ACT Energy Technologies Ltd. — Annual Report 2021

Mar 15, 2022

The consolidated financial statements have been prepared by the management in accordance with International Financial Reporting Standards ("IFRS") which is the basis for Canadian generally accepted accounting principles and, where appropriate, reflect estimates based upon management's judgment. Financial information contained elsewhere in the annual report has been prepared on a consistent basis with that in the consolidated financial statements. Additionally, management prepares the Management's Discussion and Analysis ("MD&A"). The MD&A is based on the Company's financial results prepared in accordance with IFRS. The MD&A compares the audited financial results for the years ended December 31, 2021 and December 31, 2020.

Management is also responsible for a system of internal controls which is designed to provide reasonable assurance that the Company's assets are safeguarded and accounting systems provide timely, accurate financial reports.

The Audit Committee of the Board of Directors, which is comprised of three independent directors who are not employees of the Company, has reviewed in detail the consolidated financial statements with management and the external auditor. The Board of Directors has approved the consolidated financial statements on the recommendation of the Audit Committee.

KPMG LLP, an independent firm of chartered professional accountants, have examined the Company's consolidated financial statements in accordance with Canadian generally accepted auditing standards and provided an independent professional opinion. The auditors have full and unrestricted access to the Audit Committee to discuss their audit and their related findings as to the integrity of the financial reporting process.

Signed: "Tom Connors" Tom Connors President and Chief Executive Officer Cathedral Energy Services Ltd. March 10, 2022

Signed: "Ian Graham" Ian Graham Chief Financial Officer Cathedral Energy Services Ltd. March 10, 2022

INDEPENDENT AUDITORS' REPORT

To the Shareholders of Cathedral Energy Services Ltd.

Opinion

We have audited the consolidated financial statements of comprise:

which

the consolidated statements of financial position as at December 31, 2021 and December 31, 2020;

• the consolidated statements of comprehensive loss for the years then ended;

• the consolidated statements of changes in

• the consolidated statements of cash flows for the years then ended;

and notes to the consolidated financial statements, including a summary of significant accounting policies.

(Hereinafter referred to as the

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2021 and December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS) as Issued by the International Accounting Standards Board (IASB).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under Auditors Responsibilities for the Audit of the Financial Statements of our auditors report.

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2021. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matter described belo

Description of the matter

financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. The assess

would indicate that the directional drilling CGU and specifically the non-financial assets within the CGU, are impaired. These factors include future cash flows, expected industry activity levels, commodity price developments and market capitalization. As at December 31, 2021, management determined no indicators of impairment existed for the directional drilling CGU

Why the matter is a key audit matter

We identified the assessment of indicators of impairment for the directional drilling CGU as a key audit matter. Significant s of impairment analysis

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following

• comparing internal and external factors, including expected industry activity levels and commodity price developments analyzed by the Company to relevant external market data or internal source documents

• nsidering the impact of changes in

• conditions and events affecting the CGU

indicator analysis.

Other Information

other information. Other information comprises:

• Securities Commissions.

• hereon, included in a document

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

the financial statements other information, we conclude that there is a material misstatement of this other information, we are required to report that

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional scepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represents the underlying transactions and events in a manner that achieves fair presentation.

• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

• Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit about the matter or when, in extremely rare circumstances, we determine that a matter should not be expected to outweigh the public interest benefits of such communication.

The engagement partner o

Signed

Chartered Professional Accountants Calgary, Canada March 14, 2022

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31, 2021 and 2020

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2021 2020
Assets
Current assets:
Cash (note 6) $ 2,898 $ 1,034
Trade receivables (note 7) 15,609 4,784
Prepaid expenses 1,438 709
Inventories (note 8) 8,423 8,118
Total current assets 28,368 14,645
Equipment (note 9) 35,044 35,620
Intangible assets (note 10) 1,491 2,244
Right of use assets (note 11) 10,520 11,771
Total non-current assets 47,055 49,635
Total assets $ 75,423 $ 64,280
Liabilities and Shareholders' Equity
Current liabilities:
Trade and other payables (note 12) 11,069 4,425
Current taxes payable 55 140
Loans and borrow ings, current (note 13) 1,000 -
Lease liabilities, current (note 11) 2,127 2,247
Liability for settlements, current - 153
Total current liabilities 14,251 6,965
Loans and borrow ings (note 13) 5,035 1,560
Lease liabilities, long-term (note 11) 13,633 15,781
Total non-current liabilities 18,668 17,341
Total liabilities 32,919 24,306
Shareholders' equity:
Share capital (note 14) 98,918 88,155
Contributed surplus 11,793 11,071
Accumulated other comprehensive income 9,011 9,340
Deficit (77,218) (68,592)
Total shareholders' equity 42,504 39,974
Total liabilities and shareholders' equity $ 75,423 $ 64,280
See accompanying notes to consolidated financial statements.
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Approved by the Directors:

Signed : "Tom Connors" Signed : "Rod Maxwell" Tom Connors Rod Maxwell Director Director

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Years ended December 31, 2021 and 2020

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2021 2020
Revenues (note 20) $ 62,524 $ 40,574
Cost of sales (notes 8 and 16):
Direct costs (51,465) (35,705)
Depreciation (12,372) (14,996)
Share-based compensation (89) (63)
Total cost of sales (63,926) (50,764)
Gross margin (1,402) (10,190)
Selling, general and administrative expenses (note 16):
Direct costs (8,372) (8,179)
Depreciation (535) (572)
Share-based compensation (152) (144)
Total selling, general and administrative expenses (9,059) (8,895)
Technology group expenses (note 16) (747) (952)
Gain on disposal of equipment 2,681 1,680
Loss from operating activities (8,527) (18,357)
Finance costs (196) (291)
Finance costs lease liabilities (794) (918)
Foreign exchange gain (note 17) 277 971
Reversals of impairments (impairments and direct w rite-dow ns) (note 8, 9, 10 and 11) 614 (6,822)
Loss before income taxes (8,626) (25,417)
Income tax recovery (expense) (note 18):
Current - 333
-
Derecognition of deferred tax asset (2,647)
-
Total income tax expense (2,314)
Loss (8,626) (27,731)
Other comprehensive income (loss):
Foreign currency translation differences for foreign operations (329) (594)
Total comprehensive loss $ (8,955) $ (28,325)
Loss per share (note 15)
Basic $ (0.13) $ (0.56)
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See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Years ended December 31, 2021 and 2020

	Accumulated
	other	Retained	Total
Contributed	comprehensive	earnings	shareholders'
Share capital surplus	income	(deficit)	equity
Balance at December 31, 2019 88,155 $ 10,864 $ Total comprehensive loss for year ended December 31, 2020 - - Share-based compensation - 207	9,934 $ (594) -	(40,861) $ (27,731) -	68,092 $ (28,325) 207
Balance at December 31, 2020 88,155 $ 11,071 $ Total comprehensive loss for year ended December 31, 2021 - - Issue of shares on private placement 3,342 34 Issue of shares on business acquisition 5,896 454 Issue of shares on asset acquisition 1,500 Issue of shares from option exercise 25 (7) Share-based compensation - 241	9,340 $ (329) - -	(68,592) $ (8,626) - -	39,974 $ (8,955) 3,376 6,350 1,500 18 241
Balance at December 31, 2021 98,918 $ 11,793 $	9,011 $	(77,218) $	42,504 $

