Absolute Software Corporation — Interim / Quarterly Report 2020

Feb 3, 2020

Interim Condensed Consolidated Financial Statements of

ABSOLUTE SOFTWARE CORPORATION

Three and six months ended December 31, 2019 and 2018

(Unaudited)

ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Financial Position

(Expressed in United States dollars) (Unaudited)

Notes ASSETS CURRENT Cash and cash equivalents Short-term investments (Note 3) Trade and other receivables (Note 4) Income tax receivable Prepaid expenses and other Contract acquisition assets – current (Note 5) PROPERTY AND EQUIPMENT RIGHT OF USE ASSETS (Note 6) DEFERRED INCOME TAX ASSETS (Note 11) CONTRACT ACQUISITION ASSETS (Note 5) GOODWILL LIABILITIES CURRENT Trade and other payables (Note 7) Income tax payable Accrued warranty Lease liabilities – current (Note 8) Deferred revenue – current (Note 10(b)) LEASE LIABILITIES (Note 8) DEFERRED REVENUE (Note 10(b)) COMMITMENTS (Note 14) CONTINGENCIES (Note 15) SHAREHOLDERS’ DEFICIENCY Share capital (Note 9(b)) Equity reserve Treasury shares Deficit	December 31, 2019 June 30, 2019
	$ 18,951,424 $ 18,690,539 19,609,274 17,108,226 16,232,050 22,194,252 108,777 707,923 1,925,365 3,088,082 5,887,556 6,592,335
	62,714,446 68,381,357 5,622,879 6,156,814 8,090,700 - 22,835,561 22,359,165 4,758,066 5,313,496 1,100,000 1,100,000
	$ 105,121,652 $ 103,310,832
	$ 13,612,381 $ 19,034,996 49,135 13,543 239,415 450,000 1,541,453 - 73,938,001 76,312,162
	89,380,385 95,810,701 7,387,311 - 54,867,691 58,115,799
	151,635,387 153,926,500 80,267,136 76,778,014 36,121,869 36,744,933 (263,840) (359,973) (162,638,900) (163,778,642)
	(46,513,735) (50,615,668)
	$ 105,121,652 $ 103,310,832

SUBSEQUENT EVENTS (Note 16)

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

Approved on behalf of the Board on February 3, 2020:

(signed) “Daniel P. Ryan” (signed) “Lynn Atchison”_ Daniel P. Ryan, Director Lynn Atchison, Director

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income Three and six months ended December 31, 2019 and 2018

(Expressed in United States dollars) (Unaudited)

Notes REVENUE COST OF REVENUE GROSS MARGIN OPERATING EXPENSES Sales and marketing Research and development General and administration Share-based compensation (Note 9(i)) OPERATING INCOME OTHER (EXPENSE) INCOME Finance income, net Interest expense – lease liability Foreign exchange loss NET INCOME BEFORE INCOME TAXES INCOME TAX EXPENSE (Note 11) NET INCOME AND TOTAL COMPREHENSIVE INCOME BASIC INCOME PER SHARE DILUTED INCOME PER SHARE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, DILUTED	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 25,797,614$ 24,446,301$ 51,450,103 $ 48,749,866 3,022,265 3,179,779 6,255,632 6,468,183
	22,775,349 21,266,522 45,194,471 42,281,683 9,521,739 9,103,064 19,040,524 18,728,264 4,185,723 4,466,077 7,925,309 9,492,483 4,111,620 4,096,060 7,436,477 7,207,063 1,070,385 1,189,284 2,237,186 2,508,809
	18,889,467 18,854,485 36,639,496 37,936,619
	3,885,882 2,412,037 8,554,975 4,345,064 128,605 71,646 240,746 147,328 (126,727) - (257,928) - (40,426) (74,725) (53,245) (113,763)
	(38,548) (3,079) (70,427) 33,565
	3,847,334 2,408,958 8,484,548 4,378,629 (1,137,000) (646,000) (2,323,000) (1,352,000)
	$ 2,710,334 $ 1,762,958 $ 6,161,548 $ 3,026,629
	$ 0.06 $ 0.04 $ 0.15 $ 0.07
	$ 0.06 $ 0.04 $0.14 $ 0.07
	41,722,849 40,483,250 41,723,856 40,394,608 43,859,350 40,483,250 43,848,893 40,394,608

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statement of Changes in Shareholders’ Deficiency

(Expressed in United States dollars) (Unaudited)

