ATI Airtest Technologies Inc. — Management Reports 2020

Oct 13, 2020

ATI AIRTEST TECHNOLOGIES INC.

Management Discussion and Analysis

For the quarter ended June 30, 2020

This Management Discussion and Analysis of ATI AirTest Technologies Inc. (the "Company") provides analysis of the Company's financial results for the quarter ended June 30, 2020. The following information should be read in conjunction with the accompanying unaudited financial statements and the notes to the unaudited financial statements for the quarter ended June 30, 2020.

1.1 Date of the Report

September 29, 2020

1.2 Overall Performance

For the quarter ended June 30, 2020 the Company had a 30.9% decrease in sales from the same period in 2019. The Company reported a net loss of $134,274 for the quarter ended June 30, 2020 which was an increase of $117,389 over the $16,885 operating loss reported for the quarter ended June 30, 2019.

The Company's working capital deficiency increased from $3,757,307 as at June 30, 2019 to $4,650,120 as at June 30, 2020.

The Sales Royalty Agreement signed between Omni Marketing Global and the Company which was approved by the TSX Venture Exchange in second quarter 2018 is still in effect, although the Company has been forced to accrue outstanding payments for several months pending completion of the long-term financing presently under way.

Company management continues to work with potential capital providers to arrange a more significant long term financing that will finance our growth, enable us to complete some pending R&D projects that will contribute strongly to our growth, and also provide capital for a marketing budget that will allow us to aggressively pursue our marketing plan including the promotion of our new wireless technologies.

The strengthening of the US dollar against both the Euro and the Canadian dollar has proven very beneficial to AirTest as more than 80% of the Company's sales are sold in USD.

1.3 Selected Annual Information

Fiscal Year	2019	2018	2017
Net Sales	$3,480,868	$2,703,073	$3,572,071
Net and Comprehensive Loss	$217,574	$958,848	$619,085
Basic and diluted loss/share	$0.00	$0.03	$0.02
Total Assets	$629,801	$487,748	$481,182
Total Long-Term Liabilities	$1,193,444	$1,351,632	$1,130,489
Cash dividends per common share	N/A	N/A	N/A

1.4 Results of Operations

Revenue

Sales for the second quarter of 2020 totaled $709,601, down from $1,026,410 or a 30.9% decrease from sales for the second quarter of 2019. This decrease in sales was primarily due to the large OEM accounts whose production was curtailed in the second quarter due to the concerns over the Covid 19 pandemic.

Gross Profit

Gross Profit on sales amounted to $296,645 in the second quarter of 2020 compared to $358,174 in the second quarter of 2019, a decrease of $61,529 or 17.2%. Gross margin as a percentage of sales increased by 4.0% from the 2019 first quarter gross margin percentage.

Expenses

Total expenses for the second quarter of 2020 were $430,919 compared to $405,156 for the second quarter of 2019, an increase of $25,763 or 6.4% over the same period in 2019. This increase resulted from an increase in royalty expense of $71,693 less an increase of $24,686 in the foreign exchange credit.

Profit & Loss

The Company recorded a net loss of $134,274 for the quarter ended June 30, 2020 as compared to a loss of $16,885 for the same period in 2019.

Company management expects to see a resumption of sales growth for the next 6 months of 2020 with the ongoing promotion of its new line of WiFi sensor products along with the recently developed RTUiLink system. The opportunity for increased retrofit sales is greatly increased by the air quality concerns related to the Covid 19 pandemic. There is also a greater energy saving opportunity for larger retail stores who are operating with lower occupancy levels, also due to the pandemic. Introduction of its new BACnet capability for the Parking Garage systems will also contribute greatly to sales growth starting in the fourth quarter of 2020. The key to executing the Company's plan for growth will be its ability to finance an aggressive marketing program as well as the cost of growth in accounts receivable and inventory.

