ACT Energy Technologies Ltd. — Audit Report / Information 2020

Mar 17, 2021

MANAGEMENT’S REPORT

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, 2020 and December 31, 2019.

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 11, 2021

Signed: "P. Scott MacFarlane" P. Scott MacFarlane Interim Chief Financial Officer Cathedral Energy Services Ltd. March 11, 2021

INDEPENDENT AUDITORS' REPORT

To the Shareholders of Cathedral Energy Services Ltd.

Opinion

We have audited the consolidated financial statements of Cathedral Energy Services Ltd. (the Entity), which comprise:

• the consolidated statements of financial position as at December 31, 2020 and December 31, 2019;

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

• the consolidated statements of changes in shareholders’ equity for the years then ended;

• 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 “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2020 and December 31, 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “ Auditors’ Responsibilities for the Audit of the Financial Statements ” section of our auditors’ report.

We are independent of the Entity 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.

Material Uncertainty Related to Going Concern

We draw attention to Note 2 in the financial statements, which indicates that management’s forecasts indicate a potential breach of its financial covenants commencing in the first quarter ending March 31, 2021 and for each quarter thereafter in fiscal 2021. A covenant violation would represent an event of default which would enable the lender to demand immediate repayment of all amounts due.

As stated in Note 2 in the financial statements, these events or conditions, along with other matters as set forth in Note 2 in the financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Entity’s ability to continue as a going concern.

Our opinion is not modified in respect of this matter.

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, 2020. 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.

In addition to the matter described in the “ Material Uncertainty Related to Going Concern ” section of the auditors’ report, we have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.

Evaluation of the recoverable amount of the directional drilling cash generating unit (“CGU”)

Description of the matter

We draw attention to Note 3(d)(ii), Note 4(g)(ii) and Note 9 to the financial statements. The carrying amounts of the Entity’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s or cash generating unit's recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. These calculations require estimates and assumptions and are subject to

change as new information becomes available. These include estimates of future cash flows, growth rates and pre-tax discount rates. The Entity determined that impairment triggers existed and conducted an impairment test as required on the Entity’s sole cash generating unit, the directional drilling CGU.

Why the matter is a key audit matter

We identified the evaluation of the recoverable amount of the directional drilling CGU as a key audit matter. Significant auditor judgment and involvement of professionals with specialized skills and knowledge were required to evaluate the results of our audit procedures regarding the Entity’s significant estimates and assumptions.

How the matter was addressed in the audit

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

We compared the CGU’s actual cash flows for the year to the amounts forecasted for that same period to assess the Entity’s ability to accurately forecast.

We evaluated the appropriateness of the CGU’s future cash flows used in the estimate of the recoverable amount by:

• Comparing the CGU’s future cash flows to historical results. We took into account changes in conditions and events affecting the CGU to assess the adjustments or lack of adjustments made by the Entity in arriving at future cash flows

• Comparing certain underlying assumptions in the future cash flows to publicly available market data for comparable entities

We involved valuation professionals with specialized skills and knowledge, who assisted in:

• Evaluating the appropriateness of the CGU’s discount rate by comparing the Entity’s discount rate to external data

• Assessing the reasonableness of the Entity’s estimate of the recoverable amount of the CGU by comparing the Entity’s estimate to market metrics and other external data.

Other Information

Management is responsible for the other information. Other information comprises:

• the information included in Management’s Discussion and Analysis to be filed with the relevant Canadian Securities Commissions.

• the information, other than the financial statements and the auditor’s report thereon, included in a document entitled “2020 Annual Report”.

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.

We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions and the information, other than the financial statements and the auditors’ report thereon, included in a document entitled “2020 Annual Report” as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report.

We have nothing to report in this regard.

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), 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 is responsible for assessing the Entity’s ability to continue as a 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 Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

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 Entity’s internal control.

• 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 significant doubt on the Entity’s ability to continue as a going concern. If we conclude that a material 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 Entity 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 represent 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 Entity 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 matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure

about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this auditors’ report is Jason Stuart Brown.

Signed " KPMG LLP " Chartered Professional Accountants

Calgary, Canada March 15, 2021

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31, 2020 and 2019

Dollars in ‘000s

CONSOLIDATED STATEMENTS OF FINANCIAL December 31, 2020 and 2019 Dollars in ‘000s	POSITION
		2020		2019
Assets
Current assets:
Cash (note 6)	$	1,034	$	7,223
Trade receivables (note 7)		4,784		14,802
Prepaid expenses		709		1,668
Inventories (note 8)		8,118		10,423
Total current assets		14,645		34,116
Equipment (note 9)		35,620		46,882
Intangible assets (note 10)		2,244		3,019
Right of use assets (note 11)		11,771		19,590
Deferred tax assets (note 12)		-		2,693
Total non-current assets		49,635		72,184
Total assets	$	64,280	$	106,300
Liabilities and Shareholders' Equity
Current liabilities:
Trade and other payables (note 13)		4,425		11,308
Current taxes payable		140		314
Lease liabilities, current (note 11)		2,247		2,145
Liability for settlements, current		153		168
Total current liabilities		6,965		13,935
Loans and borrow ings (note 14)		1,560		6,000
Liability for settlements, long-term		-		156
Lease liabilities, long-term (note 11)		15,781		18,117
Total non-current liabilities		17,341		24,273
Total liabilities		24,306		38,208
Shareholders' equity:
Share capital (note 15)		88,155		88,155
Contributed surplus		11,071		10,864
Accumulated other comprehensive income		9,340		9,934
Deficit		(68,592)		(40,861)
Total shareholders' equity		39,974		68,092
Total liabilities and shareholders' equity	$	64,280	$	106,300
See accompanying notes to consolidated financial statements.
See note 2 "Future operations"

