First Hydrogen Corp. — Interim / Quarterly Report 2021

Aug 31, 2021

PURE EXTRACTION CORP.

CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended June 30, 2021 and 2020

(Expressed in Canadian Dollars)

(Prepared by Management)

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by the auditor.

The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.

PURE EXTRACTION CORP. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Expressed in Canadian Dollars)

			June 30,		March 31,
	Note		2021		2021
Current Assets
Cash		$	5,821,684	$	1,637,380
Other receivables	3		91,749		82,629
Prepaid expenses			115,903		31,501
Inventory	4		705,326		870,455
			6,734,662		2,621,965
Intangible assets	5		991,125		-
		$	7,725,787	$	2,621,965
Current Liabilities
Accounts payable & accrued liabilities		$	592,723	$	754,739
Income taxes payable			21,000		21,000
Accrued interest			27,178		-
Current portion of convertible debentures	7		142,473
Customer deposits	6		716,661		716.661
			1,500,035		1,492,400
Convertible debentures	7		1,279,685		-
Loan payable	8		25,914		25,277
			2,805,634		1,517,677
Shareholders` deficiency
Share capital	9		6,602,939		4,037,511
Shares to be issued	5		991,125		-
Other comprehensive income (loss)			(1,860)		-
Contributed surplus			2,866,734		867,742
Deficit			(5,538,785)		(3,800,965)
			4,920,153		1,166,288
		$	7,725,787	$	2,621,965

Nature of Operations and Ability to Continue as a Going Concern – Note 1

APPROVED BY THE DIRECTORS:

“Balraj Mann” Director Balraj Mann	“Alicia Milne” Director Alicia Milne

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

PURE EXTRACTION CORP.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS For the Three Months Ended June 30, 2021 and 2020 (Expressed in Canadian Dollars)

			For the three months	For the three months	ended
			June	30,
	Note		2021		2020
Expenses
Accounting, audit and legal		$	68,145	$	-
Accretion			52,795		-
Advertising and marketing			109,801		-
Consulting and management fees	10		52,500		17,500
General and administrative	10,14		105,574		40,547
Interest expense			27,178		-
Research and development			66,757		7,601
Salaries and benefits			-		1,208
Stock-based compensation			1,255,000		-
Operatingexpenses			1,737,820		66,856
Loss before other items			(1,737,820)		(66,856)
Loss of the period		$	(1,737,820)	$	(66,856)
Other comprehensive income (loss)
Translation of subsidiary to presentation currency			(1,860)		-
Comprehensive loss for theperiod		$	(1,739,680)	$	(66,856)
Basic and diluted gain (loss) per share		$	(0.04)	$	(0.00)
Weighted average number of shares outstanding			43,463,396		13,877,888

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

PURE EXTRACTION CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended June 30, 2021 and 2020 (Expressed in Canadian Dollars)

	For the Three Months Ended June 30, 2021 2020
Cash Flows provided by (used in) Operating Activities Net income (loss) for the period $ Items not affecting cash Stock-based compensation Accretion Accrued interest Amortization Changes in non-cash working capital items related to operations: Accounts payable and accrued liabilities Inventory Prepaid expenses Other receivables	(1,737,820) $ (67,018) 1,255,000 - 52,795 - 27,178 - - 117 3,113 62,736 - (13,465) (86,262) (3,500) (9,120) (5,122)
Net cash used in operating activities	(495,116) (26,252)
Cash Flows provided (used in) Investing Activities Intangible assets acquired	- (106,179)
Net cash used in investing activities	- (106,179)
Cash Flows provided by Financing Activity Shares subscriptions received Shares issuance costs Issued convertible debenture Convertible debenture issuance costs Exercise of broker’s options	3,000,000 2,430,000 (240,000) (194,000) 2,000,000 - (160,000) 79,420 -
Net cash provided by financing activities	4,679,420 2,235,600
Increase (decrease) in cash during the period Cash, beginning of the period	4,184,304 2,103,169 1,637,380 334,576
Cash, end of the period $	5,821,684 $ 2,437,745

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

PURE EXTRACTION CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) For the Three Months Ended June 30, 2021 and 2020 (Expressed in Canadian Dollars)

