Pender Growth Fund : Q3 2023 – Quarterly Financial Statement

Unaudited Condensed Interim Financial Statements of

PENDER GROWTH FUND INC.

Three months and nine months ended September 30, 2023

NOTICE OF NO AUDITOR REVIEW OF THE INTERIM FINANCIAL STATEMENTS

PenderFund Capital Management Ltd., the Manager of the Pender Growth Fund Inc. (the "Company"), appoints an independent auditor to audit the Company' Annual Financial Statements. In accordance with Canadian securities laws (National Instrument 51-102 "Continuous Disclosure Obligations"), the Manager must disclose if an auditor has not reviewed the interim Financial Statements.

The Company' independent auditor has not performed a review of these Interim Financial Statements in accordance with standards established by the Chartered Professional Accountants of Canada.

PENDER GROWTH FUND INC.

Condensed Interim Statements of Financial Position (Unaudited)

			September 30,		December 31,
	Notes		2023		2022
Assets
Cash		$	2,055,970	$	1,552,667
Divestment proceeds receivable			74,906		1,916,139
Prepaid expenses			12,004		6,770
Interest receivable			8,767		162,932
Income taxes receivable	13		-		3,502,595
Due from related parties	5		-		3,023,368
Investments	4, 12		68,781,253		66,299,539
Total assets			70,932,900		76,464,010
Liabilities
Share repurchase payable			65,563		13,186
Accounts payable and accrued liabilities			158,809		142,880
Due to related parties	5		4,135,654		-
Interest payable			-		31,864
Deferred income tax liability	13		-		1,536,825
Loan payable	10		-		4,500,000
Total liabilities			4,360,026		6,224,755
Shareholders' equity
Class C Common shares:
Contributed capital	8		17,125,006		17,442,542
Retained earnings			49,447,868		52,796,713
Total Shareholders' Equity		$	66,572,874	$	70,239,255
Number of shares outstanding	8		7,524,629		7,569,929
Total shareholders' equity per share		$	8.85	$	9.28

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

Approved on behalf of the Board of Directors:

"David Barr"

Director

"Kelly Edmison"

Director

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PENDER GROWTH FUND INC.

Condensed Interim Statements of Comprehensive Income (Unaudited)

				Three months		Three months		Nine months		Nine months
				ended		ended		ended		ended
				Septermber 30,		September 30,		September 30,		September 30,
		Notes		2023		2022		2023		2022
Revenue:
	Interest income (reversal)	6	$	45,154	$	5,286	$	(62,200)	$	9,677
	Foreign exchange gain (loss)			3,839		11		(1,334)		(8,808)
	Changes in fair value of investments:
	Net realized (loss) gain			(100,995)		2,453,227		(575,733)		(4,365,700)
	Net change in unrealized appreciation (depreciation)			7,060,962		(9,113,619)		4,437,257		(125,353,312)
	Total revenue			7,008,960		(6,655,095)		3,797,990		(129,718,143)
Operating Expenses:
	Management fees	5		219,410		195,014		550,206		647,740
	Transaction costs			165,425		635		213,423		16,147
	Administration expenses			92,455		112,352		355,099		342,431
	Audit and professional fees			55,500		84,812		125,045		180,652
	Interest and financing expenses	10		31,405		85,021		177,448		443,333
	Directors' fees			13,669		13,641		42,068		40,924
	Custody and recordkeeping fees			3,923		6,373		12,007		22,173
	Legal fees			3,881		2,936		13,997		20,415
	Total operating expenses			585,668		500,784		1,489,293		1,713,815
	Net operating income (loss)		$	6,423,292	$	(7,155,879)	$	2,308,697	$	(131,431,958)
Other Items:
	Performance fees	5		300,661		3,924,710		(49,962)		(22,703,353)
	Fees waived by the Manager	5		(75,165)		(981,178)		12,490		5,675,838
	Net amount			225,496		2,943,532		(37,472)		(17,027,515)
	Amount of Pender Private Investments
	Inc.'s ("PPI") performance fee earned by
	the Manager attributable to the
	Company's ownership of PPI shares	5		7,203,782		(294,045)		7,231,839		23,934,436
	Total performance fee adjustment			7,429,278		2,649,487		7,194,367		6,906,921
Net loss before income taxes (recovery)		$	(1,005,986)	$	(9,805,366)	$	(4,885,670)	$	(138,338,879)
Income taxes (recovery)	13				(1,792,043)				(1,832,582)
	Current			-			-
	Deferred			(908,983)		506,798		(1,536,825)		(17,643,013)
	Total income taxes (recovery)			(908,983)		(1,285,245)		(1,536,825)		(19,475,595)
Net loss		$	(97,003)	$	(8,520,121)	$	(3,348,845)	$	(118,863,284)
Net loss, per share:
	Class C shares		$	(0.01)	$	(1.12)	$	(0.44)	$	(15.65)
Weighted average number of non-redeemable
	Class C shares outstanding			7,538,579		7,582,854		7,551,929		7,593,169

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

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PENDER GROWTH FUND INC.