Approved by the Directors:

Signed : "Tom Connors" Tom Connors Director

Signed : "Rod Maxwell" Rod Maxwell Director

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years ended December 31, 2020 and 2019

Dollars in ‘000s except per share amounts

Years ended December 31, 2020 and 2019 Dollars in ‘000s except per share amounts
		2020		2019
Revenues(note 20)	$	40,574	$	120,276
Cost of sales (notes 8 and 17):
Direct costs		(35,705)		(108,042)
Depreciation		(14,996)		(19,864)
Share-based compensation		(63)		(117)
Total cost of sales		(50,764)		(128,023)
Gross margin		(10,190)		(7,747)
Selling, general and administrative expenses (note 17):
Direct costs		(8,179)		(12,517)
Depreciation		(572)		(1,161)
Share-based compensation		(144)		(337)
Total selling, general and administrative expenses		(8,895)		(14,015)
		(19,085)		(21,762)
Technology group expenses (note 17)		(952)		(2,212)
Gain on disposal of equipment		1,680		6,005
Loss from operating activities		(18,357)		(17,969)
Finance costs		(291)		(593)
Finance costs lease liabilities		(918)		(1,010)
Foreign exchange gain (note 18)		971		1,280
Impairments and direct w rite-dow ns (notes 8, 9, 10 and 11)		(6,822)		-
Provision for settlements		-		(425)
Loss before income taxes		(25,417)		(18,717)
Income tax recovery (expense) (note 12):
Current		333		(1,285)
Deferred		-		815
Derecognition of deferred tax asset		(2,647)		-
Total income tax expense		(2,314)		(470)
Loss		(27,731)		(19,187)
Other comprehensive income (loss):
Foreign currencytranslation differences for foreign operations		(594)		(2,318)
Total comprehensive loss	$	(28,325)	$	(21,505)
Loss per share (note 16)
Basic	$	(0.56)	$	(0.39)

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 2020 and 2019

Dollars in ‘000s

Years ended December 31, 2020 and 2019 Dollars in ‘000s
						Accumulated
						other				Total
				Contributed		comprehensive			shareholders'
	Share	capital		surplus		income		Deficit		equity
Balance at December 31, 2018	$	88,155	$	10,410	$	12,252	$	(21,674)	$	89,143
Total comprehensive loss for year
ended December 31, 2019		-		-		(2,318)		(19,187)		(21,505)
Share-based compensation		-		454		-		-		454
Balance at December 31, 2019	$	88,155	$	10,864	$	9,934	$	(40,861)	$	68,092
Total comprehensive loss for year
ended December 31, 2020		-		-		(594)		(27,731)		(28,325)
Share-based compensation		-		207		-		-		207
Balance at December 31, 2020	$	88,155	$	11,071	$	9,340	$	(68,592)	$	39,974

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2020 and 2019

Dollars in ‘000s

CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2020 and 2019 Dollars in ‘000s
		2020		2019
Cash provided by (used in):
Operating activities:
Loss	$	(27,731)	$	(19,187)
Items not involving cash
Depreciation		15,568		21,025
Share-based compensation		207		454
Income tax (recovery) expense		2,314		470
Gain on disposal of equipment		(1,680)		(6,005)
Finance costs		291		593
Finance costs lease liabilities		918		1,010
Impairments and direct w rite-dow ns		6,822		-
Provision for settlement		-		425
Unrealized foreign exchange (gain) loss on intercompany balances		(929)		(1,347)
Cash flow - continuing operations		(4,220)		(2,562)
Changes in non-cash operating w orking capital (note 19)		5,343		9,247
Income taxes refunded (paid)		68		(1,900)
Cash flow - operatingactivities		1,191		4,785
Investing activities:
Equipment additions		(2,474)		(6,018)
Intangible asset additions		(251)		(1,077)
Proceeds on disposal of equipment		2,603		8,726
Changes in non-cash investing w orking capital (note 19)		768		(284)
Cash flow - investingactivities		646		1,347
Financing activities:
Change in operating loan		-		(188)
Repayments on lease liabilities		(2,110)		(2,095)
Interest paid		(1,209)		(1,603)
Repayments of loans and borrow ings		(5,386)		(1,000)
Advances on loans and borrow ings		946		-
Payment on settlements		(173)		(604)
Cash flow - financingactivities		(7,932)		(5,490)
Effect of exchange rate on changes on cash		(94)		(294)
Change in cash		(6,189)		348
Cash,beginningofyear		7,223		6,875
Cash,end ofyear	$	1,034	$	7,223

See accompanying notes to consolidated financial statements.

