Acceleware Ltd. — Interim / Quarterly Report 2020

Nov 25, 2020

Acceleware Ltd.

Condensed Interim Financial Statements (Unaudited) For the Nine Months Ended September 30, 2020 and 2019

(in Canadian dollars)

Acceleware Ltd.

Condensed Interim Financial Statements For the Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

Contents
Condensed Statements of Financial Position	3
Condensed Statements of Comprehensive Income (Loss)	4
Condensed Statements of Changes in Shareholders’ Equity	5
Condensed Statements of Cash Flows	6
Notes to Condensed Interim Financial Statements	7

Page 1

Acceleware Ltd.

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 an auditor.

The accompanying unaudited interim financial statements of Acceleware Ltd. (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 Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

Page 2

Acceleware Ltd.

Condensed Statements of Financial Position (Unaudited)

(in Canadian dollars)

As at: Assets Current Cash and cash equivalents Trade and other receivables_(note 6) Contract assets(note 8) Alberta SR&ED tax credits receivable Deposits and prepaid expenses Non-current Property and equipment Right of use assets(note 5) Total assets Liabilities and Equity Current Accounts payable and accrued liabilities(note 6) Contract liabilities(note 8) Lease obligations(note 5) Non-current Lease obligations(note 5) Total liabilities Going concern(note 3) Shareholders’ Equity Share capital(note 7a) Reserves(note 7c) Deficit Total shareholders’ equity Total liabilities and shareholders’ equity Approved on behalf of the Board: (signed) “Bohdan Romaniuk” Director (signed) “Dennis Nerland”_ Director	As at: Assets Current Cash and cash equivalents Trade and other receivables_(note 6) Contract assets(note 8) Alberta SR&ED tax credits receivable Deposits and prepaid expenses Non-current Property and equipment Right of use assets(note 5) Total assets Liabilities and Equity Current Accounts payable and accrued liabilities(note 6) Contract liabilities(note 8) Lease obligations(note 5) Non-current Lease obligations(note 5) Total liabilities Going concern(note 3) Shareholders’ Equity Share capital(note 7a) Reserves(note 7c) Deficit Total shareholders’ equity Total liabilities and shareholders’ equity Approved on behalf of the Board: (signed) “Bohdan Romaniuk” Director (signed) “Dennis Nerland”_ Director	September 30, 2020 December 31,2019
	Assets Current Cash and cash equivalents Trade and other receivables_(note 6) Contract assets(note 8)_ Alberta SR&ED tax credits receivable Deposits and prepaid expenses	$ 2,932,262 $ 4,381,194 1,160,037 1,612,892 159,143 120,431 177,855 173,097 82,750 63,185
	Non-current Property and equipment Right of use assets_(note 5)_	4,512,047 6,350,799 9,267 29,945 27,751 134,170
	Total assets	$ 4,549,065 $ 6,514,914
	Liabilities and Equity Current Accounts payable and accrued liabilities_(note 6) Contract liabilities(note 8) Lease obligations(note 5)_	$ 3,345,046 $ 4,659,735 830,579 553,101 37,379 115,568
	Non-current Lease obligations_(note 5)_	4,213,004 5,328,404 15,302 39,767
	Total liabilities	4,228,306 5,368,171
	Going concern_(note 3) Shareholders’ Equity Share capital(note 7a) Reserves(note 7c)_ Deficit	22,349,140 22,270,968 8,008,594 7,855,034 (30,036,975) (28,979,259)
	Total shareholders’ equity	320,759 1,146,743
	Total liabilities and shareholders’ equity	$ 4,549,065 $ 6,514,914
	Approved on behalf of the Board: (signed) “Bohdan Romaniuk”
	Director (signed) “Dennis Nerland”
	Director

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

Page 3

Acceleware Ltd.