Balance, March 31, 2020 Shares issued for acquisition Shares issued for cash Share issuance costs Share issuance costs, brokers options Brokers’ options exercised Fair value of brokers’ options Net loss for the period Balance, June 30, 2020 Balance, March 31, 2021 Broker`s options exercises Shares issued for cash Share issuance costs Share issuance costs, brokers’ options Shares to be issued for acquisition Stock-based compensation Equity portion of Convertible debenture Transfer due to exercise of broker options Foreign currency translation Net loss for the period Balance, June 30, 2021	Other Number of Common Shares To Be Contributed Comprehensive Shares Shares Issued Surplus Income	Other Number of Common Shares To Be Contributed Comprehensive Shares Shares Issued Surplus Income	Other Number of Common Shares To Be Contributed Comprehensive Shares Shares Issued Surplus Income	Other Number of Common Shares To Be Contributed Comprehensive Shares Shares Issued Surplus Income	Other Number of Common Shares To Be Contributed Comprehensive Shares Shares Issued Surplus Income	Other Number of Common Shares To Be Contributed Comprehensive Shares Shares Issued Surplus Income	Total Shareholders' Deficit Equity	Total Shareholders' Deficit Equity
		16,755,785 $ 3,000,000 18,000,000 - - 345,454 - -	1,426,911 405,000 2,430,000 (194,900) (220,000) 57,000 62,150 -	$	429,742 - - 220,000 - - -	- $ - - - - - -	(1,339,951) $ - - - - - - (66,856)	516,702 405,000 2,430,000 (194,900) - 57,000 - (66,856)
		38,101,239 $	3,904,011	$	649,742 $	- $	(1,406,807) $	3,146,946
		38,101,239 $ 588,296 7,500,000 - - - - - - - -	4,037,511 $ 79,420 3,000,000 (240,000) (363,600) - - - 89,608 - -	- $ - - - - 991,125 - - - - -	867,742 - - 606,000 - 1,255,000 227,600 (89,608) -	- $ - - - - - - - - (1,860) -	(3,800,965) $ - - - - - - - - - (1,737,820)	1,104,288 79,420 3,000,000 (240,000) 242,400 991,125 1,255,000 227,600 - (1,860) (1,737,820)
		48,189,535 $	6,602,939 $	991,125 $ 2,866,734 $		(1,860) $	(5,538,785) $	4,920,153

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

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 1 (Expressed in Canadian Dollars)

Note 1 Nature of Operations

The Company was incorporated under the Business Corporations Act of British Columbia on June 20, 2007. The Company is in the development stage and was classified and listed as a Capital Pool Company as defined by Policy 2.4 (the "CPC Policy”) of the TSX Venture Exchange (the “Exchange”) on June 13, 2008. The Company is in the business of engineering, research & development, manufacturing and selling equipment.

On June 12, 2020, the Company changed its name to Pure Extraction Corp. The Company’s trading symbol is “PURX” trading on the TSX Venture Exchange.

The address of the Company’s corporate office and principal place of business is Suite 440 – 755 Burrard Street, Vancouver, British Columbia V6Z 1X6.

Going Concern

While the Company’s consolidated financial statements have been prepared using International Financial Reporting Standards (“IFRS”) applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due, certain conditions and events cast significant doubt on the validity of this assumption. For the three months ended June 30, 2021, the Company reported a net loss of $1,737,820 (2020 - $66,856 ) and as at that date had an accumulated deficit of $5,538,785 (March 31, 2021 - $3,800,965). As of June 30, 2021, the Company has net working capital of $5,234,627 (March 31, 2020 - $1,129,565). The Company expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company's ability to continue as a going concern is dependent on its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.

These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption deemed to be inappropriate. These adjustments could be material. The directors of the Company have approved these consolidated financial statements.

Since March 31, 2020, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID- 19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operations in future periods.

Note 2 Significant Accounting Policies

(a) Statement of Compliance

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”).

These consolidated financial statements were authorized for issue on August 27, 2021 by the directors of the Company.

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 2 (Expressed in Canadian Dollars)

Note 2 Significant Accounting Policies – (cont’d)

(b) Basis of Measurement and Consolidation

These consolidated financial statements have been prepared on a historical cost basis using the accrual basis accounting, except for cash flow information.

These consolidated financial statements include the accounts the Company and its wholly owned and controlled subsidiaries, First Hydrogen Corp., First Hydrogen Limited, Pure Extraction Inc. and Pure Extraction Ltd. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidated financial statements of the subsidiaries are including the consolidated financial statements from the date of the control commences until the date that control ceases.

Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed during the period are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.

