ACT Energy Technologies Ltd. — Interim / Quarterly Report 2023

Aug 11, 2023

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at June 30, 2023 and December 31, 2022

Canadian dollars in ‘000s (unaudited)

		June 30,	December 31,
As at		2023	2022
Assets
Current assets:
Cash	$	20,123 $	11,175
Trade receivables		93,487	113,477
Prepaid expenses		2,652	4,529
Inventories		35,282	26,195
Total current assets		151,544	155,376
Property, plant and equipment (note 4)		109,435	108,530
Intangible assets (note 5)		34,855	38,511
Right-of-use assets (note 6)		10,169	12,178
Goodwill(note 5)		38,488	39,395
Total non-current assets		192,947	198,614
Total assets	$	344,491 $	353,990
Liabilities and Shareholders' Equity
Current liabilities:
Trade and other payables	$	85,467 $	90,389
Current taxes payable		807	909
Loans and borrowings, current (note 7)		15,680	15,735
Lease liabilities,current(note 6)		3,222	3,631
Total current liabilities		105,176	110,664
Loans and borrowings, long-term (note 7)		44,400	64,800
Lease liabilities, long-term (note 6)		12,851	14,249
Deferred tax liability		12,150	10,380
Total non-current liabilities		69,401	89,429
Total liabilities		174,577	200,093
Shareholders' equity:
Share capital (note 8)		198,923	180,484
Treasury shares		(709)	(959)
Contributed surplus		14,223	15,854
Accumulated other comprehensive income		13,138	17,389
Deficit		(55,661)	(58,871)
Total shareholders' equity		169,914	153,897
Total liabilities and shareholders' equity	$	344,491 $	353,990

Subsequent events (note 12)

See accompanying notes to the unaudited condensed consolidated financial statements.

1

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(LOSS)

Three and six months ended June 30, 2023 and 2022

Canadian dollars in ‘000s except per share amounts (unaudited)

		Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
		2023	2022	2023	2022
Revenues (note 10)	$	115,058 $	27,652 $	242,723 $	62,037
Cost of sales:
Direct costs		(88,509)	(22,481)	(189,741)	(47,005)
Depreciation and amortization		(10,115)	(4,622)	(19,340)	(8,911)
Share-based compensation		(96)	(49)	(240)	(92)
Total cost of sales		(98,720)	(27,152)	(209,321)	(56,008)
Gross margin		16,338	500	33,402	6,029
Selling, general and administrative expenses:
Direct costs		(12,004)	(3,287)	(26,090)	(6,853)
Depreciation and amortization		(1,499)	(124)	(3,008)	(248)
Share-based compensation		(674)	(83)	(1,449)	(174)
Total selling, general and administrative expenses		(14,177)	(3,494)	(30,547)	(7,275)
Technology group expenses		(458)	(231)	(1,010)	(450)
Gain on disposal ofproperty, plant and equipment		4,091	1,298	7,135	2,120
Income (loss) from operating activities		5,794	(1,927)	8,980	424
Finance costs - loans and borrowings		(1,486)	(295)	(3,216)	(524)
Finance costs - lease liabilities		(205)	(195)	(419)	(384)
Foreign exchange (loss) gain		954	(873)	913	(563)
Acquisition and restructuringcosts		(465)	(290)	(465)	(290)
Income (loss) before income taxes		4,592	(3,580)	5,793	(1,337)
Income tax (expense) recovery:
Current		(525)	—	(561)	—
Deferred		(1,651)	756	(2,022)	756
Total income tax (expense) recovery		(2,176)	756	(2,583)	756
Net income(loss)		2,416	(2,824)	3,210	(581)
Other comprehensive income (loss)
Foreign currency translation differences on foreign
operations		(3,826)	983	(4,251)	627
Total comprehensive income(loss)	$	(1,410) $	(1,841) $	(1,041) $	46
Net income(loss) per share - basic and diluted(note 9)	$	0.01 $	(0.02)$	0.01 $	(0.01)

See accompanying notes to unaudited condensed consolidated financial statements.