Condensed Statements of Comprehensive Loss (Unaudited) (in Canadian dollars)

		Three months		Three months		Nine months		Nine months
		ended		ended		ended		ended
		September 30,		September 30,		September 30,		September 30,
For the:		2020		2019		2020		2019
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue(note 8)	$	130,219	$	197,001	$	824,934	$	1,299,209
Expenses
Cost of revenue		—		—		—		2,853
General and administrative		439,089		562,876		1,356,074		1,732,081
Research and development		183,408		237,225		640,630		485,712
		622,497		800,101		1,996,704		2,220,646
Income (loss) from operations		(492,278)		(603,100)		(1,171,770)		(921,437)
Finance income		1,502		24,131		18,756		51,571
Finance expense		(852)		(2,692)		(3,672)		(9,970)
Foreign exchange (loss) gain		(50,061)		30,249		98,970		(57,223)
		(49,411)		51,688		114,054		(15,622)
Total comprehensive loss for the period
attributable to shareholders	$	(541,689)	$	(551,412)	$	(1,057,716)	$	(937,059)
Loss per share
Basic and diluted	$	(0.005)	$	(0.005)	$	(0.010)	$	(0.009)
Weighted average shares outstanding		105,537,241		104,604,496		105,448,340		102,403,150

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

Page 4

Acceleware Ltd.

Statements of Changes in Shareholders’ Equity (Unaudited) (in Canadian dollars)

Balance at December 31, 2018 # Total comprehensive loss Exercise of stock options for cash_(note 7a) Expiry of Warrants Share-based payments Current period expense(note 7b) Stock options exercised(note 7a)_	Share capital Common shares Amount	Reserves Warrants Contributed surplus Total Deficit Total shareholders’equity
	103,127,670 $ 22,134,230 $ — — 1,484,000 74,200 — — — — — 62,538	10,848 $ 7,429,219 $ 7,440,067 $ (27,420,449) $ 2,153,848 — — — (937,059) (937,059) — — — — 74,200 (10,848) 10,848 — — — — 380,344 380,344 — 380,344 — (62,538) (62,538) — —
Balance at September 30, 2019 #	104,611,670 $ 22,270,968 $	— $ 7,757,873 $ 7,757,873 $ (28,357,508) $ 1,671,333
Balance at December 31, 2019 # Total comprehensive loss Exercise of stock options for cash_(note 7a) Expiry of stock options(note 7b) Share-based payments Current period expense(note 7b) Stock options exercised(note 7a)_	104,611,670 $ 22,270,968 $ — — 932,500 49,625 — — — — — 28,547	— $ 7,855,034 $ 7,855,034 $ (28,979,259) $ 1,146,743 — — — (1,057,716) (1,057,716) — — — — 49,625 (5,461) (5,461) (5,461) — 187,568 187,568 — 187,568 — (28,547) (28,547) — —
Balance at September 30, 2020 #	105,544,170 $ 22,349,140 $	— $ 8,008,594 $ 8,008,594 $ (30,036,975) $ 320,759

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

Page 5

Acceleware Ltd.

Condensed Statements of Cash Flows (Unaudited) (in Canadian dollars)

For the:

Three months ended September 30, 2020 (unaudited) Three months ended September 30, 2019 (unaudited) Nine months ended September 30, 2020 (unaudited)	Nine months ended September 30, 2019 (unaudited)
Cash flows from (used for) operating activities Comprehensive loss before tax $ (541,689) $ (551,412) $ (1,057,716) $ Items not involving cash: Amortization 39,951 48,492 127,097 Share-based payments_(note 7b) 59,100 109,705 182,107 Interest payments on lease obligations (note 5)_ 852 2,692 3,672 Changes in non-cash working capital items Trade and other receivables 280,864 58,626 452,855 Contract Assets (4,711) (23,123) (38,712) Alberta SR&ED tax credit receivable (4,758) 185,041 (4,758) Deposits and prepaid expenses 18,668 44,793 (19,565) Accounts payable and accrued liabilities (381,191) (334,830) (1,314,689) Deferred revenue (11,215) (18,356) 277,478	(937,059) 148,757 380,344 9,970 185,576 987,313 92,138 (60,528) 235,125 31,247
(544,129) (478,372) (1,392,231) Cash flows from financing activities Issuance of common shares_(note 7a) 4,875 3,000 49,625 Interest payments on lease obligations (note 5) (852) (2,692) (3,672) Principal payments on lease obligations (note 5)_ (32,643) (44,759) (102,654)	1,072,883 74,200 (9,970) (130,451)
(28,620) (44,451) (56,701) Cash flows from investing activities Purchase of property and equipment — — —	(66,221) (2,846)
Increase (decrease) in cash and cash equivalents (572,749) (522,823) (1,448,932) Cash and cash equivalents, beginning of period 3,505,011 4,751,765 4,381,194	1,003,816 3,225,126
Cash and cash equivalents, end ofperiod $ 2,932,262 $ 4,228,942 $ 2,932,262 $	4,228,942
Comprised of: Cash on hand $ 1,243,603 $ 175,694 $ 1,243,603 $ Cash equivalents 1,688,659 4,053,248 1,688,659	175,694 4,053,248
$ 2,932,262 $ 4,228,942 $ 2,932,262 $	4,228,942

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

Page 6

Acceleware Ltd.

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

1. General information

Acceleware Ltd. (the “Company” or “Acceleware”) is a clean-tech oil and gas technology company based in Calgary, Alberta. The Company is developing an enhanced heavy oil and oil sands production technology based on radio frequency (“RF”) heating that is designed to reduce the environmental impact of oil production while also reducing cost. Acceleware also specializes in the development and marketing of special purpose computational software products for the oil and gas and other markets. The Company is incorporated under the Alberta Business Corporations Act, has its registered offices at 1400, 350 - 7th Avenue SW, Calgary, Alberta, Canada, and trades on the TSX Venture Exchange under the symbol AXE.

2. Basis of presentation

(a) Statement of compliance

These condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of condensed interim financial statements, including International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”) and have been prepared following the same accounting policies and method of computation as the annual financial statements for the year ended December 31, 2019. The disclosures provided below are incremental to those included with the annual financial statements. Certain information and disclosures normally included in the notes to the annual financial statements have been condensed or have been disclosed on an annual basis only. Accordingly, these condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2019, which have been prepared in accordance with IFRS as issued by the IASB.

These financial statements were approved by the Board of Directors on November 24, 2020

(b) Functional and presentation currency

The financial statements are presented in Canadian dollars, which is the Company’s functional and presentation currency.

(c) Basis of measurement

The financial statements have been prepared on the historical cost basis except for financial instruments classified as fair value through profit or loss which are measured at fair value with changes in fair value recorded in earnings, and share-based payment transactions. The method used to measure fair values is discussed in note 4(i) and 4(k) to the annual financial statements for the year ended December 31, 2019.

(d) Significant accounting assumptions, estimates and judgements

The preparation of financial statements requires the Company’s management (“Management”) to make estimates and judgements that affect the reported amounts of assets and liabilities at the date of the financial statements. Judgement is used in situations where there is a choice or assessment required by Management. Estimates and underlying assumptions are required on an ongoing basis and revisions are recognized in the year in which such estimates are revised.

For the nine months ended September 30, 2020, the novel coronavirus (“COVID-19”) had an impact on the global economy, including the oil and gas industry. The Company has taken into account the impacts of COVID-19 and

Page 7

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

Acceleware Ltd.

2. Basis of Presentation (cont’d)

(d) Significant accounting assumptions, estimates and judgements (cont’d)

the unique circumstances it has created in making estimates, assumptions and judgements in the preparation of the unaudited interim consolidated financial statements. Actual results may differ from estimated amounts, and those differences may be material.

3. Going concern

These financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has accumulated losses amounting to $30,036,975 (December 31, 2019 - $28,979,259) largely due to investments in new product development and in the penetration of new markets. In particular, the Company invested $640,630 net of government assistance of $1,043,619 for the nine months ended September 30, 2020 (nine months ended September 30, 2019 - $485,712 net of government assistance of $945,206), in research and development, principally for the Company’s proprietary RF heating technology (“RF XL” or “RF heating”).

