CHAR Technologies Ltd. — Interim / Quarterly Report 2021

Feb 25, 2021

CHAR Technologies Ltd. Condensed Interim Consolidated Financial Statements Three Months Ended December 31, 2020 (Expressed in Canadian Dollars)

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
		December 31,		September 30,
		2020		2020
ASSETS
Current assets
Cash	$	644,906	$	129,127
Amounts receivable (note 3)		317,393		352,434
Work-in-progress		86,004		101,362
Inventory (note 4)		19,460		13,272
Prepaid expenses		60,881		62,172
Total current assets		1,128,644		658,367
Property and equipment (note 5)		1,024,452		1,035,600
Right-of-use assets (note 6)		106,266		123,918
Goodwill		917,306		917,306
Intangible assets(note 7)		641,168		672,924
Total assets	$	3,817,836	$	3,408,115
SHAREHOLDERS' EQUITY AND LIABILITIES
Liabilities
Accounts payable and accrued liabilities (notes 8 and 15)	$	310,903	$	303,157
Lease liabilities (note 10)		28,834		38,099
Loan payable (note 9)		2,585		3,489
Deferred income tax liability		5,114		5,114
Deferred revenue		84,153		84,153
Deferred grant income (note 5)		330,611		440,814
Flow-throughpremium liability		-		-
Total current liabilities		762,200		874,826
Lease liabilities (note 10)		82,551		82,552
Loan payable (note 9)		198,848		177,369
Deferred grant income (note 5)		905,243		905,243
Asset retirement obligation(note 14)		60,414		60,074
Total liabilities		2,009,256		2,100,064
Shareholders' equity
Share capital (note 11)		6,985,039		6,290,039
Share-based payment reserves (note 13)		511,096		511,096
Contributed surplus		53,744		53,744
Deficit		**(5,741,299) **		(5,546,828)
Total shareholders' equity		1,808,580		1,308,051
Total shareholders' equity and liabilities	$	3,817,836	$	3,408,115

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
		December 31,
		2020	2019
Revenue
Consulting revenue	$	302,606$	595,735
Product sales		17,364	-
Total revenue		319,970	595,735
Cost of revenue		**(147,994) **	(296,081)
Grossprofit		171,976	299,654
Expenses
Research and development		13,000	14,061
Professional fees		82,749	85,585
Consulting fees		2,170	-
Office expenses		234,611	365,196
Regulatory and filing fees		**13,282 **	-
Depreciation (notes 5 and 6)		120,965	103,762
Amortization (note 7)		31,756	31,756
Share-based payments (note 13)		-	12,290
Reversal of flow-through liability (note 11)		-	(10,311)
		**(498,533) **	(602,339)
Loss from operations		(326,557)	(302,685)
Grant income(note 5)		132,087	142,853
Net loss and comprehensive loss for theperiod	**$ **	(194,470) $	(159,832)
Net lossper share - basic and diluted(note 12)	$	**(0.00) ** $	(0.00)
Weighted average common shares outstanding - basic and diluted(note 12)		52,087,314	45,137,314

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

		Three Months Ended	Three Months Ended
		December 31,
		2020	2019
Operating activities
Net loss for the period	$	(194,470)$	(159,832)
Adjustments for:
Share-based payments		-	12,290
Depreciation		120,965	103,762
Amortization		31,756	31,756
Accretion		-	2,908
Deferred grant income		(110,203)	(142,853)
Reversal of flow-through liability		-	(10,311)
Net change in non-cash working capital:
Amounts receivable		35,041	91,433
Prepaid expenses		1,291	79,213
Work-in-progress		15,358	129,221
Inventory		(6,188)	(97,501)
Deferred income		-	7,723
Accountspayable and accrued liabilities		7,746	41,293
Net cashprovided by (used in) operating activities		**(98,704) **	89,102
Investing activities
Purchase of property and equipment		(109,817)	(16,769)
Lease payments		(9,266)	(14,524)
Purchase of right of use assets		17,652	-
Net cash(used in) investing activities		**(101,431) **	(31,293)
Financing activities
Asset retirement obligation		340	-
Proceeds from loan payable		20,575	16,769
Repayment of loans payable		-	(1,646)
Proceeds from issuance of common shares		695,000	-
Net cashprovided by financing activities		715,915	15,123
Net change in cash		515,780	72,932
Cash, beginning ofperiod		129,127	225,396
Cash, end ofperiod	$	644,906$	298,328