Years ended December 31, 2020 and 2019

Dollars in ‘000s except per share and per option amounts

1. Reporting entity

Cathedral Energy Services Ltd. (the “Company” or “Cathedral”) 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, 2020 comprise the Company and its 100% owned subsidiary, Cathedral Energy Services Inc. ("INC"), (together referred to as “Cathedral”). INC 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. Future operations

As at December 31, 2020, the Company was in compliance with the terms and conditions of its bank credit facility (see note 14). While the Company had obtained certain covenant relief, management’s forecasts indicate a potential breach of its financial covenants commencing in the first quarter ending March 31, 2021 and for each quarter thereafter in fiscal 2021. A covenant violation would represent an event of default which would enable the lender to demand immediate repayment of all amounts due. If the Company's lender required repayment of all of the amounts outstanding under the credit facility, it is unlikely that the Company would be in a position to make such repayment. Even if the Company is able to obtain new financing in order to make any required repayment under the credit facility, it may not be on commercially reasonable terms or terms that are acceptable to the Company. If the Company is unable to repay amounts owing under the credit facility, the lender could proceed to realize upon the collateral granted to it to secure the indebtedness. As a result of these factors, there is a material uncertainty that may cast significant doubt with respect to the ability of the Company to continue as a going concern.

The Company has commenced discussions with its lender regarding amendment and/or extending current covenant relief and management expects to reach an acceptable agreement with its lender on covenant relief. No agreement has been reached to date and therefore, there can be no assurance that such agreement will be reached. Any delay or failure to amend the credit facility and/or extend the current covenant relief, or obtain alternative financing, could have a significant negative impact on the Company’s business, results of operations and financial condition. Assuming the Company is successful in obtaining covenant relief for any potential forecasted covenant violations, management’s forecasts also show the Company meeting all of its existing financial commitments including interest payments over the next twelve months.

The consolidated annual financial statements have been prepared on a going concern basis, which presumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The consolidated annual financial statements do not reflect adjustments and classifications of assets, liabilities, revenues and expenses, which would be necessary if the Company were unable to continue as a going concern. Such adjustments could be material.

3. Basis of preparation

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”) which are defined as International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements were authorized for issue by the Board of Directors on March 11, 2021.

(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"), which is the Company’s 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. In response to the COVID-19 outbreak, governments around the world implemented measures to control the spread of the virus including closure of non-essential businesses and implementing travel bans and stay-at-home restrictions. These actions contributed to the material deterioration in global economy including a dramatic decline in demand for oil, which resulted in a material decrease in the price for oil. This decline in oil prices negatively affected drilling activities in Cathedral’s operating areas of U.S. and Canada. The Company has made significant changes to its cost structure including laying off staff, reducing compensation, implementing reduced work weeks, closing facilities, eliminating discretionary expenses, deferring tool repairs and reducing capital expenditures, to better match our cost structure to expected operating levels. The collapse in oil prices negatively affected our client’s cash flows and, as a result, in certain situations resulted in slower collection of accounts receivable and increased provisions for non-payment of accounts receivable.

In the second half of 2020 oil prices improved from the lows of the first half of the year and industry drilling activity started to improve during 2020 Q3. Volatility is expected in oil prices due continuing developments related to COVID-19 (i.e. vaccinations rates, spread new variants and related government responses) and ongoing uncertainty related to output restrictions among OPEC and OPEC+.

All of these developments have had, and could in the future have, a material adverse effect on Cathedral’s business, financial condition, results of operations, cash flows, ability to collect on accounts receivable and future impairments of Company assets. As a result of the decline in financial results for 2020, management has entered into discussions with its lender to amend and/or extend the revised covenants under its credit agreement to the end of 2021.

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, 2020, the Company had no material 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. These estimates are based on management’s historical experience and industry norms. Expected useful life and depreciation rates are as disclosed in note 4 (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. These calculations require estimates and assumptions and 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 the cash flow analysis.

Trade accounts receivable require estimates to be made regarding the financial stability of the Company’s customers and the environment in which 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 “Credit risk” for further details.

Inventory is reviewed periodically in order to determine if there is obsolescence. This estimate is based upon historic data and management’s 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.

4. 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 income (‘AOCI’) in the cumulative translation. When a foreign operation is disposed of, the relevant amount in AOCI (in the cumulative 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 financial assets are recognized initially at fair value. The Company’s financial assets include cash, and trade 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 and in the case of other financial liabilities, directly attributable transaction costs. The Company’s financial liabilities 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:

	Estimated life inyears	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

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’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s 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 the cash inflows of other assets or groups of assets (the “cash-generating unit", or "CGU”). For the purposes of goodwill impairment testing, goodwill 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’s corporate assets do not generate separate cash inflows. If there 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 in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s 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’s services are generally sold based upon service orders or contracts with customers that include 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 17).

(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.

5. Determination of fair values

A number of Cathedral’s 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.

6. Cash

The Company’s 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

All of the Company’s amounts are trade receivables. This balance does not include any related party amounts or other loans and receivables. All amounts are current assets. The Company’s exposure to credit and currency risks, and impairment losses related to trade receivables is disclosed in note 24.

