ACT Energy Technologies Ltd. — Audit Report / Information 2023

Mar 27, 2024

MANAGEMENT’S REPORT

The consolidated financial statements have been prepared by the management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”) 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 Accounting Standards. The MD&A compares the audited financial results for the year ended December 31, 2023 and December 31, 2022.

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.

PricewaterhouseCoopers LLP and KPMG LLP, independent firms of chartered professional accountants, have examined the Company's consolidated financial statements for the year ended December 31, 2023 and December 31, 2022, respectively, in accordance with Canadian generally accepted auditing standards and provided independent professional opinions. The auditors have full and unrestricted access to the Audit Committee to discuss their audits and their related findings as to the integrity of the financial reporting process.

Signed: “ Tom Connors” Signed: “ Scott MacFarlane” Tom Connors P. Scott MacFarlane President and Chief Executive Officer Interim Chief Financial Officer Cathedral Energy Services Ltd. Cathedral Energy Services Ltd.

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Independent auditor’s report

To the Shareholders of Cathedral Energy Services Ltd.

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Cathedral Energy Services Ltd. and its subsidiaries (together, the Company) as at December 31, 2023 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards).

What we have audited

The Company’s consolidated financial statements comprise:

the consolidated statement of financial position as at December 31, 2023;

• the consolidated statement of comprehensive income for the year then ended;

• the consolidated statement of changes in shareholders’ equity for the year then ended;

• the consolidated statement of cash flows for the year then ended; and

• the notes to the consolidated financial statements, comprising material accounting policy information and other explanatory information.

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 Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

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

Independence

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

PricewaterhouseCoopers LLP Suncor Energy Centre, 111 5th Avenue South West, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T.: +1 403 509 7500, F.: +1 403 781 1825, Fax to mail: ca_calgary_main_fax@pwc.com

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

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Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter

Impairment assessment of goodwill associated with the U.S. Operations cash generating unit (CGU)

Refer to note 3 – Material accounting policies and note 8 – Intangible assets and goodwill to the consolidated financial statements.

The Company had goodwill of $40.0 million as at December 31, 2023, which entirely relates to the Company’s U.S. Operations CGU. Goodwill is not amortized but is tested for impairment at least annually, or more frequently, if certain indicators arise that indicate the goodwill might be impaired. An impairment loss is recognized if the carrying amount of a CGU exceeds its estimated recoverable amount. Management estimated the recoverable amount using discounted cash flows. Key assumptions used by management in the discounted cash flow model included the discount rate and the future growth rate in earnings before interest, taxes, depreciation and amortization (EBITDA). No impairment was recognized by management as a result of the 2023 impairment test.

How our audit addressed the key audit matter

Our approach to addressing the matter included the following procedures, among others:

Evaluated how management determined the recoverable amount of the goodwill associated with the U.S. Operations CGU, which included the following:

• Tested the appropriateness and the mathematical accuracy of the discounted cash flow model.

• Tested the underlying data used in the discounted cash flow model.

• Tested the reasonableness of the future growth rate in EBITDA by considering the current and past performance of the U.S. Operations CGU, management’s budget as approved by the Board of Directors, as well as external market and industry data.

• Professionals with specialized skill and knowledge in the field of valuation assisted in testing the reasonableness of the discount rate and the recoverable amount of the U.S. Operations CGU.

We considered this a key audit matter due to (i) the significance of the goodwill balance and (ii) the significant judgment by management in determining the recoverable amount of the U.S. Operations CGU, including the use of key assumptions. This has resulted in a high degree of subjectivity and audit effort in performing procedures to test the key assumptions. Professionals with specialized skill

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Key audit matter

How our audit addressed the key audit matter

and knowledge in the field of valuation assisted us in performing our procedures.

Valuation of developed technology and customer relationships acquired in the business combination of Rime Downhole Technologies, LLC (Rime)

Refer to note 3 – Material accounting policies and note 5 – Acquisitions to the consolidated financial statements.

Our approach to addressing the matter included the following procedures, among others:

Tested how management estimated the fair values of the acquired developed technology and customer relationships in the business combination of Rime, which included the following:

• Read the purchase agreement.

On July 11, 2023, the Company acquired Rime in exchange for the payment of $28.0 million in cash and the issuance of a principal amount of $24.6 million of subordinated exchangeable promissory notes. The acquisition was accounted for using the acquisition method, which requires that the identifiable assets acquired and the liabilities assumed are recorded at their respective fair values. The fair values of the identifiable assets acquired included $35.8 million of intangible assets, of which $28.5 million relates to developed technology and $6.9 million to customer relationships. To estimate the fair values, management used the following valuation techniques: with and without income approach to value the developed technology and the multiperiod excess earnings method to value the customer relationships. Key assumptions developed by management in the estimation of the fair values of the developed technology and customer relationships included forecasted revenues, gross margins and discount rates.

• Tested the mathematical accuracy of the underlying calculations.

Tested the underlying data used by management in the calculations used to determine the fair values of the acquired developed technology and customer relationships.

• Evaluated the reasonableness of key assumptions used by management related to forecasted revenues and gross margins by considering current and past performance of Rime, as well as external market and industry data.

• Professionals with specialized skill and knowledge in the field of valuation assisted in (i) evaluating the appropriateness of the valuation techniques, as well as (ii) assessing the reasonableness of the discount rates.

We considered this a key audit matter due to the significant judgment by management in estimating the fair values of the developed technology and customer relationships, including the development of key assumptions. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit

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Key audit matter How our audit addressed the key audit matter evidence relating to the key assumptions used by management. The audit effort involved the use of professionals with specialized skill and knowledge in the field of valuation.

Comparative information

The consolidated financial statements of the Company for the year ended December 31, 2022, excluding the adjustments that were applied to restate certain comparative information, were audited by another auditor who expressed an unmodified opinion on those consolidated financial statements on April 14, 2023.

As part of our audit of the consolidated financial statements for the year ended December 31, 2023, we also audited the adjustments applied to restate certain comparative information presented. In our opinion, such adjustments are appropriate and have been properly applied.

Other than with respect to the adjustments that were applied to restate certain comparative information, we were not engaged to audit, review, or apply any procedures to the consolidated financial statements for the year ended December 31, 2022. Accordingly, we do not express an opinion or any other form of assurance on those consolidated financial statements taken as a whole.

Other information

Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, which is expected to be made available to us after that date.

Our opinion on the consolidated 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 consolidated 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 consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

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Responsibilities of management and those charged with governance for the consolidated financial statements

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

In preparing the consolidated financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so.

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

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s 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 these consolidated financial statements.

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

• Identify and assess the risks of material misstatement of the consolidated 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 Company’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

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conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated 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 auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

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

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

We 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.

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s 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 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 independent auditor’s report is Reynold Tetzlaff.

/s/PricewaterhouseCoopers LLP

Chartered Professional Accountants

Calgary, Alberta March 26, 2024

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at December 31, 2023 and 2022

Canadian dollars in ‘000s

		As at	December 31,
		2023	2022
Assets
Current assets:
Cash	$	10,731 $	11,175
Trade receivables (note 19)		111,846	113,477
Prepaid expenses		5,839	4,529
Inventories(note 6)		44,976	26,195
Total current assets		173,392	155,376
Property, plant and equipment (note 7)		113,853	108,530
Intangible assets (note 8)		66,366	38,511
Right-of-use assets (note 9)		10,138	12,178
Goodwill(note 8)		39,984	39,395
Total non-current assets		230,341	198,614
Total assets	$	403,733 $	353,990
Liabilities and Shareholders’ Equity
Current liabilities:
Trade and other payables	$	93,661 $	90,389
Current taxes payable		1,425	909
Loans and borrowings, current (note 10)		21,023	15,735
Lease liabilities,current(note 9)		3,441	3,631
Total current liabilities		119,550	110,664
Loans and borrowings, long-term (note 10)		57,575	64,800
Exchangeable promissory notes (note 5)		23,923	—
Lease liabilities, long-term (note 9)		12,323	14,249
Deferred tax liability (note 14)		10,894	10,380
Total non-current liabilities		104,715	89,429
Total liabilities		224,265	200,093
Shareholders’ equity:
Share capital (note 11)		197,380	180,484
Treasury shares (note 5)		(709)	(959)
Exchangeable promissory notes (note 5)		1,242	—
Contributed surplus		17,002	15,854
Accumulated other comprehensive income		13,088	17,389
Deficit		(48,535)	(58,871)
Total shareholders’ equity		179,468	153,897
Total liabilities and shareholders’ equity	$	403,733 $	353,990

See accompanying notes to the consolidated financial statements.

Approved by the Directors:

Signed: “Tom Connors” Tom Connors Director

Signed: “Ian Brown”

Ian Brown

Director and Chair of the Audit Committee

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended December 31, 2023 and 2022

Canadian dollars in ‘000s except per share amounts

		Year	ended December 31,
		2023	2022
			(Revised - note 4)
Revenues (note 16)	$	545,297 $	319,013
Cost of sales:
Direct costs		(398,031)	(218,908)
Depreciation and amortization		(41,019)	(28,687)
Share-based compensation		(918)	(622)
Total cost of sales		(439,968)	(248,217)
Gross margin		105,329	70,796
Selling, general and administrative expenses:
Direct costs		(52,502)	(27,933)
Depreciation and amortization		(7,596)	(3,009)
Share-based compensation		(4,183)	(765)
Total selling, general and administrative expenses		(64,281)	(31,707)
Provision (note 17)		(5,417)	—
Research and development costs		(1,754)	(1,271)
Write-off of property, plant and equipment (note 7)		(4,952)	(2,545)
Gain on disposal ofproperty, plant and equipment(note 7)		618	116
Income from operating activities		29,543	35,389
Finance costs - loans and borrowings		(7,948)	(5,290)
Finance costs - lease liabilities		(848)	(784)
Foreign exchange gain (loss)		768	(2,180)
Acquisition and restructuringcosts		(1,328)	(4,174)
Income before income taxes		20,187	22,961
Income tax expense (note 14):
Current		(8,411)	(762)
Deferred		(1,148)	(3,852)
Total income tax expenses		(9,559)	(4,614)
Net income		10,628	18,347
Other comprehensive (loss) income
Foreign currency translation differences on foreign
operations		(4,301)	8,378
Total comprehensive income	$	6,327 $	26,725
Net incomeper share - basic and diluted(note 12)	$	0.04 $	0.11

See accompanying notes to the consolidated financial statements.