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2021 and 2020

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2021 2020
Cash provided by (used in):
Operating activities:
Loss $ (8,626) $ (27,731)
Items not involving cash
Depreciation 12,907 15,568
Share-based compensation 241 207
Income tax (recovery) expense - 2,314
Gain on disposal of equipment (2,681) (1,680)
Finance costs 196 291
Finance costs lease liabilities 794 918
(Reversals of impairments) impairments and direct w rite-dow ns (614) 6,822
Unrealized foreign exchange gain on intercompany balances (366) (929)
Cash flow - continuing operations 1,851 (4,220)
Changes in non-cash operating w orking capital (note 19) (5,263) 5,343
Income taxes refunded (paid) (87) 68
Cash flow - operating activities (3,499) 1,191
Investing activities:
Equipment additions (5,617) (2,474)
-
Intangible asset additions (251)
Cash received related to acquisition (note 5) 3,000 -
Proceeds on disposal of equipment 3,553 2,603
Changes in non-cash investing w orking capital (note 19) (59) 768
Cash flow - investing activities 877 646
Financing activities:
Proceeds on share issue 3,394 -
Repayments on lease liabilities (2,234) (2,110)
Interest paid including lease liabilities (990) (1,209)
Repayments of loans and borrow ings (3,924) (5,386)
Advances on loans and borrow ings 8,399 946
Payment on settlements (151) (173)
Cash flow - financing activities 4,494 (7,932)
Effect of exchange rate on changes on cash (8) (94)
Change in cash 1,864 (6,189)
Cash, beginning of year 1,034 7,223
Cash, end of year $ 2,898 $ 1,034
See accompanying notes to consolidated financial statements.
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Years ended December 31, 2021 and 2020

and per option amounts

1. Reporting entity

Cathedral Energy Services Ltd. (the or ) is a company domiciled in Canada. The Company is a publicly traded company listed on the Toronto Stock Exchange under symbol "CET". The consolidated financial statements of the Company as at and for the year ended December 31, 2021

is incorporated in the United States of America ("U.S.") and its functional currency is U.S. dollars ("USD").

The Company and INC are primarily involved and engaged in the business of providing directional drilling services to oil and natural gas companies in western Canada and the U.S.

2. Basis of preparation

• (a) Statement of compliance

The consolidated financial statements have been prepared in accordance with are defined as International Financial Reporting Standards ("IFRS") as issued by the International Acco . The consolidated financial statements were authorized for issue by the Board of Directors on March xx, 2022.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis.

(c) Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars ("CAD") presentation and functional currency. All financial information presented in dollars has been rounded to the nearest thousand except for per share amounts.

(d) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with GAAP requires management 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 accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

In March 2020, the World Health Organization declared a global pandemic due to COVID-19. COVID-19 had a significant impact on global markets from that point to present. As the situation continues to evolve, the magnitude of its impact on the economy, commodity prices, drilling activity remains uncertain at this time.

All of tion, results of operations, cash flows, and ability to collect on accounts receivable and future impairments of Company assets. There also may be negative impact on supply chain, availability and costs related to personnel, market pricing and customer demand. These factors may impact the Company's profitability, liquidity and cash flows.

Areas that require management to make significant judgment and estimates in determining the amounts recognized in these consolidated financial statements include, but are not limited to the following:

Judgments

(i) Current and deferred income taxes

The Company must make determinations on whether to record amounts for various tax pools it has available for future use. In making this determination, the Company looks at future expectations to determine what amounts, if any, can be recognized. The Company also reviews all tax assessments to determine which assessments it concurs with and will record in its records and which assessments it disputes and which it expects to be changed. If the Company believes it is more likely than not that the assessment was incorrect, it does not make a provision for a liability in its accounts. As such, the provisions for current and deferred income taxes are subject to measurement uncertainty.

(ii) Recognition of contingent liabilities

The determination if a contingent liability requires an accrual in the financial statements or only requires disclosure is an area that requires significant judgment. In making this determination, management reviews the specific details of the contingency and may seek professional help if the matter is of sufficient complexity. For items not recorded as contingent liabilities, there is also a determination required if the amount of claim would be material, as only material amounts are disclosed in financial statements. As at December 31, 2021, the Company had no material unaccrued contingent liabilities.

Estimates

(i) Equipment

The Company makes estimates about the residual value and expected useful life of equipment. These estimates are impacted by estimates for usage, technology changes, customer requirements and other factors. industry norms. Expected useful life and depreciation rates are as disclosed in note 3 (d) (iii).

(ii) Impairment of assets

Equipment and intangibles are assessed for impairment when circumstances suggest that the carrying amount may exceed the recoverable amount for the asset. Significant judgement is required to assess when indicators of impairment exist, and impairment testing is required. The assessment of indicators of

-financial assets within the CGU, are impaired. These factors include future cash flows, expected industry activity levels, commodity price developments and market capitalization. The determination of the recoverable amount of the CGU requires estimates and assumptions that are subject to change as new information becomes available. These include estimates of future cash flows, growth rates, pre-tax discount rates as well as various estimates and assumptions used in the preparation of revenues and expenses used in

smallest group of assets that generate cash inflows independently of other assets.

Trade accounts receivable require estimates to be ma

they operate in order to assess if accounts receivable balances will be received. Credit risks for outstanding accounts receivable are assessed regularly and an allowance for doubtful accounts is recorded based upon specific customer information and experience as well as for groups of similar assets. See note 24

Inventory is reviewed periodically in order to determine if there is obsolescence. estimates of future demand.

(iii) Income taxes

The Company uses the asset and liability method of accounting for future income taxes whereby deferred income tax assets and liabilities are determined based on temporary differences between the accounting basis and the tax basis of the assets and liabilities, and are measured using substantively enacted tax rates and laws expected to apply when these differences reverse. As a result, a projection of taxable income is required for those years, as well as an assumption of the ultimate recovery/settlement period for the temporary differences.

The business and operations of the Company are complex and the Company has executed a number of significant financings, reorganizations, acquisitions and other material transactions over the course of its history. The computation of income taxes payable resulting from these transactions involves many complex factors as well as the Company's interpretation of relevant tax legislation and regulations. The Company's management believes that the provision for income tax is adequate and in accordance with GAAP and applicable legislation and regulations. However, tax-filing positions are subject to review by taxation authorities who may successfully challenge the Company's interpretation of the applicable tax legislation and regulations.

(iv) Liquidity

As part of its capital management process, the Company prepares a forecast / budget. Management and the board of directors use the forecast / budget to direct and monitor the strategy and ongoing operations and liquidity of the Company. Forecasts / budgets are subject to significant judgment and estimates relating to activity levels, future cash flows and the timing thereof and other factors which may or may not be within the control of the Company. See further discussions relating to liquidity in notes 2, 14 and 24.

3. Significant accounting policies

The accounting policies set out below have been applied consistently by the Company to all periods presented in these consolidated financial statements unless otherwise indicated.