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, 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 - - 12,290 - - 12,290 - - - - (278,918) (278,918)
Balance, December 31, 2019	45,137,314$ 6,290,039 $ 424,553$ 53,744$ (5,002,858) $ 1,765,478
Balance, September 30, 2020 Common shares issued for cash (note 11) Net and comprehensive loss for theperiod	45,137,314 $ 6,290,039 $ 511,096 $ 53,744 $ (5,546,828) $ 1,308,051 6,950,000 695,000 - - - 695,000 - - - - (194,470) (194,470)
Balance, December 31, 2020	52,087,314$ 6,985,039 $ 511,096$ 53,744$ (5,741,299) $ 1,808,580

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

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

CHAR Technologies Ltd.

1. Nature of business and going concern

CHAR Technologies Ltd. (the “Company” or “CHAR”) is a cleantech development and services company, specializing in high temperature pyrolysis, converting woody materials and organic waste into renewable gases (renewable natural gas and green hydrogen) and biocarbon (activated charcoal “SulfaCHAR” and solid biofuel “CleanFyre”). Additional services include custom equipment for industrial water treatment, and providing services in environmental compliance, 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 $5,741,299 as at December 31, 2020 (September 30, 2020 - $5,546,828). 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 December 31, 2020, the Company had current assets of $1,128,644 (September 30, 2020 - $658,367) to cover current liabilities of $762,200 (September 30, 2020 - $874,826).

On March 11, 2020, the World Health Organization characterized the outbreak of a strain of the novel coronavirus (“COVID-19”) as a pandemic which has resulted in a series of on-going public health and emergency measures that have been put in place to combat the spread of the virus. The duration and impact of COVID-19 is unknown at this time and it is not possible to reliably estimate the impact that the length and severity of these developments will have on the financial results and condition of the Company in future periods.

On February 25, 2021, 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 February 25, 2021, 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, 2020, except as noted below.

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CHAR Technologies Ltd.

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

2. Significant accounting policies (continued)

Any subsequent changes to IFRS that are given effect in the Company’s annual consolidated financial statements for the year ending September 30, 2021 could result in restatement of these unaudited condensed interim consolidated financial statements.

(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.

On October 1, 2019, the Company adopted IFRS 16 and recognized right-of-use assets of $137,159 and lease liabilities of $89,160 (Office space and land) and right-of-use assets of $65,104 and lease liabilities of $65,104 (Vehicles) (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.

• 6 -

CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three Months Ended December 31, 2020 (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, 2020, 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 Ended December 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

		December	31,	September 30,
		2020		2020
Trade receivables	$	199,470	$	214,312
CEWS receivable (note 17)		35,489		63,122
CERS receivable (note 17)		7,435		-
Governmentgrant receivable(note 5)		75,000		75,000
Total amounts receivable	$	317,394	$	352,434

Included in Trade receivables are loans (totalling $45,809) to officers and employees of the Company, to be paid on demand at the Bank of Canada’s prime rate of 2.5%.

