Zedcor Inc. — Interim / Quarterly Report 2021

Nov 17, 2021

ZEDCOR INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE & NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

reviewed the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2021.

ZEDCOR INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

(Unaudited)

(Statedinthousands ofCanadiandollars)	September 30, 2021 December 31, 2020
Assets Current assets: Cash Accounts receivable Current portion of finance lease receivable Income taxes recoverable Inventory Prepaid expenses and deposits Non-current assets: Finance lease receivable Property and equipment (note 3) Right-of-use assets Total assets Liabilities and Shareholders’ Equity Current liabilities: Accounts payable and accrued liabilities Current portion of lease liabilities Current portion of long-term debt (note 4) Non-current liabilities: Lease liabilities Long term debt (note 4) Note payable (note 5) Total liabilities Shareholders’ equity Share capital (note 6) Preferred equity (note 6) Warrants Contributed surplus Deficit Total liabilities and shareholders’ equity	$ 171 $ 761 3,323 3,191 441 447 88 88 130 — 308 338
	4,461 4,825
	2,984 3,280 9,927 22,549 1,329 1,837
	14,240 27,666
	$18,701$32,491
	$ 3,184 $ 1,596 1,519 1,525 2,801 2,940
	7,504 6,061
	4,735 5,339 2,280 14,377 3,044 2,696
	10,059 22,412
	$17,563 $28,473
	$ 107,768 $ 107,625 2,864 2,864 587 587 1,656 1,582 (111,737) (108,640)
	1,138 4,018
	$18,701$32,491

The accompanying notes are an integral part of these condensed consolidated interim financial statements

ZEDCOR INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	For the three months ended For the nine months ended
	September 30, September 30, September 30, September 30,
(Stated in thousands of Canadian dollars, exceptper share amounts)	2021 2020 2021 2020
Revenues Direct expenses Direct operating costs Depreciation of equipment (note 3) Gross margin Operating expenses General and administrative Depreciation of other property and equipment Depreciation of right-of-use assets Loss on sale of equipment (note 3) (Gain) loss on disposal of right-of-use assets Other expenses Finance costs (note 7) Loss (gain) on foreign exchange Income (loss) before income taxes from continuing operations Income taxes recovery Current recovery Net income (loss) from continuing operations Net loss from discontinued operations (note 8) Net income (loss) and comprehensive income (loss) for the period Basic and diluted loss per share from continuing operations Basic and diluted loss per share from discontinued operations Weighted average number of shares outstanding Basic Diluted	$ 3,684 $ 1,673 $ 9,474 $ 4,543 1,619 372 3,927 1,282 369 320 1,081 902
	1,988 692 5,008 2,184
	1,696 981 4,466 2,359
	725 476 2,220 1,531 38 30 96 91 177 139 394 198 52 — 52 — (46) (105) 527 (116)
	946 540 3,289 1,704
	430 887 2,198 2,488 24 (3) 24 3
	454 884 2,222 2,491
	296 (443) (1,045) (1,836) — (22) — (65)
	296 (421) (1,045) (1,771) — (585) (2,052) (657)
	$ 296 $(1,006) $(3,097) $(2,428)
	$ 0.01 $ (0.01) $ (0.02) $ (0.03) — $ (0.01) $ (0.04) $ (0.01) 58,239,094 55,243,280 57,882,505 54,906,680 60,146,713 55,243,280 57,882,505 54,906,680

The accompanying notes are an integral part of these condensed consolidated interim financial statements