(a) Basis of consolidation

Business combinations are accounted for using the acquisition method of accounting in which the identifiable assets acquired, liabilities assumed and any non-controlling interest are recognized and measured at their fair value at the date of acquisition. Any excess of the purchase price plus any noncontrolling interest over the fair value of the net assets acquired is recognized as goodwill. Any deficiency of the purchase price over the fair value of the net assets acquired is credited to net earnings.

At acquisition, goodwill is allocated to each of the CGUs to which it relates. Subsequent measurement of goodwill is at cost less any accumulated impairment losses.

(i) Subsidiaries

Subsidiaries are entities controlled by Cathedral. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries align with the policies adopted by Cathedral.

(ii) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income, expenses, gains or losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

• (b) Foreign currency

(i) Foreign currency transactions

All transactions that are not denominated in an entity's functional currency are foreign currency transactions. These transactions are initially recorded in the functional currency by applying the appropriate daily rate which best approximates the actual rate of transaction.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. All differences are recognized in the consolidated statement of comprehensive income.

Non-monetary items are not adjusted and continue to be measured at the exchange rate at the date of the transaction.

(ii) Foreign operations

The assets and liabilities of foreign operations are translated to CAD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to CAD at exchange rates at the dates of the transactions.

Foreign currency differences are recognized in other comprehensive income and have been recognized in accumulated other comprehensive umulative translation account) is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

• (c) Financial instruments

• (i) Financial assets Initial recognition and measurement

Financial assets within the scope of IFRS 9 are classified as financial assets at amortized cost, fair value through profit or loss or fair value through other comprehensive income, as appropriate. The Company determines the classification of its financial assets at initial recognition, based on trade date. All fi

receivables. All financial assets are measured at amortized cost.

Subsequent measurement

Financial assets at fair value through profit or loss

The Company has no financial assets at fair value through profit or loss.

Financial assets carried at amortized cost

For financial assets carried at amortized cost, the Company applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. Trade receivables are written off when there is no reasonable expectation of recovery.

(ii) Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss or at amortized cost. The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value include operating loan, trade and other payables, leases liability loans and borrowings and provision for settlement. All financial liabilities are measured at amortized cost.

Subsequent measurement

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate ("EIR") method. Gains and losses are recognized in the consolidated statements of earnings when the liabilities are derecognized as well as through the EIR method amortization process. The EIR amortization is included in interest expense in the consolidated statements of earnings.

Derecognition and modification

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of earnings.

(iii) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statements of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

• (d) Equipment

(i) Recognition and measurement

Items of equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets.

Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment.

Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount of equipment, and are recognized net within other income in profit or loss.

(ii) Subsequent costs

The cost of replacing a part of an item of equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to Cathedral, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of equipment (repair and maintenance) are recognized in profit or loss as incurred.

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognized in profit or loss on either a straight-line or declining balance basis over the estimated useful lives of each part of an item of equipment.

Items of equipment are depreciated from the date that they are installed and are available for use, or in respect of internally constructed assets, from the date that the asset is completed and available for use.

The estimated useful lives, depreciation rates and depreciation methods for the current and comparative periods are as follows:

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|||||
|---|---|---|---|
|Estimated life in years|Depreciation rates|Depreciation method|
|Directional drilling equipment|5 to 8|25 to 37.5%|Declining balance|
|Office and computer equipment|3.0 to 11.5|20 to 55%|Declining balance|
|Automotive equipment|8 to 11.5|20 to 30%|Declining balance|
|Leasehold improvements|5|20%|Straight-line|

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Depreciation methods, useful lives and residual values are reviewed at each year and adjusted if appropriate.

(e) Intangible assets

(i) Internally generated intangible asset - Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and Cathedral intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets. Other development expenditure is recognized in profit or loss as incurred.

Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses.

(ii) Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

(iii) Amortization

Amortization is calculated on the cost of the asset less its residual value.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful life for capitalized development costs is 5 years.

Amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

(f) Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the average cost principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

• (g) Impairment

(i) Financial assets (including receivables)

A financial asset other than those carried at fair value through profit or loss is assessed for indicators of impairment at each reporting date. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be reliably estimated.

Trade receivables are recognized and carried at original invoice amount less an allowance for any amounts estimated to be uncollectible. The Company calculates an expected credit loss based on historical experience of bad debts and specific provisions created when there is objective evidence that the collection of the full amount of a receivable is no longer probable under the terms of the original invoice. The amount of this allowance represents management's best estimate of expected credit losses. Trade receivables are derecognized when they are assessed as uncollectible.

(ii) Non-financial assets

The carrying amounts of Cathedral

-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to or cash generating unit's recoverable amount

is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of -generating unit", or " acquired in a business combination is allocated to CGUs that are expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes.

Cathedral here is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change

carrying amount does

not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

• (h) Employee benefits

(i) Termination benefits

Termination benefits are recognized as an expense when Cathedral is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan either to terminate employment before the normal retirement date, or to provide termination benefits because of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if Cathedral has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(ii) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if Cathedral has a present legal or constructive obligation to pay this amount because of past service provided by the employee, and the obligation can be estimated reliably.

(iii) Share-based payment transactions equity settled

The grant date fair value of share-based payment awards granted to employees, directors and consultants is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards (vesting period). The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

Share-based payment arrangements in which Cathedral receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions.

(i) Revenue

The Company provides directional drilling services. Revenue is recognized when a customer obtains control of the good or services. Determining the timing of the transfer of control (at a point in time or over time) requires judgement. Revenue for these services are recognized over time based on drilling days. Invoices are generated at the end of the job and are due based on the Master Service Agreement with client or Cathedral's signed Terms and Conditions, generally in 30 or 60 days. Cathedral

fixed or determinable prices based upon daily, hourly or job rates.

(j) Government grants

The Company applied IAS 20 "Accounting for Government Grants and Disclosure of Government assistance" in relation to receiving the Canadian Emergency Wage Subsidy ("CEWS"), the Canadian Emergency Rent Subsidy ("CERS") and forgiveness of the U.S. Paycheck Protection Program ("PPP") loan. Government assistance is recognized only when there is reasonable assurance that the Company will comply with any conditions attached to the grant and the grant will be received. The amounts are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes the expenses for the related costs for which the grants are intended to compensate. The Company has elected to present these amounts net of the related expense (note 16).

(k) Finance income and costs

Finance costs comprise interest expense on borrowings, bank charges and other interest and foreign exchange gains or losses. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis.

(l) Leases

(i) Lessee

At the inception of a contract, the Company assesses whether a contract is or contains a lease. The Company then determines if the Company has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use and that, the Company has the right to direct the use of the identified assets. The term of the lease is defined as the non-cancellable period of the lease, plus periods in which there is reasonable certainty that the Company will exercise and option to extend or to cancel the lease.

When a lease is identified, a right of use asset and a lease liability are recognized at the present value of the lease payments discounted using the interest rate implicit in the lease or if that rate is not determinable at the Company's incremental rate of borrowing. Payments on the lease have a finance cost component, which are reported on the consolidated statement of comprehensive income, and a liability repayment portion.

The initial cost of right of use assets are adjusted for any lease incentives received and any initial direct costs. Right of use assets are depreciated over the shorter of the lease term or the useful life of the assets. Right of use assets are presented net of accumulated depreciation and impairment losses.