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Year ended December 31, 2023 and 2022

Canadian dollars in ‘000s

						Accumulated
						other		Total
		Share	Treasury	Contributed	comprehensive		shareholders’
		capital	Shares	surplus		income	Deficit	equity
Balance, December 31, 2021	$	98,918 $	— $	11,793	$	9,011 $ (77,218) $		42,504
Comprehensive income		—	—	—		8,378	18,347	26,725
Issued pursuant to private placements,
net of share issue costs (note 11)		27,813	—	3,075		—	—	30,888
Consideration for business combination,
net of share issue costs (note 5)		50,996	—	—		—	—	50,996
Treasury shares issued for business
combination (note 5)		959	(959)	—		—	—	—
Issued pursuant to warrant exercises		1,120	—	(180)		—	—	940
Issued pursuant to stock option
exercises		678	—	(221)		—	—	457
Share-based compensation		—	—	1,387		—	—	1,387
Balance,December 31,2022	$	180,484 $	(959)$	15,854	$	17,389 $(58,871)$		153,897

								Accumulated
			Exchangeable					other		Total
	Share		Treasury	Promissory	Contributed		comprehensive		shareholders’
	capital		Shares	(“EP”)Notes		surplus		income	Deficit	equity
Balance, December 31, 2022	$ 180,484	$	(959) $	—	$	15,854	$	17,389	$ (58,871) $	153,897
Comprehensive (loss) income	—		—	—		—		(4,301)	10,628	6,327
EP notes issued for business
combination (note 5)	—		—	1,242		—		—	—	1,242
Repurchased pursuant to normal
course issuer bid (note 11)	(3,501)		—	—		—		—	(292)	(3,793)
Cancelled pursuant to
acquisition-related settlement	(168)		—	—		—		—	—	(168)
Contributed surplus on treasury
shares vesting (note 5)	—		250	—		(250)		—	—	—
Issued pursuant to warrant
exercises	19,840		—	—		(3,433)		—	—	16,407
Issued pursuant to stock option
exercises	725		—	—		(270)		—	—	455
Share-based compensation	—		—	—		5,101		—	—	5,101
Balance,December 31,2023	$ 197,380	$	(709)$	1,242	$	17,002	$	13,088	$(48,535)$	179,468

See accompanying notes to the consolidated financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 2023 and 2022

Canadian dollars in ‘000s

		Year	ended December 31,
		2023	2022
			(Revised - note 4)
Cash provided by (used in):
Operating activities:
Net income	$	10,628 $	18,347
Non-cash adjustments:
Income tax expense		9,559	4,614
Depreciation and amortization		48,615	31,696
Share-based compensation		5,101	1,387
Gain on disposal of property, plant and equipment		(618)	(116)
Write-off of property, plant and equipment		4,952	2,545
Write-down of inventory included in cost of sales		1,501	107
Finance costs - loans and borrowings		7,948	5,290
Finance costs - lease liabilities		848	784
Income tax (paid) refund		(5,479)	538
Unrealized foreign exchange(gain)loss on intercompanybalances		(930)	1,802
		82,125	66,994
Changes in non-cash operatingworkingcapital(note 15)		(12,141)	(27,113)
Cash flow - operatingactivities		69,984	39,881
Investing activities:
Cash paid on acquisitions, net of cash acquired (note 5)		(27,426)	(104,581)
Property, plant and equipment additions		(46,177)	(26,397)
Intangible asset additions		(256)	(1,464)
Proceeds on disposal of property, plant and equipment		1,187	1,678
Changes in non-cash investingworkingcapital(note 15)		2,730	(660)
Cash flow - investingactivities		(69,942)	(131,424)
Financing activities:
Advances of loans and borrowings, net of upfront financing fees		28,805	115,939
Repayments on loans and borrowings		(31,017)	(41,438)
Payments on lease liabilities, net of finance costs		(3,535)	(3,134)
Interest paid		(8,205)	(6,074)
Common shares purchased pursuant to normal course issuer bid		(3,793)	—
Proceeds on common share and warrant issuances,net of issuance costs		16,862	32,285
Cash flow - financing activities		(883)	97,578
Effect of exchange rate on changes on cash		397	2,242
Change in cash		(444)	8,277
Cash,beginningofyear		11,175	2,898
Cash,end ofyear	$	10,731 $	11,175

See accompanying notes to the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. REPORTING ENTITY

Cathedral Energy Services Ltd. (“LTD”) is a company domiciled in Canada, and along with its below noted subsidiaries, together, are referred to as the “Company” or “Cathedral”. The Company is a publicly traded company listed on the Toronto Stock Exchange (“TSX”) under the symbol “CET”. The consolidated financial statements of the Company as at and for the year ended December 31, 2023 and 2022 are comprised of the following 100% owned subsidiaries:

• 2438155 Alberta Ltd.;

• LEXA Drilling Technologies Inc. (“LEXA”);

• CET Holdco Inc. (“Holdco”) - new subsidiary in 2023;

• CET Flight Holdco, Inc. (“Flight”);

• Cathedral Energy Services Inc. (“INC”);

• Rime Downhole Technologies, LLC (“Rime”);

• Altitude Energy Holdco, LLC (“AEH”); and

• Altitude Energy Partners, LLC (“Altitude”).

The Company is primarily involved and engaged in the business of providing directional drilling services to oil and natural gas companies in Western Canada and the United States (“U.S.”).

LTD has a functional currency of Canadian dollars (“CAD”) while Holdco, Flight, INC, Rime, AEH and Altitude are incorporated in the U.S. and have a functional currency of United States dollars (“USD”).

2. BASIS OF PREPARATION

The consolidated financial statements for the years ended December 31, 2023 and 2022 (the “financial statements”) have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). The financial statements were authorized for issue by the Board of Directors on March 26, 2024.

The financial statements have been prepared on the historical cost basis. Certain figures in the comparative year have been reclassified to conform with the current year presentation (note 4).

Functional and presentation currency

These financial statements are presented in CAD (tabular amounts in thousands), except for per share and warrant amounts, which is the Company’s presentation and functional currency.

Use of estimates and judgments

The preparation of the financial statements in conformity with IFRS Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts in the financial statements. 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.

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

i) Fair values

A number of Cathedral’s accounting policies and disclosures require the determination of fair value, for both financial and nonfinancial assets, liabilities and equity. Typically, fair values would be determined based on the present value of future cash flows, discounted at the market rate of interest at the reporting date. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that specific estimate.

The fair value of the share options and warrants 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, the expected dividends, forfeiture rate per annum and the risk-free interest rate (based on government bonds).

ii) Acquisition accounting

The determination of fair value is estimated based on information available at the date of acquisition and requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of property, plant and equipment, intangible assets, goodwill, lease obligations and right-of-use assets, and deferred tax assets and liabilities generally require significant judgment. Future net income will be affected as the fair value on initial recognition impacts future depreciation and amortization, asset impairment or reversal, or goodwill impairment.

The Company engaged independent third-party valuation experts to assist in estimating the fair value of the acquired goodwill and intangible assets acquired from Altitude, Discovery and Rime. The income approach has been used to estimate the fair value of certain intangible assets using the forecasts prepared by management. The measurement of the estimated fair value of acquired intangible assets was based on several significant assumptions, including future cash flows associated with the acquired assets, discount rates, customer attrition rates and royalty rates (note 5). In addition, the independent valuation experts assisted

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

management with the fair value of the exchangeable promissory notes issued for the Rime acquisition (note 5). Changes to these assumptions could have resulted in a significant impact to the fair value of intangible assets and goodwill acquired.

The Company engaged an independent third-party valuation expert to assist in estimating the fair value of the acquired property, plant and equipment acquired from Altitude. The Company used appraisals available for comparable assets in estimating the fair value of the acquired property, plant and equipment for Discovery, Compass, and Ensign at the acquisition date.

The measurement of the estimated fair value of acquired property, plant, and equipment is based on a combination of approaches, including the market approach, which applies significant assumptions related to the price at which comparable assets would be sold. Changes to these assumptions could have resulted in a significant impact to the fair value of property, plant and equipment acquired.

iii) Income taxes

The computation of income taxes involves many complex factors as well as the Company’s interpretation of relevant tax legislation and regulations. The Company’s 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.

The Company determines its deferred tax asset and liabilities using temporary differences between the accounting basis and the tax basis of its assets and liabilities, which are measured using substantively enacted tax rates and laws expected to apply when these differences reverse. As a result, an estimated projection of taxable income, as well as an assumption of the ultimate recovery/ settlement period for the temporary differences is required.

The Company must also determine if various tax pool amounts should be recorded as a deferred tax asset based on their availability for future use and future tax status based on management’s expectations. The Company also reviews all tax assessments to determine which are deemed more likely than not to result in a change in provision. As such, the provisions for current and deferred income taxes are subject to measurement uncertainty.

iv) Contingent liabilities

Provisions are recognized in accrued liabilities when the Company has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value as applicable. In addition, the Company performs reviews to identify onerous contracts and, where applicable, records provisions for such contracts.

v) Impairments

Property, plant and equipment, inventory, goodwill and intangible assets are assessed for impairment when there is indication their carrying amounts may exceed the recoverable amounts. Significant judgement is required to assess when indicators of impairment exist, and impairment testing is required. The assessment of indicators of impairment is based on management’s judgment of whether there are internal and external factors. These factors include future cash flows, expected industry activity levels and commodity price developments. Goodwill impairment is tested on an annual basis.