Condensed Interim Statements of Changes in Equity (Unaudited)

			Nine months		Nine months
			ended		ended
			September 30,		September 30,
Class C shares	Note		2023		2022
Balance, beginning of period		$	70,239,255	$	198,643,655
Net loss			(3,348,845)		(118,863,284)
Capital transactions	8(b)		(317,536)		(474,876)
Balance, end of period		$	66,572,874	$	79,305,495

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

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PENDER GROWTH FUND INC.

Condensed Interim Statements of Cash Flows (Unaudited)

			Nine months		Nine months
			ended		ended
			September 30,		September 30,
			2023		2022
Cash provided by (used in):
Operating:
	Net loss	$	(3,348,845)	$	(118,863,284)
	Adjustments for:
	Interest reversal (income)		62,200		(9,677)
	Foreign exchange loss		1,334		8,808
	Net realized loss on sales of investments		575,733		4,365,700
	Net change in unrealized (appreciation) depreciation on investments		(4,437,257)		125,353,312
	Decrease (increase) in income taxes receivable		3,502,595		(2,304,051)
	Decrease in due from related parties		3,023,368		2,519,365
	Decrease in divestment proceeds receivable		1,841,233		66,614
	(Increase) decrease in prepaid expenses		(5,234)		22,799
	Decrease in interest payable		(31,864)		(1,740)
	Increase in due to related parties		4,135,654		-
	Increase in accounts payable and accrued liabilities		15,929		33,713
	Decrease in deferred income tax liability		(1,536,825)		(17,643,013)
	Decrease in income taxes payable		-		(3,031,126)
			3,798,021		(9,482,580)
	Proceeds on disposal of investments		4,773,631		21,675,741
	Purchase of investments		(3,380,259)		(15,362,881)
			1,393,372		6,312,860
	Interest received		78,403		6,035
	Net cash provided by (used in) operating activities		5,269,796		(3,163,685)
Financing:
	Repayment of loan payable		(4,500,000)		-
	Repurchase of shares		(265,159)		(468,536)
	Net cash provided by (used in) financing activities		(4,765,159)		(468,536)
Net increase (decrease) in cash during the period		504,637		(3,632,221)
Cash, beginning of period		1,552,667		10,008,858
Effect of exchange rate fluctuations on cash		(1,334)		(8,808)
Cash, end of period	$	2,055,970	$	6,367,829
The accompanying notes are an integral part of these financial statements.

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PENDER GROWTH FUND INC.

Condensed Interim Schedule of Investment Portfolio (Unaudited)

As at September 30, 2023

					Number of
		Exercise price/		Issue	shares/
		Interest rate	Expiry date	Currency	Units/Face value	Cost		Fair value
Publicly listed companies: (14.5%)
Common shares: (14.5%)
	BuildDirect.com Technologies Inc.				428,240	1,969,904		188,426
	Copperleaf Technologies Inc.1 ("Copperleaf")			232,342	673,792		1,312,732
	Peloton Interactive, Inc.				102,875	4,983,561		705,636
	Pinetree Capital Ltd.				116,330	464,183		472,300
	ProntoForms Corporation				3,104,354	1,610,599		1,831,569
	Quorum Information Technologies Inc.				1,683,100	1,461,268		1,060,353
	Sangoma Technologies Corporation				289,843	5,525,295		1,368,059
	Tantalus Systems Holding Inc.				523,751	279,556		419,001
	Tiny Ltd.				148,676	730,090		495,091
	Zillow Group, Inc.				29,090	2,156,221		1,823,850
Warrants:					19,854,469		9,677,017
	BuildDirect.com Technologies Inc.	4.23	12/31/2030	USD	89,722	-		-
Private unlisted companies: (88.8%)					19,854,469		9,677,017
Common shares/Units:
	Pender Private Investments Inc., Commercialization Shares2 ("PPI")		1,002,555	508,096
	Pender Private Investments Inc., Legacy Shares2 ("PPI')			6,418,842	18,398,085
	Pender Technology Inflection Fund II Limited Partnership2 ("PTIF II")		-	1,409,614
Preferred shares:
	Checkfront Bookings Inc., Series 2 (formerly Checkfront, Inc.)		790	114,848
	Checkfront Bookings Inc., Series 3 (formerly Checkfront, Inc.)		5,299	513,562
	Clarius Mobile Health Corp., Series A1				1,287,055	1,145,479
	Clarius Mobile Health Corp., Series A2				365,256	499,999
	DistillerSR Inc. (Formerly Evidence Partners Inc.)			51,295	1,999,992
	Jane Software Inc.				103,823	4,055,326
	Traction Complete Technologies Inc.				629,232	914,400
	Traction Rec Technologies Inc.				585,179	914,400
Convertible Loans:
	Clarius Mobile Health Corp.				500,000	500,000		500,000
						30,973,801		59,104,236
Less: Transaction costs included in cost of investments				(22,773)
Total investments (103.3%)				$	50,805,497	$	68,781,253
Cash (3.1%)							2,055,970
Other assets less liabilities (-6.4%)							(4,264,349)
Total Shareholders' Equity (100.0%)						$	66,572,874