• (ii) Lessor

Leases, including subleases, which transfer substantially all the risks and benefits of ownership of the property to the lessee are accounted for as finance leases, while all other leases are accounted for as operating leases.

Finance leases are recorded as a net investment in a finance lease. The present value of minimum lease receivable under such arrangements are recorded as an investment in finance lease and the finance income is recognized in a manner that produces a consistent rate of return on the investment in the finance lease and is included in revenue.

Operating lease and sublease income is recognized in the consolidated statement of comprehensive income as it is earned over the term of the lease.

(m) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

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

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable income will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. However, as the Company's Canadian entity has a history of recent tax losses, the Company only recognizes deferred tax assets to the extent that there is convincing other evidence that sufficient taxable income will be available to realize the tax pools.

(n) Earnings per share

Cathedral presents basic and diluted earnings per share ("EPS") data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for own shares held, for the effects of all dilutive potential common shares, which comprise share options granted to employees, directors and consultants.

4. Determination of fair values

A number of Cathedral accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Currently all amounts are recognized at their amortized cost. Fair values would be determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(a) Trade receivables

The fair value of trade receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.

(b) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

(c) Share-based payment transactions

The fair value of the employee share options is measured using the Black-Scholes option-pricing model. Measurement inputs include the share price on measurement date, the exercise price of the instrument, the expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), the weighted average expected life of the instruments (based on historical experience and general option holder behavior), the expected dividends, forfeiture rate per annum and the risk-free interest rate (based on government bonds). Service and non-market performance conditions are not taken into account in determining fair value.

5. Acquisitions

On July 23, 2021, the Company announced acquisition of Precision Drilling Corporation's ("Precision") directional drilling for a purchase price of $6,350. The Transaction includes the drilling business (including its operations facility in Nisku, Alberta which the Company intends to resell), and a $3,000 cash from Precision to support growth and expansion of Cathedral, including continuing the buildout of RapidFire[TM] measurement-while-drilling guidance systems and nDurance[TM] drilling motors. Additionally, the Transaction is expected to enhance margins as expenses related to rental equipment used by Precision are replaced with proprietary Cathedral tools.

Cathedral issued

of Cathedral at a price of $0.60 per common share within a two-year period after closing. In addition to a 4-month statutory hold period on the Consideration Shares, the parties have agreed to contractual restrictions on resale as follows: 25% of the Consideration Shares are restricted until January 22, 2022; a further 25% of the Consideration Shares are restricted until July 22, 2022; and a further 50% of the Consideration Shares are restricted until July 22, 2023, subject to certain exceptions.

The Company allocated the $6,350 purchase as follows:

• Cash $3,000

• Land and building $1,500; and

• Equipment $1,850.

The Company expensed $139 in costs related to the Transaction. As the acquired assets were integrated into Cathedral's existing directional drilling operations it is impracticable to breakout the revenue and profit or loss of the acquired assets since the acquisition.

In addition, on September 7, 2021 the Company

Alberta-based directional drilling company, for a purchase price of $1,500 and allocated $1,485 to equipment and $15 to inventory related to service of those tools. The purchase price was satisfied through the issuance of 3,464,204 common shares of Cathedral to Valiant. These shares are subject to a 4-month statutory hold period. The Company expensed $41 in costs related to this acquisition. The principal owner of Valiant, Mr. Vaugn Spengler, entered into a long-term performance-based agreement to remain with Cathedral and will continue to focus on opportunities to support and expand the existing customer base.

6. Cash

T cash consists of balances in accounts with financial institutions. This balance does not include any term deposits and temporary investments or overdrafts.

7. Trade receivables

nd receivables. The ed in note 24.

8. Inventories

and consumables. There are no finished goods inventories. For the year ended December 31, 2021, raw materials and consumables recognized as cost of sales were $5,966 (2020 - $4,288). At December 31, 2021, a review of expected demand for inventory balances to be used in equipment repairs was conducted and a write-down of $154 (2020 - $377) on inventory was recognized.

9. Equipment

		Effects of
Balance		movements in	Balance
December 31	Write-off fully	exchange	December 31
Cost 2019	Additions depreciated	Disposals rates	2020
Directional Drilling equipment 139,754 $ Automotive equipment 1,652 Office and computer equipment 811 Leasehold improvements 428	2,413 $ (67,094) $ 23 - 26 (90) 12 -	(2,990) $ (67) $ (896) (137) (47) 1 - (2)	72,016 $ 642 701 438
Total 142,645 $	2,474 $ (67,184) $	(3,933) $ (205) $	73,797 $

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Effects of
Balance movements in Balance
December 31 Write-off fully exchange December 31
Accumulated depreciation 2019 Additions depreciated Disposals rates 2020
Directional Drilling equipment $ 93,758 $ 12,551 $ (67,094) $ (2,134) $ (53) $ 37,028
Automotive equipment 1,356 77 - (832) (140) 461
Office and computer equipment 267 155 (90) (43) 1 290
Leasehold improvements 382 17 - - (1) 398
Total $ 95,763 $ 12,800 $ (67,184) $ (3,009) $ (193) $ 38,177
Effects of
Balance movements in Balance
December 31 exchange December 31
Cost 2020 Additions Disposals rates 2021
Directional Drilling equipment $ 72,016 $ 8,830 $ (4,058) $ (48) $ 76,740
Automotive equipment 642 107 (109) 1 641
Office and computer equipment 701 15 (8) - 708
Leasehold improvements 438 - - - 438
Land and building - 1,500 - - 1,500
Total $ 73,797 $ 10,452 $ (4,175) $ (47) $ 80,027
Effects of
Balance movements in Balance
December 31 exchange December 31
Accumulated depreciation 2020 Additions Disposals rates 2021
Directional Drilling equipment $ 37,028 $ 9,959 $ (3,190) $ (33) $ 43,764
Automotive equipment 461 73 (106) (3) 425
Office and computer equipment 290 97 (8) - 379
Leasehold improvements 398 17 - - 415
Total $ 38,177 $ 10,146 $ (3,304) $ (36) $ 44,983
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Net book values		2021		2020
Directional Drilling equipment	$	32,976	$	34,988
Automotive equipment		216		181
Office and computer equipment		329		411
Leasehold improvements		23		40
Land and building		1,500		-
Total	$	35,044	$	35,620

Review for impairment and direct write-offs

The Company assesses whether there are any external and internal indicators of impairment that exist for

indicators of

impairment existed.

In the prior year, the Company determined that sufficient impairment indicators existed directional drilling CGU. As a result, the Company recorded impairment / write-downs totaling $6,285 associated with certain right-of-use assets (see note 11) that were determined to be no longer in use during the year ended December 31, 2020. Additionally, there were write-downs of intangible assets (see note 10) totaling $160 related to projects in progress where there was uncertainty related to the ultimate commercialization of the project in a reasonable time frame.

The recoverable amount of the CGU was determined using a discounted cash flow model based on value-in-use. This was higher than the fair value less costs to sell model. Inherent in the value in use approach there are key assumptions that are subjective and represent reasonable estimates with respect to factors affecting operations. These assumptions are sensitive to change and could affect fair value. The discount rate used to calculate the net der the nature of the imates of pricing, activity levels, costs to maintain equipment and a pre tax discount rate of 17% per annum. A terminal value was used based on the annual growth rate of 2% for future cash

• The most sensitive inputs to the value in use model at December 31, 2020 were the discount rate and the U.S. revenue growth rates: A 0.5% increase in the discount rate would have resulted in an impairment of $2,700; and

• A 1% decrease to U.S. activity growth in each of 2021 and 2022 would have resulted in an impairment of $900.

