ACT Energy Technologies Ltd. — Interim / Quarterly Report 2023

Nov 10, 2023

Notice of No Auditor Review of Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2022

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed consolidated interim financial statements of Cathedral Energy Services Ltd. (the “Company”) have been prepared by and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these unaudited condensed consolidated interim financial statements for the period ending three and nine months ended September 30, 2022 in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

2

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at September 30, 2023 and December 31, 2022

Canadian dollars in ‘000s (unaudited)

		September 30,	December 31,
As at		2023	2022
Assets
Current assets:
Cash	$	11,172 $	11,175
Trade receivables		108,529	113,477
Prepaid expenses		2,409	4,529
Inventories		49,139	26,195
Total current assets		171,249	155,376
Property, plant and equipment (note 5)		118,781	108,530
Intangible assets (note 6)		70,235	38,511
Right-of-use assets (note 7)		10,886	12,178
Goodwill(note 6)		41,415	39,395
Total non-current assets		241,317	198,614
Total assets	$	412,566 $	353,990
Liabilities and Shareholders' Equity
Current liabilities:
Trade and other payables	$	93,167 $	90,389
Current taxes payable		4,328	909
Loans and borrowings, current (note 8)		21,176	15,735
Lease liabilities,current(note 7)		3,420	3,631
Total current liabilities		122,091	110,664
Loans and borrowings, long-term (note 8)		61,545	64,800
Exchangeable promissory notes (note 4)		24,063	—
Lease liabilities, long-term (note 7)		13,406	14,249
Deferred tax liability		10,117	10,380
Total non-current liabilities		109,131	89,429
Total liabilities		231,222	200,093
Shareholders' equity:
Share capital (note 9)		197,344	180,484
Treasury shares		(709)	(959)
Exchangeable promissory notes (note 4)		1,274	—
Contributed surplus		15,768	15,854
Accumulated other comprehensive income		17,980	17,389
Deficit		(50,313)	(58,871)
Total shareholders' equity		181,344	153,897
Total liabilities and shareholders' equity	$	412,566 $	353,990

See accompanying notes to the unaudited condensed consolidated financial statements.

3

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Three and nine months ended September 30, 2023 and 2022

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

	Three	months ended September 30,	months ended September 30,	months ended September 30,	Nine months ended	Nine months ended	September 30,
		2023		2022	2023		2022
			(Revised - note 3)			(Revised - note 3)
Revenues (note 11)	$	145,591	$	115,184 $	399,878	$	179,865
Cost of sales:
Direct costs		(101,629)		(76,259)	(293,815)		(123,201)
Depreciation and amortization		(10,508)		(9,116)	(29,848)		(18,027)
Share-based compensation		(429)		(228)	(669)		(320)
Total cost of sales		(112,566)		(85,603)	(324,332)		(141,548)
Gross margin		33,025		29,581	75,546		38,317
Selling, general and administrative expenses:
Direct costs		(11,611)		(9,293)	(37,701)		(16,119)
Depreciation and amortization		(2,299)		(3,396)	(5,307)		(3,644)
Share-based compensation		(1,731)		(235)	(3,179)		(409)
Total selling, general and administrative expenses		(15,641)		(12,924)	(46,187)		(20,172)
Provision (note 12)		(4,291)		—	(4,291)		—
Research and development costs		(427)		(403)	(1,437)		(853)
Write-off of property, plant and equipment (note 5)		(1,555)		(857)	(3,924)		(1,486)
Gain on disposal of property, plant and equipment
(note 5)		5		—	390		117
Income from operating activities		11,116		15,397	20,097		15,923
Finance costs - loans and borrowings		(2,286)		(1,500)	(5,502)		(2,024)
Finance costs - lease liabilities		(215)		(200)	(634)		(584)
Foreign exchange (loss) gain		(767)		(2,354)	146		(2,917)
Acquisition and restructuringcosts		(839)		(2,598)	(1,304)		(2,990)
Income before income taxes		7,009		8,745	12,803		7,408
Income tax (expense) recovery:
Current		(3,687)		(87)	(4,248)		(87)
Deferred		2,328		—	306		756
Total income tax (expense) recovery		(1,359)		(87)	(3,942)		669
Net income		5,650		8,658	8,861		8,077
Other comprehensive income
Foreign currency translation differences on foreign
operations		4,842		11,380	591		12,007
Total comprehensive income	$	10,492	$	20,038 $	9,452	$	20,084
Net incomeper share - basic and diluted(note 10)	$	0.02	$	0.04 $	0.04	$	0.06

See accompanying notes to unaudited condensed consolidated financial statements.