Impairment tests are carried out at the level of the smallest group of assets that generates cash inflows from their continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”). The determination of a CGU is also based on management’s judgment. The asset composition of a CGU can directly impact the recoverability of assets included within that CGU. Management has determined that the appropriate CGUs for the Company are the Canadian Operations and the U.S. Operations. The recoverable amounts of each CGU requires estimates and assumptions that are subject to change as new information becomes available. These include estimates of forecasted net income before interest, tax, depreciation and amortization; revenue 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.

Goodwill is allocated to a CGU or group of CGUs for impairment testing based upon the level at which it is monitored by management, and not at a level higher than an operating segment.

The Company’s corporate assets do not generate separate cash inflows and cash outflows are allocated to CGUs. 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.

Inventory is reviewed periodically in order to determine if there is obsolescence. A detailed impairment test is performed if indicators of impairment are present. Examples of potential impairment indicators are: i) changes in the operating environment, including an industry down-turn or Company specific activity decreases; ii) lower asset demand resulting in lower inventory turn-over; or iii) emergence of significant new product lines which are expected to impact an existing product’s utilization. In assessing any impairment, management considers historic use of the inventory item as well as estimates of future demand.

vi) Credit losses

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 (note 19). 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.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. MATERIAL ACCOUNTING POLICIES

This summary of material accounting policies is a description of the accounting methods and practices that have been used in the preparation of these consolidated financial statements and is presented to assist the reader in interpreting the statements contained herein. These accounting policies have been applied consistently to all entities within the consolidated group.

Consolidation

These consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company balances and transactions are eliminated on consolidation.

Business combinations

Business combinations are accounted for using the acquisition method at the acquisition date, which is the date that control is transferred to the Company. In assessing control, the Company takes into consideration potential voting rights that are currently exercisable.

Goodwill is measured as the excess of the sum of the fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of any previously held equity interest in the acquiree over the net of the acquisition date fair value of the identifiable assets acquired and the liabilities assumed. If the excess is negative, a bargain purchase gain is recognized immediately into net income. Transaction costs, other than those associated with the issuance of debt or equity, are recognized in net income as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured, and settlement is accounted for in equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in net income.

When the initial accounting for a business combination has not been finalized by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting has not been finalized. These provisional amounts are adjusted based on new facts and circumstances identified during the measurement period, which does not exceed one year from the acquisition date.

Goodwill

Goodwill arising in a business combination is recognized as an asset at the date that control is acquired. Goodwill is subsequently measured at cost less accumulated impairment losses. Goodwill is not amortized but is tested for impairment at least annually, or more frequently, if certain indicators arise that indicate the goodwill might be impaired. Goodwill is allocated to CGUs or group of CGUs that are expected to benefit from the acquisition.

Foreign currency

Foreign currency transactions

Foreign currency transactions are initially recorded in the Company’s functional currency by applying the exchange rate which best approximates the actual foreign exchange rate of transaction.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the Company’s functional currency at the foreign 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 foreign exchange rate at the date of the transaction.

Foreign operations

The assets and liabilities of foreign operations are translated to the Company’s functional currency at foreign exchange rates at the reporting date. The income and expenses of foreign operations are translated to the Company’s functional currency at foreign exchange rates at the dates of the transactions.

Foreign currency differences are recognized in other comprehensive income and cumulative amounts have been recognized in accumulated other comprehensive income (“AOCI”). When a foreign operation is disposed of, the relevant amount in AOCI is transferred to profit or loss.

Financial instruments

Financial assets and liabilities within the scope of IFRS 9 are classified as financial instruments 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 instruments at initial recognition, based on trade date. All financial instruments are recognized initially at fair value. The Company’s financial assets and liabilities include cash, trade receivables, trade and other payables, current taxes payable, lease liabilities, loans and borrowings and exchangeable promissory notes. All financial instruments are subsequently measured at amortized cost.

When measuring fair value of a financial instrument, fair values are categorized into three levels based on the valuation technique as follows:

• Level one – quoted prices that are available in active markets for identical financial instruments.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Level two – observable inputs other than quoted market prices are used to value the financial instruments. Level two valuations are based on inputs which can be substantially observed or corroborated in the marketplace.

• Level three – valuations are those with inputs for the financial instruments that are not based on observable market data.

After initial recognition, interest bearing loans and borrowings and exchangeable promissory notes are subsequently measured at amortized cost using the effective interest rate (“EIR”) method. The EIR amortization is included in interest expense in the consolidated statement of comprehensive income.

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. Gains and losses are recognized in the consolidated statement of comprehensive income when the liabilities are derecognized. When an existing financial liability is replaced by another with 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. A new liability is recognized, and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income.

Financial instruments are offset and the net amount reported in the consolidated statement 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.

Property, plant and equipment

Property, plant and equipment is measured at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition or construction of the assets. Directly attributable costs include related software, materials and labour, among other costs that may be incurred to bring the assets to their intended use and borrowing costs on qualifying assets.

Major components of property, plant and equipment which have different useful lives are accounted for separately. The replacement cost of a component is capitalized if it is probable that the future economic benefits exist and can be reliably estimated. The carrying amount of the replaced part is derecognized. Property, plant and equipment repair and maintenance costs are recognized in the consolidated statement of comprehensive income as incurred.

Depreciation is calculated over the depreciable amount, which is the accumulated cost of an asset or component 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.

Items of property, plant and 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%	Declining balance
Office and computer equipment	3 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 reporting period end date and adjusted if appropriate.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net within other income in the consolidated statement of comprehensive income. Equipment lost-in-hole or damaged beyond repair is written-off in the statement of comprehensive income in the period in which the event occurs.

Intangible assets

Intangible assets which arise from the acquisition of businesses, including developed technology, customer relationships, brand name, non-compete agreements and rotary steerable system (“RSS”) licenses have finite lives and are measured at cost less accumulated amortization and any accumulated impairment losses.

Development costs incurred internally related to the design of new or substantially improved products are capitalized if they 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 intangible asset 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. Expenditures on research activities undertaken with the prospect of gaining technical knowledge or other development activities are recognized in the consolidated statement of comprehensive income as incurred.

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.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Intangible assets are amortized over the following useful lives:

• Customer relationships – six years

• Brand name – fifteen years

• Non-compete agreements – five years

• RSS licenses – eight years

• Developed technology – five to twenty years

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first in, first out 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.

Impairment

Financial assets

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.

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.

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 CGUs recoverable amount is estimated.

The recoverable amount of an asset or CGU 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.

The Company’s corporate assets do not generate separate cash inflows and cash outflows are allocated to CGUs. 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 a 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 CGU, and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

Goodwill is tested on an annual 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.

Employee benefits

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 one year after the reporting period, then they are discounted to their present value.

Short-term employee benefits

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

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 liability can be estimated reliably.

Share-based payment transactions

The fair value of share-based payment awards granted to employees, directors and consultants is recognized as a expense on the grant date, with a corresponding increase in contributed surplus, over the vesting period. The amount recognized in the statement of comprehensive income is adjusted to reflect the number of awards for which the related service conditions are expected to be met.

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 measured at fair market value.

Revenues

Cathedral primarily generates its revenues by providing directional drilling services which includes providing personnel and/or equipment. Services are provided based upon a price book or bid on a day rate or footage/meterage rate. The Company recognizes revenues as the services are performed in accordance with the terms of the services engagement with the customer. In addition, the Company recognizes reimbursements from customers related to equipment lost-in-hole or damaged beyond repair as revenues when the event occurs at a price contracted with the customer.

It is the Company’s view that its performance obligation is providing directional drilling services on a per day or per foot/meter basis and our customers benefit from each day of drilling. The Company may also charge for mobilization/demobilization of personnel and equipment as well as materials and consumables used in the services and for equipment that is involuntarily damaged or lostin-hole.

The Company also generates revenues through the design and manufacturing of certain directional drilling tool components as well as servicing such components for its customers. The Company recognizes revenues at the point in time as the products are delivered and the control of the product has transferred to the customer. The Company accounts for individual product revenues separately, if they are distinct, indicated by being separately identifiable from other obligations to its customers.

In cases where the customer terminates the service engagement early, the Company has an enforceable right to payment for services rendered to date. The Company’s performance obligation is generally short-term in nature, ranging from a few days to multiple weeks. Customers are issued invoices upon the completion of a well with payment terms ranging from thirty to sixty days of the customer’s receipt of an invoice.

Finance income and costs

Finance costs comprise interest expense on loans and borrowings, exchangeable promissory notes, lease liabilities, bank charges and other interest. 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.

Any gain or loss on a substantial modification of loans and borrowings and unamortized upfront financing fees are recognized on the amendment date as finance costs. In the event that a modification is not considered substantial, as defined under IFRS 9, upfront financing fees are recognized net of the amended loans and borrowing carrying amount. The upfront financing fees are amortized as finance costs over the term of the loans and borrowings using the effective interest rate method.

Leases

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 direct the use of the identified assets throughout the period of use. 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 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.

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.

Management has utilized exemptions for certain low-value items and short-term leases whereby the lease term is less than one year. Lease payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated statement of comprehensive income.

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.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Income tax

Current and deferred tax expense 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 expense is the expected taxes 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 taxes payable in respect of previous years.

Deferred tax expense 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 expense 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 expense is not recognized for 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 expense is not recognized for taxable temporary differences arising on the initial recognition of goodwill.

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 also 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.

Net income per share

Basic and diluted net income per share is calculated by dividing the net income or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted net income per share is determined by adjusting the net income 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 of the EP Notes, share options granted to employees, directors and consultants and warrants.