BALANCE, JUNE 30, 2018 Shares issued on options exercised Shares issued under Employee Share Purchase Plan Shares issued under Phantom Share Unit Plan Shares issued under Performance and Restricted Share Unit plan Share-based compensation Dividends paid Net income and total comprehensive income BALANCE, DECEMBER 31, 2018 Shares issued on options exercised Shares issued under Employee Share Purchase Plan Shares issued under Phantom Share Unit plan Shares issued under Performance and Restricted Share Unit plan Share-based compensation expense Dividends paid Net income and total comprehensive income BALANCE, JUNE 30, 2019 Shares issued on options exercised Shares issued under Employee Share Purchase Plan Shares issued under Performance and Restricted Share Unit plan Share-based compensation Dividends paid Net income and total comprehensive income BALANCE, DECEMBER 31, 2019	Share Capital Number of Common shares Amount Equity reserve Treasury shares Deficit Total
	40,224,231 $ 68,362,445 $ 36,972,197 $ (359,973) $ (161,484,035) $ (56,509,366) 145,475 974,560 (240,190) - - 734,370 45,616 202,653 - - - 202,653 7,872 43,646 (43,646) - - - 210,903 1,142,541 (1,142,541) - - - - - 2,155,742 - - 2,155,742 - - - - (4,917,121) (4,917,121) - - - - 3,026,629 3,026,629
	40,634,097 $ 70,725,845 $ 37,701,562 $(359,973) $(163,374,527) $(55,307,093)
	609,622 3,998,837 (857,913) - - 3,140,924 44,638 192,718 - - - 192,718 11,949 69,924 (69,924) - - - 345,246 1,790,690 (1,790,690) - - - - - 1,761,898 - - 1,761,898 - - - - (4,956,636) (4,956,636) - - - - 4,552,521 4,552,521
	41,645,552 $ 76,778,014 $ 36,744,933 $ (359,973) $ (163,778,642) $ (50,615,668)
	135,862 912,602 (161,710) - - 750,892 35,963 180,842 - - - 180,842 483,927 2,395,678 (2,493,580) 96,133 - (1,769) - - 2,032,226 - - 2,032,226 - - - - (5,021,806) (5,021,806) - - - - 6,161,548 6,161,548
	42,301,304 $ 80,267,136 $ 36,121,869 $ (263,840) $ (162,638,900) $ (46,513,735)

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Cash Flows

Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

		Three months ended	Three months ended	Six months ended	Six months ended
		December 31,		December 31,
	Notes	2019	2018	2019	2018
OPERATING ACTIVITIES
Net income		$ 2,710,334	$ 1,762,958	$ 6,161,548	$ 3,026,629
Items not involving cash
Amortization of property and equipment		846,050	884,013	1,671,194	1,770,459
Amortization of right of use assets	(Note 6)	413,336	-	826,673	-
Amortization of contract acquisition assets	(Note 5)	2,103,603	2,296,762	4,352,898	4,524,565
Share-based compensation	(Note 9(i))	1,070,385	1,189,284	2,237,186	2,508,809
Deferred income taxes	(Note 11)	(108,615)	(207,000)	(476,396)	(292,000)
Unrealized gain on short-term investments		(100,165)	-	(199,272)	-
Unrealized foreign exchange loss on lease
liability		65,631	-	56,840	-
Change in non-cash working capital
Trade and other receivables		(555,165)	922,692	5,962,202	6,025,825
Income tax receivable		84,406	(40,105)	599,146	6,934
Prepaid expenses and other		808,900	249,902	1,162,717	220,512
Contract acquisition assets incurred	(Note 5)	(1,669,443)	(2,944,771)	(3,092,689)	(4,619,720)
Trade and other payables		(1,251,078)	2,273,672	(3,813,540)	737,630
Income tax payable		21,932	(15,262)	35,592	(383,126)
Accrued warranty		(290,085)	(10,000)	(210,585)	(80,000)
Deferred revenue		(1,976,458)	(4,435,474)	(5,622,269)	(7,530,786)
CASH FROM OPERATING ACTIVITIES		2,173,568	1,926,671	9,651,245	5,915,731
INVESTING ACTIVITIES
Purchase of property and equipment		(713,409)	(459,705)	(2,362,562)	(1,880,572)
Proceeds from maturities of short-term
investments		16,410,000	-	23,280,000	-
Purchase of short-term investments		(13,796,274)	-	(25,581,776)	-
CASH FROM (USED IN) INVESTING ACTIVITIES		1,900,317	(459,705)	(4,664,338)	(1,880,572)
FINANCING ACTIVITIES
Dividends paid	(Note 9(h))	(2,512,563)	(2,443,723)	(5,021,806)	(4,917,121)
Issuance of common shares	(Note 9(b))	905,135	676,724	1,056,261	871,179
Payment of lease liabilities	(Note 8)	(417,862)	-	(827,727)	-
CASH USED IN FINANCING ACTIVITIES		(2,025,290)	(1,766,999)	(4,793,272)	(4,045,942)
FOREIGN EXCHANGE EFFECT ON CASH		78,181	(104,485)	67,250	(107,504)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS		2,126,776	(404,518)	260,885	(118,287)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD		16,824,648	34,243,219	18,690,539	33,956,988
CASH AND CASH EQUIVALENTS, END OF PERIOD		$ 18,951,424	$ 33,838,701	$ 18,951,424	$ 33,838,701

SUPPLEMENTAL CASH FLOW INFORMATION (NOTE 12)