Intercompany balances and transactions, and unrealized gains arising from intercompany transactions are eliminated in preparing the consolidated financial statements.

(c) Critical Accounting Estimates, Judgments and Uncertainties

The Company makes estimates about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

Critical Accounting Estimates and Assumptions

Critical accounting estimates are estimates and assumptions made by management that may result in material adjustments to the carrying amount of assets and liabilities within the next financial year.

Critical Accounting Judgments

Critical accounting judgments are accounting policies that have been identified as being complex or involving subjective judgments or assessments.

Recovery of deferred tax assets

Judgment is required in determining whether deferred tax assets are recognized in the statement of financial position. Deferred tax assets, including those arising from unutilized tax losses, require management to assess the likelihood that the Company will generate taxable earnings in future periods, in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the date of the statement of financial position could be impacted.

Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods. The Company has not recorded any deferred tax assets.

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 3 (Expressed in Canadian Dollars)

Note 2 Significant Accounting Policies – (cont’d)

(d) Functional and Presentation Currency

The Company’s functional currency is the Canadian Dollar (“CAD”). The consolidated financial statements are presented in CAD which is the Company’s presentation currency, unless otherwise noted.

All amounts in these consolidated financial statements are rounded to the nearest dollar.

(e) Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and short-term, highly liquid investments with original maturities of three months or less that is readily convertible to known amounts of cash and subject to insignificant risk of change in value.

(f) Revenue Recognition

FRS 15 – Revenues from contracts with customers

IFRS 15 was issued with the intent of significantly enhancing consistency and comparability of revenue recognition practices across entities and industries. IFRS 15 replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretation. The new standard establishes a single, principlesbased five-step model to be applied to all contracts with customers and introduces new and enhanced disclosure requirements. Changes in accounting policies resulting from the adoption of IFRS 15 had no impact on the Company’s consolidated financial statements or the reported amounts of revenues.

The Company’s revenue is comprised of equipment sales. Revenue is recognized when the equipment has been commissioned as operational, systems control has been transferred to the purchaser and collectability is reasonably assured. This is generally when commissioning has been completed, which is also when the performance obligations have been fulfilled under the terms of the related sales contract. Revenues are recorded net of discounts and incentives but inclusive of freight in the sale of goods.

Customer deposits (i.e. contract liabilities) represents deposits received from customers on uncompleted contracts.

(g) Inventory

Inventories are recorded at the lower of cost and net realizable value. The cost of inventories is based on the first- in first-out principle. In the case of manufactured inventories and work in progress, cost includes materials and labor based on normal operating capacity.

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

(h) Income Taxes

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

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit and

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 4 (Expressed in Canadian Dollars)

Note 2 Significant Accounting Policies – (cont’d)

loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantially enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

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

(i) Property and Equipment

Equipment is stated at cost and is amortized on a straight-line basis over management’s estimate of the useful life and residual value:

useful life and residual value:
Right of use asset	determined by lease term
Machinery and equipment	5-10 years
Computer equipment and software	3 years

(j) Financial Instruments

The Company has adopted IFRS 9, Financial Instruments. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets

Classification

The Company classifies its financial assets in the following measurement categories:

• Those to be measured subsequently at fair value (either through Other Comprehensive Income (“OCI”), or through profit or loss), and

• Those to be measured after initial recognition at amortized cost.

The classification depends on the Company’s business model for managing the financial assets and contractual terms of the cash flows. For assets measured at fair value, gains or losses are recorded in profit or loss or OCI. The Company has classified its cash at fair value through profit or loss. The company’s advances and receivables are held at amortized cost.

Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (“FVTPL”), the transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Financial assets are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Subsequent measurement of financial assets depends on their classification. There are the measurement categories under which the Company classifies its debt instruments:

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 5 (Expressed in Canadian Dollars)

Note 2 Significant Accounting Policies – (cont’d)

• Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.

• Fair value through OCI (“FVOCI”): Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains and losses, interest revenue, and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains (losses). Interest income from these financial assets is included as finance income using the effective interest rate method.

• Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. A gain or loss on an investment that is subsequently measured at FVTPL is recognized in profit or loss and presented net as revenue in the Statement of Loss and Comprehensive Loss in the period which it arises.

Impairment of Financial Assets at amortized cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial risk has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the statements of income (loss), as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

Financial Liabilities

The Company classifies its financial liabilities into the following categories: financial liabilities at FVTPL and amortized cost.