4

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Nine months ended September 30, 2023 and 2022

Canadian dollars in ‘000s (unaudited)

						Accumulated
						other		Total
			Treasury	Contributed	comprehensive		shareholders'
	Share capital		shares	surplus		income	Deficit	equity
Balance, December 31, 2021	$	98,918 $	— $	11,793	$	9,011 $	(77,218) $	42,504
Comprehensive income for the period		—	—	—		12,007	8,077	20,084
Issued pursuant to private placements,
net of share issue costs		27,950	—	3,075		—	—	31,025
Consideration for business
combination, net of share issue costs		45,031	—	—		—	—	45,031
Treasury shares issued for business
combination		959	(959)	—		—	—	—
Issued pursuant to stock option
exercises		474	—	(146)		—	—	328
Share-based compensation		—	—	729		—	—	729
Balance,September 30,2022	$	173,332 $	(959)$	15,451	$	21,018 $	(69,141)$	139,701

							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 income for the
period	—	—	—		—		591	8,861	9,452
Purchased pursuant to
normal course issuer bid	(1,987)	—	—		—		—	(303)	(2,290)
Accrued purchases pursuant to
normal course issuer bid	(1,669)	—	—		—		—	—	(1,669)
EP Notes issued for business
combination (note 4)	—	—	1,274		—		—	—	1,274
Contributed surplus on vesting of treasury shares	—	250	—		(250)		—	—	—
Issued pursuant to warrant
exercises	19,843	—	—		(3,433)		—	—	16,410
Issued pursuant to stock option
exercises	673	—	—		(251)		—	—	422
Share-based compensation	—	—	—		3,848		—	—	3,848
Balance,September 30,2023	$ 197,344 $	(709)$	1,274	$	15,768	$	17,980 $	(50,313)$	181,344

See accompanying notes to unaudited condensed consolidated financial statements.

5

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Three and nine months ended September 30, 2023 and 2022

Canadian dollars in ‘000s (unaudited)

	Three	months ended September 30,	months ended September 30,	months ended September 30,	Nine months ended	Nine months ended	September 30,
		2023		2022	2023		2022
			(Revised - note 3)			(Revised - note 3)
Cash provided by (used in):
Operating activities:
Net income	$	5,650	$	8,658 $	8,861	$	8,077
Non-cash adjustments:
Income tax expense (recovery)		1,359		87	3,942		(669)
Depreciation and amortization		12,807		12,512	35,155		21,671
Share-based compensation		2,160		463	3,848		729
Gain on disposal of property, plant and equipment		(5)		—	(390)		(117)
Write-off of property, plant and equipment		1,555		857	3,924		1,486
Write-down of inventory included in cost of sales		599		—	977		—
Finance costs - loans and borrowings		2,286		1,500	5,502		2,024
Finance costs - lease liabilities		215		200	634		584
Income tax (paid) refund		(198)		30	(846)		58
Unrealized foreign exchange (gain) loss on
intercompanybalances		(100)		2,048	(999)		2,511
		26,328		26,355	60,608		36,354
Changes in non-cash operatingworkingcapital		(17,200)		(14,899)	(7,213)		(19,514)
Cash flow - operatingactivities		9,128		11,456	53,395		16,840
Investing activities:
Cash paid on acquisition, net of cash acquired
(note 4)		(27,426)		(81,703)	(27,426)		(103,793)
Property, plant and equipment additions		(15,385)		(7,592)	(37,850)		(17,100)
Intangible asset additions (note 6)		(14)		(1,456)	(158)		(1,456)
Proceeds on disposal of property, plant and
equipment		70		—	733		1,679
Changes in non-cash investingworkingcapital		4,023		(2,600)	2,268		(1,759)
Cash flow - investingactivities		(38,732)		(93,351)	(62,433)		(122,429)
Financing activities:
Advances of loans and borrowings, net of upfront
financing fees		27,298		87,291	27,298		107,150
Repayments on loans and borrowings		(5,471)		(6,868)	(25,926)		(23,591)
Payments on lease liabilities, net of finance costs		(811)		(780)	(2,660)		(2,116)
Interest paid		(2,500)		(1,700)	(6,136)		(2,608)
Common shares purchased pursuant to normal
course issuer bid		(3,955)		—	(3,955)		—
Proceeds on common share issuances		1,465		218	16,832		31,378
Changes in non-cash financingworkingcapital		1,765		—	1,765		—
Cash flow - financing activities		17,791		78,161	7,218		110,213
Effect of exchange rate on changes on cash		2,862		229	1,817		285
Change in cash		(8,951)		(3,505)	(3)		4,909
Cash,beginningofperiod		20,123		11,312	11,175		2,898
Cash,end ofperiod	$	11,172	$	7,807 $	11,172	$	7,807

See accompanying notes to unaudited condensed consolidated financial statements.