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

ABSOLUTE SOFTWARE CORPORATION

1. NATURE OF OPERATIONS

Absolute Software Corporation (the “Company”) was incorporated under the Company Act (British Columbia) on November 24, 1993. The Company’s principal business activity is the development, marketing, and provision of a cloud-based endpoint visibility and control platform that provides management and security of computing devices, applications and data for enterprise and public sector organizations. The Company’s solutions are anchored to endpoint devices by our patented Persistence technology, which is embedded in the firmware of laptop, desktop and tablet devices by the majority of the world’s largest global computer manufacturers (“PC OEMs”). The Company markets its solutions through PC OEMs, distributors, value added resellers, and directly to its customers, who include corporations, government entities, educational institutions, and consumers. While the majority of the Company’s sales are generated in North America, the Company’s products are also available internationally through resellers in Europe and South Africa, as well as the Asia-Pacific and Latin American regions. The Company’s head office and principal address is Suite 1400, Four Bentall Centre, 1055 Dunsmuir Street, PO Box 49211, Vancouver, British Columbia, Canada, V7X 1K8. The Company trades on the TSX under the symbol ABT.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

These unaudited interim condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards applicable to interim financial information, as outlined in International Accounting Standard (“IAS”) 34, Interim Financial Reporting, and using the accounting policies consistent with those in the audited consolidated financial statements as at and for the year ended June 30, 2019, with the exception of the adoption of new accounting standards (Note 2(e)).

These unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with the annual consolidated financial statements as at and for the year ended June 30, 2019. Interim results are not necessarily indicative of the results expected for the fiscal year.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Significant accounting policy

Leases

The Company determines if an arrangement is a lease at inception. Leases are included in right of use assets, lease liabilities – current, and lease liabilities on the Company’s condensed consolidated statements of financial position.

Right of use assets represent the Company's right to use an underlying asset for the lease term, and the corresponding lease liabilities represent its obligation to make lease payments arising from the lease. Right of use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The right of use asset is reduced for tenant incentives and excludes any initial direct costs incurred. As the Company’s leases do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. The Company's incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. The Company’s lease terms may include options to extend or terminate the lease. These options are reflected in the right of use asset and lease liability when it is reasonably certain that the Company will exercise the option. The Company reassesses the lease term if and when a significant event or change in circumstances occurs within the Company’s control.

Amortization expense of the right of use assets is recognized on a straight-line basis over the lease term, and interest expense is recognized on an effective interest basis based on the incremental borrowing rate.

The Company has lease agreements with lease and non-lease components, which it has elected to combine for all asset classes. In addition, the Company does not recognize right of use assets or lease liabilities for leases with a term of 12 months or less for all asset classes.

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss.

Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

ABSOLUTE SOFTWARE CORPORATION

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

• (c) Significant accounting judgments

The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimations (Note 2(d)), that has the most significant effect on the amounts recognized in the Company’s consolidated financial statements, are related to:

• i) the determination of the functional currency for the Company and its subsidiaries;

• ii) the determination of the ranges of the Standalone Selling Prices of its subscription and support revenues; and

• iii) the determination of the Standalone Selling Price of its professional services revenues.

(d) Key sources of estimation uncertainty

The preparation of these interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates. The interim consolidated financial statements include estimates which, by their nature, are uncertain.

The impacts of such estimates are pervasive throughout the interim consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the date of the statement of financial position, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, include, but are not limited to, the following:

• the assessment of the carrying values of allowances for unrecoverable accounts receivable and assets;

• the assessment of the Company’s incremental borrowing rate related to the recognition of lease liabilities

• the inputs used in accounting for share-based compensation in the statement of operations; and

• the recognition and recoverability of the Company’s deferred tax assets.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

• (e) Adoption of Accounting Standards

Standards adopted in the year ended June 30, 2020

IFRS 16 – “Leases” (“IFRS 16”)

In January 2016, the IAB issued IFRS 16, which outlines the accounting for lease arrangements. Generally, IFRS 16 eliminates a lessees’ classification of leases and introduces a single lessee accounting model. The most significant effect of the new standard is the lessee’s recognition of the initial present value of unavoidable future lease payments as right of use assets and lease liabilities on the statement of financial position. Leases with durations of 12 months or less, and leases for low-value assets, are both exempted from the standard.

The total expense recognized over the term of a lease will be unaffected by IFRS 16. However, it results in the recognition of amortization of the right of use asset and of interest expense, as opposed to operating lease expense previously being recognized as a period cost in the statement of operations. As a result, the timing of lease expense recognition is accelerated for leases which were previously accounted for as operating leases.

Effective July 1, 2019, the Company adopted IFRS 16 in its condensed consolidated financial statements using the modified retrospective method, with the cumulative effect of initially applying the new standard recognized in retained earnings on that date. Comparative figures were not adjusted.

Upon adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of International Accounting Standard (“IAS”) 17, “Leases” . These liabilities are measured at the present value of the remaining fixed lease payments, discounted using the Company’s incremental borrowing rate as at July 1, 2019. The weighted average incremental borrowing rate applied to lease liabilities recognized in the condensed consolidated balance sheet on July 1, 2019 was 5.48%.