ZEDCOR INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

			Preferred			Contributed	Contributed
(Stated in thousands of Canadian dollars)	Share capital		shares	Warrants		surplus		Deficit	Total
Balance – December 31, 2019	$	107,320	2,864	468		1,505		(103,962)	8,195
Stock based compensation		—	—	—		28		—	28
Issuance of warrants		—	—	6		—		—	6
Amendment of exercise price		—	—	26		—		—	26
Shares issued as consideration for
loan guarantee		85	—	—		—		—	85
Netloss and comprehensiveloss		—	—	—		—		(2,428)	(2,428)
Balance – September 30, 2020		107,405	2,864	500		1,533		(106,390)	5,912
Stock based compensation		—	—	—		49		—	49
Extension and amendment of
warrant exercise price		—	—	51		—		—	51
Issuance of warrants		—	—	36		—		—	36
Shares issued as consideration for
loan guarantee		220	—	—		—		—	220
Comprehensiveloss		—	—	—		—		(2,250)	(2,250)
Balance – December 31, 2020		107,625	2,864	587		1,582		(108,640)	4,018
Stock based compensation		—	—	—		95		—	95
Shares issued as consideration for
loan guarantee (note 6)		64	—	—		—		—	64
Exercise of stock options		79	—	—		(21)		—	58
Comprehensiveloss		—	—	—		—		(3,097)	(3,097)
Balance – September 30, 2021	$	107,768	$2,864	$587	$1,656		$ (111,737)		$1,138

The accompanying notes are an integral part of these condensed consolidated interim financial statements

ZEDCOR INC. CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW

(Unaudited)

	Three months ended Nine months ended
(Stated in thousands of Canadian dollars)	September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Cash provided by (used in): Operating Net income (loss) from continuing operations Depreciation of property and equipment (note 3) Depreciation of right-of-use assets Loss on disposal of equipment (note 3) (Gain) loss on disposal of right-of-use asset Stock based compensation Non-cash interest expense and other financing costs Receipt of finance lease receivable Income taxes recovered Changes in non-cash working capital Cash flow from continuing operating activities Cash flow from discontinued operating activities (note 8) Cash flow from (used in) operating activities Investing Change in non-cash working capital related to investing activities Purchase of property and equipment (note 3) Proceeds from sale of equipment (note 3) Cash flow used by continuing investing activities Cash flow from discontinued investing activities (note 8) Cash flow from (used in) investing activities Financing Proceeds from debt Repayment of debt Proceeds from exercise of stock options Payment of finance lease liabilities Cash flow used by financing activities Net change in cash in the period Cash, beginning of period Cash, end of period	$ 296 $ (443) $ (1,045) $ (1,836) 407 350 1,177 993 177 139 394 198 52 — 52 — (46) (105) 527 (116) 33 11 95 28 262 85 776 366 112 13 270 87 — — — 74
	1,293 (50) 2,246 (206) 893 (655) 545 750
	2,186 (605) 2,791 544 — 320 1,561 2,348
	2,186 (285) 4,352 2,892
	346 75 823 (197) (2,045) (273) (3,819) (1,170) 20 — 20 —
	(1,679) (198) (2,976) (1,367) — 905 11,825 1,956
	(1,679) 707 8,849 589
	328 — 1,249 — (327) (711) (13,843) (2,807) 19 — 57 — (357) (259) (1,254) (652)
	(337) (970) (13,791) (3,459)
	170 (548) (590) 22 1 740 761 170
	$ 171 $ 192 $ 171 $ 192

The accompanying notes are an integral part of these condensed consolidated interim financial statements

ZEDCOR INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) IN THOUSANDS OF CANADIAN DOLLARS

1. CORPORATE INFORMATION:

Zedcor Inc. (the “Company”) was formed under the laws of Alberta as a corporation on August 10, 2011. On September 17, 2020, the Company received shareholder approval for the name change from Zedcor Energy Inc. to Zedcor Inc.

The Company operates in Western and Central Canada and provides technology based Security & Surveillance services. Specifically the Company has three main service offerings to customers across all market segments: 1) rental, service and remote monitoring of its proprietary MobileyeZ security towers; 2) live monitoring of fixed site locations; and 3) security personnel.

The Company is listed on the TSX Venture Exchange under the symbol ZDC.

In early March 2020, the World Health Organization declared coronavirus outbreak ("COVID-19") to be a pandemic. Responses to the spread of COVID-19 have resulted in significant disruption to business operations and a significant increase in economic uncertainty, with more volatile commodity prices, currency exchange rates, and a marked decline in long-term interest rates. These events are resulting in a challenging economic climate in which it is difficult to reliably estimate the length or severity of these developments and their financial impact. A significant adverse impact to the Company includes, but is not limited to, substantial reductions in revenues and cash flows, increased risk of non-payment from customers and future impairments of property and equipment. Estimates and judgments made in the preparation of these financial statements are increasingly difficult and subject to a higher degree of measurement uncertainty during this volatile period.