	2020		2019				2018
	Q2	Q1	Q4	Q3	Q2	Q1	Q4	Q3
Net Sales	$709,601	$897,644	$865,131	$ 727,185	$1,026,410	$862,142	$673,570	$ 719,917
Loss	$134,274	$206,453	$ 18,965	($ 98,816)	($ 16,885)	($66,308)	($819,237)	($128,992)
Basic anddilutedloss pershare	$0.00	$0.00	$ 0.00	$ 0.00	$ 0.00	$0.00	$ 0.02	$ 0.00

1.5 Summary of Quarterly Results

1.6 Liquidity

AirTest management has maintained communication with several financial sources in an attempt to conclude a larger long-term financing that will enable the Company to aggressively pursue its business plan and take advantage of the outstanding growth opportunity it presently enjoys with its recently developed wireless technology. AirTest now can offer systems that will improve air quality in occupied spaces such as offices and school classrooms where there are Covid 19 concerns. In larger spaces such as supermarkets and big box stores where occupancy is controlled at a much lower level due to the pandemic, AirTest can install its Demand Controlled Ventilation system and reduce energy costs by as much as 50% of normal use. This growth opportunity should enable AirTest to raise significant capital as it moves forward with its market opportunity.

1.7 Capital Resources

The Company has no commitments for capital expenditures as of the end of the second quarter of 2020. Capital is required for growth, to clean up some pending liability obligations, and for completion of some in-house product development projects. Management is forced to consider further equity financing, but it will be done in stages to avoid excessive dilution to existing shareholders.

1.8 Off-Balance Sheet Arrangements

As of June 30, 2020, the Company had no material off-balance sheet arrangements.

1.9 Transactions with Related Parties

• (a) During the second quarter of 2020, the Company paid or accrued salaries to directors and officers of $nil (2019 - $nil)
• (b) At June 30, 2020, $154,600 is payable to directors and officers for accrued services and advances. (2019 - $224,129)
• (c) As at June 30, 2020, $276,143 (Dec 2019 $276,143) is included in non-current loans payable owed to the CFO and President of the Company.

Amounts becoming due to related parties in the normal course of operations, except where specifically stated, are non-interest bearing, unsecured, and without terms of repayment.

1.10 Proposed Transactions

There are currently no proposed transactions by the Company.

1.11 Changes in Accounting Policies including Initial Adoption

January 1, 2010 was the date of transition to IFRS (Transition Date). Previously, the Company prepared its financial statements in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP")

1.12 Financial Instruments and Other Instruments

The Company's financial instruments consist of cash, accounts receivable, an asset-based loan, shareholder loans, merchant advance loans, accounts payable and accrued liabilities.

The asset-based loan from Pivot Financial in Toronto is secured by the Company's accounts receivable.

Because a high percentage of the Company's sales are made in United States, and also because the Company has three important suppliers based in Europe, there is an element of risk related to any large fluctuation in the relationship between the Euro, the Canadian dollar and the US dollar.

1.13 Share Data

The number of common shares issued and outstanding as of the date of this filing is 50,205,581.

1.14 Evaluation and Effectiveness of Disclosure Controls and Procedures

Under National Instrument 52-109 management is now required to certify that they have caused the company to design suitable controls over external disclosure and financial reporting. Management must also undertake reviews of the effectiveness of such controls and discuss areas of significant weakness and the associated risks as well as their plans to address them.

The company has not had sufficient financial resources to maintain dedicated internal financial reporting and qualified professional accounting personnel. Accordingly, financial reporting controls and internal transaction controls are designed and provided primarily by management with limited involvement from external consultants and professionals. This approach has been determined by management to be the most cost effective to date.

Management and the audit committee have discussed and identified areas that need to be improved as the company expands its scope of operations and strives to meet current market and regulatory expectations relating to the effectiveness of controls.

When control weaknesses are identified there is increased risk of release of inappropriate disclosures. There is also increased risk of misstatement in financial reporting through errors, omissions or fraudulent activity that

could occur and go undetected. The Company intends to direct additional resources to improving identified deficiencies and improve the overall control environment and governance processes within the company where deemed required.

The Company recognizes that its existing control measures do not comply with a recognized internal control framework such as COSO. The Company believes such a framework is not viable at this time due to the limited number of personnel, volume of transactions, and lack of financial resources.

1.15 Risks and Uncertainties

The Company operates in a competitive market. The Company needs to deliver high quality, cost effective, components to market and meet the timelines required by customers. The Company must develop next generation components to satisfy the future needs of their customers. Should the Company be unable to continue to improve and update their product offering, this would have a negative impact on future growth.

The Company currently has limited working capital and incurs significant expenses on an on-going basis in its operations, which represents a significant risk factor. The Company will require additional financing to carry on its business, which financing may not be available when needed.

The Company does not have any significant environmental risk.