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting entity

Cathedral Energy Services Ltd. (“LTD”) is a company domiciled in Canada, 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 nine months ended September 30, 2023 are comprised the following 100% owned subsidiaries:

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

• 2438155 Alberta Ltd.;

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

• CET Flight Holdco, Inc. (“Flight”);

• 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 while INC, Flight, Rime, 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.

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 November 9, 2023.

These unaudited condensed consolidated financial statements for the three and nine months ended September 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 million, except for tabular information, which is presented in thousands of dollars as well as 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, with the exception of those described in note 4 and note 12 related to the Rime acquisition and provision.

Future Accounting Pronouncements

There were new standards effective on January 1, 2023, including: IFRS 17 Insurance contract, IAS 12 Income taxes and IAS 8 Accounting policies, changes in accounting estimates and errors. There was no material impact on the Company’s financial statements for the adoption of these standards.

There are certain accounting pronouncements issued but not yet effective in the period, including: IFRS 7 Financial instruments: Disclosures, IFRS 10 Consolidated Financial Statements, IAS 21 The effects of changes in foreign exchange rates, IFRS 16 Leases, IAS 1 Presentation of Financial Statements, IAS 7 Statement of Cash Flows and IAS 28 Investments in Associates and Joint Ventures. None of the new or amended standards issued are expected to have a significant impact on the Company’s financial statements.

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Reclassifications

The Company has changed the presentation of certain figures in the comparative period as follows:

• i) Lost-in-hole proceeds and gain on disposal of equipment - reimbursements collected from customers related to lost-in-hole equipment and the corresponding derecognition of the property, plant and equipment (“PP&E”) were: a) reclassified from proceeds on disposal of property, plant and equipment to revenues, b) recognized as a write-off of PP&E at the net book value of the equipment and c) included in the Company’s cash flows - operating activities rather than cash flows - investing activities on the condensed consolidated statement of comprehensive income and the condensed 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.

• ii) Cash paid on acquisition - cash paid on acquisition, net of cash acquired has been presented in aggregate rather than allocated to the individual net assets acquired on the condensed consolidated statement of cash flows.

These reclassifications are summarized below:

Condensed Consolidated Statement of Comprehensive Income (Excerpt)

		Three months	ended September	ended September	ended September	30, 2022		Nine months ended September	Nine months ended September	Nine months ended September	Nine months ended September	30, 2022
		Reported	Adjustment			Adjusted		Reported		Adjustment		Adjusted
Revenue(1)(2)	$	107,846	$	7,338	$	115,184	$	169,883	$	9,982	$	179,865
Cost of sales(1)		(83,557)		(2,046)		(85,603)		(139,490)	$	(2,058)		(141,548)
Gross margin(1)		24,289		5,292		29,581		30,393		7,924		38,317
Write-off of property, plant and equipment(1)		—		(857)		(857)		—		(1,486)		(1,486)
(Loss) gain on disposal of property, plant and equipment(1)	$	4,435	$	(4,435)	$	—	$	6,555	$	(6,438)	$	117

(1) Related to adjustment i) Lost-in-hole proceeds and gain on disposal of equipment, as described above.

• (2) The adjusted revenue related to the Canada segment of $1.5 million and $2.9 million and the U.S. segment of $5.8 million and $7.1 million for the three and nine months ended September 30, 2022, respectively.

Condensed Consolidated Statement of Cash Flows (Excerpt)