8. Inventories

All of the Company’s inventories are composed of raw materials and consumables. There are no finished goods inventories. For the year ended December 31, 2020, raw materials and consumables recognized as cost of sales were $4,288 (2019 - $32,206). At December 31, 2020, a review of expected demand for inventory balances to be used in equipment repairs was conducted. In 2020, a write-down of $377 (2019 - $nil) on inventory was recognized.

9. Equipment

9. Equipment
										Effects of
		Balance							movements in			Balance
	December 31				Write-off fully					exchange	December 31
Cost		2018		Additions		depreciated		Disposals		rates		2019
Directional Drilling equipment	$	138,851	$	6,713	$	(110)	$	(5,556)	$	(144)	$	139,754
Automotive equipment		2,478		156		-		(889)		(93)		1,652
Office and computer equipment		8,633		281		(7,903)		(107)		(93)		811
Leasehold improvements		549		-		(95)		(21)		(5)		428
Total	$	150,511	$	7,150	$	(8,108)	$	(6,573)	$	(335)	$	142,645
										Effects of
		Balance							movements in			Balance
	December 31				Write-off fully					exchange	December 31
Accumulated depreciation		2018		Additions		depreciated		Disposals		rates		2019
Directional Drilling equipment	$	78,915	$	16,975	$	(110)	$	(1,917)	$	(105)	$	93,758
Automotive equipment		2,060		174		-		(801)		(77)		1,356
Office and computer equipment		8,007		252		(7,903)		-		(89)		267
Leasehold improvements		461		19		(95)		-		(3)		382
Total	$	89,443	$	17,420	$	(8,108)	$	(2,718)	$	(274)	$	95,763
										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	$	2,413	$	(67,094)	$	(2,990)	$	(67)	$	72,016
Automotive equipment		1,652		23		-		(896)		(137)		642
Office and computer equipment		811		26		(90)		(47)		1		701
Leasehold improvements		428		12		-		-		(2)		438
Total	$	142,645	$	2,474	$	(67,184)	$	(3,933)	$	(205)	$	73,797
										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
Net book values										2020		2019
Directional Drilling equipment								$		34,988 $		45,996
Automotive equipment										181		296
Office and computer equipment										411		544
Leasehold improvements										40		46
Total								$		35,620 $		46,882

Review for impairment and direct write-offs

The Company reviews the carrying value assets and the Company's sole cash generating unit ("CGU"), the directional drilling CGU at each reporting period to determine if there are indicators of impairment.

The impact of macroeconomic conditions, including the COVID-19 pandemic, on crude oil and liquids demand and supply fundamentals and the resulting commodity pricing outlook resulted in a significant pullback in customer activity levels in 2020 as producers managed cash flows. Near-term crude oil and liquids pricing at December 31, 2020 remained well below recent year averages and considerable uncertainty existed with respect to short and medium-term activity levels. During the year ended and as at December 31, 2020 the Company determined that sufficient impairment triggers existed and conducted an impairment test as required on the Company’s 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 for value-in-use for the CGU, which was deemed to be higher of as compared to the fair value less costs to sell model. Inherent in the value in use approach are key assumptions that are subjective and

represent reasonable estimates with respect to factors affecting operations including economic, operational and market conditions. These conditions are sensitive to change and could affect fair value.

The cash flow forecasts included specific estimates and a terminal valuation. Cash flows for the next fiscal year are based on the Company’s latest forecast and budget. The forecast is based on past performance as well as management’s assessment of economic conditions, including commodity prices, expected market trends, and growth strategy. For future years not included in the latest forecast or budget, assumptions are made based on past performance, anticipated oil and gas industry activity, and the unique market characteristics of the CGU. The terminal valuation is determined based on management’s estimate of the long-term compound growth rate of annual net earnings excluding depreciation, amortization, interest and taxes. The discount rate used to calculate the net present value of future cash flows is based on estimates of the Company’s weighted average cost of capital, adjusted to consider the nature of the assets being valued and their specific risk profile. Changes in the general economic environment could result in significant changes to this estimate. The future cash flows are based on management’s best estimates 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 flows through the remainder of the CGU’s life. As a result of the impairment test conducted, management determined that no further impairment existed as at December 31, 2020.

The most sensitive inputs to the value in use model are 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.

The macro economic conditions present at December 31, 2020, continue to present considerable uncertainty as to the level of exploration and development activity that will be undertaken by the Company’s customers and increases the estimation uncertainty associated with the future cash flows and value in use estimates used in the impairment test. Assumptions that are valid at the time of preparing the cash flow models may change significantly when new information becomes available.

10. Intangible assets

The Company’s intangible assets consist of materials and wages related to equipment development and improvement. The Company reviews the accumulated costs at least quarterly. The 2020 internally developed additions contain $251 of technology group wages related to new product development (2019 - $1,077).