Changes in accounting policy

On January 1, 2023, the Company adopted Deferred Tax related to Assets and Liabilities arising from a Single Transaction, issued by the International Accounting Standards Board as an amendment to IAS 12 Income Taxes. This amendment requires entities to recognize deferred tax on transactions at initial recognition, resulting in equal amounts of taxable and deductible temporary differences. In pursuant with this amendment, the Company adopted the Pillar Two Model Rules that provides an exception that an entity does not recognize and (or) disclose information about deferred tax assets and liabilities related to the Pillar Two Income taxes. There was no material impact on the Company’s financial statements for the adoption of this amended standard.

Accounting standards and amendments not yet effective

Effective January 1, 2024, IAS 1 - Presentation of Financial Statements, has been amended, resulting in changes to the classification of loans and borrowings as current or non-current. The amendment will help determine whether an entity has the right to defer settlement of a liability, that is subject to covenants, within twelve months following the reporting period. The Company does not expect this amendment to have a material impact on the Company’s financial statements following adoption.

Other accounting pronouncements issued, but not yet effective, in the period include: IFRS 7 Financial instruments: Disclosures, IFRS 16 Leases, IAS 7 Statement of Cash Flows, and IAS 21 The Effects of Changes in Foreign Exchange Rates. None of the new or amended standards issued are expected to have a significant impact on the Company’s financial statements.

4. RECLASSIFICATIONS

The Company has changed the presentation of certain figures in the year ended December 31, 2022 related to equipment lost-inhole reimbursements collected from customers and the corresponding derecognition of the property, plant and equipment (“PP&E”).

More specifically, the Company reclassified its gain on disposal of PP&E as follows: a) reclassified the proceeds on disposal of PP&E to revenues and b) recognized a write-off of PP&E for the net book value of the lost-in-hole equipment on the consolidated statement of comprehensive income. In addition, proceeds on disposal of property, plant and equipment were reclassified from the Company’s cash flows - investing activities to the cash flows - operating activities on the consolidated statement of cash flows.

The Company has changed its judgement regarding equipment lost-in-hole events that are contracted with its customers in that these events are now considered to be part of its ordinary business activities. The changes are reflected in the current and prior periods, as described above.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These reclassifications recognized in the year ended December 31, 2022 are summarized below:

Consolidated Statement of Comprehensive Income (Excerpt)

Consolidated Statement of Comprehensive Income (Excerpt)
			Year ended December		31, 2022
		Reported		Adjustment	Adjusted
Revenues:
Canada	$	117,683	$	3,833 $	121,516
United States		180,718		16,779	197,497
Total revenues		298,401		20,612	319,013
Cost of sales		(243,419)		(4,798)	(248,217)
Gross margin		54,982		15,814	70,796
Write-off of property, plant and equipment		—		(2,545)	(2,545)
(Loss) gain on disposal ofproperty, plant and equipment	$	13,492	$	(13,376)$	116

Consolidated Statement of Cash Flows (Excerpt)

			Year ended December	Year ended December	31, 2022
		Reported		Adjustment	Adjusted
Cash flow provided by (used in):
Operating activities
Write-off of property, plant and equipment	$	—	$	2,545 $	2,545
Loss (gain) on disposal of property, plant and equipment		(13,492)		13,376	(116)
Cash flow - operatingactivities		23,960		15,921	39,881
Investing activities
Property, plant and equipment additions		(30,894)		4,497	(26,397)
Proceeds on disposal of equipment		21,795		(20,117)	1,678
Cash flow - investing activities		(115,804)		(15,620)	(131,424)
Effect of exchange rate on changes on cash	$	2,543	$	(301)$	2,242

5. ACQUISITIONS

A summary of the acquisitions for the year ended December 31, 2023 and 2022 are as follows:

2023 Rime	2022
	Discovery Compass LEXA Altitude Ensign Total 2022
Consideration:
Number of common shares issued —	5,254,112 6,253,475 1,772,727 67,031,032 7,017,988 87,329,334
Common share price of issuances —	0.52 0.69 0.63 0.55 0.85
Common share consideration $ —	$ 2,732 $ 4,315 $ 1,117 $ 36,867 $ 5,965 $ 50,996
Exchangeable promissory notes 24,632	— — — — — — — — 644 — — 644
Settlement of technology license from pre-existing relationship —
Cash consideration 27,954	18,160 4,000 — 87,245 — 109,405
$ 52,586	$ 20,892 $ 8,315 $ 1,761 $ 124,112 $ 5,965 $ 161,045
Allocation of purchase price:
Cash $ 528 Inventory 7,119 Other net working capital 3,373 Property, plant and equipment 3,817 Right-of-use assets 492 Lease liabilities (492) Intangible assets 35,850 Goodwill 1,487 Deferred tax asset (liability) 412	$ — $ — $ 70 $ 4,754 $ — $ 4,824
	3,301 444 — 8,768 1,790 14,303
	— — 291 (1,068) — (777)
	17,591 8,518 — 43,667 4,175 73,951
	1,579 316 — 2,354 — 4,249
	(1,579) (316) — (2,354) — (4,249)
	— — 1,574 35,720 — 37,294
	— — — 37,753 — 37,753
	— (647) (174) (5,482) — (6,303)
$ 52,586	$ 20,892$ 8,315$ 1,761$ 124,112$ 5,965$ 161,045

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rime Downhole Technologies, LLC

On July 11, 2023, Cathedral, through a wholly-owned subsidiary, acquired Rime, a privately-held, Texas-based, engineering business that specializes in building products for the downhole measurement-while-drilling (“MWD”) industry (the “Rime acquisition”) in exchange for approximately USD $41 million (approximately CAD $54.1 million) comprised of: i) the payment of USD $21 million in cash (approximately CAD $28 million); and ii) the issuance of principal amount of USD $20 million (approximately CAD $24.6 million) of subordinated exchangeable promissory notes (“EP Notes”) that are exchangeable into a maximum of 24,570,000 common shares in the capital of Cathedral (“EP Shares”) at an issue price of CAD $1.10 per common share. In accordance with IAS 32 and IFRS 13, the EP notes were determined to be a compound instrument and, accordingly, recognized at the fair value for its respective debt component of $23.4 million and equity component of $1.2 million totaling $24.6 million.

The EP Notes have a three-year term and accrue interest payable quarterly at a rate of 5% per annum. Any time prior to expiry of the EP Notes, if the 20-day volume weighted average trading price of the common shares of Cathedral equals or exceeds CAD $1.10 per common share, Cathedral may cause the exchange of the EP Notes for common shares. Cathedral and the holders of the EP Notes may agree to an earlier exchange of the EP Notes into common shares. In addition to the statutory hold periods applicable to the EP Shares under Canadian and U.S. securities laws, the parties agreed to contractual restrictions on resale of any EP Shares as follows: 33% of the EP Shares are restricted until July 11, 2024; a further 33% of the EP Shares are restricted until July 11, 2025; and a further 34% of the EP Shares are restricted until July 11, 2026, subject to certain exceptions contained in the terms governing the EP Notes.

The fair value of the EP notes of $24.6 million was determined by an independent valuation expert using the Monte Carlo valuation method and the geometric Brownian motion under two scenarios: 1) the issuer will convert the EP notes when the share price reaches $1.10 per common share and 2) the EP notes are held until maturity and settled in cash. Key inputs and assumptions, such as the Company’s credit spread and the volatility of the common shares, were applied in the valuation model. The EP notes will be recognized using the amortized cost method subsequent to initial recognition. The EP notes carrying value at December 31, 2023 was $23.9 million.

The Company expensed $1.0 million in costs related to this transaction.

The fair values of the intangible assets were determined by a valuation expert in accordance with IFRS 13 as summarized below.

Intangible assets	Fair	value	Valuation technique	Keyinputs and assumptions	Keyinputs and assumptions
Developed technology	$	28,480	With and without income approach	–	Forecasted revenues;
Customer relationships		6,890	Multi-period excess earnings method	– –	Gross margins; Discount rate.
Brand name		290	Relief from royalty method
Non-compete agreements		190	With and without income approach
Total	$	35,850

The accounts receivable (included in other net working capital) was recognized at fair market value, and as of the acquisition date, were deemed to be fully collectible within a twelve month period. As such, the acquired accounts receivable have been classified as a current asset.

The goodwill recognized is related to expected synergies with the Company’s existing operations, including the use and development of components for the Company’s downhole MWD product offering. The goodwill is fully deductible over fifteen years for tax purposes.

The purchase price allocation related to the acquisition is preliminary and may be subject to adjustments, which may be material. Changes in the provisional measurements of assets and liabilities acquired may be recorded as part of the purchase price allocation as new information is obtained, until the final measurements are determined no later than twelve months after the acquisition date. Fair value is estimated using the latest available information as at the date of the financial statements. As a result, the preliminary purchase price allocation may change.

During the period from July 11, 2023 to December 31, 2023, Rime generated revenues of $9.3 million and net income of $0.2 million.

Assuming the Rime acquisition was effective on January 1, 2023, Rime generated revenues of $30.3 million and net income of $6.5 million for the year ended December 31, 2023. The estimates and judgements used to prepare these figures may not be representative of actual results.

Discovery Downhole Services

On February 10, 2022, the Company acquired the operating assets of Discovery Downhole Services (“Discovery”). The acquisition included the operating assets and non-executive personnel of Discovery's U.S.- based, high-performance mud motor technology rental business. Cathedral paid $18.2 million in cash consideration and issued 5,254,112 common shares valued at $0.52 per common share for total consideration of $20.9 million. In addition to a four-month statutory hold period on the common shares, the parties have agreed to contractual restrictions on resale as follows: 25% were restricted until February 10, 2023; a further 25% are restricted until August 10, 2023; and a further 50% are restricted until February 10, 2024, subject to certain exceptions.