A financial liability is classified as FVTPL if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized costs are recognized in profit or loss as incurred. The fair value changes to financial liabilities at FVTPL are presented as follows: the amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and the remaining amount of the change in the fair value is presented in profit or loss. The Company does not designate any financial liabilities at FVTPL.

Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest rate method. The Company classifies its accounts payable and accrued liabilities, loans payable and due to related parties are classified as financial liabilities held at amortized cost.

The adoption of IFRS 9 did not impact the carrying value of any financial asset or financial liability on the transition date. The table below illustrates the change in classification of the Company's financial instruments under IAS 39 and IFRS 9.

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 6 (Expressed in Canadian Dollars)

Note 2 Significant Accounting Policies – (cont’d)

Line Item	IFRS9	IAS 39
	New Classification	Original Classification	Measurement Model
Cash	FVTPL	FVTPL	FVTPL
Other receivables	Amortized	Loans and receivables	Amortized cost
Accounts payable and accrued liabilities	Amortized cost	Other liabilities	Amortized cost

(k) Leases

IFRS 16 introduces a single lessee accounting model and requires lessees to recognize assets and liabilities for all leases, except when the term is 12 months or less or when the underlying asset has a low value. The Company will apply the standard retrospectively with the cumulative effect of initially applying the standard recognized as an adjustment to the opening balance of retained earnings or deficit at that date, subject to permitted practical expedients. Therefore, the Company will not restate comparative information.

The Company recognizes a right-of-use asset and a lease liability for its leases with lease terms greater than one year. The right-of-use asset is measured at cost and depreciated over its estimated useful life. At the commencement date, the lease liability is measured as the present value of the lease payments that are not paid at that date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot readily be determined, the Company’s incremental borrowing rate. If the lease terms are subsequently changed, the present value of the lease liability is remeasured using the revised lease terms and applying the appropriate discount rate to the remaining lease payments. The Company recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, of the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognizes any remaining amount of the remeasurement in profit or loss. The new standard is effective for annual periods beginning on or after January 1, 2019 and has been adopted without material effect to these consolidated financial statements.

(l) Impairment of Long-Lived Assets

The Company tests long-lived assets for recoverability when events or changes in circumstance indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset, significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. The recoverable amount of an asset is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss.

(m) Government grants

Loans received from government are recognized initially at fair value, with the difference between the fair value of the loan based on prevailing market interest rates and the amount received, being recorded as government grant gain in the statements of loss and comprehensive loss.

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 7 (Expressed in Canadian Dollars)

Note 2 Significant Accounting Policies – (cont’d)

(n) Provisions

A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability. The unwinding of the discount is recognized as a finance expense.

(o) Share Capital

Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s common shares and share purchase warrants are classified as equity instruments. Incremental costs directly attributable to the issue of new shares or warrants are shown in equity as a deduction, net of tax, from the proceeds.

The Company engages in equity financing transactions to obtain the funds necessary to continue operations. These equity financing transactions may involve issuance of common shares or units. Each unit comprises a certain number of common shares and a certain number of warrants. Depending on the terms and conditions of each equity financing transaction, the warrants are exercisable into additional common shares at a price prior to expiry as stipulated by the transaction.

The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable

component. The fair value of the common shares issued in the private placements was determined to be the more easily measurable component and were valued at their fair value, as determined by the closing price on the measurement date. The balance, if any, was allocated to the attached warrants. Any fair value attributed to the warrants is recorded in contributed surplus.

(p) Share-based Payments

The cost of incentive share options and other equity-settled share-based compensation and payment arrangements with employees, directors, officers and consultants are recorded based on the estimated fair-value at the grant date and charged to earnings over the vesting period. Where incentive share options are subject to vesting, each vesting tranche is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period by a charge to earnings, with a corresponding increase to contributed surplus based on the number of awards expected to vest. The number of awards expected to vest is reviewed at least annually, with any impact being recognized immediately.

(q) Earnings/Loss per Share

Basic earnings/loss per share is computed by dividing the net income or loss attributable to common shareholders of the Company by weighted average number of common shares outstanding for the relevant period. Diluted earnings/loss per share is computed by adjusting the net income or loss attributable to common shareholders dividing by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding, if potentially dilutive instruments such as warrants and options were exercised.