The Company actively manages its cash flow and investment in new products to match its cash generated from operations including government assistance. In order to maximize cash generated from operations, the Company plans to focus on high gross margin revenue streams such as software, and RF heating services; focus on selected core vertical markets; minimize operating expenses where possible; and limit capital expenditure. As the Company continues to develop its RF heating technology, new research and development investments will be financed through a combination of internal cash flow from the high-performance computing software business, government assistance and external financing. Management believes that successful execution of its business plan will result in sufficient cash flow and new financing to fund projected operational and investment requirements. However, no assurances can be given that the Company will be able to achieve all or part of the objectives discussed above, or that sufficient financing from outside sources will be available. Additionally, the full extent of the impact of COVID19 on the Company’s operations and future financial performance is currently unknown and the continued impact on capital and financial markets on a macro-scale presents uncertainty and risk with respect to the Company's performance. Further, if the Company’s operations are unable to generate cash flow levels at or above current projections, the Company may not have sufficient funds to meet its obligations over the next twelve months. Should such events occur, Management is committed to implementing all or a portion of its contingency plan. This plan has been developed and designed to provide additional cash flow, and includes, but is not limited to, deferring certain additional product development initiatives, and reducing sales, marketing and general and administrative expenses, while seeking outside financing. The failure of the Company to achieve one or all of the above items may have a material adverse impact on the Company’s financial position, results of financial performance and cash flows. These factors indicate the existence of material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon successful execution of its plans noted above. The outcome of these initiatives cannot be predicted at this time. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.

Page 8

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

Acceleware Ltd.

4. Significant accounting policies

The significant accounting policies used in the preparation of these condensed interim financial statements are unchanged from those disclosed in the Company’s financial statements for the year ended December 31, 2019.

5. Right of use assets and lease obligations

On February 29, 2012, Acceleware entered into a premise lease agreement to lease 5,244 square feet of office space commencing August 1, 2012 and ending July 31, 2017, a period of five years. Effective August 1, 2015, the lease was renegotiated and extended to July 31, 2020. The Company had negotiated an extension of the lease to September 30, 2020 on similar terms and then, effective October 1, 2020, signed a new five-year premise lease agreement for the same office space at basic monthly payments of $3,000 and ending September 30, 2025.

In addition to the basic monthly rents, the Company must pay a proportionate share of property taxes, operating costs, utilities and additional services. These payments are fixed throughout the year with an annual true up and are excluded from lease payments below.

The Company has certain computer equipment under various leases expiring 2020 through 2023. The leases carry a weighted average annual interest rate of 4.8%.

Depreciation expense for right of use computer hardware and office space assets is allocated 50% to research and development expense and 50% to general and administrative expense. For the three and nine months ended September 30, 2020, $17,008 and $53,209 respectively (September 30, 2019 – $11,266 and $36,830) of depreciation expense for computer hardware and office space right of use assets is included in each of general and administrative and research and development expense on the statements of comprehensive loss. As at September 30, 2020, the net book value of computer hardware pledged as security for lease obligations is $27,751 (December 31, 2019 - $90,223).

The following table summarizes the annual undiscounted contractual cash flows and the present value of net minimum lease payments for all lease obligations:

		September 30, 2020	December 31, 2019
2020	$	17,605$	125,360
2021		30,332	30,332
2022		2,686	2,686
2023		2,686	2,686
Minimum lease payments		53,309	161,064
Less: interest portion at a rate of 4.6% (2019–5.0%)		2,160	5,729
Net minimum leasepayments	$	51,149$	155,335

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Acceleware Ltd.