		Three months	Three months	ended September	ended September	30, 2022		Nine months	Nine months	ended September 30, 2022	ended September 30, 2022	ended September 30, 2022
		Reported		Adjustment		Adjusted		Reported		Adjustment		Adjusted
Cash flow provided by (used in):
Operating activities
Write-off of property, plant and equipment(1)	$	—	$	857	$	857	$	—	$	1,486	$	1,486
Loss (gain) on disposal of property, plant and equipment(1)		(4,435)	$	4,435		—		(6,555)		6,438		(117)
Non-cash working capital - cash paid on acquisition(2)		(11,310)		11,310		—		(11,310)		11,310		—
Changes in non-cash operating working capital(2)		(4,272)		(10,627)		(14,899)		(8,886)		(10,628)		(19,514)
Cash flow - operatingactivities		5,481		5,975		11,456		8,234		8,606		16,840
Investing activities
Cash paid on acquisitions, net of cash acquired(2)		—		(81,703)		(81,703)		—		(103,793)		(103,793)
Equipment additions - normal course(1)(2)		(7,730)		138		(7,592)		(17,252)		152		(17,100)
Equipment additions - cash paid on acquisition(2)		(54,276)		54,276		—		(76,436)		76,436		—
Intangible additions - cash paid on acquisition(2)		(28,284)		28,284		—		(28,284)		28,284		—
Proceeds on disposal of equipment(1)		6,970		(6,970)		—		11,294		(9,615)		1,679
Cash acquired on acquisition(2)		—		—		—		70		(70)		—
Cash flow - investingactivities	$	(87,376)	$	(5,975)	$	(93,351)	$	(113,823)	$	(8,606)	$	(122,429)

(1) Related to adjustment i) Lost-in-hole proceeds and gain on disposal of equipment, as described above.

(2) Related to adjustment ii) Cash paid on acquisition, as described above.

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Acquisitions

i) 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: (a) the payment of USD $21 million in cash (approximately CAD $28 million); and (b) the issuance of principal amount of USD $20 million (approximately CAD $26.4 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 a deemed 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 (“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.

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 a 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 purchase price allocation was recognized at fair value under IFRS 3 Business combinations as follows:

As at		July11,2023
Consideration:
Cash Exchangeable promissory notes		$ 27,954
		24,632
Total consideration		$ 52,586
Purchase price allocation:
Cash Accounts receivable Inventory Other net working capital Property, plant and equipment		$ 528
		6,041 7,119
		(2,668)
		3,817 35,850
Intangible assets
Right-of-use assets		492 1,899 (492)
Goodwill Lease obligations
Totalpurchaseprice allocation		$ 52,586

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
Technology	$	28,480	With and without income approach	– –	Incremental technology sales and gross margins Research and development costs and contributory asset charges
				–	Forecasted revenues, margins and contributory asset
			Multi-period excess earnings		charges
Customer relationships		6,890	method	–	Customer attrition,discount and income tax rates
				–	Forecasted cash flows attributed to the brand name
Brand name		290	Relief from royaltymethod	–	Royalty,discount and income tax rates
				–	Forecasted cash flows with and without competition
			With and without income	–	Probability of competition
Non-compete agreements		190	approach	–	Discount and income tax rates
Total	$	35,850

The accounts receivable was recognized at fair market value and are deemed to be fully collectible within the next twelve months. As such, the acquired accounts receivable have been classified as a current asset.

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

During the period from July 11, 2023 to September 30, 2023, Rime generated revenues of USD $4 million and net income of USD $1 million. Transactions costs of $0.8 million were expensed related to the acquisition.

Assuming the Rime acquisition was effective on January 1, 2023, Rime generated revenues of USD $20 million and net income of USD $4 million for the nine months ended September 30, 2023. The estimates and judgements used to prepare these figures may not be representative of actual results.

ii) 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.

iii) 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 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 $1.1 million. In addition, the Company recognized settlement of a technology license from a pre-existing relationship for consideration of $0.6 million.

iv) Compass Directional Services Ltd.

On June 22, 2022, the Company acquired the operating assets of Compass Directional Services Ltd. (“Compass”). Cathedral paid $4 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. 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.

v) 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 in of Cathedral for total consideration of $124.1 million. Additionally, the Company assumed lease liabilities and a deferred tax liability. 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.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. 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		32,640	2,086	3,107	37,833
Acquisition (note 4)		3,278	—	539	3,817
Disposals and write-offs		(7,271)	(448)	—	(7,719)
Effects of movements in exchange rates		337	30	40	407
Balance,September 30,2023	$	193,800 $	10,933 $	5,899 $	210,632
		Directional	Shop and
		drilling	automotive
Accumulated depreciation		equipment	equipment	Other	Total
Balance, December 31, 2022	$	64,373 $	2,794 $	597 $	67,764
Depreciation		25,794	1,148	494	27,436
Disposals and write-offs		(3,243)	(222)	—	(3,465)
Effects of movements in exchange rates		103	8	5	116
Balance,September 30,2023	$	87,027 $	3,728 $	1,096 $	91,851
		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,September 30,2023	$	106,773 $	7,205 $	4,803 $	118,781

During the nine months ended September 30, 2023, the Company recognized a write-off of property, plant and equipment of $3.9 million (2022 - $1.5 million) related to equipment lost-in-hole and equipment damaged beyond repair and a gain on disposal of property, plant and equipment of $0.4 million (2022 - $0.1 million).