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 Months Ended December 31, 2020 (Expressed in Canadian Dollars) (Unaudited)

5. Property and Equipment

					Asset
	Computer		Production		Retirement	Building	Leasehold
Cost	Equipment		Equipment		Costs	and Kiln	Improvements			Total
Balance, September 30, 2019	$	20,968	$	41,852	$ 56,430 $1,633,124			- $	1,752,374
Additions		5,995		16,769	-	-		20,215		42,979
Balance, September 30, 2020		26,963		58,621	56,430	1,633,124		20,215	1,795,353
Additions		-		92,168	-	-		-		92,168
Balance, December 31, 2020	$	26,963	**$ **	150,789	$ 56,430$ 1,633,124		**$ **	**20,215$ **	1,887,521
					Asset
	Computer		Production		Retirement	Building	Leasehold
Accumulated depreciation	Equipment		Equipment		Costs	and Kiln	Improvements			Total
Balance, September 30, 2019	$	7,392	$	41,852	$ 20,386 $ 326,626			- $		396,256
Additions		13,193		3,354	18,810	326,625		1,516		363,498
Balance, September 30, 2020		20,585		45,206	39,196	653,251		1,516		759,753
Additions		732		2,180	17,234	81,656		1,516		103,319
Balance, December 31, 2020	**$ **	21,317	$	47,386	$ 56,430$ 734,907		$	3,032$		863,072
					Asset
	Computer		Production		Retirement	Building	Leasehold
Net book value	Equipment		Equipment		Costs	and Kiln	Improvements			Total
Balance, September 30, 2020	$	6,380	$	13,415	$ 17,234$ 979,873			**18,699$ **	1,035,600
Balance, December 31, 2020	$	5,646	$	103,403	- $ 898,217		$	17,183 $	1,024,450

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 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 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.

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CHAR Technologies Ltd. Notes to the Condensed Interim Consolidated Financial Statements Three Months Ended December 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 (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 Company received during the year ended September 30, 2020 $18,750 from SDTC as additional funding in response to COVID-19.

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.

		December 31,		September 30,
		2020		2020
Grant received from SDTC	$	693,750	$	693,750
Grant received from OCE		1,000,000		1,000,000
Holdback (note 3)		75,000		75,000
Grant received from LCIF		903,027		903,027
Recognized asgrant income		**(1,435,924) **		(1,325,720)
Total deferred grant income		1,235,853		1,346,057
Less currentportion		**(330,611) **		(440,814)
Long-termportion	$	905,242	$	905,243

The holdback consists 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.

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

CHAR Technologies Ltd.

5. Property and Equipment (continued)

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.

The Company recognized during the quarter ended December 31, 2020, $110,203 grant income for the grant received from projects above. In addition, the Company recognized $21,884 grant income during the quarter ended December 31, 2020 related to the discount of the CEBA loans received from the Government of Canada (note 9).

6. Right-of-use Assets

				Office space
Cost		Vehicles		and land		Total
Balance – September 30, 2020	$	65,104	$	137,159	$	202,263
Additions		-		-		-
Balance– December 31, 2020	$	65,104	$	137,159	$	202,263
				Office space
Accumulated amortization		Vehicles		and land		Total
Balance – September 30, 2020	$	17,787	$	60,558	$	78,345
Amortization		4,205		13,447		17,652
Balance– December 31, 2020	$	21,992	$	74,005	$	95,997
				Office space
Net book value		Vehicles		and land		Total
Balance, September 30, 2020	$	47,317	$	76,601	$	123,918
Balance, December 31, 2020	$	43,112	$	63,154	$	106,266

• 11 -

CHAR Technologies Ltd.

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

7. Intangible assets

		Purchased		Customer
Cost		Technology	Patents	Relationship	Backlog		Total
Balance, September 30, 2020
and December 31, 2020	**$ **	1,180,000$	6,230$	42,000$	3,700	**$ **	1,231,930
		Purchased		Customer
Accumulated amortization		Technology	Patents	Relationship	Backlog		Total
Balance, September 30, 2019	$	413,000 $	623 $	14,660 $	3,700	$	431,983
Amortization		118,000	623	8,400	-		127,023
Balance, September 30, 2020	$	531,000 $	1,246 $	23,060 $	3,700	$	559,006
Amortization		29,500	156	2,100	-		31,756
Balance, December 31, 2020	$	560,500$	1,402$	25,160$	3,700	$	590,762
		Purchased		Customer
Net book value		Technology	Patents	Relationship	Backlog		Total
Balance, September 30, 2020	$	649,000$	4,984$	18,940$	-	$	672,924
Balance, December 31, 2020	$	619,500$	4,828$	16,840$	-	$	641,168