For the period from February 10, 2022 to December 31, 2022, the assets acquired generated revenues of $31.8 million and net income of $14.4 million.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assuming the Discovery acquisition was effective on January 1, 2022, Discovery generated revenues of $34.1 million and net income of $15.1 million for the year ended December 31, 2022. The estimates and judgements used to prepare these figures may not be representative of actual results.

The Company expensed $0.1 million in costs related to this transaction.

LEXA Drilling Technologies Inc.

On June 17, 2022, the Company purchased 90.98% of LEXA Drilling Technologies Inc. (“LEXA”), a Calgary-based, downhole technology company through the issuance of 1,612,891 common shares of Cathedral valued at $0.63 per common share. On July 19, 2022, the Company purchased the remaining 9.02% shares of LEXA for 159,836 common shares of Cathedral valued at $0.63 per common share. The common shares were subject to a four-month restriction period. In summary, total consideration of $1.1 million was paid through the issuance of 1,772,727 common shares of Cathedral valued at $0.63 per common share. In addition, the Company recognized settlement of a technology license from a pre-existing relationship for consideration of $0.6 million.

LEXA and Cathedral were parties to a technology licensing agreement under which LEXA allowed Cathedral access to specific technologies. This pre-existing relationship was effectively settled when Cathedral acquired LEXA, in accordance with IFRS 3 Business Combinations. The amount paid for the pre-existing contract was attributed to consideration transferred and recognized as an intangible asset. No gain or loss was recorded on this deemed settlement.

The Company expensed $0.1 million in costs related to this transaction.

Compass Directional Services Ltd.

On June 22, 2022, the Company acquired the operating assets of Compass Directional Services Ltd. (“Compass”). Cathedral paid $4.0 million in cash consideration and issued 6,253,475 common shares valued at $0.69 per common share for total consideration of $8.3 million. In addition, 1,389,664 common shares were issued as treasury shares valued at $1.0 million and are subject to contractual restrictions vesting over four years on the anniversary of the acquisition. At December 31, 2023, there were 1,042,248 treasury shares outstanding valued at $0.7 million. The compensation expense related to these treasury shares will be recognized over the vesting period.

The Company expensed $0.2 million in costs related to this transaction.

Altitude Energy Partners, LLC

On July 13, 2022, the Company through its wholly owned U.S. subsidiary, Flight, closed the acquisition of Altitude through payment of cash in the amount of $87.2 million and the issuance of 67,031,032 common shares of Cathedral for total consideration of $124.1 million. The common shares are subject to contractual restrictions on resale over a period of four to sixty months.

Altitude was a privately-held, U.S.- based, directional drilling services business with headquarters in Wyoming, executive leadership based in Houston, and significant operations in Texas, most prominently in the Permian Basin. The Company continues to use the Altitude name and brand in the U.S. Cathedral’s former U.S. directional drilling business has been integrated into Altitude’s business.

The Company acquired intangible assets of $35.7 million as part of the acquisition including customer relationships, non-compete agreements and brand name. The goodwill of $37.8 million recorded for the Altitude acquisition consists mainly of the value of the expertise and reputation of the assembled workforce acquired, future growth opportunities, the geographic location of the acquiree and potential synergies arising in the form of cost savings.

For the period of July 14, 2022 to December 31, 2022, the acquired entity generated revenues of $149.5 million and net income of $18.6 million.

Assuming the AEP acquisition was effective on January 1, 2022, AEP generated revenues of $279.8 million and net income of $26.0 million for the year ended December 31, 2022. The estimates and judgements used to prepare these figures may not be representative of actual results.

The Company expensed $1.4 million in costs related to this transaction.

Ensign Energy Services Canadian directional drilling business

On October 26, 2022, the Company acquired the operating assets and personnel of Ensign Energy Services’ Canadian directional drilling business for consideration of $6.0 million through the issuance of 7,017,988 common shares of Cathedral. In addition to a four-month statutory hold period, the common shares are subject to contractual restrictions of resale as follows: 25% were restricted until April 26, 2023; a further 25% were restricted until October 26, 2023; and a further 50% are restricted until October 26, 2024, subject to certain exceptions.

Due to the acquired assets related to the Discovery, Compass, Lexa and Ensign acquisitions being integrated in to Cathedral’s existing directional drilling business it is impractical to disclose the revenues and net income from all business acquisitions in 2022 as if the business combinations had been completed on January 1, 2022.

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. INVENTORIES

The Company’s inventories comprise of raw materials and consumables. For the year ended December 31, 2023, raw materials and consumables recognized as cost of sales were $50.0 million (2022 - $29 million). For the year ended December 31, 2023, the Company recorded a write-down for obsolete inventory of $1.5 million (2022 – $0.1 million).

7. PROPERTY, PLANT AND EQUIPMENT

		Directional	Shop and
Cost		drilling equipment	automotive equipment	Other	Total
Balance, December 31, 2021	$	75,364 $	3,517 $	1,146 $	80,027
Additions		24,130	1,660	881	26,671
Acquisitions (note 5)		69,532	3,885	534	73,951
Disposals and write-offs		(6,022)	—	(387)	(6,409)
Effects of movements in exchange rates		1,812	203	38	2,053
Balance, December 31, 2022	$	164,816 $	9,265 $	2,212 $	176,293
Additions		39,822	2,235	4,097	46,154
Acquisitions (note 5)		3,199	79	539	3,817
Disposals and write-offs		(10,785)	(697)	—	(11,482)
Effects of movements in exchange rates		(1,448)	(143)	(108)	(1,699)
Balance,December 31,2023	$	195,604 $	10,739 $	6,740 $	213,083
		Directional	Shop and
Accumulated depreciation		drilling equipment	automotive equipment	Other	Total
Balance, December 31, 2021	$	42,192 $	1,998 $	793 $	44,983
Depreciation		24,149	763	184	25,096
Disposals and write-offs		(2,040)	—	(386)	(2,426)
Effects of movements in exchange rates		75	30	5	110
Balance, December 31, 2022	$	64,376 $	2,791 $	596 $	67,763
Depreciation		35,535	1,573	769	37,877
Disposals and write-offs		(5,613)	(348)	—	(5,961)
Effects of movements in exchange rates		(389)	(42)	(18)	(449)
Balance,December 31,2023	$	93,909 $	3,974 $	1,347 $	99,230
		Directional	Shop and
		drilling	automotive
Net book values		equipment	equipment	Other	Total
Balance, December 31, 2022	$	100,440	6,474	1,616 $	108,530
Balance,December 31,2023	$	101,695	6,765	5,393 $	113,853

During the year ended December 31, 2023, the Company recognized a write-off of property, plant and equipment of $5.0 million (2022 - $2.5 million) related to equipment lost-in-hole and damaged beyond repair and a gain on disposal of property, plant and equipment of $0.6 million (2022 - $0.1 million).

As at December 31, 2023 and 2022, management determined no indicators of impairment existed.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. INTANGIBLE ASSETS AND GOODWILL

Intangible assets

Intangible assets
					Non-
		Customer	Brand		Compete	RSS	Developed
Cost	Relationships		Name	Agreements		Licenses	Technology	Total
Balance, December 31, 2021	$	— $	—	$	— $	— $	3,763 $	3,763
Additions		—	—		—	1,429	49	1,478
Acquisitions (note 5)		21,562	6,754		747	6,657	1,574	37,294
Effects of movements in exchange
rates		938	294		32	333	—	1,597
Balance, December 31, 2022	$	22,500 $	7,048	$	779 $	8,419 $	5,386 $	44,132
Additions		—	—		—	—	257	257
Acquisitions (note 5)		6,890	290		190	—	28,480	35,850
Effects of movements in exchange
rates		(494)	(161)		(17)	(193)	93	(772)
Balance,December 31,2023	$	28,896 $	7,177	$	952 $	8,226 $	34,216 $	79,467

					Non-
		Customer	Brand		Compete	RSS	Developed
Accumulated amortization	Relationships		Name	Agreements		Licenses	Technology		Total
Balance, December 31, 2021	$	— $	—	$	— $	— $		2,272 $	2,272
Amortization		1,697	213		71	452		851	3,284
Effects of movements in exchange rates		46	6		1	12		—	65
Balance, December 31, 2022	$	1,743 $	219	$	72 $	464 $		3,123 $	5,621
Amortization		4,375	495		173	1,048		1,578	7,669
Effects of movements in exchange rates		(123)	(14)		(5)	(30)		(17)	(189)
Balance,December 31,2023	$	5,995 $	700	$	240 $	1,482 $		4,684 $	13,101
					Non-
		Customer	Brand		Compete	RSS		Developed
Net book values	Relationships		Name	Agreements		Licenses	Technology		Total
Balance, December 31, 2022	$	20,757 $	6,829	$	707 $	7,955	$	2,263 $	38,511
Balance,December 31,2023	$	22,901 $	6,477	$	712 $	6,744	$	29,532 $	66,366
Remainingamortization inyears		4.6	12.4		3.7	6.4		11.7	7.1

Goodwill

The Company recognized goodwill of $1.5 million and $37.8 million related to the Rime and Altitude acquisitions (note 5) during the year ended December 31, 2023 and 2022, respectively. Goodwill was reduced by $1.0 million and increased by $1.6 million due to the effects of movements in exchange rates during the year ended December 31, 2023 and 2022, respectively. The goodwill carrying value was $40.0 million and $39.4 million as at December 31, 2023 and 2022, respectively.

An impairment test on goodwill was carried out as at December 31, 2023. The goodwill has been allocated entirely to the Company’s U.S. Operations CGU. The recoverable amount of this CGU was estimated using discounted cash flows. The fair value measurement was categorized as level three fair value based on the inputs in the valuation technique used.

The key assumptions used in the estimation of the recoverable amount are as follows: future growth rate in earnings before interest, taxes, depreciation and amortization (“EBITDAS”) and the discount rate based on the Company’s estimated after-tax weighted average cost of capital of 19.7%.