6. Intangibles and goodwill

6. 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 Acquisition (note 4) 6,890 290 190 — 28,480 35,850 Additions — — — — 158 158 Effects of movements in exchange rates 235 20 7 14 813 1,089	$ 39,395 1,899 — 121
Balance,September 30,2023 $ 29,625 $ 7,358 $ 976 $ 8,433 $ 34,837 $ 81,229	$ 41,415
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 3,110 363 125 783 943 5,324 Effects of movements in exchange rates 32 3 1 8 5 49	$ — — —
Balance,September 30,2023 $ 4,885 $ 585 $ 198 $ 1,255 $ 4,071 $ 10,994	$ —

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,September 30,2023 $ 24,740 $ 6,773 $ 778 $ 7,178 $ 30,766 $ 70,235	$ 39,395 $ 41,415
Remainingamortization inyears 4.9 12.9 4.07 6.8 12.2 7.5	n/a

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Right-of-use assets and lease liabilities

Right-of-use assets

Balance, December 31, 2022	$	12,178
Acquisition (note 4)		492
Additions		1,189
Derecognition		(97)
Depreciation		(2,396)
Impact of leasehold incentives		(495)
Effects of movements in exchange rates		15
Balance,September 30,2023	$	10,886
Lease liabilities
Balance, December 31, 2022	$	17,880
Acquisition (note 4)		492
Additions		1,232
Derecognition		(97)
Interest		634
Payments		(3,331)
Effects of movements in exchange rates		16
Balance, September 30, 2023		16,826
Less: lease liabilities,current		(3,420)
Lease liabilities,long-term	$	13,406

8. Loans and borrowings

		September 30,	December 31,
As of		2023	2022
Syndicated Operating Facility	$	— $	13,000
CAD Syndicated Term Facility, net of unamortized upfront financing fees		55,032	66,600
USD Syndicated Term Facility, net of unamortized upfront financing fees		26,837	—
HASCAP loan		852	935
Total loans and borrowings		82,721	80,535
Less: HASCAP loan, current		(852)	(935)
Less: CAD Syndicated Term Facility, current		(13,658)	(14,800)
Less: USD Syndicated Term Facility,current		(6,666)	—
Loans and borrowings,current		(21,176)	(15,735)
Loans and borrowings,long-term	$	61,545 $	64,800

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 credit facility with its syndicate of lenders led by ATB Financial (“ATB”). The Credit Facility provides an approximate $137 million principal amount comprised of: i) a $59 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 credit facility.

During the nine months ended September 30, 2023, the Company also repaid its balance owing on the Syndicated Operating Facility of $13 million. In addition, the Company made contractual repayments totaling $11.1 million related to its Syndicated Term Facility reducing the carrying value to $55.0 million as at September 30, 2023. The carrying values of the CAD Syndicated Term Facility and the USD Syndicated Term Facility are net of unamortized upfront financing fees as at September 30, 2023.

As at September 30, 2023, the $35 million Syndicated Operating Facility and the $15 million Revolving Operating Facility remained undrawn. In addition, the Company continues to hold a Highly Affected Sectors Credit Availability Program (“HASCAP”) loan.

At September 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. 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
Purchased under the normal course issuer bid	(2,435)	(1,987)
Accrued purchases under the normal course issuer bid	—	(1,669)
Issued on exercise of warrants	20,307	16,410
Contributed surplus on warrants exercised	—	3,433
Issued on exercise of stock options	1,482	422
Contributed surplus on options exercised	—	251
Balance,September 30,2023	243,478 $	197,344

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 (“Common Shares”) 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 nine months ended September 30, 2023, 2,434,900 Common Shares were purchased under the NCIB for a total purchase amount of $2.2 million at an average price of $0.82 per Common Share. A portion of the purchase amount reduced share capital by $2 million and the residual purchase amount of $0.2 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. As at September 30, 2023, the Company recognized $1.8 million as an accrued liability ($1.7 million reduced share capital and $0.1 million was recorded to the deficit) for the maximum Common Shares to be purchased under the Plan. Subsequent to September 30, 2023, the Company purchased 1,860,000 Common Shares for a total purchase amount of $1.6 million at an average purchase price of $0.86 per Common Share.