2

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Six months ended June 30, 2023 and 2022

Canadian dollars in ‘000s (unaudited)

							Accumulated
							other		Non-		Total
		Share	Treasury	Contributed		comprehensive		controlling		shareholders'
		capital	shares		surplus		income		interest	Deficit	equity
Balance, December 31, 2021	$	98,918 $	—	$	11,793	$	9,011	$	— $ (77,218) $		42,504
Comprehensive (loss) income for
the period		—	—		—		627		—	(581)	46
Issued pursuant to private
placements, net of share issue
costs		27,983	—		3,074		—		—	—	31,057
Consideration for business
combination, net of share issue
costs		8,038	—		—		—		—	—	8,038
Non-controlling interest		—	—		—		—		177	—	177
Treasury shares issued for
business combination		959	(959)		—		—		—	—	—
Issued pursuant to stock option
exercises		148	—		(46)		—		—	—	102
Share-based compensation		—	—		266		—		—	—	266
Balance,June 30,2022	$	136,046 $	(959)	$	15,087	$	9,638	$	177 $(77,799)$		82,190

						Accumulated
						other		Total
			Treasury	Contributed	comprehensive		shareholders'
	Share capital		shares	surplus		income	Deficit	equity
Balance, December 31, 2022	$	180,484 $	(959) $	15,854	$	17,389 $	(58,871) $	153,897
Comprehensive (loss) income for
the period		—	—	—		(4,251)	3,210	(1,041)
Contributed surplus on vesting of treasury shares		—	250	(250)		—	—	—
Issued pursuant to warrant
exercises		18,186	—	(2,976)		—	—	15,210
Issued pursuant to stock option
exercises		253	—	(94)		—	—	159
Share-based compensation		—	—	1,689		—	—	1,689
Balance,June 30,2023	$	198,923 $	(709)$	14,223	$	13,138 $	(55,661)$	169,914

See accompanying notes to unaudited condensed consolidated financial statements.

3

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Three and six months ended June 30, 2023 and 2022

Canadian dollars in ‘000s (unaudited)

		Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
		2023	2022	2023	2022
Cash provided by (used in):
Operating activities:
Net income (loss)	$	2,416 $	(2,824) $	3,210 $	(581)
Non-cash adjustments:
Income tax expense (recovery)		2,176	(756)	2,583	(756)
Depreciation and amortization		11,614	4,746	22,348	9,159
Share-based compensation		770	132	1,689	266
Gain on disposal of property, plant and
equipment		(4,091)	(1,298)	(7,135)	(2,120)
Write-down of inventory included in cost of sales		—	—	378	—
Finance costs - loans and borrowings		1,486	295	3,216	524
Finance costs - lease liabilities		205	195	419	384
Income tax (paid) refund		(817)	20	(648)	28
Unrealized foreign exchange (gain) loss on
intercompanybalances		(910)	758	(899)	463
		12,849	1,268	25,161	7,367
Changes in non-cash operatingworkingcapital		(1,617)	3,243	9,987	(4,614)
Cash flow - operatingactivities		11,232	4,511	35,148	2,753
Investing activities:
Cash paid on acquisition (note 3)		—	(3,930)	—	(22,090)
Property, plant and equipment additions		(8,714)	(6,218)	(22,465)	(9,522)
Intangible asset additions (note 5)		(22)	—	(144)	—
Proceeds on disposal of property, plant and
equipment		4,208	3,091	9,780	4,324
Changes in non-cash investingworkingcapital		174	1,046	(1,755)	841
Cash flow - investingactivities		(4,354)	(6,011)	(14,584)	(26,447)
Financing activities:
Advances of loans and borrowings		—	—	—	19,859
Repayments on loans and borrowings		(16,727)	(10,779)	(20,455)	(16,723)
Payments on lease liabilities, net of finance costs		(914)	(733)	(1,849)	(1,336)
Interest paid		(1,691)	(490)	(3,635)	(908)
Proceeds on common share issuances		14,479	24,686	15,367	31,160
Cash flow - financing activities		(4,853)	12,684	(10,572)	32,052
Effect of exchange rate on changes on cash		(990)	87	(1,044)	56
Change in cash		1,035	11,271	8,948	8,414
Cash,beginningofperiod		19,088	41	11,175	2,898
Cash,end ofperiod	$	20,123 $	11,312 $	20,123 $	11,312

See accompanying notes to unaudited condensed consolidated financial statements.

4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting entity

Cathedral Energy Services Ltd. (“LTD”) is a company domiciled in Canada. LTD, along with the 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 unaudited condensed consolidated financial statements of the Company as at and for the three and six months ended June 30, 2023 are comprised of LTD and the following 100% owned subsidiaries:

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

• 2438155 Alberta Ltd.;

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

• CET Flight Holdco, Inc. (“Flight”);

• 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 while INC, Flight, AEH and Altitude are incorporated in the U.S. and their functional currency is United States dollars (“USD”).