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

6. Government assistance

During the year ended December 31, 2018, the Company entered into contribution agreements with Sustainable Development Technology Canada (“SDTC”) and Emissions Reduction Alberta (“ERA”) whereby each will provide up to $5,000,000 funding for a commercial-scale test of RF XL enhanced oil recovery technology. Under the terms of the agreements, SDTC and ERA provide milestone-based funding at the beginning of a milestone. As a result of the unforeseen circumstances due to COVID-19, SDTC increased its funding level by 5% and an additional $250,000 was received in March 2020. In April 2020, ERA announced it was reducing the holdback percentage and an additional $42,169 was received as at June 30, 2020. No amounts have been received in the three months ended September 30, 2020.

Holdback amounts entitled to but not yet received are included in trade and other receivables on the statement of financial position. Funding received in excess of expenses incurred is deferred and recorded as accounts payable and accrued liabilities on the statement of financial position.

The following table outlines the amounts included in the statement of financial position:

	September 30, 2020		December 31, 2019
Government assistance included in:
Trade and other receivables $	967,244	$	1,009,413
Accountspayable and accrued liabilities $	2,879,578	$	3,678,473
A summary of government assistance amounts for the project since it began is provided			below:
Total government assistance received to September 30, 2020		$	6,011,939
Holdback amounts receivable on invoiced milestones as at September 30, 2020			967,244
Remaining amount to be received upon successful completion	of milestones,
including associated holdbacks			3,270,817
			10,250,000
Less total government assistance recognized to September 30, 2020			(4,100,770)
		$	6,149,230

Page 10

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

Acceleware Ltd.

7. Share capital and other components of shareholders’ equity

(a) Share capital

The authorized share capital of the Company consists of an unlimited number of common shares, and unlimited number of first preferred shares, of which conditions are to be determined; and an unlimited number of second preferred shares, of which conditions are to be determined.

Common shares issued	Number		Amount
Balance, December 31, 2019	104,611,670	$	22,270,968
Issued on exercise of stock options (i)	932,500		78,172
Balance, September 30, 2020	105,544,170	$	22,349,140

• i. During the nine months ended September 30, 2020, 932,500 stock options (nine months ended September 30, 2019 – 1,484,000) were exercised for cash proceeds of $49,625 (nine months ended September 30, 2019 - $74,200). Non-cash compensation charges of $28,547 (nine months ended September 30, 2019 - $59,646) were reclassified from contributed surplus to share capital on the exercise of these options.

(b) Share-based payments

At September 30, 2020, the Company had one equity-settled share-based compensation plan. The Company accounts for options granted under this plan in accordance with the fair value method of accounting for share-based compensation. The estimated fair value of the options that are ultimately expected to vest is recorded over the option’s vesting period and charged to share-based compensation expenses.

The Company’s stock option plan allows for 10,554,417 common shares to be reserved for issuance under the plan. As of September 30, 2020, there were 10,208,368 common shares reserved under options outstanding, leaving 346,049 common shares that may be reserved for issuance under the Company’s stock option plan.

On June 22, 2020, the Company granted stock options to acquire up to 200,000 common shares of the Company to certain employees and directors. The options have an exercise price of $0.135 per common share and expire on June 22, 2025. Of the 200,000 options granted, 100,000 shall vest on the first anniversary of the grant date and 100,000 shall vest on the second anniversary of the grant date.

On January 23, 2020, the Company granted stock options to acquire up to 1,462,466 common shares of the Company to certain employees, officers and directors. The options have an exercise price of $0.10 per common share and expire on January 23, 2025. Of the 1,462,466 options granted, 582,500 shall vest on the first anniversary of the grant date, 582,500 shall vest on the second anniversary of the grant date, 148,733 shall vest when the share price of the common shares of the Company closes at or above $0.125 for ten consecutive trading days, and 148,733 shall vest when the share price of the common shares of the Company closes at or above $0.15 for ten consecutive trading days.

Page 11

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

Acceleware Ltd.