Stock options

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

		Weighted
	Number	average
	(000s)	exerciseprice
Balance, December 31, 2022	20,672 $	0.61
Granted	6,348 $	0.89
Exercised	(1,482)	0.28
Forfeitures	(2,738)	0.59
Balance,September 30,2023	22,800	0.71
Exercisable,September 30,2023	6,178 $	0.52

During the nine months ended September 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.

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The range of exercise prices for the options outstanding as at September 30, 2023 is as follows:

	Outstanding	Exercisable
Exercise price range	Number (000s) Weighted average remaining life (years) Weighted average exercise price	Number (000s) Weighted average remaining life (years) Weighted average exercise price
$0.12 to $0.25 $0.26 to $0.50 $0.51 to $0.87 $0.87 to $1.18	162 0.04 $ 0.12 2,649 0.79 $ 0.43 17,739 2.12 $ 0.72 2,250 2.51 $ 0.99	162 0.04 $ 0.12 2,591 0.78 $ 0.43 3,425 1.78 $ 0.61 — — $ —
Total	22,800 1.99 $ 0.71	6,178 1.32 $ 0.52

Warrants

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

		Weighted
	Number	average
	(000s)	exerciseprice
Balance, December 31, 2022	20,362 $	0.81
Exercise of warrants	(20,307)	0.81
Expiryof warrants	(55)	(0.85)
Balance,September 30,2023	— $	—

During the nine months ended September 30, 2023, 17,731,888 of the April 2022 bought deal offering warrants, 575,000 of the February 2021 private placement warrants and 2,000,000 of the warrants related to the 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.

10. Net income per share

	Three	months ended	September 30,	Nine months ended	September 30,
		2023	2022	2023	2022
Net income	$	5,650 $	8,658 $	8,861 $	8,077
Outstanding shares, beginning of the period		243,200	147,559	224,124	80,200
Effect of purchased share capital during the period		(323)	—	(109)	—
Effect of share capital issued duringtheperiod		1,697	49,526	11,963	62,526
Weighted average common shares (basic)		244,574	197,085	235,978	142,726
Effect of outstanding stock options and warrants		1,234	2,078	2,659	2,432
Effect of outstandingEP Notes		21,641	—	7,320	—
Weighted average common shares(diluted)		267,449	199,163	245,957	145,158
Net incomeper share - basic and diluted	$	0.02 $	0.04 $	0.04 $	0.06

During the three and nine months ended September 30, 2023, 15,466,233 and 4,050,766 stock options and warrants, respectively (2022 – 15,164,767 and 15,164,767) were excluded from the diluted weighted average number of common shares calculation as their effect was anti-dilutive.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. 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 (note 3) Income (loss) before income taxes	Three months ended September 30,2023 Three months ended September 30,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
	$ 45,253 $ 100,338 $ — $ 145,591 $ 38,073 $ 77,110 $ — $ 115,183 $ 9,631 $ 4,411 $ (7,033)$ 7,009 $ 6,298 $ 9,645 $ (7,198)$ 8,745
Revenues (note 3) Income (loss) before income taxes	Nine months ended September 30,2023 Nine months ended September 30,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
	$ 116,080 $ 283,798 $ — $ 399,878 $ 77,937 $ 101,928 $ — $ 179,865 $ 12,238 $ 17,958 $(17,393)$ 12,803 $ 3,636 $ 14,031 $(10,259)$ 7,408
Total liabilities Total assets Property, plant and equipment	As at September 30,2023 As at December 31,2022
	Canada U.S. Corporate services Total Canada U.S. Corporate services Total
	$ 109,014 $ 122,208 $ — $ 231,222 $ 119,148 $ 80,945 $ — $ 200,093 $ 107,967 $ 304,599 $ — $ 412,566 $ 110,683 $ 243,307 $ — $ 353,990 $ 53,407 $ 65,374 $ — $ 118,781 $ 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 yearround, 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.

12. Contractual obligations and contingencies

As at September 30, 2023, the Company's commitment to purchase property, plant and equipment is approximately $7.6 million, which is expected to take place over the next six months.

The Company also holds six letters of credit totaling $1.9 million related to rent payments, corporate credit cards and a utilities deposit.

Provision

The Company has recognized a provision of $6.1 million related to a recent U.S. tax audit matter. A portion of the provision was recognized as an expense of $4.3 million and a portion was recognized as property, plant and equipment and inventory of $1.8 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.

15