2. BASIS OF PREPARATION:

a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting. These condensed consolidated interim financial statements do not include all of the information required for full financial disclosure. The disclosures provided below are incremental to those included in the annual financial statements and certain disclosures, which are normally required to be included in the notes to annual financial statements, have been condensed or omitted. The same accounting policies and methods of computation were followed in the preparation of these interim financial statements as were followed in the preparation of the Company’s annual financial statements for the year ended December 31, 2020. Accordingly, these condensed consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2020.

These condensed consolidated financial statements were approved by the Board of Directors on November 16, 2021 and are presented in Canadian dollars, which is the Company’s functional currency.

b) Basis of presentation and going concern

These consolidated financial statements have been prepared based on accounting policies applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. In the presentation of financial statements, Management is required to identify where events or conditions indicate that significant doubt may exist about the Company’s ability to continue as a going concern.

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ZEDCOR INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) IN THOUSANDS OF CANADIAN DOLLARS

c) Significant accounting policies

The significant accounting policies adopted in the preparation of these condensed consolidated financial statements are the same as those set out in the annual audited consolidated financial statements for the year ended December 31, 2020.

3. PROPERTY AND EQUIPMENT:

	Rental	Automotive &	Office furniture	Leasehold
Cost	equipment	other equipment	& equipment	improvements	**Total **
At December 31, 2019	56,762	238	1,101	170	58,271
Additions	1,696	8	74	7	1,785
Disposals	(5,515)	(5)	—	—	(5,520)
At December 31, 2020	52,943	241	1,175	177	54,536
Additions	3,578	—	241	—	3,819
Disposals	(42,290)	(36)	(495)	(113)	(42,934)
At September 30, 2021	14,231	205	921	64	15,421

	Rental	Automotive &	Office furniture	Leasehold
**Accumulated depreciation **	equipment	other equipment	& equipment	improvements	**Total **
At December 31, 2019	27,895	208	739	124	28,966
Depreciation	4,146	17	118	17	4,298
Elimination on disposal	(3,391)	(4)	—	—	(3,395)
Impairment	2,118	—	—	—	2,118
At December 31, 2020	30,768	221	857	141	31,987
Depreciation	1,796	6	99	13	1,914
Eliminationondisposal	(27,839)	(31)	(426)	(111)	(28,407)
At September 30, 2021	4,725	196	530	43	5,494

	Rental	Automotive &	Office furniture	Leasehold
Net Book Value	equipment	other equipment	& equipment	improvements	Total
At December 31, 2020	22,175	20	318	36	22,549
At September 30, 2021	9,506	9	391	21	9,927

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ZEDCOR INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) IN THOUSANDS OF CANADIAN DOLLARS

During the nine months ended September 30, 2021, the Company sold assets with a net book value of $14,527 for proceeds of $11,845, resulting in a loss of $2,682 (nine months ended September 2020 – gain of $70). During the nine months ended September 30, 2021, the Company also disposed of right-of-use assets with a net book value of $585. This resulted in a loss of $527 (nine months ended September 2020 – gain of $116).

The Company reviews the carrying value of its long-lived assets and cash generating units at each reporting date to determine whether there is any indication of impairment. For the nine months ended September 30, 2021, no triggers for impairment were identified for the Security & Surveillance CGU.

4. CREDIT FACILITIES:

				Outstanding as at
		Final	Facility	September 30,	Outstanding as at
	Interest rate	maturity	**maximum **	2021	December 31, 2020
		January
Loan and Security Facility	12.75%	1, 2023	19,309	3,832	17,317
OperatingLoan Facility	Prime+5.0%	Revolving	3,000	1,249	—
				5,081	$17,317
Current portion				(2,801)	(2,940)
Longterm debt				2,280	14,377

The Company’s credit facilities consist of a Loan and Security Facility and an Operating Loan Facility.

