - $849). These amounts are included in accounts payable and accrued liabilities (note 8).

(iii) 1456087 is a company controlled by James Sbrolla, a director of the Company. 1456087 provides consulting services to the Company.

(iv) Merko-Nicholson is a company controlled by the former Chief Operations Officer ("COO") of the Company. Merko-Nicholson provides consulting services to the Company. Mr. Nicholson ceased to be the COO in February 2019.

(v) Numbers & Co. is a company controlled by the Chief Administration Officer of the Company. Numbers & Co. provides consulting services to the Company. As at March 31, 2019, Numbers & Co. was owed $nil (September 30, 2019 - $5,650). These amounts are included in accounts payable and accrued liabilities (note 8).

Remuneration of key management of the Company was as follows:

	Three Months Ended	Three Months Ended	Six Months Ended	Six Months Ended
	March	31, 2020	March	31,
	2020	2019	2020	2019
Salaries	64,525	61,553	127,662	117,369

16. Commitment

Flow-through commitment

The Company was obligated to spend $241,000 by December 31, 2019. As at December 31, 2019, all funds were spent as part of the flow-through funding agreement for shares issued in December 2018. The flow-through agreements require the Company to renounce certain tax deductions for Canadian exploration expenditures incurred on the Company’s renewable energy and energy efficiency projects to flow-through participants.

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