(r) SR &ED Investment Tax Credits

The Company is eligible to claim federal and provincial (British Columbia) investment tax credits as a result of incurring scientific research and experimental development (“SR&ED”) expenditures. Federal and provincial SR&ED investment tax credits are recognized when the related expenditures are incurred

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 8 (Expressed in Canadian Dollars)

Note 2 Significant Accounting Policies – (cont’d)

and there is reasonable assurance of their realization. Federal and provincial SR&ED investment tax credits are accounted for as a reduction of research and development expense on the statement of comprehensive loss. Management has made a number of estimates and assumptions in determining the expenditures eligible for the federal and provincial SR&ED investment tax credit claim. It is possible that the allowed amount of the federal and provincial SR&ED investment tax credit claim could be materially different from the recorded amount upon assessment by the Canada Revenue Agency .

(t) Convertible debentures

Compound financial instruments issued by the Company are comprised of convertible debt that can be converted to share capital at the option of the holder.

The convertible debenture is considered as a compound financial instrument with a debt component and an equity component. Upon initial recognition, the debt component was accounted for at amortized cost, and the carrying amount of the equity component was measured at residual value. Subsequent to initial recognition, the debt component is measured at amortized cost using the effective interest rate through periodic charges to accretion expense over the term of the note. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value liability component. The Equity component of a compound financial instrument is not measured subsequent to the initial recognition.

Note 3 Other Receivables

HST/GST receivable Trade receivables Other receivables	June 30, 2021 $ 51,446 33,303 7,000 $ 91,749	March 31, 2021
		$ 42,326 33,303 7,000
		$82,629

The Company qualifies for the Harmonized Sales Tax (HST) input tax credits in the amount of $51,446 (March 31, 2021 - $42,326), which may change pursuant to an audit by the taxation authorities.

Note 4 Inventory

Inventory comprised the following items:

		June 30,		March 31,
		2021		2021
Work in progress-materials and labour	$	705,326	$	870,455

As at June 30, 2021, the write-down of inventory to net realizable value amounted to $165,428 (March 31, 2021 - $140,000).

Note 5 Intangible assets

On June 11, 2021, the Company announced it entered into definitive agreements with AVL Powertrain UK Limited and Ballard Power Systems Inc. The definitive agreements, with the company’s whollyowned subsidiary First Hydrogen Corp. (“First Hydrogen”), will assist in the design and development of a fuel-cell powered vehicle that First Hydrogen will own the commercial rights for the vehicle design.

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 9 (Expressed in Canadian Dollars)

Note 5 Intangible assets

The Company was assigned two non-binding letters of intent from Nova Light Capital Limited (“Nova Light”), an arm’s length company, which now have been ratified into the definitive agreements. Nova Light will be issued 3,000,000 shares of the Company for the assignment of the two non-binding letters of intent. These shares are subject to a voluntary escrow and pooling agreement released over a 36month period. Finder’s fees of 249,590 shares of the Company are payable to an arm’s length party in accordance with Exchange policies upon approval of the transaction. The Company has recorded the fair value of the shares at a price of $0.305 per share. Share issuance is pending regulatory approval.

Cost Balance, March 31, 2021 $ Additions, acquisitions Balance, June 30, 2021 $	June 30, 2021
	- 991,125
	991,125

Note 6 Customer Deposits

As at June 30, 2021, the Company has received deposits for orders of $716,661 (March 31, 2021 - $716,661) which the Company has begun ordering parts and/or began assembly of the equipment. Revenue is recognized when the equipment has been commissioned as operational, systems control has been transferred to the purchaser and collectability is reasonably assured. Deposits are forfeited upon non-payment when additional contractual payments are requested by the Company.

Note 7 Convertible Debentures

During the three-month period ended June 30, 2021, the Company issued unsecured convertible debentures for gross proceeds of $2,000,000. Each convertible debenture will bear interest from their issue date at 8% per annum and mature two years from date of issue. The principal amount of the debenture will be convertible into units of the Company at the option of the holder at any time prior to the close of business on the last business day immediately preceding the maturity date. The conversion price per unit will be $0.40 per unit. The unit is comprised of a share and a half of a common share purchase warrant, each full warrant is exercisable at $0.90 into one common share, for a period of two years.