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.

a reasonable time frame.
		2020		2019
Cost
Balance at January 1	$	4,138	$	4,219
Internally developed additions		251		1,077
Write-off fully amortized		(466)		(1,158)
Direct w rite-dow ns		(160)		-
Balance at end ofyear	$	3,763	$	4,138
Accumulated amortization
Balance at January 1	$	1,119	$	1,392
Amortization for year		866		885
Write-off fully amortized		(466)		(1,158)
Balance at end ofyear	$	1,519	$	1,119
Net carrying value at end ofyear	$	2,244	$	3,019

11. Right of use asset and lease liabilities

Right of use asset - Realproperty		2020		2019
Balance, beginning of year	$	19,590	$	-
Initial recognition		-		22,356
Impairments (note 8)		(6,285)		-
Depreciation		(1,848)		(2,718)
Effects of movements in exchange rates		314		(48)
Balance,end ofyear	$	11,771	$	19,590

Lease liabilities

Lease liabilities
Lease liabilities					Real
		Vehicles			Property		2019
Balance, December 31, 2018	$		89	$	-	$	89
Initial recognition January 1, 2019					22,356		22,356
Interest			8		1,002		1,010
Payments		(39)			(3,058)		(3,097)
Effects of movements in exchange rates		(27)			(69)		(96)
Balance, December 31, 2019	$		31	$	20,231	$	20,262
Less currentportion		(31)			(2,114)		(2,145)
Lease liabilities,long-term	$	-		$	18,117	$	18,117
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	$		17	$	18,011	$	18,028
Less currentportion		(17)			(2,230)		(2,247)
Lease liabilities,long-term	$	-		$	15,781	$	15,781

In September 2020, the Company entered into a sublease for one of its properties. This lease expires April 2023 and as it does not transfer substantially all the risks and benefits of ownership of the property to the lessee it is treated as an operating lease.

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

In one year or less	$	3,026
In more than one year, but not more than five years		10,814
In more than fiveyears		7,805
Total	$	21,645

12. Deferred tax assets and 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:

Deferred tax assets are attributable to the following:
		2020		2019
Equipment	$	(3,150)	$	(4,650)
Non-capital loss carry forw ards		2,500		6,011
Accrued expenses deductible in future years		-		92
Inventory valuation allow ance		502		1,012
Intangible assets		148		157
Provision for settlement		-		71
Total	$	-	$	2,693

Un-recognized deferred tax assets:

There are un-recognized deferred tax assets of $24,227 (2019 - $18,414) related to the following Canadian tax attributes:

	2020 2019
	Gross amount Tax effect Gross amount Tax effect
Non-capital loss carry forw ards Right of use assets less related lease liability Scientific research and development expenditures Investment tax credits Net capital loss carry forw ards Provision for settlement	54,640 $ 13,047 $ 35,194 $ 8,341 $ 4,615 1,050 $ 17,531 4,207 $ 17,531 4,155 $ n/a 5,116 n/a 5,116 3,215 772 $ 3,385 802 $ 153 35 $ - - $
Total	80,154 $ 24,227 $ 56,110 $ 18,414 $

Deferred tax assets have not been recognized in respect of the deductible temporary differences at December 31, 2020 or 2019 due to a recent history of taxable losses. The non-capital losses have expiries ranging from 2035 to 2040 and investment tax credits have expiries from 2026 to 2037. The remaining tax attributes do not expire.

Movement in temporary differences during the year

Movement in temporary differences during the year
		Balance						Balance
	December 31		Recognized		Recognized		December 31
		2018		inprofit		in OCI		2019
Equipment	$	(7,512)	$	2,960	$	(98)	$	(4,650)
Non-capital loss carry forw ards		6,320		(309)		-		6,011
Accrued expenses deductible in future years		1,726		(1,634)		-		92
Inventory valuation allow ance		1,128		(116)		-		1,012
Intangible assets		193		(36)		-		157
Provision for settlement		121		(50)		-		71
Total	$	1,976	$	815	$	(98)	$	2,693
		Balance						Balance
	December 31		Recognized		Recognized		December 31
		2019		inprofit		in OCI		2020
Equipment	$	(4,650)	$	1,546	$	(46)	$	(3,150)
Non-capital loss carry forw ards		6,011		(3,511)		-		2,500
Accrued expenses deductible in future years		92		(92)		-		-
Inventory valuation allow ance		1,012		(510)		-		502
Intangible assets		157		(9)		-		148
Provision for settlement		71		(71)		-		-
Total	$	2,693	$	(2,647)	$	(46)	$	-

The income taxes are based upon the estimated annual effective rates of 24% (2019 – 26.25%) for Canadian entities and 22.75% (2019 – 22.75%) for U.S. entities. The income tax expense for the period is comprised as follows:

for U.S. entities. The income tax expense for the period is comprised as follows:
		2020		2019
Current tax (expense) recovery:
Current period	$	-	$	(729)
U.S. Franchise taxes		(141)		(277)
Adjustment topriorperiodprovisions		474		(279)
Total current tax(expense)recovery		333		(1,285)
Deferred tax (expense) recovery:
Origination and reversal of temporary differences		-		815
Adjustment topriorperiodprovisions		-		-
Total deferred tax recovery		-		815
Derecognition of deferred tax asset		(2,647)		-
Income tax expense	$	(2,314)	$	(470)

Income tax expense for 2020 and 2019 differs from the amount that would be expected by applying the expected statutory income tax rates for the following reasons:

following reasons:
		2020		2019
Expected statutory tax rate		24%		26%
Loss before income tax	$	(25,417)	$	(18,717)
Effective tax rate applied to loss before income tax	$	6,100	$	4,913
U.S. Franchise taxes		(141)		(277)
Unrecognized changes in deferred tax assets		(9,093)		(3,131)
Adjustment to deferred taxes for change in effective tax rates		45		(1,848)
Income taxed in jurisdictions w ith different tax rates		(83)		(139)
Non-deductible expenses		185		(180)
Adjustment to prior year tax provisions		474		(279)
Non-taxable portion of gain on disposal of property and equipment		199		281
Other		-		190
Total tax expense	$	(2,314)	$	(470)

13. Trade and other payables

13. Trade and other payables
		2020		2019
Trade payables	$	3,118	$	5,938
Accrued payables		1,307		5,370
Total	$	4,425	$	11,308

The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24.