2. Basis of preparation

These unaudited condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain information and note disclosures normally included in the annual financial statements, prepared in accordance with IFRS, have been omitted or condensed.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2022.

Certain figures in the comparative period have been reclassified for comparability with the current period presentation.

These unaudited condensed consolidated financial statements were prepared using accounting policies and methods of their application consistent with those used in the preparation of the Company’s consolidated audited annual financial statements for the year ended December 31, 2022.

The unaudited condensed consolidated financial statements were authorized for issue by the Board of Directors on August 10, 2023.

These unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023 are presented in Canadian dollars (“CAD”), which is the Company’s functional currency. All financial information presented in dollars has been rounded to the nearest thousands, except for share and per share amounts.

Use of estimates and judgements

The preparation of the unaudited condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The significant judgements made by management in applying the Company’s accounting policies and the information used in assessing uncertainty have not changed significantly since December 31, 2022.

Significant estimates and judgements used in the preparation of these unaudited condensed consolidated financial statements remained unchanged from those disclosed in the Company’s consolidated audited annual financial statements for the year ended December 31, 2022.

Future Accounting Pronouncements

There were no new or amended standards issued during the three and six months ended June 30, 2023 that are expected to have a significant impact on the Company’s financial statements.

3. 2022 Acquisitions

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 $18,160 in cash consideration and issued 5,254,112 common shares valued at $0.52 per common share for total consideration of $20,892. In addition to a four-month statutory hold period on the common shares, the parties have agreed to contractual restrictions on resale as follows:

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. The Company expensed $31 in transaction costs related to the acquisition.

On June 17, 2022, the Company purchased 90.98% of LEXA Drilling Technologies Inc. (“LEXA”), a Calgary-based, downhole technology company for equity consideration in Cathedral. On July 19, 2022, the Company purchased the remaining 9.02% shares of LEXA. In total 1,772,727 common shares were issued, valued at $0.63 per common share for total consideration of $1,117. In addition, the Company recognized settlement of a technology license from a pre-existing relationship for consideration of $644.

On June 22, 2022, the Company acquired the operating assets of Compass Directional Services Ltd. (“Compass”). Cathedral paid $4,000 in cash consideration and issued 6,253,475 common shares valued at $0.69 per common share for total consideration of $8,315. Of the total share consideration, 1,389,664 common shares are subject to contractual restrictions vesting over four years. As such, these common shares are classified as treasury shares and a set portion vest each year on the anniversary of the acquisition. The compensation expense related to these treasury shares will be recognized over the vesting period.

4. Property, Plant and Equipment

		Directional	Shop and
		drilling	automotive
Cost		equipment	equipment	Other	Total
Balance, December 31, 2022	$	164,816 $	9,265 $	2,213 $	176,294
Additions		18,124	1,692	2,627	22,443
Disposals		(4,184)	(449)	—	(4,633)
Other comprehensive income		(1,280)	(143)	(82)	(1,505)
Balance,June 30,2023	$	177,476 $	10,365 $	4,758 $	192,599
		Directional	Shop and
		drilling	automotive
Accumulated depreciation		equipment	equipment	Other	Total
Balance, December 31, 2022	$	64,373 $	2,794 $	597 $	67,764
Depreciation		16,671	735	277	17,683
Disposals		(1,765)	(222)	—	(1,987)
Other comprehensive income		(260)	(29)	(7)	(296)
Balance,June 30,2023	$	79,019 $	3,278 $	867 $	83,164
		Directional	Shop and
		drilling	automotive
Net book value		equipment	equipment	Other	Total
Balance, December 31, 2022	$	100,443 $	6,471 $	1,616 $	108,530
Balance,June 30,2023	$	98,457 $	7,087 $	3,891 $	109,435

5. Intangibles and goodwill

5. Intangibles and goodwill
Cost Customer Relationships Brand Name Non- Compete Agreements RSS Licenses Technology Total	Goodwill
Balance, December 31, 2022 $ 22,500 $ 7,048 $ 779 $ 8,419 $ 5,386 $ 44,132 Additions — — — — 144 144 Other comprehensive income (518) (162) (18) (194) — (892)	$ 39,395 — (907)
Balance,June 30,2023 $ 21,982 $ 6,886 $ 761 $ 8,225 $ 5,530 $ 43,384	$ 38,488
Accumulated amortization Customer Relationships Brand Name Non- Compete Agreements RSS Licenses Technology Total	Goodwill
Balance, December 31, 2022 $ 1,743 $ 219 $ 72 $ 464 $ 3,123 $ 5,621 Amortization 1,864 234 77 523 314 3,012 Other comprehensive income (72) (9) (3) (20) — (104)	$ — — —
Balance,June 30,2023 $ 3,535 $ 444 $ 146 $ 967 $ 3,437 $ 8,529	$ —