The associated right of use assets were primarily measured as if the standard had been applied since the commencement date of the lease, but discounted using the Company’s incremental borrowing rate at the date of initial application. Certain right of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any tenant incentives and direct costs incurred relating to the lease recognized in the balance sheet as at July 1, 2019.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:

• the Company has not reassessed contracts that were identified as leases under the previous accounting standard (IAS 17 and International Financial Reporting Interpretations Committee (“IFRIC”) Interpretation 4, “Determining Whether an Arrangement Contains a Lease”;

• the Company has applied a single discount rate to a portfolio of leases with reasonably similar underlying characteristics;

• the Company has excluded initial direct costs in the measurement of the right-of-use asset on transition;

• the Company accounted for real estate operating leases with a remaining lease term of less than 12 months as at July 1, 2019 as short-term leases; and

• the Company has used hindsight in determining the lease term where the lease contracts contain options to extend or terminate the lease.

The following table summarizes the adjustments to opening balances resulting from the initial adoption of IFRS 16:

doption of IFRS 16:
Assets Right of use assets Liabilities Trade and other payables Lease liabilities - current Lease liabilities	As previously reported – June 30, 2019 IFRS 16 transition adjustments Balance – July 1, 2019
	- $ 8,917,373 $ 8,917,373 $ 19,034,996 $ (782,256) $ 18,252,740 - 1,601,223 1,601,223 - 8,098,428 8,098,428

The following table reconciles the change in lease liabilities upon transition at July 1, 2019:

Operating lease commitments, June 30, 2019 Adjustments as a result of the inclusion of renewal option(s) Effect of discounting using the Company’s incremental borrowing rate Balance, July 1, 2019 Less: current portion	$ 5,988,145 9,685,221 (5,973,715)
	9,699,651 (1,601,223)
	$ 8,098,428

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

3. SHORT-TERM INVESTMENTS

The Company’s short-term investments are comprised of the following:

Investment grade securities Term deposits	December 31, 2019 $ 19,238,391 370,883 $ 19,609,274	June 30,2019
		$ 16,738,329 369,897
		$ 17,108,226

The Company’s investment grade securities include Canadian and U.S. government and agency securities, including treasury bills; as well as corporate bonds and certificates of deposit.

4. TRADE AND OTHER RECEIVABLES

The Company’s trade and other receivables are comprised of the following:

Trade receivables Other receivables Allowance for doubtful accounts	December 31, 2019 $ 15,811,020 902,128 (481,098) $ 16,232,050	June 30,2019 $ 22,098,804 383,402 (287,954) $ 22,194,252

At December 31, 2019, 3% of the Company’s accounts receivable balance is over 90 days past due (June 30, 2019 – 1%). As at December 31, 2019, 44%, 21%, and 15% (June 30, 2019 – 40%, 27%, and 15%) of the receivable balances are owing from three OEM and distributor partners.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

5. CONTRACT ACQUISITION ASSETS

The following table provides a reconciliation of contract acquisition assets for the six months ended December 31, 2019 and 2018:

Balance, beginning of period Contract acquisition costs incurred Amortization Balance, end of period Less: current portion	Six months ended December 31,	Six months ended December 31,
	2019 $ 11,905,831 3,092,689 (4,352,898) 10,645,622 (5,887,556) $ 4,758,066	2018
		$ 12,216,130 4,619,719 (4,524,565)
		12,311,284 (6,940,422)
		$ 5,370,862

6. RIGHT OF USE ASSETS

The following table provides a reconciliation of right of use assets for the six months ended December 31, 2019:

Balance, July 1, 2019 Amortization Balance, end of period	8,917,373 (826,673)
	$ 8,090,700

7. TRADE AND OTHER PAYABLES

The Company’s trade and other payables are comprised of the following:

Payroll and employee benefits Trade payables Deferred share units Customer deposits Accrued liabilities Sales taxes payable Lease inducements (note 2(e))	December 31, 2019 $ 5,521,743 3,711,166 2,108,408 1,085,415 928,016 257,633 - $ 13,612,381	June 30,2019
		$ 7,201,658 6,540,760 2,209,246 1,044,892 961,929 294,255 782,256
		$ 19,034,996

Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

ABSOLUTE SOFTWARE CORPORATION

8. LEASE LIABILITIES

The following table provides a reconciliation of lease liabilities for the six months ended December 31, 2019:

Balance, July 1, 2019 Payments on lease liabilities Unrealized foreign exchange loss on lease liabilities Balance, end of period Less: current portion	$ 9,699,651 (827,727) 56,840
	8,928,764 (1,541,453)
	$ 7,387,311

9. SHARE CAPITAL

• (a) Authorized

100,000,000 common shares, no par value

• (b) Issued and outstanding

During the six months ended December 31, 2019, the Company issued 135,862 common shares on exercise of employee stock options for total proceeds of $750,892. An amount of $161,710 related to the original fair value of the options was transferred from equity reserve to common shares upon exercise.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

9. SHARE CAPITAL (Continued)

During the six months ended December 31, 2019, the Company issued 35,963 common shares pursuant to its employee share purchase plan for total proceeds of $180,842.

During the six months ended December 31, 2019, the Company issued 483,927 common shares pursuant to its Performance and Restricted Share Unit (“PRSU”) Plan with a fair value of $2,493,581.