14. Loans and borrowings

Paycheck Protection Program

On May 8, 2020, Cathedral received approval of an application for a U.S. Paycheck Protection Program (“PPP”) loan of $750 USD. The loan bears interest at 1% per annum and will mature on May 8, 2022. The proceeds were used to support payroll expenditures for Cathedral’s U.S. employees. Cathedral has calculated that all of the loan proceeds will be forgivable in 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. Cathedral will be filing for formal forgiveness of the PPP loan once its bank's online application process is operational.

Bank facility

In June 2020, the Company amended its credit facility (the "Facility") for temporary covenant relief. The Company's Facility consists of a $12,000 extendible revolving credit facility with a single lender which expires June 30, 2022. Previously, the Company had a syndicated facility with two lenders that totaled $20,000. This was in excess of current needs and the facility was reduced primarily to lower stand-by fees. The Facility is secured by a general security agreement over all present and future personal property. The Facility provides a definition of EBITDA (“Credit Agreement EBITDA”) to be used in calculation of financial covenants.

The Facility bears interest at the financial institution’s prime rate plus 0.75% to 2.25% or bankers’ acceptance rate plus 1.75% to 3.00% 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' acceptance (“BA”) based on the interest rate spread on the date the BA was entered into.

As is customary, the facility includes a material adverse change clause as an event of default which would enable the lender to demand immediate repayment of amounts outstanding if an event were to occur which is reasonably determined by the lender to represent a material adverse effect which cannot be cured by Cathedral within the time period permitted under the facility.

The covenant relief period (“CR period”) commenced on June 30, 2020 and ends on the earlier of March 31, 2021 or the date of written notice by the Company requesting an end to the CR period.

The financial covenants associated with the Facility excluding the CR period are:

Consolidated funded debt to consolidated Credit Agreement EBITDA ratio shall not exceed 3.0:1; and Consolidated interest coverage ratio shall not be less than 2.5:1.

During the CR period, the consolidated funded debt to consolidated Credit Agreement EBITDA ratio is waived and the consolidated interest coverage ratio is waived during the covenant relief period if funded debt is no more than $6,000. During the CR period, the following apply:

• Consolidated funded debt to tangible net worth (“TNW”) ratio is to be no more than 10% for 2020 Q2 and Q3 and no more than 15% in 2020 Q4 and 2021 Q1. TNW is defined as shareholders’ equity plus subordinated debt less investments in or amounts owed by any related party which does not constitute subordinated debt;

• Advances are limited to $10,000;

• During the covenant relief period aggregate capital expenditures (excluding non-cash utilization of existing inventory) for the fiscal year ended December 31, 2020, are not to exceed $2,000; and

• During the covenant relief period interest increases to bear interest at the financial institution’s prime rate plus 1.75% to 3.25% or bankers’ acceptance rate plus 3.00% to 4.25% with interest payable monthly.

Compliance with Facility covenants

At December 31, 2020, the Company had drawn $1,560 of its credit facility and had $1,034 in cash. At December 31, 2020, the Company had consolidated funded debt of $2,160 that includes five outstanding letters of credit (“LOC”) totaling $1,778 which are included in the funded debt calculation. TNW was $37,690.

The calculation of the financial covenants under the Facility as at December 31, 2020 is as follows:

Covenant

Consolidated funded debt to TNW ratio

Actual Ratio Required Ratio

5.7% 15.0% (maximum)

The Company was in compliance with all revised covenants at December 31, 2020. The Company has entered into discussions with its lender to amend or extend the revised covenants under its credit facility for the remainder of 2021.

15. Share capital

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

Common shares issued:

Common shares issued:
	2020 2019
	Number Amount Number Amount
Issued, beginning of period Issued on exercise of options	49,468,117 88,155 $ 49,468,117 88,155 $ - - - -
Issued,end ofperiod	49,468,117 88,155 $ 49,468,117 88,155 $

Issuance of common shares

Nil common shares were issued in either 2020 or 2019.