8. Accounts payable and accrued liabilities

		December 31,		September 30,
		2020		2020
Trade accounts payable (note 15)	$	183,218	$	209,577
Accrued liabilities		102,915		62,993
HSTpayable		24,770		30,587
Total accountspayable and accrued liabilities	$	310,903	$	303,157

9. Loan Payable

During the year ended September 30, 2020, 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:

		December 31,
		2020
Balance, September 30, 2020	$	12,667
Addition		-
Repayments		(905)
Balance, December 31, 2020	$	11,762
Current portion	$	2,584
Non-current portion	$	9,178

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

• 12 -

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

9. Loan Payable (continued)

During the year ended September 30, 2020, the Company obtained two CEBA loans from TD Bank, for $40,000 each (“the CEBA loans”). The terms of the loan are as follows: principal $40,000, interest rate: 0% per annum during Initial Term and 5% during Extended Term, Initial Term date: December 31, 2022, Extended Term date: December 31, 2025, First Interest Payment date: January 31, 2023.

During the year ended September 30, 2020, the Company obtained the Regional Relief and Recovery Fund (RRRF) for $148,323 (“the RRRF loan”). The terms are as follows: principal: $148,323, annual interest rate: 0%, repayment starting: January 15, 2023, maturity: December 15, 2027 and monthly installments of $2,472.

During the quarter ended December 31, 2020, the Company obtained two additional CEBA loans from TD Bank, for $20,000 each (“the CEBA loans”). The terms of the loan are as follows: principal $20,000, interest rate: 0% per annum during Initial Term and 5% during Extended Term, Initial Term date: December 31, 2022, Extended Term date: December 31, 2025, First Interest Payment date: January 31, 2023.

The CEBA loans and RRRF loan were discounted at inception date using a market interest rate of 5%.

		December 31,
		2020
Balance, September 30, 2020	$	168,191
Addition		40,000
Recognized as grant income (note 5)		(21,884)
Accretion		3,363
Balance, December 31, 2020	$	189,670
Current portion	$	-
Non-current portion	$	189,670

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 $137,159 and lease liability of $89,160 (Office space and land) and right-of-use asset of $65,104 and lease liability of $65,104 (note 6). The Company did not apply IFRS 16 on a fully retrospective basis. On the date of adoption of IFRS 16, 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% for Office space and land and an interest rate of 6% for Vehicles.

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

		Office space
		and land
Balance – September 30, 2020	$	71,745
Additions		-
Accretion expense		1,752
Leasepayments		(6,784)
Balance - December 31, 2020	$	66,713
Current portion	$	15,870
Non-current portion	$	50,843

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CHAR Technologies Ltd.

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

10. Lease Liabilities (continued)

		Vehicles
Balance – September 30, 2020	$	48,906
Additions		-
Accretion expense		655
Leasepayments		(4,888)
Balance - December 31, 2020	$	44,673
Current portion	$	12,964
Non-current portion	$	31,709

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, 2019	45,137,314	$	6,290,039
Balance, September 30, 2020	45,137,314	$	6,290,039
Common shares issued for cash (i)	6,950,000	$	695,000
Balance, December 31, 2020	52,087,314	$	6,985,039

(i) In October 2020, the Company completed a small non-brokered private placement for $695,000 through the issuance of 6,950,000 common shares at a price of $0.10 per share. The proceeds are intended to be used for technology commercialization and working capital purposes.