No impairment was recognized as a result of the 2023 impairment test.

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

Right-of-use assets

		2023		2022
Balance, January 1,	$	12,178	$	10,520
Additions		1,193		447
Acquisitions		492		4,249
Derecognition		(97)		—
Impact of leasehold incentives		(495)		—
Amortization		(3,058)		(3,317)
Effects of movements in exchange rates		(75)		279
Balance,December 31,	$	10,138	$	12,178

Lease liabilities

Lease liabilities
		2023		2022
Balance, January 1,	$	17,880	$	15,760
Acquisitions		492		4,249
Additions		1,232		487
Derecognition		(54)		—
Interest		848		784
Payments		(4,420)		(3,982)
Effects of movements in exchange rates		(171)		582
Balance, December 31,	$	15,764	$	17,880
Less: currentportion		(3,441)		(3,631)
Lease liabilities,long-term	$	12,323	$	14,249

The Company holds leases related to certain operations and office facilities. The leases have various expiry dates ranging from January 2025 to March 2030.

10. LOANS AND BORROWINGS

	December 31,	December 31,	December 31,
Balance,		2023	2022
Revolving Operating Facility	$	1,560 $	—
Syndicated Operating Facility		—	13,000
CAD Syndicated Term Facility, net of unamortized upfront financing fees		51,386	66,600
USD Syndicated Term Facility, net of unamortized upfront financing fees		24,829	—
HASCAP loan		823	935
Total loans and borrowings	$	78,598 $	80,535
Less: HASCAP loan, current		(823)	(935)
Less: CAD Syndicated Term Facility, current		(13,619)	(14,800)
Less: USD Syndicated Term Facility,current		(6,581)	—
Loans and borrowings,current	$	(21,023)$	(15,735)
Loans and borrowings,long-term	$	57,575 $	64,800

As of January 1, 2022, the Company held a bank credit facility agreement with ATB Financial (“ATB”) for a principal amount of $12 million, which was set to expire on June 30, 2023 and bore 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. On February 10, 2022, the Company entered into an Amended and Restated Credit Agreement with ATB (“Credit Agreement”) which consisted of a $12 million operating facility and a term loan for the Canadian equivalent amount of USD $14.3 million (CAD $17.9 million). The term loan was fully drawn on closing and amortized over five years with monthly principal repayments of $0.3 million. On April 25, 2022, the Company used private placement proceeds to repay a portion of the term loan principal of $8.8 million.

On July 13, 2022, the Company amended its Credit Agreement with ATB as lead arranger and administrative agent, with a syndicate of banks including Canadian Western Bank, HSBC Bank Canada and The Toronto Dominion Bank (the “Syndicated Facility”). The Syndicated Facility was a three-year $99 million credit facility comprised of: i) a $74 million term loan (“Syndicated Term Facility”), ii) a $15 million revolving borrowing base loan (“Syndicated Operating Facility”) and iii) a $10 million revolving operating facility (“ Revolving Operating Facility”), all of which was set to expire in July 2025. The Syndicated Term Facility is subject to quarterly

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

principal payments of $3.7 million. On July 13, 2022, the Company fully drew on its $74 million Syndicated Term Facility to fund the Altitude acquisition. The Company incurred fees of $1.5 million related to the Syndicated Facility which were recognized as finance costs during the year ended December 31, 2022. The Syndicated Facility bears interest at the financial institution’s prime rate plus 1.5% to 2.25% or bankers’ acceptance rate plus 2.5% to 3.25% with interest payable monthly.

On July 11, 2023, in connection with the Rime acquisition, the Company entered into a three-year term credit facility (the “Credit Facility”), replacing its existing Syndicated Facility with its syndicate of lenders led by ATB. The syndicate of lenders remained unchanged with the exception of Business Development Bank of Canada joining the syndicate. The Credit Facility provides an approximate $137 million principal amount comprised of: i) a $59.0 million Syndicated Term Facility (replacing the existing Syndicated Term Facility) (“CAD Syndicated Term Facility”), ii) a new USD $21 million term loan (CAD $27.1 million) (“USD Syndicated Term Facility”), repayable in equal quarterly installments over a five-year amortization period, iii) a $35 million Syndicated Operating Facility (previously $15 million), and iv) a $15 million Revolving Operating Facility (previously $10 million). The Credit Facility was utilized to replace and repay Cathedral’s existing credit facility. The interest rate and financial covenants remained unchanged from the existing Syndicated Facility. The maturity date of the Credit Facility was extended to July 11, 2026.

During the year ended December 31, 2023, the Company also repaid its balance owing on the Syndicated Operating Facility of $13 million. In addition, the Company made contractual repayments totaling $14.8 million related to its CAD Syndicated Term Facility, and $2.8 million related to its USD Syndicated Term Facility, reducing the carrying values to $51.4 million and $24.8 million, respectively, as at December 31, 2023. The carrying values of the CAD Syndicated Term Facility and the USD Syndicated Term Facility are net of unamortized upfront financing fees of $0.6 million as at December 31, 2023.

As at December 31, 2023, the $35 million Syndicated Operating Facility remained undrawn.

At December 31, 2023, the Company was in compliance with its financial covenants, which were as follows:

• Consolidated Funded Debt to Consolidated Credit Agreement EBITDA ratio shall not exceed 2.5:1; and

• Consolidated Fixed Charge Coverage ratio shall not be less than 1.25:1

Highly Affected Sectors Credit Availability Program (“HASCAP”)

In June 2021, the Company withdrew $1 million from its HASCAP loan. The HASCAP loan is subject to an interest rate of 4% and monthly principal repayments made over a ten-year period following a one-year grace period. The HASCAP Loan is secured by a general security interest over all present and after acquired personal property of the Company granted in favour of ATB. The carrying value of the HASCAP loan was $0.8 million as at December 31, 2023.

11. SHARE CAPITAL

An unlimited number of common shares and preferred shares (issuable in series) are authorized.

	Number
	(000s)	Amount
Balance, December 31, 2021	80,200 $	98,918
Issued on private placement and bought deal, net of issue costs	52,446	27,813
Issue of common shares on business acquisition (note 5)	87,329	50,996
Issued treasury shares on business acquisition (note 5)	1,390	959
Issued on exercise of options	1,653	457
Contributed surplus on options exercised	—	221
Issued on exercise of warrants	1,106	940
Contributed surplus on warrants exercised	—	180
Balance, December 31, 2022	224,124 $	180,484
Purchased under the normal course issuer bid	(4,295)	(3,501)
Cancelled pursuant to acquisition-related settlement	(148)	(168)
Issued on exercise of warrants	20,307	16,407
Contributed surplus on warrants exercised	—	3,433
Issued on exercise of stock options	1,667	455
Contributed surplus on options exercised	—	270
Balance,December 31,2023	241,655 $	197,380

Private placement and bought deal

On February 10, 2022, Cathedral entered into a non-brokered private placement of 14,659,000 common shares at a price of $0.44 per common share in conjunction with the Discovery acquisition for net proceeds of $6.4 million.

On April 25, 2022, Cathedral completed a bought deal and issued 37,786,700 units at a price of $0.70 per unit, for gross proceeds of $26.5 million. Each unit consisted of one Cathedral common share and one-half warrant. Each warrant entitled the holder to purchase one common share at an exercise price of $0.85 per common share which expired one year from the closing date of the private placement. Based on the relative fair values, $23.4 million of the gross proceeds were allocated to common shares and $3.1 million was allocated to the warrants. Issue costs of $2.0 million were netted against the common share issuance. A portion of the

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

proceeds equal to $8.8 million were used to repay a portion of the existing term loan (note 10) pursuant to the Company’s Credit Agreement.

Normal course issuer bid

On July 3, 2023, the Company received approval from the TSX to purchase up to 12,160,008, or 5%, of the 243,200,173 issued and outstanding common shares of the Company under the normal course issuer bid (“NCIB”). The ability to purchase common shares under the NCIB commenced on July 17, 2023, and will terminate no later than July 16, 2024. The actual number of common shares purchased under the NCIB, the timing of purchases and the price at which the common shares are purchased will be subject to management’s discretion.

Under the TSX rules, the Company is entitled to purchase up to the greater of: 25% of the average daily trading volume of the respective class of shares; or 1,000 shares on any trading day; or a larger amount of shares per calendar week, subject to the maximum number that may be acquired under the NCIB, if the transaction meets the block purchase exception rule under TSX rules. Accordingly, unless a block purchase meets the block purchase exception under TSX rules, the Company is entitled to purchase up to 99,621 common shares on any trading day.

During the year ended December 31, 2023, 4,294,900 (2022 - nil) common shares were purchased under the NCIB for a total purchase amount of $3.8 million at an average price of $0.82 per common share. A portion of the purchase amount reduced share capital by $3.5 million and the residual purchase amount of $0.3 million was recorded to the deficit.

In connection with the NCIB, the Company has established an automatic securities purchase plan (“the Plan”) for the common shares. Accordingly, the Company may repurchase its common shares under the Plan on any trading day during the NCIB, including during regulatory restrictions or self-imposed trading blackout periods. The Plan commenced on July 17, 2023 and will terminate on July 16, 2024. There was no active Plan in place as at December 31, 2023.

Subsequent to December 31, 2023, the Company purchased 2,471,700 common shares for a total purchase amount of $2.1 million at an average purchase price of $0.85 per common share.