On initial recognition, the Company bifurcated $227,600 to equity and $1,772,400 to the carrying value of the loan. The Company incurred transaction costs of $402,400. Transactions costs included the following:

• finder’s fees to arm’s length third parties consisting of $160,000 cash,

• issued 400,000 finder’s warrants. Each finder’s warrant is exercisable at $0.40 into one common share for a period of two years. The finders’ warrants are fair valued at $242,400 based on BlackScholes Option Pricing Model valuation using the following assumptions: 0.31% risk-free interest rate, expected life of 2 years, 121% annualized volatility and 0% dividend rate.

Opening balance $ Additions from Principal amounts Equity component Transaction costs Accretion Current portion $ Non-current portion	June 30, 2021 - $ 2,000,000 (227,600) (402,400) 52,158 1,422,158 142,473 $ 1,422,158	March 31, 2021
		- - - - -
		- - -

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 10 (Expressed in Canadian Dollars)

Note 8 Loan Payable

The Company obtained a Canada Emergency Business Account {CEBA) loan in the amount of $40,000 from the TD Canada Trust bank guaranteed by the Canadian government. This loan is non-interest bearing until December 31, 2022 and repayment of the loan prior to December 31, 2022 will result on loan forgiveness of 25% or $10,000. After January 1, 2023, the loan may be converted into a 3-year term loan at a fixed annual interest rate of 5%.

The CEBA loan was initially fair valued using a discount rate of 10% and was measured at $25,277 with difference of $16,997 being recognized as a government grant on the consolidated statement of loss during the year ended March 31, 2021. The accretion expense of $637 was recorded on this CEBA loan during the three months ended June 30, 2021 (2020 – nil).

Note 9 Share Capital

a) Authorized

Unlimited number of common voting shares without par value.

b) Issued and outstanding

A summary of changes in share capital is contained on the statement of changes in shareholders’ equity for the months ended June 30, 2021 and 2020.

c) Share Purchase Warrants

During the three-month period ended June 30, 2021, the Company issued 3,750,000 share purchase warrants exercisable at $0.90 per warrant, expiring in two years.

Warrant activity as follows:

Balance, March 31, 2021 Issued Balance at June 30, 2021	Number of Warrants Weighted Average Exercise Price Years to Expiry
	- $ - - 3,750,000 0.90 2.00
	3,750,000 $ 0.90 1.83

As at June 30, 2021, the following share purchase warrants were outstanding:

	Exercise
Number of Warrants	Price	Expiring
3,750,000	$ 0.90	April 30, 2023

d) Stock Options

The Company has a stock option plan under which it is authorized to grant options to directors, employees and consultants for up to a maximum 10% of the issued and outstanding common shares of the Company. The exercise price shall not be less than the discounted market price of the Company’s shares as at grant date. The options may be granted for a maximum term of 5 years. Options granted to directors, employees and consultants, other than the consultants engaged in investor relations activities, will vest fully upon the expiry of the hold period four months from the award date. Options granted to consultants engaged in investor activities will vest in stages over a minimum period of twelve months.

During the three-month period ended June 30, 2021, the Company granted 620,000 incentive stock options. The stock options allowed the holder to acquire for $2.35 per option, one common share for

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 11 (Expressed in Canadian Dollars)

Note 9 Share Capital – (cont’d)

a period of 5 years. The fair value of these options was calculated at $1,255,000 and was determined on the date of issuance using the Black-Scholes Option Pricing Model with the following assumptions: 0.12% risk-free interest rate, expected life of 5 years, 132% annualized volatility and 0% dividend rate.

During the year ended March 31, 2021, the Company granted 500,000 incentive stock options. The stock options allowed the holder to acquire for $0.30 per option, one common share for a period of 5 years. The fair value of these options was calculated at $195,000 and was determined on the date of issuance using the Black-Scholes Option Pricing Model with the following assumptions: 0.35% risk-free interest rate, expected life of 5 years, 195% annualized volatility and 0% dividend rate.

During the year ended March 31, 2021, the Company granted 100,000 incentive stock options. The stock options allowed the holder to acquire for $0.40 per option, one common share for a period of 5 years. The fair value of these options was calculated at $23,000 and was determined on the date of issuance using the Black-Scholes Option Pricing Model with the following assumptions: 0.15% risk-free interest rate, expected life of 5 years, 171% annualized volatility and 0% dividend rate.