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Net book value Customer Relationships Brand Name Non- Compete Agreements RSS Licenses Technology Total	Goodwill
Balance, December 31, 2022 $ 20,757 $ 6,829 $ 707 $ 7,955 $ 2,263 $ 38,511 Balance,June 30,2023 $ 18,447 $ 6,442 $ 615 $ 7,258 $ 2,093 $ 34,855	$ 39,395 $ 38,488
Remainingamortization inyears 4.9 13.9 3.9 6.9 3.9	n/a

6. Right-of-use assets and lease liabilities

Right-of-use assets

Balance, December 31, 2022	$	12,178
Additions		247
Derecognition		(44)
Depreciation		(1,653)
Impact of leasehold incentives		(495)
Other comprehensive income		(64)
Balance,June 30,2023	$	10,169

Lease liabilities

Balance, December 31, 2022	$	17,880
Additions		247
Derecognition		(44)
Interest		419
Payments		(2,307)
Other comprehensive income		(122)
Balance, June 30, 2023		16,073
Less: lease liabilities,current		(3,222)
Lease liabilities,long-term	$	12,851

7. Loans and borrowings

		June 30,	December 31,
As of		2023	2022
Syndicated Operating Facility	$	— $	13,000
Syndicated Term Facility		59,200	66,600
HASCAP loan		880	935
Total loans and borrowings		60,080	80,535
Less: HASCAP loan, current		(880)	(935)
Less: Syndicated Term Facility,current		(14,800)	(14,800)
Loans and borrowings, current		(15,680)	(15,735)
Loans and borrowings,long-term	$	44,400 $	64,800

During the six months ended June 30, 2023, the Company repaid its balance owing on the Syndicated Operating Facility of $13,000. In addition, the Company made contractual repayments totaling $7,400 related to its Syndicated Term Facility reducing the carrying value to $59,200 as at June 30, 2023. As at June 30, 2023, a $10,000 Revolving Operating Facility remained undrawn. In addition, the Company continues to hold a Highly Affected Sectors Credit Availability Program (“HASCAP”) loan.

At June 30, 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 2.5.0:1; and

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

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Share capital

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

	Number
	(000s)	Amount
Balance, December 31, 2022	224,124 $	180,484
Issued on exercise of warrants	18,307	15,210
Contributed surplus on warrants exercised	—	2,976
Issued on exercise of stock options	769	159
Contributed surplus on options exercised	—	94
Balance,June 30,2023	243,200 $	198,923

Stock options

A summary of the Company’s outstanding stock options as at June 30, 2023 is as follows:

		Weighted
	Number	average
	(000s)	exerciseprice
Balance, December 31, 2022	20,672 $	0.61
Granted	1,925 $	0.94
Exercised	(769)	0.21
Expired or forfeited	(2,658)	0.59
Balance,June 30,2023	19,170	0.66
Exercisable,June 30,2023	2,818 $	0.39

During the six months ended June 30, 2023, the Company granted 1,825,000 and 100,000 stock options to certain officers and employees at exercise prices of $0.95 per stock option and $0.84 per stock option, respectively. These stock options are set to expire on April 26, 2026 and May 9, 2026, respectively. 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 June 30, 2023 is as follows:

	Outstanding	Exercisable Number (000s) Weighted average remaining life (years) Weighted average exercise price 383 0.29 $ 0.12 2,308 1.00 $ 0.42 127 1.71 $ 0.77 — — $ — 2,818 0.94 $ 0.39
Exercise price range	Number (000s) Weighted average remaining life (years) Weighted average exercise price
$0.12 to $0.25 $0.26 to $0.50	383 0.29 $ 0.12 3,062 1.04 $ 0.44
$0.51 to $0.87 $0.87 to $1.18	13,475 2.12 $ 0.67 2,250 2.76 $ 0.99
Total	19,170 1.98 $ 0.66

Warrants

A summary of the Company’s warrants granted related to acquisitions and private placements as at June 30, 2023 is as follows:

		Weighted
	Number	average
	(000s)	exerciseprice
Balance, December 31, 2022	20,362 $	0.81
Exercise of warrants	(18,307)	(0.83)
Expiryof warrants	(55)	(0.85)
Balance,June 30,2023	2,000 $	0.60

During the six months ended June 30, 2023, 17,731,888 of the April 2022 bought deal offering warrants and 575,000 of the February 2021 private placement warrants were exercised at $0.85 per warrant and $0.24 per warrant totaling $15,072 and $138 in gross cash proceeds, respectively. On April 26, 2023, the remaining 55,462 of the April 2022 bought deal offering warrants expired.