10. Intangible assets

materials and wages related to equipment development and improvement. The Company reviews the accumulated costs at least quarterly. The 2021 internally developed additions contain $nil of technology group wages related to new product development (2020 - $251).

In 2020 write-downs of $160 were recorded on intangible projects in progress where there was uncertainty related to commercialization of the project within a reasonable time frame.

		2021		2020
Cost
Balance at January 1	$	3,763	$	4,138
Internally developed additions		-		251
Write-off fully amortized		-		(466)
Direct w rite-dow ns		-		(160)
Balance at end of year	$	3,763	$	3,763
Accumulated amortization Balance at January 1 Amortization for year Write-off fully amortized	$	1,519 753 -	$	1,119 866 (466)
Balance at end of year	$	2,272	$	1,519
Net carrying value at end of year	$	1,491	$	2,244
11. Right of use assets and lease liabilities
Right of use assets - Real property		2021		2020
Balance, beginning of year Impairments and direct w rite-dow ns (note 9) Reversal of impairments Amortization Effects of movements in exchange rates	$	11,771 - 768 (2,007) (12)	$	19,590 (6,834) 549 (1,848) 314
Balance, end of year	$	10,520	$	11,771

In 2020 Q3, the Company entered into a sublease for one of its properties and in 2021 Q2, the Company entered into a sublease on another property that went into effect in 2021 Q3. These subleases expire in April 2023 and June 2023 respectively and as neither transfers substantially all the risks and benefits of ownership of the property to the lessee, these subleases are treated as operating leases. In 2021 a recovery of $768 was recorded

(2020 - $549) based upon the discounted value of expected sublease payments.

Lease liabilities

Lease liabilities
Lease liabilities					Real
		Vehicles			Property		2020
Balance, December 31, 2019	$		31	$	20,231	$	20,262
Lease buy-outs			(2)		-		(2)
Interest			5		913		918
Payments		(16)			(2,998)		(3,014)
Effects of movements in exchange rates			(1)		(135)		(136)
Balance, December 31, 2020 Less current portion	$	17 (17)		$	18,011 (2,230)	$	18,028 (2,247)
Lease liabilities, long-term	$	-		$	15,781	$	15,781
Lease liabilities					Real
		Vehicles			Property		2021
Balance, December 31, 2020	$	17		$	18,011	$	18,028
Lease buy-outs			(2)		-		(2)
Interest		-			794		794
Payments			(8)		(3,020)		(3,028)
Effects of movements in exchange rates		-			(32)		(32)
Balance, December 31, 2021 Less current portion	$		7 (7)	$	15,753 (2,120)	$	15,760 (2,127)
Lease liabilities, long-term	$	-		$	13,633	$	13,633

The maturity analysis of the undiscounted contractual balances of the lease liabilities is as follows:

In one year or less	$	2,820
In more than one year, but not more than five years		10,387
In more than five years		5,299
Total	$	18,506

12. Trade and other payables

12. Trade and other payables
											2021		2020
Trade payables										$	10,473	$	3,118
Accrued payables											596		1,307
Total										$	11,069	$	4,425
										note 24.

13. Loans and borrowings

Bank facility

The Company's bank credit facility (the "Facility") consists of a $12,000 extendible revolving credit facility with a single lender which was amended and extended in 2021 Q2 to expire June 30, 2023. The Facility is secured by a general security agreement over all present and future personal property. The . The Facility 1.75% to 3 3.00% to 4.25% with interest payable monthly. Interest rate spreads for the Facility depend on the level of funded debt compared to the 12 month trailing Credit Agreement EBITDA. The Facility provides a means to lock in a portion of the debt at interest rates through bankers' acceptances spread on the date the BA was entered into.

In June 2021, the Company amended and extended its Facility. Commencing with and ending with the f the definition of Credit Agreement EBITDA will be based on pro-rating Credit Agreement EBITDA to a 12. The calculations are as follows:

• For the fiscal period ending 2021 Q3, the Credit Agreement EBITDA is the calculated amount for the 3 months of 2021 Q3 times four; nths of

• 2021 Q3 plus the 3 months of 2021 Q4 times two;

• For the fiscal period ending 2022 Q1, the Credit Agreement EBITDA is the calculated amount for the 3 months of 2021 Q3 plus the 3 months of 2021 Q4 plus the 3 months of 2022 Q1 divided by 3 and then times 4;

• During the Consolidated EBITDA Annualization Period, the Facility will bear interest at the maximum rates for the ranges noted;

• The Company, at its one-time option, can choose to exit the Consolidated EBITDA Annualization Period and revert back to the original definition of Credit Agreement EBITDA and the Facility will bear interest at the applicable rates. For the fiscal period ending June 30, 2022 , the Credit Agreement EBITDA will revert back to the trailing 12-month calculation.

The Facility also features the following amendments:

There is no cap in place and the Company has access to the full $12,000 Facility;

• Aggregate capital expenditures (excluding non-cash utilization of existing inventory) for the fiscal year ended December 31, 2021, are not to exceed $9,000; and

will no longer be tested after 2021 Q2.

The financial covenants associated with the Facility that will be tested commencing 2021 Q3 are:

• Consolidated funded debt to consolidated Credit Agreement EBITDA ratio shall not exceed 3.0:1; and

• Consolidated Credit Agreement EBITDA to consolidated interest ratio shall not be less than 2.5:1.

Compliance with Facility covenants

At December 31, 2021, the Company had drawn $5,035 of its bank facility and had $2,898 in cash. The Company was in compliance with all covenants at December 31, 2021.

Subsequent to year end, the Company amended its credit facility as described in note 23.

Current facility - Highly Affected Sectors Credit

In conjunction with the credit amendment and extension referenced above in June 2021, the Company applied for and received a further $1,000 of liquidity from HASCAP. The incremental $1,000 non-revolving loan is fully drawn and is in addition to ,000 Facility. The demand loan has an interest rate of 4% and is amortized over a ten-year period. Repayment terms are interest only for the first year, and principal plus interest for the remaining nine years, payable on a monthly basis. The HASCAP Loan is secured by a general security interest over all present and after acquired personal property of the Company granted in favour of ATB.

Paycheck Protection Program

On May 8, 2020, Cathedral received approval of an application for a of $750 USD. The proceeds were The loan proceeds were forgiven accordance with certain U.S. Treasury guidelines. At September 30, 2020, the Company recognized a reduction in cost of sales and SGA wages in the amount of $750 USD.

14. Share capital

Authorized: An unlimited number of common shares and an unlimited number of preferred shares (issuable in series).