During the six months ended December 31, 2018, the Company issued 145,475 common shares on exercise of employee stock options for total proceeds of $734,370. An amount of $240,190 related to the original fair value of the options was transferred from equity reserve to common shares upon exercise.

During the six months ended December 31, 2018, the Company issued 45,616 common shares pursuant to its employee share purchase plan for total proceeds of $202,653.

During the six months ended December 31, 2018, the Company issued 7,872 common shares pursuant to its Phantom Share Unit Plan with a value of $43,646.

During the six months ended December 31, 2018 the Company issued 210,903 common shares pursuant to its Performance and Restricted Share Unit (“PRSU”) Plan with a value of $1,142,541.

On September 26, 2019, the Company received approval from the TSX to commence a Normal Course Issuer Bid (the “Bid”) on October 1, 2019 that enables the Company to purchase and cancel up to 2,663,275 of its common shares or return such shares to treasury. The Bid allows for the purchase of up to 27,956 common shares on a daily basis until September 30, 2020, except where purchases are made in accordance with "block purchases" exemptions under applicable TSX policies. Prior to October 1, 2019, the Company purchased and cancelled shares under previously approved Normal Course Issuer Bids (together, the “Bids”). During the six months ended December 31, 2019 and 2018, the Company did not repurchase any common shares under the Bids.

(c) Stock Option Plan

The Company’s share-based compensation plans include an Employee Stock Option Plan (“Option Plan”).

In 2001, the Company’s Board of Directors adopted the Option Plan (as amended in 2007, 2009, 2015 and 2018). Under the Option Plan, the maximum number of common shares reserved for issuance is limited to 12% of the number of common shares outstanding, less the amount that are issuable under the Phantom Share Unit Plan, the Performance and Restricted Share Unit Plan, and the Employee Share Purchase Plan (note 9(f)). On this basis, at December 31, 2019, the maximum number of common shares available under the Option Plan was 2,664,579 (June 30, 2019 – 3,325,110), of which 1,710,202 remained available for grant thereunder.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

9. SHARE CAPITAL (Continued)

Terms and conditions of options granted under the Option Plan are determined solely by the Board of Directors. Under the Option Plan, the exercise price of each option equals the last closing market price of the Company’s common shares before the grant date. The term of option grants may not exceed 7 years from the date of grant of the option. Options are generally granted with a four year vesting period (25% vesting on each anniversary date).

The following table summarizes activity under the Option Plan for the six months ended December 31, 2019 and 2018:

Outstanding, beginning of period Exercised Forfeited Expired Outstanding, end of period	Six months ended December 31,	Six months ended December 31,
	2019 Number of options Weighted average exercise price (CAD) 1,151,213 $ 7.82 (133,612) 7.38 (56,974) 7.50 (6,250) 7.10 954,377 $ 7.91	2018
		Number of options Weighted average exercise price (CAD)
		2,310,376 $ 7.21 (145,475) 6.71 (78,100) 7.74 (140,000) 7.99
		1,946,801 $ 7.17

(d) Performance and Restricted Share Unit Plan

The Company’s share-based compensation plans also include a Performance and Restricted Share Unit (“PRSU”) Plan. Under the PRSU Plan, the Company may issue Performance Share Units (“PSU”s) and Restricted Share Units (“RSU”s).

In 2016, the Company’s shareholders ratified the PRSU Plan (as amended in 2018). Under the PRSU Plan, the maximum number of common shares reserved for issuance is limited to 12% of the number of common shares outstanding, less the amount that are issuable under the Option Plan, the Employee Share Purchase Plan (note 9(f)), and the Phantom Share Unit Plan. On this basis, at December 31, 2019, 3,771,779 (June 30, 2019 – 3,754,154) common shares were eligible for grant under the PRSU Plan, of which 1,710,202 remained available for grant thereunder.

In addition, the Company has a Market-based PRSU Plan (“Market PRSU Plan”). Shares issued pursuant to the Market PRSU Plan will be acquired, at the Company’s election, under the terms of permissible share buyback mechanisms, including the Company’s Normal Course Issuer Bid, and will not be issued from treasury. At December 31, 2019, none of the outstanding PSUs or RSUs were issued pursuant to the Market PRSU Plan.

Terms and conditions of PSUs and RSUs granted are determined by the Board of Directors.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

9. SHARE CAPITAL (Continued)

Performance Share Units

Under the PRSU Plan, PSUs are issued to eligible persons and generally vest after a three year period (100% cliff vesting on the third anniversary date). The number of PSUs that ultimately vest is based on an Adjustment Factor, as determined by the Board of Directors at the date of grant, and can range from 0% to 200% of the number of units initially granted. The expiry date of the PSU grants is generally December 31 of the tenth year from the date of grant.