Stock options

A summary of the Company’s stock options during the year ended December 31, 2023 and 2022 is as follows:

	2023 2022
	Number (000’s) Weighted average exerciseprice Number (000’s) Weighted average exerciseprice
Balance, January 1, Granted Exercised Expired or forfeited	20,672 $ 0.61 6,661 $ 0.35 6,848 $ 0.88 16,646 $ 0.68 (1,667) $ 0.27 (1,653) $ 0.28 (2,778)$ 0.59 (982)$ 0.45
Balance,December 31,	23,075 $ 0.71 20,672 $ 0.61
Exercisable,December 31,	7,301 $ 0.60 2,156 $ 0.30

During the year ended December 31, 2023, the Company granted 2,425,000 (2022 - 16,646,066) stock options to certain officers and employees at exercise prices ranging from $0.76 and $0.95 (2022 - $0.60 to $1.18) per stock option. These stock options are set to expire on April 26, 2026, May 9, 2026 and November 20, 2026, respectively. The stock options granted in 2022 are set to expire on March 16, 2025, July 19, 2025, October 28, 2025 and December 19, 2025, respectively. The stock options will vest in onethird tranches twelve months, eighteen months and twenty-four months from the grant date, respectively.

In addition, on August 21, 2023, the Company granted 4,422,568 stock options to certain employees related to the Rime acquisition at an exercise price of $0.86 per stock option. These stock options are set to expire on August 21, 2026. The stock options will vest in one-third tranches twelve months, eighteen months and twenty-four months from the grant date, respectively.

The range of exercise prices for the options outstanding as at December 31, 2023 is as follows:

Exerciseprice range	Outstanding	Exercisable
	Number of units (000’s) Weighted Average Remaining Life (years) Weighted average exerciseprice	Number of units (000’s) Weighted Average Remaining Life (years) Weighted average exerciseprice
$0.26 to $0.50 $0.51 to $0.87 $0.87 to $1.18	2,649 0.54 $ 0.43 18,176 1.90 $ 0.72 2,250 2.25 $ 0.99	2,649 0.54 $ 0.43 4,510 1.60 $ 0.67 142 1.97 $ 1.18
Total	23,075 1.78 $ 0.71	7,301 1.22 $ 0.60

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of the stock options granted was estimated using the Black-Scholes option pricing model with the below weightedaverage inputs. A forfeiture rate of 15% was used for certain stock option grants when recognizing stock-based compensation for the year ended December 31, 2023 and 2022.

Year ended December 31,	2023	2022
Weighted-average fair value at grant date	$0.41 - $0.56	$0.39 - $0.77
Share price	$0.76 - $0.95	$0.60 - $1.18
Exercise price	$0.76 - $0.95	$0.60 - $1.18
Volatility	79% - 90%	102% - 104%
Option life	3 years	3 years
Dividends	—	—
Risk-free interest rate	3.69% - 4.25%	1.5% - 3.9%

Warrants

A summary of the Company’s warrants granted related to acquisitions and private placements for the year ended December 31, 2023 and 2022 is as follows:

2023 and 2022 is as follows:
	2023 2022
	Number (000’s) Weighted average exerciseprice Number (000’s) Weighted average exerciseprice
Balance, January 1, Issued Exercises of warrants Expiryof warrants	20,362 $ 0.81 2,575 $ 0.52 — — 18,893 0.85 (20,307) 0.81 (1,106) 0.85 (55) 0.85 — —
Balance,December 31,	— $ — 20,362 $ 0.81

During the year ended December 31, 2023, 17,731,888 of the April 2022 bought deal offering warrants (2022 - 1,106,000), 575,000 of the February 2021 private placement warrants and 2,000,000 of the warrants related to the July 2021 Precision Drilling acquisition were exercised at $0.85 per warrant, $0.24 per warrant and $0.60 per warrant totaling $15.1 million, $0.1 million, and $1.2 million in gross cash proceeds, respectively. On April 26, 2023, the remaining 55,462 of the April 2022 bought deal offering warrants expired.

12. NET INCOME PER SHARE

12. NET INCOME PER SHARE
Year ended December 31,		2023	2022
Net income	$	10,628 $	18,347
(000’s)
Outstanding common shares, beginning of the period		224,124	80,200
Effect of purchased common shares		(1,011)	—
Effect of common shares issued		14,449	82,351
Weighted average common shares (basic)		237,562	162,551
Effect of outstanding stock options and warrants		3,353	3,579
Effect of outstandingEP Notes		11,682	—
Weighted average common shares(diluted)		252,597	166,130
Net incomeper share - basic and diluted	$	0.04 $	0.11

During the year ended December 31, 2023, 4,050,766 stock options (2022 – 12,476,300 stock options and warrants) were excluded from the diluted weighted average number of common shares calculation as their effect was anti-dilutive.

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. NATURE OF EXPENSES

13. NATURE OF EXPENSES
				Selling,		Acquisition	Research and
	Cost of sales		general & administrative		and restructuring			development costs		Total
Year ended December 31, 2022
Depreciation and amortization	$	(28,687)	$	(3,009)	$	—	$	—	$	(31,696)
Share-based compensation		(622)		(765)		—		—		(1,387)
Staffing costs, excluding share-based compensation		(94,197)		(18,417)		(2,040)		(1,271)		(115,925)
Repairs and maintenance		(74,144)		—		—		—		(74,144)
Equipment rentals (note 4)		(35,279)		—		—		—		(35,279)
Other expenses		(15,288)		(9,516)		(2,134)		—		(26,938)
	$	(248,217)	$	(31,707)	$	(4,174)	$	(1,271)	$	(285,369)
Year ended December 31, 2023
Depreciation and amortization	$	(41,019)	$	(7,596)	$	—	$	—	$	(48,615)
Share-based compensation		(918)		(4,183)		—		—		(5,101)
Staffing costs, excluding share-based compensation		(161,680)		(36,344)		—		(1,754)		(199,778)
Repairs and maintenance		(137,646)		—		—		—		(137,646)
Equipment rentals		(63,613)		—		—		—		(63,613)
Other expenses		(35,092)		(16,158)		(1,328)		—		(52,578)
	$	(439,968)	$	(64,281)	$	(1,328)	$	(1,754)	$	(507,331)

14. INCOME TAXES

The Company’s effective tax rate is reconciled with the income taxes accrued during the year ended December 31, 2023 and 2022 as follows:

Year ended December 31,		2023		2022
Income before income tax	$	20,187	$	22,961
Expected statutorytax rate		23%		23%
Effective tax rate applied to income before income tax		(4,643)		(5,281)
Changes in unrecognized deferred tax assets		1,492		641
Effect of changes in foreign exchange		31		(225)
Income tax in jurisdictions with different tax rates		(645)		(210)
Non-deductible expenses		(3,606)		180
Non-taxable portion of gain on disposal of property, plant and equipment		695		281
Withholding taxes		(1,536)		—
Priorperiodprovision true-up		(1,347)		—
	$	(9,559)	$	(4,614)

The Company’s deferred tax (liability) asset was comprised of the following components:

Balance,December 31,		2023	2022
Property, plant and equipment	$	(12,442) $	(13,815)
Intangible assets		(3,222)	(2,194)
Goodwill		2,378	(144)
Inventory valuation allowance		769	487
Non-capital loss-carry forwards		326	5,286
Provision		980	—
Net workingcapital differences		317	—
	$	(10,894)$	(10,380)

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax liabilities were impacted during the year ended December 31, 2023 and 2022 for the following:

		Balance,					Effects of	Balance,
		December 31,	Recognized in	Recognized due			movements in	December 31,
		2021	profit		to acquisitions	foreign exchange		2022
Property, plant and equipment	$	(2,122) $	(7,749)	$	(3,836)	$	(108) $	(13,815)
Intangible assets		—	381		(2,467)		(108)	(2,194)
Goodwill		—	(144)		—		—	(144)
Inventory valuation allowance		487	—		—		—	487
Non-capital loss-carryforwards		1,635	3,660		—		(9)	5,286
Total	$	— $	(3,852)	$	(6,303)	$	(225)$	(10,380)

		Balance,					Effects of	Balance,
		December 31,	Recognized in	Recognized due			movements in	December 31,
		2022	profit		to acquisitions	foreign exchange		2023
Property, plant and equipment	$	(13,815) $	1,066	$	—	$	307 $	(12,442)
Intangible assets		(2,194)	(1,478)		412		38	(3,222)
Goodwill		(144)	2,530		—		(8)	2,378
Inventory valuation allowance		487	282		—		—	769
Non-capital loss-carry forwards		5,286	(4,812)		—		(148)	326
Provision		—	963		—		17	980
Net workingcapital differences		—	301		—		16	317
Total	$	(10,380)$	(1,148)	$	412	$	222 $	(10,894)

There are unrecognized deferred tax assets of $26.4 million (2022 - $27.2 million) related to the following tax attributes:

	Balance,December 31,2023 Balance,December 31,2022
	Gross amount Tax effect Gross amount Tax effect
Non-capital loss carry forwards Right-of-use assets less lease liabilities Scientific research and development expenditures Inventory valuation allowance Investment tax credits Net capital loss carryforwards	$ 68,678 $ 15,744 $ 71,425 $ 16,474 3,461 775 3,717 892 17,699 4,071 17,699 4,071 235 53 — — n/a 4,925 n/a 4,925 3,761 865 3,746 862
	$ 93,834 $ 26,433 $ 96,587 $ 27,224

Deferred tax assets have not been recognized in respect of the deductible temporary differences at December 31, 2023, due to a recent history of taxable losses. The non-capital losses and investment tax credits have expiry dates ranging from 2035 to 2041 and 2026 to 2037, respectively. The remaining tax attributes do not expire.

The income taxes are based upon the estimated annual effective rates of 23% (2022 – 23%) for the Canadian entities and 23% (2022 – 23%) for the U.S. entities.