Common shares issued:

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2021 2020
Number Amount Number Amount
Issued, beginning of period 49,468,117 $ 88,155 49,468,117 $ 88,155
Issued on private placement 13,804,500 3,342 - -
Issue of shares on business acquisition 13,400,000 5,896 - -
Issue of shares on assets acquisition 3,464,204 1,500 - -
Issued on exercise of options 63,332 25 - -
Issued, end of period 80,200,153 $ 98,918 49,468,117 $ 88,155
----- End of picture text -----

Issuance of common shares

Cathedral entered into a non-brokered private placement of 500,000 units with its new President, CEO and Director, at a subscription price of $0.20 per unit for a subscription amount of $100. Each unit consists of one Cathedral common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at an exercise price of $0.24 per common share for a period of three years from the closing date of the private placement which was February 8, 2021.

In addition, Cathedral issued 650,000 units to its new President, CEO and Director at a subscription price of $0.20 per unit, using a loan provided by Cathedral on commercial terms of $130. Each unit consists of one common share and one-half of one warrant. Each whole warrant entitles the holder to purchase one common share at an exercise price of $0.24 per common share for a period of three years from the closing date of the private placement which was February 8, 2021.

12,654,500 shares were issued on May 31, 2021 on a Bought Deal. Shares were issued at $0.25 per share. There were $16 in share issue costs that have been deducted against the gross proceeds of $3,162.

13,400,000 shares were issued July 22, 2021 related to the Precision Transaction. The shares were issued at $0.44 per share. As this is accounted for as a business combination, there are no issue costs deducted against the proceeds.

3,464,204 shares were issued September 7, 2021 related to the Valiant asset acquisition. The shares were issued at $0.43 per share. There are no issue costs deducted against the proceeds.

63,332 common shares were issued as a result of the exercise of vested options. Options were exercised at an average strike price of $0.29 per option. All issued shares are fully paid.

Issuance of share options

The Company's share-based compensation plan is a "rolling number" type option plan which provides that the number of authorized but unissued common shares that may be subject to options granted under the share option plan at any time can be up to 10% of the number of common shares outstanding from time to time.

Under the plan, the exercise price of each option at the date of issuance equals the volume adjusted weighted average trading value of the Company's common shares for the five days prior to the grant and have a maximum term of three years. Options vest over a period of two years.

A summary of the status of the Company's equity-based compensation plan as at December 31, 2021 and 2020, and changes during the years then

ended is presented below:

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2021 2020
Weighted Weighted
average average
Number exercise price Number exercise price
Outstanding, beginning of year 2,552,600 $ 0.41 3,758,500 $ 0.82
Granted 5,053,400 0.40 887,600 0.12
Exercised (63,332) 0.29 - -
Expired or forfeited (881,968) 0.80 (2,093,500) 1.03
Outstanding, end of year 6,660,700 $ 0.35 2,552,600 $ 0.41
Exercisable, end of year 1,271,365 $ 0.26 1,041,300 $ 0.73
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The range of exercise prices for the options outstanding at December 31, 2021 is as follows:

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|||||||
|---|---|---|---|---|---|
|Total outstanding options|Exercisable|
|Weighted|
|Weighted average|average remaining|Weighted average|
|Exercise price range|Number|exercise price|life (in years)|Number|exercise price|
|$0.11 to $0.20|1,427,100|$ 0.15|1.92|274,365|$ 0.12|
|$0.21 to $0.30|1,832,000|0.28|1.37|997,000|0.29|
|$0.31 to $0.40|450,000|0.31|2.40|-|-|
|$0.41 to $0.50|2,951,600|0.50|2.63|-|-|
|$0.12 to $0.50 total|6,660,700|$ 0.35|2.12|1,271,365|$ 0.26|

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During the year ended 2021, the Company granted the following options:

• 600,000 stock options were granted to the new President, CEO and Director, with an exercise price or $0.18 per option which will expire February 8, 2024;

• 335,000 were granted to other employees at an exercise price of $0.26 which expire February 15, 2024;

• 700,000 were granted to other employees at an exercise price of $0.27 of which 200,000 expire on August 31, 2022 and 500,000 expire April 19, 2024;

• 450,000 were granted to other employees at an exercise price of $0.31 which expire May 26, 2024;

• 2,796,100 were granted to officers, directors and employees as the annual option grant at an exercise price of $0.50 which expire August 12, 2024; and

• 172,300 were granted to employees at an exercise price of $0.46 which expire December 2, 2024.

The following is a summary of other assumptions used in applying the Black-Scholes model for the options issued as well as the resulting fair value:

• Expected annual dividend per share is $0;

• Risk free interest rate ranges from 0.2% to 1.0%;

• Expected share price volatility (weighted average) ranges from 94% to 127%; and

• Forfeiture rate for employees is 10%; for officers and directors this is 0%.

The resultant fair values of the options range from $0.11 to $0.30.

15. Earnings (loss) per share

Basic earnings per share

The calculation of basic earnings per share at December 31, 2021 was based on the loss attributable to common shareholders of $(8,626) (2020 $(27,731)) and a weighted average number of common shares outstanding of 65,030,795 (2020 49,468,117), calculated as follows:

Weighted average number of ordinary shares

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||||
|---|---|---|
|2021|2020|
|Issued January 1|49,468,117|49,468,117|
|Effect of shares issued during the year|15,562,678|-|
|Weighted average number of common shares|65,030,795|49,468,117|

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Diluted earnings per share

As both years have a loss, there is no dilutive effect on earnings per share. The weighted average number of common shares outstanding of 65,739,674 (2020 49,468,117) is calculated as follows:

Weighted average number of common shares (diluted)

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||||
|---|---|---|
|2021|2020|
|Weighted average number of common shares (basic)|65,030,795|49,468,117|
|Effect of share options on issue|708,879|-|
|Weighted average number of common shares (diluted)|65,739,674|49,468,117|

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At December 31, 2021, 5,233,600 options (2020 2,552,600) were excluded from the diluted weighted average number of common shares calculation

as their effect would have been anticommon shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

16. Nature of expenses

The nature of expenses can be specified as follows:

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Selling, general
Cost of sales & administrative Technology Total
Year ended December 31, 2020
Depreciation and amortization $ (14,996) $ (572) $ - $ (15,568)
-
Share-based compensation (63) (144) (207)
Staffing costs, excluding share-based compensation (15,921) (4,062) (922) (20,905)
- -
Repairs and maintenance (9,265) (9,265)
Other expenses (10,519) (4,117) (30) (14,666)
Total $ (50,764) $ (8,895) $ (952) $ (60,611)
Year ended December 31, 2021
Depreciation and amortization $ (12,372) $ (535) $ - $ (12,907)
-
Share-based compensation (89) (152) (241)
Staffing costs, excluding share-based compensation (26,766) (5,622) (732) (33,120)
- -
Repairs and maintenance (15,739) (15,739)
Other expenses (8,960) (2,750) (15) (11,725)
Total $ (63,926) $ (9,059) $ (747) $ (73,732)
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The Company recognized the benefit from CEWS program of $916 (2020 - $1,776) and $nil (2020 - $992) from the U.S. Paycheck Protection Program reduced salary expenses as follows:

Cost of sales $544 (2020 - $1,665);

• Selling, general and administrative expenses $298 (2020 - $812); and

• Technology group expenses $74 (2020 - $291).

Additionally, the Company received $518 (2020 - $280) from CERS which reduced cost of sales $424 (2020 - $221) and selling, general and administrative $94 (2020 - $59).