Previously, on December 31, 2018, the Company closed 1,147,619 flow-through shares at a price of $0.21 per share for gross proceeds of $241,000. The net proceeds from the non-brokered private placement were used for continued technology development.

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CHAR Technologies Ltd.

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

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
		December 31,
		2020	2019
Numerator:
Net loss	$	(194,470)$	(159,832)
Denominator
Weighted average number of common shares - basic		52,087,314	45,137,314
Weighted average number of common shares – diluted		54,081,908	45,137,314
Net lossper share - basic and diluted	$	**(0.00) ** $	(0.00)

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, 2019	2,979,125	0.19
Granted (i) (ii) (iii) (iv)	1,240,000	0.11
Forfeited	(321,000)	0.20
Balance, September 30, 2020 and December 31, 2020	3,898,125	0.17

(i) 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 vesting based on the achievement of specific performance and vesting criteria. Management considered that the achievement of the milestones is very probable and therefore the full stock-based compensation for these stock options were recognized.

(ii) On February 27, 2020, the Company granted 100,000 stock options to a consultant of the Company. The stock options may be exercised for a period of five years at a price of $0.150 per share. These stock options vested immediately.

(iii) On April 1, 2020, the Company granted 160,000 stock options to an officer of the Company. The stock options may be exercised for a period of five years at a price of $0.075 per share. The stock options vest at the end of each quarter in equal tranches ending in March 2021.

(iv) On July 1, 2020, the Company granted 50,000 stock options to a director of the Company. The stock options may be exercised for a period of five years at a price of $0.105 per share. These stock options vested immediately.

In the previous fiscal year on February 7th, 2019, the Company granted 961,000 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 $0.20 per share. These stock options vest as follows: 505,000 stock options vested when granted and 426,000 stock options were to vest based on the achievement of specific performance criteria.

• 15 -

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

13. Stock options (continued)

Furthermore, on August 16, 2019, the Company granted 78,125 stock options to an officer of the Company. The stock options are exercisable for a period of five years at a price of $0.16 per share. These stock options vested at the time of the grant.

The following table reflects the actual stock options issued and outstanding as of December 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	0.17	0.65	660,000	660,000	-
January 27, 2022	0.18	1.07	715,000	495,000	220,000
January 18, 2023	0.22	2.05	620,000	620,000	-
January 28, 2024	0.20	3.05	585,000	585,000	-
August 16, 2024	0.16	3.63	78,125	78,125	-
January 30, 2025	0.115	4.08	930,000	825,000	105,000
February 27, 2025	0.150	4.16	100,000	100,000	-
April 1, 2025	0.075	4.25	160,000	120,000	40,000
July1,2025	0.105	4.50	50,000	50,000	-
	0.17	2.50	3,898,125	3,893,125	365,000

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.

Contributed surplus

The contributed surplus reserve records the corresponding amount share-based compensation for expired options and warrants.

14. Asset retirement obligation

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

			December	31,	September	30,
			2020		2020
Balance,	beginning	$	60,074	$	58,723
Accretion			340		1,351
**Balance, **	ending	$	60,414	$	60,074

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 2021 or thereafter.

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

CHAR Technologies Ltd.

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:

		Three Months	Three Months	Ended
		December		31,
		2020		2019
Marrelli Support Services Inc. ("MSSI") (i)	$	-	$	6,000
DSA Corporate Services ("DSA") (ii)	$	2,952	$	2,305
1456087 Ontario Inc. ("1456087") (iii)	$	15,000	$	15,000
Numbers & Co. (iv)	$	-	$	15,000
Mark Korol,CFO(v)	$	18,000	$	-

(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 December 31, 2020, DSA was owed $847.50 (September 30, 2020 - $849). These amounts are included in accounts payable and accrued liabilities (note 8).