Loan and Security Facility:

The Loan and Security Facility was renewed in December 2020. It consists of a one time $17.3 million draw and a $2.0 million accordion feature which the Company can draw on subject to approval from the lender. In December 2020, the Company drew $0.8 million of the accordion feature.

The key terms of the Loan and Security facility are as follows:

• Bears interest at a rate of 12.75% and is secured with a first charge over the Company’s assets;

• Extension fee of 2% per annum, a portion of which was capitalized to the loan and a portion of which was paid with the issuance of 2,000,000 common shares of the Company in December 2020;

• Does not require quantitative financial covenants, but imposed restrictions on the Loan’s collateral, being the property and equipment of the Company, and has a $2.5 million personal guarantee from a Board Member of the Company; and

• Term of the Loan and Security Facility was extended to January 1, 2023 with an option to renew for an additional 12 months at the satisfaction of the lender.

As a result of the disposal of the Company’s Rental Segment assets at September 30, 2021, the Company has:

• $3.3 million outstanding on the one time draw of $17.3 million;

• $0.5 million outstanding on the $0.8 million draw on the accordion feature;

• $ 1.2 million available to draw on the accordion feature, subject to approval from the lender; and

• The lender has released the personal guarantee from the Company’s Board Member.

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ZEDCOR INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) IN THOUSANDS OF CANADIAN DOLLARS

Operating Loan Facility:

The Operating Loan Facility is comprised of a $3.0 million line of credit which is payable on demand by the lender and bears interest at a rate of Prime plus 5.0%. The Operating Loan Facility is margined by the Company’s accounts receivable, and the available amount is determined monthly based on 75% of the Company’s accounts receivable aged less than 90 days and 85% of the Company’s accounts receivable aged less than 120 days from investment grade customers.

Subsequent to the end of the quarter, the Company entered into a new financing agreement which consists of:

• 1) A $6.1 million term loan that is fully committed for five years. The term loan bears interest at 5.15% and will have monthly blended principal and interest payments of $116.

• 2) A $3.0 million revolving equipment financing facility. The Company is able to draw on this facility at any time for up to 75% of new equipment purchases. The equipment financing draws bear interest at Prime + 2.0% and each draw will be amortized over 5 years with blended principal and interest payments.

• 3) An authorized overdraft facility up to $3.0 million, secured by the Company’s accounts receivable, up to 75%, less priority payables. The overdraft facility is due on demand and any outstanding overdraft bears interest at Prime + 1.5%.

The new financing agreement is secured with a first charge over the Company’s current and after acquired equipment, a general security agreement, a subordination and postponement agreement with a director of the Company with respect to the Note Payable, and other standard non-financial security.

The agreement has the following annual financial covenant requirements:

• For the fiscal year end December 31, 2021, a modified debt servicing covenant of 1.25 to 1.00. The modification relates to the amount of debt payments for 2021 being assumed as $2.2 million.

• For the fiscal year ends December 31, 2022 and onwards, a debt servicing covenant of 1.25 to 1.00 and a funded debt to EBITDA covenant of 3.00 to 1.00.

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ZEDCOR INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) IN THOUSANDS OF CANADIAN DOLLARS

5. NOTE PAYABLE

Balance, December 31, 2019	$ 2,979
Interest payable	115
Accretion of note payable discount	140
Extinguishment of note payable	(3,234)
Recognition of note payable at fair value	2,658
Interest payable	14
Accretion of notepayable discount	24
Balance, December 31, 2020	$ 2,696
Interest payable	131
Accretion of notepayable discount	217
Balance, September 30, 2021	$3,044

The Note Payable, which is due to a corporation controlled by a director of the Company, matures on January 1, 2023 at its nominal value of $2.5 million and bears interest at 7% per annum, accruing daily from the issue date. Interest is payable annually but the Company has not made any interest payments on the note, in agreement with the holder. The Note Payable is unsecured and subordinated to the Credit Facilities and interest payments are subject to certain restrictions in the Credit Facilities.