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

1Copperleaf is the Company's largest single public company holding, representing 56.6% of the total portfolio, including both its direct holdings and its indirect holdings investment through its investment in Pender Private Investments Inc.

2Considering the make up of the portfolio including the underlying portfolio of our private holdings of PPI and PTIF II, two private investees that themselves hold securities of public and/or private companies, the proportions of the total portfolio made up by publicly listed companies and private unlisted companies were 68.8% and 31.2%, respectively.

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PENDER GROWTH FUND INC.

Notes to the Condensed Interim Financial Statements (Unaudited)

Three months and nine months ended September 30, 2023

1. Incorporation and nature of operations:
   Pender Growth Fund Inc. (the "Company"; "PTF") was incorporated under the laws of British Columbia on March 7, 1994.
   The Company has been managed by PenderFund Capital Management Ltd. (the "Manager") since 2003. The investment objective of the Company is to achieve long-term capital growth from investment in opportunities identified by the Manager.
   The Company's registered office is located at 1830 - 1066 West Hastings Street, Vancouver, British Columbia, V6E 3X2.
2. Basis of preparation:
3. 1. Statement of compliance:
      The annual financial statements of the Company are prepared under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards ("IAS") Board. These condensed interim financial statements ("financial statements") of the Company have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements. These financial statements should be read in conjunction with the audited annual financial statements.
      The Company qualifies as an investment entity under IFRS 10, Consolidated Financial Statements.
      These financial statements were authorized for issue by the Company's Board of Directors on November 22, 2023.
   2. Basis of measurement:
      These financial statements have been prepared on a historical cost basis except for investments, which are measured at fair value.
   3. Functional and presentation currency:
      These financial statements are presented in Canadian dollars, the Company's functional currency.
   4. Use of estimates and judgment:
      The preparation of financial statements in conformity with IFRS requires the Manager to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized in the period in which the estimates are revised and in any future period affected.
      The Company may hold financial instruments that are not quoted in an active market, including derivatives. The determination of the fair value of these investments is the area with the Manager's most significant accounting judgements and estimates in preparing these financial statements.

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PENDER GROWTH FUND INC.

Notes to the Condensed Interim Financial Statements (Unaudited)