The following table summarizes PSU activity under the PRSU Plan for the three months ended December 31, 2019 and 2018:

Outstanding, beginning of period Granted Exercised Forfeited Outstanding, end of period	Six months ended December 31,	Six months ended December 31,
	2019 Number of units 312,404 407,955 (18,910) (115,289) 586,160	2018
		Number of units
		49,693 247,028 - (5,503)
		291,218

Fair values – Performance Share Units

The total fair value of PSUs granted under the PRSU Plan in the six months ended December 31, 2019 was $3,183,955 (2018 - $1,187,334). The weighted average grant date fair value of PSUs granted during the six months ended December 31, 2019 was $7.93 (2018 - $4.83). At December 31, 2019, none of the outstanding PSUs had vested.

In the six months ended December 31, 2019, the Adjustment Factor related to the PSUs granted was related to the achievement of company-specific performance targets. The fair value of the PSUs granted was estimated on the grant date using a Monte Carlo simulation model, taking into account the fair value of the Company’s common shares on the date of grant, potential future dividends accruing to the PSU holder’s benefit, and encompassing a wide range of possible future Company performance conditions.

In the six months ended December 31, 2018, the Adjustment Factors related to the PSUs issued granted were related to market-based performance conditions and, and some cases, to companyspecific performance conditions. The fair value of the PSUs granted was estimated on the grant date using a Monte Carlo simulation model, taking into account the fair value of the Company’s common shares on the date of grant, potential future dividends accruing to the PSU holder’s benefit, and encompassing a wide range of possible future market and Company performance conditions.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

9. SHARE CAPITAL (Continued)

Restricted Share Units

Under the PRSU Plan, RSUs are issued to eligible persons and generally vest over a three year period (33.3% vesting on each anniversary date). The expiry date of the RSU grants is generally December 31 of the year in which the tranche vests.

The following table summarizes RSU activity under the PRSU Plan for the six months ended December 31, 2019 and 2018:

Outstanding, beginning of period Granted Released Forfeited Outstanding, end of period	Six months ended December 31,	Six months ended December 31,
	2019 Number of units 1,282,298 830,702 (466,007) (171,576) 1,475,417	2018
		Number of units
		1,111,359 751,868 (210,903) (117,416)
		1,534,908

Fair values – Restricted Share Units

The total fair value of RSUs granted under the PRSU Plan in the six months ended December 31, 2019 was $4,827,359 (2018 - $4,346,594). The weighted average grant date fair value of RSUs granted during the six months ended December 31, 2019 was $5.97 (2018 - $5.95). At December 31, 2019, 46,160 of the outstanding RSUs had vested.

The fair value of the RSUs granted was estimated on the grant date using the fair value of the Company’s common shares on the date of grant and potential future dividends accruing to the RSU holder’s benefit.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

9. SHARE CAPITAL (Continued)

• (e) Deferred Share Unit Plan

The Company’s share-based compensation plans also include a Deferred Share Unit (“DSU”) Plan. The DSU Plan is a cash-settled share based compensation plan.

In 2016, the Company’s shareholders ratified the DSU Plan. Terms and conditions of DSUs granted are determined by the Board of Directors.

Under the DSU Plan, DSUs are issued to eligible persons and generally vest over a one year period (25% per three months). DSUs are not eligible for redemption until the unitholder ceases to be an eligible person. The term of the DSU grants is coterminous with the date the unitholder ceases to be an eligible person.

The following table summarizes activity under the DSU Plan for the six months ended December 31, 2019 and 2018:

Outstanding, beginning of period Granted Released Forfeited Outstanding, end of period	Six months ended December 31,	Six months ended December 31,
	2019 Number of units 340,862 13,600 (48,312) - 306,150	2018
		Number of units
		351,418 7,072 (89,580) (3,625)
		265,285

Fair values – Deferred Share Units

The total fair value of DSUs granted under the DSU Plan in the six months ended December 31, 2019 was $48,123 (2018 - $40,098). The weighted average grant date fair value of DSUs granted during the six months ended December 31, 2019 was $6.81 (2018 - $5.67). The fair value owing was marked to market at December 31, 2019, and as a result, at that date, the total liability carried within Accounts Payable and Accrued Liabilities related to the DSU Plan was $2,108,408 (June 30, 2019 - $2,209,246).

Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

ABSOLUTE SOFTWARE CORPORATION

9. SHARE CAPITAL (Continued)

(f) Employee Share Purchase Plan and Share Ownership Plan

The Company’s share-based compensation plans also include an Employee Share Purchase Plan. The original Employee Share Purchase Plan (the “Purchase Plan”) was adopted in 2004. In the six months ended December 31, 2019, the Company’s shareholders ratified a new Employee Share Ownership Plan (the “Ownership Plan”).

The Purchase Plan allowed employees to purchase up to 2,000,000 common shares from treasury at a 15% discount from the market price. Each employee could allocate an annual maximum of $10,500 (in either U.S. dollars or Canadian dollars, depending on the employee’s country of domicile) to the purchase of common shares through two six month offering periods per year. During the six months ended December 31, 2019, 35,963 common shares (2018 – 45,616 common shares) were issued from treasury under the Purchase Plan at a weighted average price of $5.03 (2018 - $4.44) per share. In addition, on January 13, 2020, 36,060 common shares were issued for the six month offering period ended December 31, 2019.