6. SHARE CAPITAL

**Common shares issued and fully paid: **	Number of shares	$
Balance, December 31, 2019	54,244,775	107,320
Issued as consideration for loan guarantee	1,366,469	125
Issued as consideration for loan fees	2,000,000	180
Balance, December 31, 2020	57,611,244	107,625
Issued as consideration for loan guarantee	271,416	64
Issued onexercise ofstockoptions	297,283	79
Balance, September 30, 2021	58,179,943	107,768
**Preferred shares issued: **	Number of shares	$
Balance, December 31, 2020 and September 30, 2021	4,400,000	2,864

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ZEDCOR INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) IN THOUSANDS OF CANADIAN DOLLARS

The Preferred Shares are non-voting and non-transferrable, have a stated value of $0.70 per share and a term of five years. The Preferred Shares have a cumulative dividend of 5% of the stated value commencing on January 31, 2017 until January 31, 2018 and a 10% cumulative dividend from January 31, 2018 thereafter, with dividend payments being subject to certain restrictions in the Company’s existing secured credit facilities, and at the discretion of the Board of Directors. The dividend can be settled at the discretion of the Company in either cash or through the issuance of Common Shares based on the conversion price of $0.70.

After January 31, 2020, the Preferred Shares may be converted by the holder thereof into the Company’s Common Shares at a conversion price of $0.70 per share, subject to the right of Company to redeem the Preferred Shares prior to such conversion for a cash amount per share equal to the lesser of: (i) $2.00; and (ii) the current market price of the Common Shares.

The Company shall have the right to redeem the Preferred Shares at any time if the current market price of the Common Shares exceeds $2.00 by either, at Company’s sole option, (i) payment of cash of $2.00 per Preferred Share; or (ii) through the issuance of 4,400,000 Common Shares, subject to certain adjustments.

The Preferred Shares may be redeemed at the end of the term, at the Company’s sole option, for either (i) a cash amount per share equal to the lesser of $2.00 and the current market price; or (ii) 4,400,000 Common Shares, subject to certain adjustments.

7. FINANCE COSTS:

Finance costs are comprised of the following:

	For the three months ended	For the three months ended	For the nine months ended	For the nine months ended
	September 30,	September 30,	September 30,	September 30,
	2021	2020	2021	2020
Bank charges and interest	8	6	18	14
Interest on debt	253	628	1,687	1,758
Interest on note payable	116	71	348	208
Interest on financeleases	53	182	145	508
	430	887	2,198	2,488

8. DISCONTINUED OPERATIONS:

On June 30, 2021, the Company sold the assets of its Rentals Segment to a company controlled by a Director of the Company for gross proceeds of $11.3 million. The sale allows the Company to focus on its Security & Surveillance business while reducing the debt on its balance sheet. The comparative condensed consolidated interim statements of income (loss) have been restated to show the discontinued operations separate from continuing operations.

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ZEDCOR INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) IN THOUSANDS OF CANADIAN DOLLARS

The following tables summarize the Company’s discontinued operations the three and nine months ended September 30, 2021 and 2020:

	For the three months ended	For the three months ended	For the nine months ended	For the nine months ended
	September 30,	September 30,	September 30,	September 30,
	2021	2020	2021	2020
Revenues	—	995	3,052	5,252
Direct expenses
Direct operating costs	—	478	1,085	2,255
Depreciationofequipment	—	513	737	2,271
	—	991	1,822	4,526
Gross Margin	—	4	1,230	726
Operating expenses
General and administrative	—	219	406	714
Depreciation of right-of-use
assets	—	162	246	770
Loss (gain) on sale of
equipment	—	208	(70)	(101)
	—	589	582	1,383
Operating income (loss)	—	(585)	648	(657)
Loss on sale of discontinued
operations	—	—	(2,700)	—
Net loss (income) from
discontinued operations	—	(585)	(2,052)	(657)

Cash flows from discontinued operations:

	For the three months ended	For the three months ended	For the nine months ended	For the nine months ended
	September 30,	September 30,	September 30,	September 30,
	2021	2020	2021	2020
Net cash flow from
operating activities	—	320	1,561	2,348
Net cash flow from investing
activities	—	905	11,825	1,956
Net cash flow from
financing activities	—	—	—	—
Net cash flows	—	1,225	13,386	4,304

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