7. Share capital and other components of shareholders’ equity (cont’d)

(b) Share-based payments (cont’d)

The weighted average grant date fair value of the stock options granted during 2020 was estimated to be $0.10 per option using the Black-Scholes option pricing model based on the following weighted average assumptions: expected volatility of 170%, a risk-free interest rate of 1.30%, expected dividend yield of nil%, expected forfeiture rate of 1.47% and expected life of five years. The expected volatility was determined by calculating the historical volatility of the Company’s common share price from the date of grant back to the date five years prior to the date of grant. The estimated fair value of each tranche of options not immediately vesting is amortized to share-based payments over the option vesting period on a straight-line basis. For options that had vesting conditions based on the closing price of the Company’s common shares, the vesting period was estimated using a binomial option pricing simulation based on the following weighted average assumptions: expected volatility of 171%, a risk-free interest rate of 1.43%, expected dividend yield of nil%, expected forfeiture rate of 1.6% and expected life of five years.

During the nine months ended September 30, 2019, the Company granted to certain employees, contractors, officers, and directors options to purchase a total of 3,506,066 common shares. There were 2,956,066 options granted with an exercise price of $0.13 per share and 550,000 options granted with an exercise price of $0.12 per share. Of the total options granted, 500,000 options vest one year from the date of grant and 2,525,000 options vest over two years, such that 1,262,500 of the options will vest one year from the date of grant, and 1,262,500 will vest two years from the date of grant. The remaining options vest based on the market price of the Company’s common shares, such that 240,533 options will vest when the closing market price of the Company’s common shares exceeds $0.16 for ten consecutive trading days, and 240,533 options will vest when the closing market price of the Company’s common shares exceeds $0.195 for ten consecutive trading days. All options granted expire five years from the date of grant.

The weighted average grant date fair value of the stock options granted during 2019 was estimated to be $0.128 per option using the Black-Scholes option pricing model based on the following weighted average assumptions: expected volatility of 171%, a risk-free interest rate of 1.81%, expected dividend yield of nil%, expected forfeiture rate of 1.8% and expected life of five years. The expected volatility was determined by calculating the historical volatility of the Company’s common share price from the date of grant back to the date five years prior to the date of grant. The estimated fair value of each tranche of options not immediately vesting is amortized to share-based payments over the option vesting period on a straight-line basis. For options that had vesting conditions based on the closing price of the Company’s common shares, the vesting period was estimated using a binomial option pricing simulation based on the following weighted average assumptions: expected volatility of 177%, a risk-free interest rate of 1.78%, expected dividend yield of nil%, expected forfeiture rate of 1.0% and expected life of five years.

Total share-based payment expenses for the three months ended September 30, 2020 were $43,762 relating to general and administrative (three months ended September 30, 2019 - $70,289) and $15,338 relating to research and development (three months ended September 30, 2019 - $39,416) for a total of $59,100 (three months ended September 30, 2019 - $109,705).

Page 12

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

Acceleware Ltd.

7. Share capital and other components of shareholders’ equity (cont’d)

(b) Share-based payments (cont’d)

Total share-based payment expenses for the nine months ended September 30, 2020 were $132,348 relating to general and administrative (nine months ended September 30, 2019 - $257,017) and $49,759 relating to research and development (nine months ended September 30, 2019 - $123,327) for a total of $179,079 (nine months ended September 30, 2019 - $380,344).

The changes to the number of options outstanding and their weighted average exercise price are as follows:

Number	Weighted Average Exercise Price
Balance,December 31,2019 9,866,824	$0.17
Granted 1,662,466 Expired (338,422) Forfeited (50,000) Exercised (932,500)	0.10 0.11 0.12 0.05
Balance,September 30,2020 10,208,368	$0.17

Summary of options outstanding and exercisable as at September 30, 2020 is as follows:

Exercise price outstanding Grant Date	Number outstanding Weighted average remaining contractual life (years) Weighted average exerciseprice Number exercisable
$0.10 January 23, 2020 $0.12 September 11, 2019 $0.13 January 31, 2019 $0.135 June 22, 2020 $0.15 August 30, 2016 $0.20 October 25, 2018 $0.21 February 22, 2017 $0.30 January24, 2018	1,437,466 4.31 $0.10 297,466 550,000 3.95 0.12 500,000 2,768,566 3.33 0.13 1,365,533 200,000 4.73 0.135 — 971,170 0.92 0.15 971,170 320,000 3.07 0.20 247,500 2,529,632 1.40 0.21 2,520,632 1,431,534 2.32 0.30 995,000
	10,208,368 2.58 $0.17 6,906,301

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Acceleware Ltd.