The terms of the Ownership Plan are largely consistent with those of the Purchase Plan, however, the maximum number of common shares issuable under the Ownership Plan is limited to 350,000. In addition, the maximum amount an employee can allocate to the purchase of common shares was increased to CAD$15,000 per year. The Ownership Plan became effective January 1, 2020, and on that date, the Purchase Plan lapsed. Subsequent to the issuance of common shares on January 13, 2020 related to the six month offering period ended December 31, 2019, no further common shares will be issued pursuant to the Purchase Plan.

As a result, at December 31, 2019, 350,000 common shares were available for grant under the Ownership Plan.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

9. SHARE CAPITAL (Continued)

(g) Phantom Share Unit Plan

The Company’s share-based compensation plans previously included a Phantom Share Unit (“PhSU”) Plan. The PhSU Plan lapsed on December 8, 2017, and as such, at December 31, 2019, there are no common shares eligible for grant under this plan, and there were no outstanding PhSUs.

The following table summarizes activity under the PhSU Plan for the six months ended December 31, 2018:

Outstanding, beginning of period Granted Released Forfeited Outstanding, end of period	Six months ended December 31, 2018
	Number of units
	19,294 417 (7,872) (5)
	11,834

The total fair value of PhSUs granted under the PhSU Plan in the six months ended December 31, 2018 was $2,915. The weighted average grant date fair value of PhSUs granted during the six months ended December 31, 2018 was $6.99.

(h) Dividends

In the six months ended December 31, 2019, the Company declared two quarterly dividends of CAD$0.08 per share on its common shares, amounting to $5,021,806. The dividends were paid in cash to shareholders on August 29, 2019 and November 29, 2019.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

9. SHARE CAPITAL (Continued)

(i) Share-based compensation

The Company’s share-based compensation for the six months ended December 31, 2019 and 2018 was comprised as follows:

Restricted share units Performance share units Stock option plan Employee share purchase plan Deferred share unit plan Phantom share unit plan	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 791,099 $ 938,197$ 1,556,044$ 1,749,497 174,348 90,139 365,138 138,714 20,275 75,902 83,714 207,769 13,891 35,115 27,330 53,125 70,772 47,766 204,960 353,066 - 2,165 - 6,638
	$ 1,070,385$ 1,189,284$ 2,237,186$ 2,508,809

The Company’s share-based compensation was attributable to the following areas for the three and six months ended December 31, 2019 and 2018:

Cost of revenue Sales and marketing Research and development General and administration	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 80,403$ 70,061 $ 145,739 $ 132,945 599,380 405,103 946,628 708,762 242,297 310,893 501,544 611,435 148,305 403,227 643,275 1,055,667
	$ 1,070,385$ 1,189,284 $ 2,237,186 $ 2,508,809

(j) Treasury shares

During 2017, the Company acquired 104,567 treasury shares for a total cost of $499,443. The treasury shares are presented as a component of shareholder’s deficiency. The treasury shares were purchased in order to fund the Company’s Market PRSU Plan (note 9(d)). In the six months ended December 31, 2019, 14,722 treasury shares were used to settle RSUs released pursuant to the Market PRSU Plan. As a result, at December 31, 2019, the Company held 60,942 treasury shares with a value of $263,840.

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

10. REVENUE

(a) Disaggregated revenue

The table below provides a disaggregation of our overall revenues for the three and six months ended December 31, 2019 and 2018:

Cloud Services Managed professional services Professional services Other	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 23,845,687$ 22,499,250 $ 47,447,901 $ 44,811,888 1,013,759 887,746 2,014,479 1,758,211
	24,859,446 23,386,996 46,462,380 46,570,099 47,938 221,240 212,526 448,016 890,230 838,065 1,775,197 1,731,751
	$ 25,797,614$ 24,446,301 $ 51,450,103 $ 48,749,866

(b) Deferred revenue

The following table provides a reconciliation of deferred revenue balances to invoiced billings, revenue, and other adjustments for the six months ended December 31, 2019 and 2018:

Balance, beginning of period Billings Revenue recognized Balance, end of period Less: current portion	Six months ended December 31,	Six months ended December 31,
	2019 $ 134,427,961 45,827,835 (51,450,104) 128,805,692 (73,938,001) $ 54,867,691	2018
		$ 139,186,686 41,219,080 (48,749,866)
		131,655,900 (74,329,344)
		$ 57,326,556

In the six months ended December 31, 2019, revenue recognized included $45,325,533 (2018 – $43,007,516) that was included in deferred revenue at the beginning of the period.

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

10. REVENUE (Continued)

The Company’s deferred revenue is scheduled to be recognized in the years ended June 30, as follows:

2020 2021 2022 2023 2024 2025	$ 45,222,904 46,614,605 24,327,604 9,790,749 2,622,220 227,610
	$ 128,805,692

11. INCOME TAXES

The Company operates in various tax jurisdictions, and accordingly, the Company’s income is subject to varying rates of tax. Losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. The Company’s ability to use income tax losses and deferred income tax deductions is dependent upon the profitable operations of the Company in the tax jurisdictions in which such losses or deductions arise. The Company’s interim tax provisions are estimated based on the expected effective tax rates applicable to the Company’s operations for the year ended June 30, 2020.