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

(iv) Numbers & Co. is a company controlled by the former Chief Administration Officer of the Company, Dimitris Stubos. Numbers & Co. provides consulting services to the Company. Mr. Stubos ceased to be the CAO in April, 2020. As at December 31, 2020, Numbers & Co. was owed $nil (September 30, 2020 - $nil).

(v) Mark Korol was appointed Chief Financial Officer as of April 1, 2020. As at December 31, 2020, Mark Korol was owed $nil.

Remuneration of key management of the Company was as follows:

		Three Months Ended
		December 31,
		2020 2019
Salaries	$	62,640 $ 63,136

16. Commitment

The Company has no further obligations with respect to flow through shares. As at December 30, 2020, $0 remains to be spent as part of the flow-through funding agreement for shares issued in December 2018. The Company had indemnified the subscribers for any related tax amounts that could have become payable by the subscribers as a result of the Company not meeting its expenditure commitments.

The Company entered into two insurance policies during the year ended September 30, 2020. The Company has a commitment of insurance premium payments for $9,561 payable in the fiscal quarter ending March 31, 2021.

• 17 -

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

17. Subsidies received

In response to the unprecedented impact of COVID-19 on Canadian business, in March 2020 the government announced a number of support programs for small businesses.

The Temporary Wage Subsidy (TWS) allows eligible employers to reduce the amount of payroll deductions they would otherwise be required to remit to the Canada Revenue Agency (CRA). The amount of the subsidy is 10% of remuneration, to a maximum of $1,375 per employee and a maximum of $25,000 per employer.

The Canada Emergency Wage Subsidy (CEWS) was announced on March 27, 2020. Under this program, qualifying employers whose business has been adversely affected by COVID-19 can receive up to 75% of their employees’ wages. The maximum subsidy provided under this program is $847 per week per employee from period 1 to 6, and $461 from period 7 onwards.

In the Consolidated Statements of Loss and Comprehensive Loss, the Wage Subsidy has been netted against employee salaries (under office expenses).

The table below is a summary of the Wage Subsidy as of December 31, 2020:

	CEWS	TWS
First Period	$ 31,578	$ 2,514
Second Period	30,150	4,338
Third Period	33,249	2,611
Fourth Period	37,476	288
Fifth Period	37,877	-
Sixth Period	37,877	-
Seventh Period	25,245	-
Eight Period	22,459	-
Ninth Period	22,292	-
Tenth Period	35,489	-
Total Wage Subsidy	$ 313,692	$ 9,751
Wage Subsidyreceived as of December 31,2020	278,203	9,751
Wage Subsidy receivable(note 3)	$ 35,489	-

The Canada Emergency Rent Subsidy (CERS) was announced in September, 2020. Under this program, qualifying employers whose business has been adversely affected by COVID-19 can receive a subsidy to cover part of their commercial rent or property expenses, starting on September 27, 2020, until June 2021. This subsidy provides payments directly to qualifying renters and property owners, without requiring the participation of landlords. The base subsidy rate applies to a maximum of $75,000 in eligible expenses per location and an overall maximum of $300,000 in expenses per claim period.

In the Consolidated Statements of Loss and Comprehensive Loss, the Rent Subsidy has been netted against rent expenses (under office expenses).

• 18 -

CHAR Technologies Ltd.

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

17. Subsidies received (continued)

The table below is a summary of the Rent Subsidy as of December 31, 2020:

	CERS
First Period	$ 4,644
Second Period	4,737
Third Period	7,435
Total Rent Subsidy	$ 16,816
Rent Subsidyreceived as of December 31,2020	9,381
Rent Subsidy receivable(note 3)	$ 7,435

18. Subsequent Event

In February 2021, the Company completed a non-brokered private placement whereby the Company issued 18,461,538 units at a price of $0.325 per unit for gross proceeds of $6,000,000. Each unit is comprised of one common share and one half of a warrant exercisable at $0.40 within two years.

On January 29, 2021, the Company granted 1,333,000 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 strike price of $0.49 per share.

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