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

7. Share capital and other components of shareholders’ equity (cont’d)

• (c) Contributed surplus

Balance, December 31, 2019	$	7,855,034
Share-based payments		187,568
Options expired		(5,461)
Options exercised		(28,547)
Balance, September 30, 2020	$	8,008,594

8. Revenue

The Company sub-classifies revenue within the following components: software revenue, maintenance revenue, and services revenue. Software revenue comprises license fees charged for the use of software products licensed under fixed term or perpetual arrangements in which the fair values of PCS and/or services fees are determinable. Software revenue also includes the resale of third-party hardware as part of customized solutions, as well as sales of hardware assembled internally. Maintenance revenue primarily consists of fees charged for PCS on software products post-delivery. Services revenue consists of fees charged for technology feasibility, engineering design, training, process simulation consulting, testing, and custom software development.

		Three months	Three months	Nine months	Nine months
		ended	ended	ended	ended
		September 30,	September 30,	September 30,	September 30,
		2020	2019	2020	2019
Software	$	5,339$	18,799$	611,471$	770,284
Maintenance		124,880	175,966	213,463	492,133
Services		—	2,236	—	36,792
	$	130,219$	197,001$	824,934$	1,299,209

Services revenue

During the year ended December 31, 2018, the Company entered into a contract with a major oil sands producer related to providing data from a commercial-scale pilot project of the Company’s RF XL technology. Under the terms of the agreement, Acceleware will receive funding of up to $2,000,000 upon the achievement of certain milestones. The contract contained three performance obligations, consisting of a software license, PCS and the data.

As at September 30, 2020, the Company had contract liabilities of $750,000 (December 31, 2019 - $450,000) for amounts received in advance of providing the data. Costs of $159,143 (December 31, 2019 – $120,431) incurred to date associated with providing the data are included in contract assets.

Page 14

Acceleware Ltd.

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

8. Revenue (cont’d)

The Company operates in an international market within one reportable industry segment. Geographic revenue segmentation is as follows:

segmentation is as follows:
		Canada	USA	Total
Three months ended September 30, 2020	$	—	130,219 $	130,219
Three months ended September 30, 2019	$	18,200	178,801 $	197,001
Nine months ended September 30, 2020	$	—	824,934 $	824,934
Nine months ended September 30, 2019	$	22,675	1,276,534 $	1,299,209

The Company derived significant revenues from three major customers which exceeded 10% of total revenues for the three months ended September 30, 2020 and two major customers for the nine months ended September 30, 2020 (three and nine months ended September 30, 2019 - three). Revenue from these customers was $118,884 for the three months ended September 30, 2020 (three months ended September 30, 2019 - $153,434) and was $662,078 for the nine months ended September 30, 2020 (nine months ended September 30, 2019 - $1,214,685).

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Acceleware Ltd.

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

9. Operating segments

The Company has two operating segments, referred to as “High-Performance Computing” (“HPC”) and “RF Heating”. The operating segments are reportable segments in accordance with IFRS 8 Operating Segments. The Company‘s HPC segment sells proprietary high-performance computing software and related consulting services and training programs primarily to the oil and gas industry. The RF Heating segment is engaged in research, development, and commercialization activities related to the Company’s proprietary enhanced heavy oil and oil sands production technology.

Expenses associated with corporate support functions are allocated to the Company’s segments based on the segment’s percentage of total labour expenses for the allocation period. All intersegment transactions between the HPC and RF Heating segments have been eliminated.