During the three-month period ended June 30, 2021, stock option activity was as follows:

Balance at March 31, 2020 Granted Balance at March 31, 2021 Granted Balance at June 30, 2021	Number of Options Weighted Average Exercise Price
	1,260,000 $ 0.165 600,000 0.320
	1,860,000 $ 0.210 620,000 2.350
	2,480,000 $ 0.748

As at June 30, 2021, the following stock options were outstanding and exercisable:

	Weighted Average	Number of options	Weighted Average
Expiry Date	Exercise price	outstanding	Remaining Years
July 19, 2024	$ 0.165	1,260,000	3.05
July 23, 2025	$ 0.300	500,000	4.07
March 3, 2026	$ 0.400	100,000	4.68
June 11, 2026	$ 2.350	620,000	4.95
		2,480,000	3.80

e) Private placement

During the three-month period ended June 30, 2021, the Company closed a non-brokered private placement of units for gross proceeds of $3,000,000 The private placement consisted of 7,500,00 units at $0.40 per unit, where each unit consists of one common share and a half of a common share purchase warrant. Each full warrant is exercisable at $0.90 into one common share, for a period of two years. In connection with the financing, the Company paid finder’s fees to arm’s length third parties consisting of $240,000 cash and issued 600,000 finder’s warrants. Each finder’s warrant is exercisable at $0.40 into one common share for a period of two years.

During the year ended March 31, 2021, the Company completed a non-brokered placement of 18,000,000 common shares in the capital of the Company at a price of $0.135 per share for gross proceeds of $2,430,000. The Company paid finders’ fees to Canaccord Genuity Corp. consisting of $194,400 and issued 1,440,000 brokers’ options, each option allowing the holder to acquire one common share at price of $0.135 for a period of 24 months.

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 12 (Expressed in Canadian Dollars)

Note 9 Share Capital – (cont’d)

f) Brokers’ options

During the year ended March 31, 2021, the Company issued 1,440,000 brokers’ options as finders’ fees. The brokers’ options allowed the holder to acquire for $0.135 per option, one common share for a period of 24 months. The fair value of these options was calculated at $220,000 and was determined on the date of issuance using the Black-Scholes Option Pricing Model with the following assumptions: 0.26% risk-free interest rate, expected life of 2 years, 192% annualized volatility and 0% dividend rate.

During the three-month period ended June 30, 2021, stock option activity was as follows:

	Number	Weighted Average Price
Number outstanding at March 31, 2020	296,296	$ 0.135
Granted	1,440,000	$ 0.135
Number outstanding at March 31, 2021	1,736,296	$ 0.135
Exercised	(588,296)	$ 0.135
Number outstanding at June 30, 2021	1,148,000	$ 0.135

As at June 30, 2021, the following brokers’ options were outstanding:

	Weighted	Number of
	Average Exercise	brokers’	Weighted Average
Expiry Date	Price	options	Remaining Years
May 29, 2022	$0.135	1,148,000	0.91

g) Finder’s warrants

During the three-month ended June 30, 2021, the Company issued 1,000,000 finder’s warrants as finders’ fees. The finder’s warrants allowed the holder to acquire for $0.40 per finder warrant, one common share for a period of 24 months. The fair value of these finder’s warrants was calculated at $606,000 and was determined on the date of issuance using the Black-Scholes Option Pricing Model with the following assumptions: 0.31% risk-free interest rate, expected life of 2 years, 121% annualized volatility and 0% dividend rate.

During the three-month period ended June 30, 2021, finder’s warrants activity was as follows:

	Number	Weighted Average Price
Number outstanding at March 31, 2020	-	-
Granted	-	-
Number outstanding at March 31, 2021	-	-
Granted	1,000,000	$ 0.400
Number outstanding at June 30, 2021	1,000,000	$ 0.400

As at June 30, 2021, the following brokers’ options were outstanding:

	Weighted	Number of
	Average Exercise	brokers’	Weighted Average
Expiry Date	Price	options	Remaining Years
April 30, 2023	$0.400	1,000,000	1.83

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 13 (Expressed in Canadian Dollars)

Note 9 Share Capital – (cont’d)

g) Escrow Shares

As at June 30, 2021, 2,614,999 common shares (March 31, 2021 – 3,268,749) were subject to an escrow agreement to be released in accordance with the CPC policy guidelines. Under the escrow agreement, 10% of the shares will be released on the issuance of the Final Exchange Bulletin (the Exchange’s acceptance of the Qualifying Transaction) and an additional 15% will be released on each of the dates which are 6 months, 12 months, 18 months, 24 months, 30 months and 36 months following the initial release.