17. Foreign exchange gain

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||||
|---|---|---|
|2021|2020|
|Foreign exchange gain (loss):|
|Realized foreign exchange gain (loss)|$ (89)|$ 42|
|Unrealized foreign exchange gain on intercompany balances|366|929|
|Foreign exchange gain|$ 277|$ 971|

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18. Income tax expense

In 2020 Q4, Cathedral derecognized $2,647 of deferred tax assets due to a recent history of tax losses within Cathedral's U.S. entity.

Recognized deferred tax assets and liabilities

Deferred tax assets are attributable to the following:

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||||
|---|---|---|
|2021|2020|
|Equipment|$ (2,122)|$ (3,019)|
|Non-capital loss carry forw ards|1,635|2,517|
|Inventory valuation allow ance|487|502|
|Total|$ -|$ -|

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Un-recognized deferred tax assets:

There are un-recognized deferred tax assets of $28,557 (2020 - $27,507) related to the following Canadian tax attributes:

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2021 2020
Gross amount Tax effect Gross amount Tax effect
Non-capital loss carry forw ards $ 77,377 $ 17,597 $ 67,309 $ 16,005
Right of use assets less related lease liability 3,561 $ 776 4,615 $ 1,050
Scientific research and development expenditures 18,678 $ 4,296 18,678 $ 4,483
Investment tax credits n/a 5,162 n/a 5,162
Net capital loss carry forw ards 3,158 $ 726 3,215 $ 772
Provision for settlement - $ - 153 $ 35
Total $ 102,774 $ 28,557 $ 93,970 $ 27,507
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Deferred tax assets have not been recognized in respect of the deductible temporary differences at December 31, 2021 or 2020 due to a recent history of taxable losses. The non-capital losses have expiries ranging from 2035 to 2041 and investment tax credits have expiries from 2026 to 2037. The remaining tax attributes do not expire.

Movement in temporary differences during the year

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Balance Balance
December 31 Recognized Recognized December 31
2019 in profit in OCI 2020
Equipment $ (4,493) $ 1,520 $ (46) $ (3,019)
Non-capital loss carry forw ards 6,011 (3,494) - 2,517
Accrued expenses deductible in future years 92 (92) - -
Inventory valuation allow ance 1,012 (510) - 502
Provision for settlement 71 (71) - -
Total $ 2,693 $ (2,647) $ (46) $ -
Balance Balance
December 31 Recognized Recognized December 31
2020 in profit in OCI 2021
Equipment $ (3,019) $ 897 $ - $ (2,122)
Non-capital loss carry forw ards 2,517 (882) - 1,635
Inventory valuation allow ance 502 (15) - 487
Total $ - $ - $ - $ -
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The income taxes are based upon the estimated annual effective rates of 23% (2020 24%) for Canadian entities and 21.8% (2020 22.75%) for U.S. entities. The income tax expense for the period is comprised as follows:

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2021 2020
Current tax (expense) recovery:
U.S. Franchise taxes $ 50 $ (141)
Adjustment to prior period provisions (50) 474
Total current tax (expense) recovery - 333
-
Derecognition of deferred tax asset (2,647)
Income tax expense $ - $ (2,314)
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Income tax expense for 2021 and 2020 differs from the amount that would be expected by applying the expected statutory income tax rates for the following reasons:

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2021 2020
Expected statutory tax rate 23% 24%
Loss before income tax $ (8,626) $ (25,417)
Effective tax rate applied to loss before income tax $ 1,984 $ 6,100
U.S. Franchise taxes - (141)
Unrecognized changes in deferred tax assets (2,009) (9,093)
Adjustment to deferred taxes for change in effective tax rates - 45
Income taxed in jurisdictions w ith different tax rates (38) (83)
Non-deductible expenses (74) 185
Adjustment to prior year tax provisions - 474
Non-taxable portion of gain on disposal of property and equipment 137 199
Total tax expense $ - $ (2,314)
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19. Changes in non-cash working capital

The components of changes in non-cash working capital are as follows:

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2021 2020
Trade receivables $ (10,825) $ 10,018
Inventories (443) 1,928
Prepaid expenses and deposits (729) 959
Trade and other payables 6,645 (6,883)
Impact of foreign exchange rate differences 30 89
Total changes in non-cash w orking capital (5,322) 6,111
Changes in investing non-cash w orking capital (59) 768
Changes in operating non-cash w orking capital $ (5,263) $ 5,343
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20 . Operating segments

The Company and its wholly owned subsidiary are engaged in the business of providing directional drilling services to oil and natural gas companies in western Canada and the U.S. and is viewed as a single operating segment by the chief operating decision maker of the Company for the purpose of resource allocation and assessing performance.

The amounts related to each geographic segment are as follows:

Geographical information

The Company conducts operations in the following geographic areas:

Canada United States Total	Revenues Non-current assets
	Year ended Year ended December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 45,961 $ 13,837 $ 17,574 $ 11,824 $ 16,563 26,737 29,481 37,811 62,524 $ 40,574 $ 47,055 $ 49,635 $

Major customer

In 2021 revenues from one customer of the Company represented approximately 17% (2020 one customer at 29%

21. Commitments

In the normal course of business, the Company incurs contractual obligations. As at December 31, 2021 equipment is approximately $362. Cathedral anticipates expending these funds in 2022 Q1.

The Company has issued the following six letters of credit ("LOC"):

• three securing rent payments on property leases and renew annually with the landlords. The first two LOCs are for $700 CAD for the first ten years of the lease and then reduce to $500 for the last five years of the lease. The third LOC is currently for $630 USD and increases annually based upon annual changes in rent;

; and

• one in lieu of cash deposit for utilities in the amounts of $55 CAD.

22. Related parties

Key management personnel compensation

Cathedral has determined that the key management personnel of the Company consist of its executive officers and directors.

In addition to their salaries and director's fees, the Company also provides non-cash benefits to directors and executive officers including participation in the Co . to termination benefits including: i) 1.0 to 2.0 times base salary; ii) 1.0 to 2.0 times average annual bonus over the past 3 years; and iii) health, dental, life insurance and disability coverage for 12 to 24 months.

to termination benefits

Key management personnel (including directors) compensation comprised:

Key management personnel (including directors) compensation comprised:
		2021		2020
Short-term employment benefits	$	2,033	$	1,236
Share-based compensation		198		117
Total expense recognized as share-based compensation	$	2,231	$	1,353

Key management personnel and director transactions

Directors and executive officers of the Company control approximately 7% of the common shares of the Company.

Cathedral issued 650,000 units to its newly appointed President, CEO and Director at a subscription price of $0.20 per unit, using a loan provided by Cathedral on commercial terms of $130. Each unit will consist of one common share and one-half of one warrant. Each whole warrant will entitle the holder to purchase one common share at an exercise price of $0.24 per common share for a period of three years from the closing date of the private placement which was February 8, 2021.

There have been no other transactions over the reporting period with key management personnel (2020 - nil), and no other outstanding balances exist as at period end (2020 - nil).

23. Subsequent events

• Subsequent events On February 11, the Company announced the closing of its acquisition of the operating assets of Discovery Downhole Services Discovery Discovery Transaction was funded by:

• a non-brokered p

• $11,71

• ing of

• the Discovery Transaction. This is in addition to existing $12,000 Facility; and

• Additionally, Cathedral will pay customary fees and expenses at prevailing market rates to ATB as a condition of the Term Loan and the Credit Agreement.