For the three months ended September 30, 2020:

		RF Heating		HPC		Total
Revenue	$	—	$	130,219	$	130,219
Expenses
General and administrative		323,026		116,063		439,089
Researchand development		149,161		34,247		183,408
		472,187		150,310		622,497
(Loss) income from operations	$	(472,187)	$	(20,091)	$	(492,278)

For the three months ended September 30, 2019:

		RF Heating		HPC		Total
Revenue	$	15,925	$	181,076	$	197,001
Expenses
General and administrative		353,640		209,236		562,876
Researchand development		212,796		24,429		237,225
		566,436		233,665		800,101
(Loss) income from operations	$	(550,511)	$	(52,589)	$	(603,100)

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Acceleware Ltd.

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019

(in Canadian dollars)

9. Operating segments (cont’d)

For the nine months ended September 30, 2020

		RF Heating		HPC		Total
Revenue	$	—	$	824,934	$	824,934
Expenses
Cost of revenue		—		—		—
General and administrative		948,139		407,935		1,356,074
Researchand development		529,756		110,874		640,630
		1,477,895		518,809		1,996,704
(Loss) income from operations	$	(1,477,895)	$	306,125	$	(1,171,770)
For the nine months ended September	30,	2019
		RF Heating		HPC		Total
Revenue	$	20,400	$	1,278,809	$	1,299,209
Expenses
Cost of revenue		—		2,853		2,853
General and administrative		1,222,281		509,800		1,732,081
Researchand development		397,171		88,541		485,712
		1,619,452		601,194		2,220,646
(Loss) income from operations	$	(1,599,052)	$	677,615	$	(921,437)

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Acceleware Ltd.

Notes to Condensed Interim Financial Statements Nine Months Ended September 30, 2020 and 2019 (in Canadian dollars)

10. Related party transactions

• (a) For the three months ended September 30, 2020, the Company incurred expenses in the amount of $43,750 (three months ended September 30, 2019 - $43,750) and $131,250 for the nine months ended September 30, 2020 (nine months ended September 30, 2019 - $130,667) with a company controlled by an officer of the Company as fees for duties performed in managing operations, and this amount is included in research and development expense. As at September 30, 2020, $50,313 was included in accounts payable and accrued liabilities (December 31, 2019 - $50,082). These fees were incurred in the normal course of operations and in the opinion of Management represent fair value for services rendered.

• (b) For the three months ended September 30, 2020, the Company incurred expenses in the amount of $17,932 (three months ended September 30, 2019 - $2,253) and $ 66,350 for the nine months ended September 30, 2020 (nine months ended September 30, 2019- $23,151) with a company controlled by a director of the Company for legal fees, and this amount is included in general and administrative expense. As at September 30, 2020, $18,826 was included in accounts payable and accrued liabilities (December 31, 2019 - $158). These fees were incurred in the normal course of operations and in the opinion of Management represent fair value for services rendered.

• (c) For the three months ended September 30, 2020, the Company incurred expenses in the amount of $16,500 (three months ended September 30, 2019 - $23,750) and $49,300 for the nine months ended September 30, 2020 (nine months ended September 30, 2019 - $66,300) with a company controlled by the spouse of an officer of the Company for communications services, and this amount is included in general and administrative expense. As at September 30, 2020, $5,775 was included in accounts payable and accrued liabilities (December 31, 2019 - $5,880). These fees were incurred in the normal course of operations and in the opinion of Management represent fair value for services rendered.

• (d) Key management includes the Company’s directors and members of the executive management team. Compensation awarded to key management included:

		Three months		Three months		Nine months		Nine months
		ended		ended		ended		ended
		September		September 30,		September		September 30,
		30, 2020		2019		30, 2020		2019
Salaries and short-term
employee benefits	$	225,395	$	208,275	$	659,554	$	840,819
Share-based payments		43,955		76,159		130,683		254,371
	$	269,350	$	284,434	$	790,237	$	1,095,190

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