Three months and nine months ended September 30, 2023

1. Significant accounting policies:
   These financial statements follow the same accounting policies and methods of application as applied in the December 31, 2022 annual audited financial statements.
2. Purchase of Pender Private Investments Inc.
   On May 28, 2021 (the "Effective Date"), the Company completed a transaction (the "WOF Transaction") with the Working Opportunities Fund (EVCC) Ltd. ("WOF"), an investment entity, for the acquisition of WOF's issued and outstanding shares pursuant to the April 7, 2021 definitive agreement (the "Arrangement Agreement of the WOF Transaction"), under a plan of arrangement, and WOF was renamed Pender Private Investments Inc. ("PPI").
   On the Effective Date of the WOF Transaction, the Company acquired 100% of WOF's Commercialization Series shares for a total cash purchase price of $508,096 which was paid in full on closing and 97% of WOF's Venture Series shares for a total cash purchase price of $25,316,232, 50% of which was paid on closing and 50% paid on November 25, 2021.
   Under IFRS, the gain inherent in the difference between the purchase price paid by the Company and the fair value of the assets it acquired is treated as a deferred gain and contra asset under the investments reported in the Statements of Financial Position. On the effective date of the WOF Transaction, a $32,798,793 deferred gain was recorded by the Company. The deferred gain is being recognized to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the investment. For the nine months ended September 30, 2023, the Company recognized a $1,361,896 deferred gain. As at September 30, 2023, the total deferred gain recognized since 2021 was $29,016,504 (December 31, 2022, $27,654,608), the remaining balance as at September 30, 2023 was $3,782,289 (December 31, 2022 - $5,144,185).
   The divestment of two of PPI's portfolio investments triggered a requirement for a pro rata redemption of Legacy Shares at the NAV in effect at the time. In October 2021, PPI redeemed approximately 58.49% of all outstanding Legacy Shares, on a pro rata basis, at a redemption price of approximately $6.4705 per share. Accordingly, the Company received a total of $63,197,947 upon the redemption of 9,767,089 of the Legacy Shares it held. A portion of these proceeds was used to satisfy the additional cash payment to the Exiting Shareholders that was triggered by the divestments and the redemption: $21,136,513 or $1.2661 per share was paid effective October 13, 2021.
   Because no letter of intent, term sheet or binding agreement for a divestment was entered into after November 18, 2021 and before February 18, 2022, which was the final period during which an additional exit payment could have been triggered, the right to any additional cash payment ceased and the Exit Venture Shares were redeemed automatically effective May 20, 2022.
   In June 2022, in accordance with the terms of the Transaction, 10,440 Legacy Shares that weren't held in eligible accounts were purchased by the Company for a total payment of $59,297, bringing its ownership of PPI to 98%.
   On August 19, 2022, as provided by the Legacy Share right, PPI redeemed approximately 7.04% of the outstanding Legacy Shares on a pro-rata basis at a redemption price of approximately $8.26 per share. The

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PENDER GROWTH FUND INC.

Notes to the Condensed Interim Financial Statements (Unaudited)

Three months and nine months ended September 30, 2023

1. Purchase of Pender Private Investments Inc. (continued)
   Company received a total of $4,033,749 for the 488,507 of its Legacy Shares that were redeemed. On April 21, 2023, PPI redeemed approximately 2.4% of the outstanding Legacy Shares on a pro-rata basis at a redemption price of approximately $6.39 per share. The Company received a total of $1,003,457 for the 157,122 of its Legacy Shares that were redeemed.
   On August 17, 2023 ("Effective Date of the PPI Transaction"), the Company completed the acquisition of the remaining Legacy Shares of PPI not owned by the Company (the "PPI Transaction") pursuant to the June 21, 2023 arrangement agreement ("Arrangement Agreement of the PPI Transaction"). The transaction was completed in accordance with a statutory plan of arrangement (the "Plan of Arrangement of the PPI Transaction") under the Business Corporations Act (British Columbia). In accordance with the terms of the Plan of Arrangement of the PPI Transaction, the Net Asset Value of PPI's portfolio was recalculated on August 10, 2023 (being five business days prior to the Effective Date of the PPI Transaction). On August 15, 2023, the PPI Transaction was approved by the British Columbia Supreme Court and the Company acquired the remaining 2% of PPI's Legacy shares for $6.94 per share for a total cash purchase price of $855,490. As at September 30, 2023, the Company held 100% (December 31, 2022 - 98%) of the outstanding Legacy Shares, or 6,418,842 Legacy Shares (December 31, 2022 - 6,452,726 Legacy shares).
2. Related party transactions:

1. Management and performance fees:
2. 1. Management fees:

In accordance with the Third Amended and Restated Management Agreement dated May 1, 2017, as amended March 7, 2019 (the "Management Agreement"), the Manager provides management services in connection with all aspects of the identification, investment, development, active monitoring and ultimate divestment of all investments of the Company. This Management Agreement was in effect until April 30, 2023 at which time it renewed automatically, in accordance with that agreement, for a four-year term that will end on April 30, 2027 unless a vote of shareholders determines otherwise.

In exchange for these management services, the Company pays a management fee. Effective May 2019, the management fee was set at 2.50% of the first $15,000,000 of the value of Net Assets and 1.75% of the value of Net Assets above $15,000,000.

The management fee is calculated and paid monthly. Prior to the PPI Transaction, the management fee calculation excluded the value of the Company's investment in PPI, which is also managed by the Company's Manager, to avoid fee duplication. Subsequent to the PPI Transaction, PPI no longer pays management fees directly to the Manager, therefore the value of the Company's investment in PPI is included in the value of the Net Assets used in calculating the management fee. For the nine months ended September 30, 2023, the management fees incurred by the Company were $550,206 (September 30, 2022 - $647,740).

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