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As at June 30, 2023, the 2,000,000 warrants related to the Precision Drilling acquisition were outstanding. Subsequent to June 30, 2023, the warrants were exercised at $0.60 per warrant for gross cash proceeds of $1,200.

9. Net income (loss) per share

		Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
		2023	2022	2023	2022
Net income (loss)	$	2,416 $	(2,824) $	3,210 $	(581)
Outstanding shares, beginning of the period		225,278	100,319	224,124	80,200
Effect of share capital issued duringtheperiod		13,116	28,881	7,392	30,153
Weighted average common shares (basic)		238,394	129,200	231,516	110,353
Effect of outstandingstock options and warrants		2,259	2,698	7,047	2,616
Weighted average common shares(diluted)		240,653	131,898	238,563	112,969
Net income(loss) per share - basic and diluted	$	0.01 $	(0.02)$	0.01 $	(0.01)

During the three and six months ended June 30, 2023, 15,724,566 and 4,050,766 stock options and warrants, respectively (2022 – 3,286,600 and 3,286,600) were excluded from the diluted weighted average number of common shares calculation as their effect was anti-dilutive.

10. 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), interest expenses and acquisition and reorganization costs.

Revenues Income (loss) before income taxes	Three months ended June 30,2023 Three months ended June 30,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
	$ 21,515 $ 93,543 $ — $ 115,058 $ 13,091 $ 14,561 $ — $ 27,652 $ (1,015)$ 10,131 $ (4,524)$ 4,592 $ (3,667)$ 2,820 $ (2,733)$ (3,580)
Revenues Income (loss) before income taxes	Six months ended June 30,2023 Six months ended June 30,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
	$ 66,858 $ 175,865 $ — $ 242,723 $ 38,490 $ 23,547 $ — $ 62,037 $ 3,202 $ 13,547 $(10,956)$ 5,793 $ (1,834)$ 4,387 $ (3,890)$ (1,337)
Total non-current assets Property, plant and equipment	As at June 30,2023 As at December 31,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
	$ 56,158 $ 127,029 $ 9,760 $ 192,947 $ 58,575 $ 129,190 $ 10,849 $ 198,614 $ 56,158 $ 53,055 $ 222 $ 109,435 $ 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.

Seasonality of operations

A portion of the Company's operations are carried on in Western Canada where activity levels in the oilfield services industry are subject to a degree of seasonality. Operating activities in Western Canada are generally lower during “spring breakup” which normally commences in mid to late-March and continues through to May. Operating activities generally peak in the winter months from December until mid to late-March. Additionally, volatility in the weather and temperatures not only during this period, but year-

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

round, can create additional unpredictability in operational results. Activity levels in the oil and natural gas basins in the U.S. are not subject to the same level of seasonality that occurs in the Western Canada region.

11. Contractual obligations and contingencies

As at June 30, 2023, the Company’s commitment to purchase property, plant and equipment is approximately $8,003. Cathedral anticipates expending these funds in 2023 Q3 and Q4 subject to supply chain delays.

The Company is involved in various 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.

The Company also holds six letters of credit totaling $1,895 related to rent payments, corporate credit cards and a utilities deposit.

12. Subsequent events

On July 11, 2023, Cathedral, through a wholly-owned subsidiary, acquired Rime Downhole Technologies, LLC (“Rime”), a privatelyheld, 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 $41,000 comprised of: (a) the payment of USD $21,000 in cash; and (b) the issuance of USD $20,000 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 a deemed price of CAD $1.10 per common share.

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 (“Common Shares”) 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.

In connection with the Rime acquisition, the Company entered into a three-year term credit facility (the “Credit Facility”), replacing its existing credit facility with its syndicate of lenders led by ATB Financial (“ATB”). The Credit Facility provides an approximate $137,000 principal amount comprised of: i) a $59,000 Syndicated Term Facility (replacing the existing Syndicated Term Facility), ii) a new USD $21,000 term loan, repayable in equal quarterly installments over a five-year amortization period, iii) a $35,000 Syndicated Operating Facility (previously $15,000), and iv) a $15,000 Revolving Operating Facility (previously $10,000). 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 credit facility.

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