Note 10 Related Party Transactions

The Company incurred the following fees and expenses charged by directors and officers of the Company or by entities controlled by them for the three-month period ended June 30, 2021 and 2020:

	June	30, 2021	June 30, 2020
CEO		$ 45,000	$ 15,000
CFO		7,500	2,500
Rent		18,000	13,500
		$ 70,500	$ 31,000

These transactions have been recorded at the fair value which is the amount of consideration established and agreed to by the related parties.

Note 11 Financial Instruments and risk

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

a) Capital Risk

The Company manages its capital to ensure that there are adequate capital resources for the Company to identify, evaluate and negotiate the acquisition of an interest in properties, assets or a business which is considered a Qualifying Transaction. The capital structure of the Company consists primarily of cash and share capital.

b) Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s cash is exposed to credit risk. The Company reduces its credit risk on cash by placing these instruments with institutions of high credit worthiness. As at June 30, 2021, the Company is not exposed to any significant credit risk.

c) Liquidity Risk

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due. There can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. The Company may seek additional financing through equity offerings, but there can be no assurance that such financing will be available on terms acceptable to the Company or at all.

d) Market Risk

Market risk incorporates a range of risks. Movements in risk factors, such as market price risk and currency risk, affect the fair values of financial assets and liabilities. It is the responsibility of the

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 14 (Expressed in Canadian Dollars)

Note 11 Financial Instruments and risk – (cont’d)

Company to identify, evaluate and negotiate the acquisition of an interest in properties, assets or a business which is considered a Qualifying Transaction.

i) Interest Rate Risk

The Company’s interest rate risk mainly arises from changes in the interest rates on cash. Cash generates interest based on market interest rates. At June 30, 2021, the Company was not subject to significant interest rate risk.

ii) Foreign Currency Risk

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. As the Company is in the stage of identifying, evaluating and negotiating the acquisition of an interest in properties, assets or a business which is considered a Qualifying Transaction, the Company is not exposed to foreign currency risk at this time.

iii) Price Risk

The Company is not exposed to price risk with respect to commodity pricing.

The Company provides information about financial instruments that are measured at fair value, grouped into Level 1 to 3 based on the degree to which the inputs used to determine the fair value are observable.

The three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data

The following table presents the financial instruments recorded at fair value in the statement of financial position, classified using the fair value hierarchy:

Level 1 Level 2 Level 3	Total financial assets at fair value
Financial Assets Cash $ 5,821,684 $ - $ -	$ 5,821,684

Note 12 Capital Risk Management

The Company’s objectives when managing capital are: to safeguard the Company’s ability to continue as a going concern; to maintain optimal capital structure, while ensuring the Company’s strategic objectives are met and to provide an appropriate return to shareholders relative to the risk of the Company’s underlying assets. The capital structure of the Company consists of equity attributable to common shareholders, comprised of issued capital, stock options and deficit.

The Company maintains and adjusts its capital structure based on changes in economic conditions and the Company’s planned requirements. The Company may adjust its capital structure by issuing new equity, selling and/or acquiring assets, and controlling its capital expenditures program.

Management reviews its capital management approach on an ongoing basis. The Company is not subject to any externally imposed capital requirements.

PURE EXTRACTION CORP. Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2021 and 2020 – Page 15 (Expressed in Canadian Dollars)

Note 13 Commitment

On January 25, 2021, Pure Extraction Ltd. entered into a short-term lease agreement for office and assembly floor space for future minimum operating lease commitments of $16,800 for fifteen months ending September 30, 2021.

Note 14 General and administrative

Office and administration $ Rent Transfer agent and regulatory fees $	Three months ended June 30, 2021 2020 38,210 $ 6,233 27,745 13,500 39,689 20,814 105,644 $ 40,547	Three months ended June 30, 2021 2020 38,210 $ 6,233 27,745 13,500 39,689 20,814 105,644 $ 40,547
		6,233 13,500 20,814
		40,547

Note 15 Subsequent Events

• a) On August 4, 2021, the Company received $20,250 from the exercise of 150,000 broker’s option at $0.135.

• b) On August 6, 2021, the Company announced a non-brokered private placement for $3,000,000. The private placement consists of 2.4 million units at $1.25 per unit, where each unit will consist of one common share and one common share purchase warrant. Each warrant is exercisable at $2.00 into one common share, for a period of two years from the date of closing.

• c) On August 10, 2021, the Company received $37,125 from the exercise of 275,000 broker’s option at $0.135.