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 has a maximum term till expiry of ten 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, 2020 and 2019, and changes during the years then ended is presented below:

A summary of the status of the Company's equity based compensation plan as ended is presented below:	at December 31, 2020 and 2019, and changes during the years then
	2020 2019
	Weighted Weighted average average Number exerciseprice Number exerciseprice
Outstanding, beginning of year Granted Expired or forfeited	3,758,500 0.82 $ 3,670,334 1.20 $ 887,600 0.12 1,056,000 0.30 (2,093,500) 1.03 (967,834) 1.67
Outstanding,end ofyear	2,552,600 0.41 $ 3,758,500 0.82 $
Exercisable,end ofyear	1,041,300 0.73 $ 2,118,117 1.05 $

The range of exercise prices for the options outstanding at December 31, 2020 is as follows:

Exerciseprice range	Total outstandingoptions Exercisable
	Weighted Weighted average average remaining Weighted average Number exerciseprice life(inyears) Number exerciseprice
$0.12 to $0.25 $0.26 to $0.50 $0.76 to $0.92	887,600 0.12 $ 2.79 - - $ 935,500 0.30 1.65 311,830 0.30 729,500 0.92 0.68 729,500 0.92
$0.12 to$0.92 total	2,552,600 0.41 $ 1.33 1,041,330 0.73 $

During the year ended December 31, 2020, the Company has recorded share-based compensation expense of $207 (2019 - $454) related to the share option plan.

During the year ended December 31, 2020, the Company granted 887,600 share options. The following table sets out the assumptions used in applying the Black-Scholes model for the options issued as well as the resulting fair value:

applying the Black-Scholes model for the options issued as well as the resulting fair value:
		2020Q4
Number of options issued		887,600
Exercise price	$	0.12
Fair value per option (w eighted average)	$	0.06
Expected annual dividend per share	$	-
Risk-free interest rate (w eighted average)		0.2%
Expected share price volatility (w eighted average)		87.1%
Forfeiture rate per annum (excluding officer and directors w ho are at 0%)		10.0%

16. Earnings (loss) per share

Basic earnings per share

The calculation of basic earnings per share at December 31, 2020 was based on the loss attributable to common shareholders of $(27,731) (2019 – $(19,187)) and a weighted average number of common shares outstanding of 49,468,117 (2019 – 49,468,117), being the issued and outstanding shares at the start of the year as there were no shares issued in either 2020 or 2019.

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 49,468,117 (2019 – 49,522,376) is calculated as follows:

Weighted average number of common shares (diluted)

Weighted average number of common shares (diluted)
	2020	2019
Weighted average number of common shares (basic)	49,468,117	49,468,117
Effect of share options on issue	-	54,259
Weighted average number of common shares(diluted)	49,468,117	49,522,376

At December 31, 2020, 2,552,600 options (2019 – 2,629,166) were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive. The average market value of the Company’s common 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.

17. Nature of expenses

The nature of expenses can be specified as follows:

The nature of expenses can be specified as follows:
				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, 2019
Depreciation and amortization	$	(19,864)	$	(1,161)	$	-	$	(21,025)
Share-based compensation		(117)		(337)		-		(454)
Staffing costs, excluding share-based compensation		(46,502)		(6,989)		(2,137)		(55,628)
Repairs and maintenance		(30,699)		-		-		(30,699)
Other expenses		(30,841)		(5,372)		(231)		(36,444)
Total	$	(128,023)	$	(13,859)	$	(2,368)	$	(144,250)

The Company recognized the benefit from CEWS program of $1,776 (2019 - $nil) and $992 (2019 - $nil) from the U.S. Paycheck Protection Program (“PPP”) which reduced salary expenses as follows:

• Cost of sales $1,665;

• Selling, general and administrative expenses $812; and

• Technology group expenses $291.

Additionally, the Company received $280 (2019 - $nil) from CERS which reduced cost of sales $221 (2019 - $nil) and selling, general and administrative $59 (2019 - $nil).

18. Foreign exchange gain (loss)

18. Foreign exchange gain (loss)
		2020		2019
Foreign exchange gain (loss):
Realized foreign exchange gain (loss)	$	42	$	(67)
Unrealized foreign exchange gain (loss) on intercompany balances		929		1,347
Foreign exchangegain(loss)	$	971	$	1,280

19. Changes in non-cash working capital

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

		2020		2019
Trade receivables	$	10,018	$	20,781
Inventories		1,928		1,327
Prepaid expenses and deposits		959		23
Trade and other payables		(6,883)		(12,560)
Impact of foreign exchange rate differences		89		(608)
Total changes in non-cash w orking capital		6,111		8,963
Changes in investing non-cash w orking capital		768		(284)
Changes in operatingnon-cash w orkingcapital	$	5,343	$	9,247

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:

	Revenues Non-current assets
	Year ended Year ended December 31,2020 December 31,2019 December 31,2020 December 31,2019
Canada United States	13,837 $ 26,155 $ 11,824 $ 33,752 $ 26,737 94,121 37,317 38,432
Total	40,574 $ 120,276 $ 49,141 $ 72,184 $

Major customer

In 2020 revenues from one customer of the Company represented approximately 29% (2019 –two customers at 27%) of the Company’s total revenues.

21. Commitments

In the normal course of business, the Company incurs contractual obligations. As at December 31, 2020, the Company’s commitment to purchase equipment is approximately $349. Cathedral anticipates expending these funds in 2021 Q1.

The Company has issued the following five 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 second LOC is currently for $613 USD and increases annually based upon annual changes in rent; and

• two securing the Company’s corporate credit cards in the amounts of $75 CAD and $175 USD.

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 Company’s share option program.