The Company’s income tax expense was comprised as follows:

Current income tax recovery (expense) Deferred income tax (expense) recovery	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 35,000 $ (903,000) $ (439,000) $ (1,915,000) (1,172,000) 257,000 (1,884,000) 563,000
	$ (1,137,000) $ (646,000) $ (2,323,000) $ (1,352,000)

ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

11. INCOME TAXES (Continued)

Income tax expense for the three and six months ended December 31, 2019 and 2018 differs from that calculated by applying statutory rates for the following reasons:

Income before income taxes Combined Federal and Provincial income tax rate Tax expense at statutory rate Permanent differences Foreign income tax effected at lower rates Impact on deferred income tax assets of changes in foreign exchange rates Income applied to previously unrecognized tax assets Amounts (under) over provided for in prior years Total income tax expense	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 3,847,334$ 2,408,958$ 8,484,548$ 4,378,629 27.00% 27.00% 27.00% 27.00%
	(1,038,780) (650,419) (2,290,828) (1,182,230) (79,636) (477) (184,000) (190,255) 26,182 4,896 49,200 20,485 65,000 - 35,000 - 649 - 1,305 - (110,415) - 66,323 -
	$ (1,137,000) $ (646,000)$ (2,323,000)$ (1,352,000)

At December 31, 2019, the Company had total net deferred tax assets of $22,835,561 (June 30, 2019 - $22,359,165), primarily related to deferred revenue balances, current income tax receivable of $108,777 (June 30, 2019 – $707,923), primarily related to tax instalments paid, and current taxes payable of $49,135 (June 30, 2019 - $13,543) in other foreign jurisdictions. In the three and six months ended December 31, 2019 and 2018, the Company’s current tax payable is partially offset by estimated investment tax credit (“ITC”) receivable balances. The ITCs were credited against research and development expenses, as the credit is generated by certain eligible scientific research and development expenditures (“SRED”).

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and during the loss carry-forward periods. Management considers the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable could change materially in the near term based on future taxable income during the carry-forward period.

The Company’s operations are conducted in a number of countries with complex tax legislation and regulations pertaining to the Company’s activities. Any reassessment of the Company’s tax filings by the tax authorities may result in material adjustments to net income or loss, deferred tax assets and operating loss carry-forwards.

Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

ABSOLUTE SOFTWARE CORPORATION

12. SUPPLEMENTAL CASH FLOW INFORMATION

Composition of cash and cash equivalents

Cash Cash equivalents	December 31, 2019 $ 12,204,403 6,747,021 $ 18,951,424	June 30,2019
		$ 10,118,438 8,572,101
		$ 18,690,539

Other cash flow information

Cash paid for income taxes Cash received from income taxes Cash paid for interest Non-cash investing and financing activities Accrued purchases of property and equipment, net	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 229,323 $ 417,572 $ 303,879 $ 979,437 256,778 65,795 502,222 65,795 126,727 - 257,928 - $ (395,430) $ 15,326$ 1,626,782 $ 911,056

13. SEGMENTED INFORMATION

Entity wide disclosures

Geographic revenue information is based on the location of the customer invoiced. Long-lived assets include non current contract acquisition assets, property and equipment, right of use assets and goodwill.

Revenue United States Rest of world Canada	Three months ended December 31, Six months ended December 31,
	2019 2018 2019 2018
	$ 22,133,019 $ 21,401,365 $ 44,189,377 $ 42,688,595 3,149,518 2,568,695 6,238,301 5,080,303 515,077 476,241 1,022,425 980,968
	$ 25,797,614 $ 24,446,301$ 51,450,103 $ 48,749,866

Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2019 and 2018 (Expressed in United States dollars) (Unaudited)

ABSOLUTE SOFTWARE CORPORATION

13. SEGMENTED INFORMATION (Continued)

Long-lived assets Canada United States and rest of world	December 31, 2019 $ 13,261,941 6,309,704 $ 19,571,645	June 30,2019
		$ 7,940,003 4,630,307
		$ 12,570,310

14. COMMITMENTS

The Company’s minimum payments required under operating leases for equipment and business service agreements, for the years ended June 30, are as follows as at December 31, 2019:

2020 2021 2022	$ 916,827 874,643 453,967
	$ 2,245,437

15. CONTINGENCIES

Due to the nature of the Company’s business, products, and patent portfolio, the Company is involved in assertions and claims as both the initiating party and, from time to time, as a respondent to such claims. The Company believes that any such claims currently existing are without merit and intends to vigorously defend any such assertions. At this time, there are no legal matters which are believed to be material to the Company’s financial performance, liquidity, or financial condition.

16. SUBSEQUENT EVENTS

(a) Employee Share Purchase Plan

On January 13, 2020, 36,060 common shares were issued pursuant to the Employee Share Purchase Plan.

(b) Quarterly dividend

On January 20, 2020, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on February 28, 2020 to shareholders of record at the close of business on February 7, 2020.