15. CHANGES IN NON-CASH WORKING CAPITAL

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

Year ended December 31,		2023	2022
Trade receivables	$	5,725 $	(50,942)
Inventories		(13,674)	(2,832)
Prepaid expenses and deposits		(1,306)	(2,534)
Trade and otherpayables		(156)	28,535
	$	(9,411)$	(27,773)
Attributable to:
Operating activities	$	(12,141) $	(27,113)
Investingactivities	$	2,730 $	(660)

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. OPERATING SEGMENTS

The Company has two operating segments based on its geographic operating locations of Canada and U.S. and a non-operating segment, for joint corporate costs (“Corporate services”). The Company determines its reportable segments based on internal information regularly reviewed by management to allocate resources and assess performance. The Corporate services segment is comprised of costs which are managed on a group basis and are not allocated to the operating segments. The Corporate services segment primarily consists of general and administrative expenses, foreign exchange gains (losses), finance costs and acquisition and reorganization costs.

and reorganization costs.
	Year ended December 31,2023 Year ended December 31,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
Revenues (note 4) Income (loss) before income taxes	$ 161,393 $ 383,904 $ — $ 545,297 $ 121,516 $ 197,497 $ — $ 319,013 $ 19,184 $ 23,490 $(22,487)$ 20,187 $ 9,142 $ 31,108 $(17,289)$ 22,961
	As at December 31,2023 As at December 31,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
Total liabilities Total assets Property, plant and equipment	$ 107,878 $ 116,387 $ — $ 224,265 $ 110,683 $ 89,410 $ — $ 200,093 $ 109,780 $ 293,953 $ — $ 403,733 $ 118,951 $ 235,039 $ — $ 353,990 $ 51,411 $ 62,442 $ — $ 113,853 $ 58,575 $ 49,704 $ 251 $ 108,530

There are no material differences in the basis of accounting or the measurement of income, assets and liabilities between the Company and reported segment information. Revenues and expenses are attributed to geographical areas based on the location in which the services are rendered. The segment presentation of assets is based on legal owner of the assets which bears the related depreciation and amortization expenses.

There were no major customers with significant amounts of revenue during the year ended December 31, 2023 and 2022.

17. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

As at December 31, 2023, the Company's commitment to purchase property, plant and equipment is approximately $8.1 million (2022 - $5.6 million), which is expected to be incurred over the next six months.

The Company also holds six letters of credit totaling $1.7 million related to rent payments, corporate credit cards and a utilities deposit.

Provision

The Company has recognized a provision of $7.6 million, included in trade and other payables, related to a U.S. tax audit matter. A portion of the provision was recognized as an expense of $5.4 million and a portion was recognized as property, plant and equipment and inventory of $2.2 million. The estimate was made by management using the latest information available and is subject to measurement uncertainty. Actual results may differ from this estimate.

The Company is also involved in various other legal claims associated with the normal course of operations. The Company believes that any liabilities that may arise pertaining to such matters would not have a material impact on its financial position.

18. RELATED PARTIES

Cathedral has determined that the key management personnel of the Company consists of its executive officers and directors. In addition to their salaries, annual bonus 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) twelve to eighteen times their monthly salary; ii) twelve to eighteen times their average annual bonus over the past three years converted to a monthly average; and iii) health, dental, life insurance and disability coverage for twelve to fifteen months.

Key management personnel (including directors) compensation comprised of:

		Year ended December 31,	Year ended December 31,
		2023	2022
Short-term employee and director benefits	$	6,861 $	3,135
Share-based compensation		2,312	693
Retirement allowance		818	—
	$	9,991 $	3,828

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Directors and executive officers of the Company own approximately 13% (2022 - 21%) of the common shares of the Company. The CEO of the Company also held a loan owed to the Company related to a private placement of $0.1 million as at December 31, 2022, which was subsequently repaid in 2023.

Prior to the acquisition of LEXA on June 17, 2022 (note 5), Cathedral paid LEXA consulting fees in the amount of $0.5 million and prepaid a technology licensing fee of $0.7 million. In relation to the LEXA acquisition, Rod Maxwell, a director of Cathedral, exchanged his 9.02% ownership of LEXA for 159,836 common shares of Cathedral.

The Company pays approximately $0.2 million per year for an operating facility located in Casper, Wyoming owned by certain members of management. The rental terms are based on market rates. The lease expires on September 30, 2028. As at December 31, 2023, there are no amounts owed by or due to the owners.

In relation to the September 2021 acquisition of Valiant Energy Services Ltd. (“Valiant”), Valiant and Cathedral, entered into a Consulting Agreement. Pursuant to that Consulting Agreement, Cathedral recorded a performance incentive and other expense in the amount of $1.3 million for 2023 (2022 - $1.2 million). The Consulting Agreement terminates September 30, 2026 and the performance incentive has an annual maximum payment that ranges from $0.6 million to $1.2 million. As at December 31, 2023, a balance of $0.4 million was owing to Valiant.

19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instruments

The Company’s financial instruments consisted of cash, trade receivables, trade and other payables, current taxes payable, loans and borrowings, lease liabilities and EP notes as at December 31, 2023. The financial instruments have been designated at their amortized cost. The financial instruments’ carrying values approximate their fair values, except for loans and borrowings and exchangeable promissory notes. As at December 31, 2023, the loans and borrowings’ carrying value was net of unamortized upfront financing fees of $0.6 million.

The Company has no financial instruments that were recorded at fair values as at December 31, 2023.

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 the Company’s capital by assessing certain measures such as: i) the Company’s loans and borrowings levels as compared to its total capitalization and ii) loans and borrowings and EP notes less cash to net income before financing costs, income tax expense, depreciation, amortization and share-based compensation, and other non-cash adjustments, of which are defined under the Company’s Credit Facility (note 10). Cathedral intends to use any cash flow from operations generated to continue to pay down its loans and borrowings and fund the NCIB while remaining opportunistic in making strategic and accretive acquisitions.

Financial risk management

The Company’s financial instruments are exposed to credit risk and market risk, including liquidity risk, foreign currency risk and interest rate risk. 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 and controls. 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. Credit risk arises principally from the Company’s trade receivables.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. In assessing and monitoring credit risk, customers are grouped according to their credit risk demographic, including whether they are an individual or legal entity, geographic location, industry, aging profile, maturity and existence of past financial difficulties. Customers that are considered “high risk” are closely monitored, and future sales may be transitioned to a prepayment basis.

The Company analyzes the credit risk of each new customer individually before accepting the customer as a client. The Company’s review includes external credit ratings, when available. Customers that fail to meet the Company’s benchmark of creditworthiness generally are restricted to services on a prepayment basis.

The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

Trade receivables are written-off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a customer to engage in a repayment plan with the Company, and a failure to make contractual payments for a period of greater than 120 days past due. The Company recognized $0.1 million as an allowance as at December 31, 2023 (2022 - $0.1 million) related to trade receivables expected to be uncollectible.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aging of the trade receivables as at December 31, 2023 and 2022 was:

Balance,December 31,		2023	2022
Not past due	$	104,136 $	100,417
Past due 61-90 days		3,992	8,318
Past due over 91 days		3,718	4,742
Total	$	111,846 $	113,477

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the financial obligations that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to monitor its current cash position and estimated projected cash flow relative to the maturity of its financial obligation, under both normal and stressed conditions.

As at December 31, 2023, the Company had a cash balance of $10.7 million and undrawn loans and borrowings of $48.4 million (note 10).

The following are the contractual maturities of the Company’s financial liabilities as at December 31, 2023:

Balance,December 31,2023	Carryingamount	Carryingamount	Oneyear	1-2years	3-5years	Thereafter
Loans and borrowings - principal	$	79,212 $	21,043 $	20,220 $	37,949 $	—
EP Notes - principal		26,400	—	—	26,400	—
Interest payments on loans and
borrowings and EP Notes		14,100	6,912	5,163	2,025	—
Lease liabilities - undiscounted		17,725	4,169	3,840	8,624	1,092
Trade and otherpayables		93,661	93,661	—	—	—
Total	$	231,098 $	125,785 $	29,223 $	74,998 $	1,092

Foreign currency risk

The Company is exposed to foreign currency risk on its working capital, loans and borrowings and lease liabilities that are denominated in a currency other than its respective entities’ functional currencies. The Company’s transactions are primarily denominated in CAD and USD. As at December 31, 2023, the CAD to the USD exchange rate was 1:32:1 (2022 – 1.36:1) and the average CAD to USD exchange rate during the year ended December 31, 2023 was 1.35:1 (2022 – 1.30:1).

Generally, the Company’s financial instruments are denominated in the functional currencies consistent with the cash flows generated by its respective entities’ underlying operations, and as a result, is relatively unaffected by foreign currency risk. As such, the Company does not utilize foreign exchange hedging instruments to mitigate its foreign currency risk.

As at December 31, 2023, the Company held a USD denominated term loan of USD $21 million, which is subject to quarterly payments of USD $1.1 million over its five-year amortization period. The quarterly payments were primarily funded through the Company’s Canadian operations and, as such, is subject to foreign exchange fluctuations. The Company’s Syndicated Operating Facility and Revolving Operating Facility may be drawn upon in CAD or USD, which has the potential for foreign currency risk. As at December 31, 2023, the Company had $1.6 million CAD equivalent drawn in USD of its Revolving Operating Facility.

The Company’s EP notes are denominated in USD, which are held in its U.S. subsidiary and therefore are not subject to foreign currency risk.

Interest rate risk

The Company’s primary interest rate risk arises from its loans and borrowings, all of which, are primarily subject to variable rates, with the exception of its HSCAP loan (note 10) and the EP notes (note 5), which are subject to a fixed interest rates.

As at December 31, 2023, the Company’s Revolving Operating Facility, CAD Syndicated Term Facility and USD Syndicated Term Facility, subject to variable rates, were $76.8 million. The HASCAP loan and EP notes (principal amount), subject to a fixed interest rates, were $0.8 million and $26.4 million, respectively, as at December 31, 2023.

An increase of one percent in the Company’s variable interest rate would result in an increased finance cost of approximately $0.7 million (2022 - $0.8 million) per annum based on its loan and borrowings as at December 31, 2023.

32