Certain executive officers have employment agreements. Upon resignation at the Company’s request, they are entitled 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.

Key management personnel (including directors) compensation comprised:

		2020		2019
Short-term employment benefits	$	1,236	$	1,499
Share-based compensation		117		208
Total expense recognized as share-based compensation	$	1,353	$	1,707

Key management personnel and director transactions

Directors and executive officers of the Company control approximately 6% of the common shares of the Company.

There have been no other transactions over the reporting period with key management personnel (2019 - nil), and no outstanding balances exist as at period end (2019 - nil).

23. Subsequent events

Subsequent to year end, Cathedral entered into a non-brokered private placement of 500,000 units with its newly appointed President, CEO and Director, at a subscription price of $0.20 per unit for a subscription amount of $100. Each unit will consist of one Cathedral common share and onehalf of one common share purchase 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.

In addition, 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.

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

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’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s 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’s activities.

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’s receivables from customers.

Trade receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. Approximately 22% of the Company’s receivables are attributable to sales transactions with a two customers (2019 - 20% from one customer).

The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available. Customers that fail to meet the Company’s benchmark creditworthiness generally are restricted to services on a prepayment basis only.

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 that are considered as “high risk” 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

Carrying amount
		2020		2019
Trade receivables	$	4,784	$	14,802
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Carrying amount
		2020		2019
Canada	$	3,015	$	4,911
United States		1,769		9,891
Total	$	4,784	$	14,802

The Company’s most significant customer accounts for $589 of the trade receivables carrying amount at December 31, 2020 (2019 - $3,121). Impairment losses

The aging of trade receivables at the reporting date was:

The aging of trade receivables at the reporting date was:
		2020 Gross		2019 Gross
Not past due	$	4,541	$	11,375
Past due 61-90 days		84		2,534
Past due over 91 days		1,557		1,507
Total	$	6,182	$	15,416

The Company has a total allowance for impairment of $1,398 at December 31, 2020 (2019 - $641). The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

in respect of trade receivables during the year was as follows:
		2020		2019
Balance, beginning of year	$	641	$	384
Current year provisions		1,425		555
Reversals of losses previously recognized		(668)		(298)
Balance,end ofyear	$	1,398	$	641

At December 31, 2020 an impairment loss of $1,425 (2019 - $555) 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, based on historic payment behavior and an analysis of the underlying customers’ ability to pay.

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’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

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	Contractual		Under 6
December 31, 2020		amount		cash flow		months	6-12	months		1-2years		2-5years	Thereafter
Loans and borrow ings	$	1,560	$	1,560	$	-	$	-	$	1,560	$	-	$	-
Finance lease liabilities		17,518		21,645		1,513		1,513		2,801		8,013		7,805
Trade and other payables		4,425		4,425		4,425		-		-		-		-
Provision for settlement		153		153		77		76		-		-		-
	$	23,656	$	27,783	$	6,015	$	1,589	$	4,361	$	8,013	$	7,805

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’s income 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, primarily CAD, but 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.

The Company’s exposure to foreign currency risk related to USD denominated balances as follows:

The Company’s exposure to foreign currency risk related to USD denominated balances as follows:	The Company’s exposure to foreign currency risk related to USD denominated balances as follows:
USD 2020 2019
Cash 888 $ 3,938 $ Trade receivables 1,390 7,614 Trade payables (1,923) (6,364) Lease liabilities (3,997) (4,561) Provision for settlement (120) (240)
Total (3,762) $ 387 $
The following significant exchange rates applied during the year:
	2020 2019 December 31,2020 December 31,2019 1.35 $ 1.33 $ 1.27 $ 1.30 $ Average rate Reportingdate spot rate
USD$1 to CAD

Sensitivity analysis

A 10% strengthening of CAD against USD at December 31, 2020 would increase (decrease) equity and other comprehensive income by $475 (2019 - $(50)). The analysis assumes that all other variables, in particular interest rates remain constant. The analysis is performed on the same basis for 2019, albeit that the reasonably possible foreign exchange rate variances were different.

A weakening of CAD at December 31, 2020 would have had the equal but opposite effect on USD amounts, on the basis that all other variables remain constant.

Interest rate risk

At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments was:

Fixed rate carryingvalue Variable rate carryingvalue December 31, 2020	Fixed rate carryingvalue Variable rate carryingvalue December 31, 2019
Financial liabilities 18,028 $ 1,560 $	20,262 $ 6,000 $

Cash flow sensitivity analysis for variable rate instruments

A 1% increase in the Company’s financial institution’s lending rate would cause interest expense to increase by approximately $16 (2019 - $60) per annum based upon the balance of financial institution indebtedness and long-term debt with a floating interest rate outstanding as at December 31, 2020.

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 Company’s 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”) both of which are defined in the credit agreement.

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. In response to the overall decline in activity levels and profitability, the Company implemented a number of cost cutting initiatives to protect the Company’s balance sheet.

The Company’s loans and borrowings to total capitalization and Credit Agreement EBITDA ratios at the end of the reporting period are disclosed in note 14.

The Company has entered into discussions with its lender to amend or extend the revised covenants under its credit facility for the remainder of 2021.

There were no changes in the Company’s approach to capital management during the year.