Cathedral has retained key Discovery personnel under employment and consulting contracts to ensure a seamless customer service experience, successful integration and long-

The Acquisition Shares and Private Placement Shares will be subject to a four-month statutory hold period under applicable Canadian securities laws, in addition to such other restrictions as may apply under applicable securities laws of jurisdictions outside of Canada. The Acquisition Shares will be subject to further contractual restrictions on resale as follows: 25% are restricted until February 10, 2023; a further 25% of are restricted until August 10, 2023; and a further 50% are restricted until February 10, 2024, subject to certain exceptions.

While the Term Loan will be amortized over five years it has a maturity of June 2023 as with the existing Facility. The amortization will be based on a

ayments of principal and interest. Cathedral will be subject to a quarterly fixed charge coverage ratio as defined in the Credit Agreement which shall not be less than 1.25. The consolidated interest coverage ratio will no longer be tested after 2021 Q4 and the limit on aggregate capital expenditures has been eliminated for 2022 and beyond. The Credit Agreement also includes the granting of a security interest over the assets acquired in the Discovery Transaction. At closing of the Discovery Transaction, Cathedral is in compliance with the terms and conditions of the Term Loan and Credit Agreement.

24. Financial risk management and financial instruments

Overview

The Company has exposure to the following risks from its use of financial instruments:

credit risk liquidity risk market risk

This note presents information about the Company Company measuring and managing risk, and the Company

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company Company risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company

Trade receivables

The Company o credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company these factors may have an influence on credit risk. Approximately 17% of the Company revenues are attributable to sales transactions with one customer (2020 - 29% from one customer).

The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company standard payment and delivery terms and conditions are offered. The Company . Customers that fail to meet the Company

In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, geographic location, industry, aging profile, maturity and existence of previous financial difficulties. Customers th are closely monitored, and future sales may be made on a prepayment basis.

The Company does not require collateral in respect of trade receivables.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Carrying amount

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2021 2020
Trade receivables $ 15,609 $ 4,784
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Carrying amount
2,021 2020
Canada $ 13,094 $ 3,015
United States 2,515 1,769
Total $ 15,609 $ 4,784
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The Company s for $1,132 of the trade receivables carrying amount at December 31, 2021 (2020 - $3,121).

Impairment losses

The aging of trade receivables at the reporting date was:

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||||
|---|---|---|
|2021 Gross|2020 Gross|
|Not past due|$ 14,926|$ 4,541|
|Past due 61-90 days|384|84|
|Past due over 91 days|398|1,557|
|Total|$ 15,708|$ 6,182|

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The Company has a total allowance for impairment of $99 at December 31, 2021 (2020 - $1,398). The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

respect of trade receivables during the year was as follows:
		2021		2020
Balance, beginning of year	$	1,398	$	641
Current year provisions		-		1,425
Write-off of provisions		(481)		-
Reversals of losses previously recognized		(818)		(668)
Balance, end of year	$	99	$	1,398

At December 31, 2021 an impairment loss of $nil (2020 - $1,425) was recognized relating to customers that have been unable to make payments in accordance with normal terms and conditions, mainly due to economic circumstances. The Company believes that the unimpaired amounts that are past due are still collectible, bas

Impairment losses

The allowance accounts in respect of trade receivables are used to record impairment losses unless the Company is satisfied that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off against the financial asset directly.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company

sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements based upon the secured revolving term loan being renewed on the same terms and not converted to a non-revolving term loan.

Carrying	Contractual	Under 6
December 31, 2021 amount	cash flow	months 6-12 months 1-2 years 3-5 years Thereafter
Loans and borrow ings 6,035 $ Lease liabilities 15,760 Trade and other payables 11,069	6,035 $ 18,506 11,069	- $ 50 $ 5,135 $ 300 $ 550 $ 1,414 1,407 2,673 7,713 5,299 11,069 - - - -
32,864 $	35,610 $	12,483 $ 1,457 $ 7,808 $ 8,013 $ 5,849 $

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

Currency risk

The Company is exposed to currency risk on working capital and borrowings that are denominated in a currency other than the respective functional currencies of Company entities, CAD and USD. The currencies in which these transactions primarily are denominated are CAD and USD.

Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Company, primarily dollar. This provides a partial economic hedge without derivatives being entered into and therefore hedge accounting is not applied in these circumstances.

Cathedral's foreign currency policy is to monitor foreign current risk exposure in its areas of operations and mitigate that risk where possible by matching foreign currency denominated expense with revenues denominated in foreign currencies. Cathedral strives to maintain limited amounts of cash and cash equivalents denominated in foreign currency on hand and attempts to limit its exposure to foreign currency through collecting and paying foreign currency denominated balance in a timely fashion.

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The Company d to USD denominated balances as follows:
USD 2021 2020
Cash $ 2,374 $ 888
Trade receivables 1,990 1,390
Trade payables (2,105) (1,923)
Lease liabilities (3,348) (3,997)
Provision for settlement - (120)
Total $ (1,089) $ (3,762)
The following significant exchange rates applied during the year:
Average rate Reporting date spot rate
2021 2020 December 31, 2021 December 31, 2020
USD $1 to CAD $ 1.25 $ 1.35 $ 1.26 $ 1.27
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Sensitivity analysis

A 10% strengthening of CAD against USD at December 31, 2021 would increase (decrease) equity and other comprehensive income by $138 (2020 - $475). The analysis assumes that all other variables, in particular interest rates remain constant. The analysis is performed on the same basis for 2020, albeit that the reasonably possible foreign exchange rate variances were different.

A weakening of CAD at December 31, 2021 would have had the equal but opposite effect on USD amounts, on the basis that all other variables remain constant.

Interest rate risk

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At the reporting date the interest rate profile of the Company -bearing financial instruments was:
December 31, 2021 December 31, 2020
Fixed rate carrying value Variable rate carrying value Fixed rate carrying value Variable rate carrying value
Financial liabilities $ 15,760 $ 6,035 $ 18,028 $ 1,560
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Cash flow sensitivity analysis for variable rate instruments

financial institution 60 (2020 - $16) per annum based upon the balance of financial institution indebtedness and long-term debt with a floating interest rate outstanding as at December 31, 2021.

Fair values of financial instruments

The Company has designated its trade and other payables as other financial liabilities carried at amortized cost. Trade receivable are designated as loans and receivables, measured at amortized cost. The carrying values of these items approximate their fair value due to the relatively short periods to maturity of the instruments. Loans and borrowings have been designated as other financial liability and are measured at amortized cost. The fair value of loans and borrowings included in the consolidated statement of financial position approximates carrying values as the indebtedness is subject to floating rates of interest.

The Company has no financial instruments that are recorded at fair values.

Capital management

The Board of Directors policy is to maintain a strong capital base to maintain investor, creditor and market confidence and to sustain future development of the business. Management and the Board of Directors monitor capital using loans and borrowings, including current portion to total capitalization and funded debt to earnings before interest, taxes, depreciation, amortization and share-based compensation Credit Agreement EBITDA .

The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.

There were no changes in the Company

he year.