Baylin Technologies Inc. — Interim / Quarterly Report 2021

Aug 11, 2021

==> picture [346 x 110] intentionally omitted <==

BAYLIN TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS AT JUNE 30, 2021

(Canadian dollars in thousands)

UNAUDITED

Notice of Non-Reviewed Interim Condensed Consolidated Financial Statements

These interim condensed consolidated financial statements of Baylin Technologies Inc. (“Baylin”) for the six months ended June 30, 2021 have been prepared by management. Baylin’s independent auditor has not performed a review of these interim condensed consolidated financial statements; in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditors.

INDEX

Interim Condensed Consolidated Statements of Financial Position Interim Condensed Consolidated Statements of Loss and Comprehensive Loss Interim Condensed Consolidated Statements of Changes in Equity Interim Condensed Consolidated Statements of Cash Flows Notes to Interim Condensed Consolidated Financial Statements	Page 3 4 5 6 7 - 24

Date of approval of consolidated financial statements: August 11, 2021

“Jeffrey C. Royer” Jeffrey C. Royer Chairman of the Board of Directors

“Leighton Carroll” Leighton Carroll President and Chief Executive Officer

Baylin Technologies Inc. Interim Condensed Consolidated Statements of Financial Position (unaudited) Canadian dollars in thousands

	June 30,	December 31,
	2021	2020
ASSETS
CURRENT ASSETS
Cashand cashequivalents	$ 8,582	$ 11,205
Trade and other receivables	17,230	20,327
Othercurrent assets	7,181	6,820
Inventories	15,094	19,669
	48,087	58,021
NON-CURRENT ASSETS
Property, plant and equipment	21,390	23,658
Right ofuse assets	12,262	12,669
Other long-termassets	546	727
Deferred taxassets	6,986	7,126
Equitymethodinvestment	120	119
Intangibles	12,736	15,245
Goodwill	-	15,908
	54,040	75,452
TOTAL ASSETS	$ 102,127	$ 133,473
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Creditfrombanks	$ 10,482	$ 10,129
Accounts payable and accruedliabilities	25,975	21,220
Short-termportionof long-term loans	19,336	3,820
Short-termportionof leaseliability	1,226	1,200
Short-termportionofother long-term liabilities	603	-
Income taxpayable	172	101
	57,794	36,470
NON-CURRENT LIABILITIES
Long-termportionof leaseliability	10,882	11,180
Long-term loans	2,413	17,937
Convertible debentures	4,885	14,178
Employee benefitliabilities,net	2,137	2,314
Deferred tax liabilities	1,232	1,489
Other long-term liabilities	995	1,042
	22,544	48,140
TOTAL LIABILITIES	80,338	84,610
SHAREHOLDERS' EQUITY
Share capital	158,693	142,160
Share-based paymentreserve	3,680	4,426
Accumulated othercomprehensiveincome	10,321	10,785
Accumulated deficit	(150,905 )	(108,508 )
TOTAL EQUITY	21,789	48,863
TOTAL LIABILITIES AND EQUITY	$ 102,127	$ 133,473

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

• 3 -

Baylin Technologies Inc.

Interim Condensed Consolidated Statements of Loss and Comprehensive Loss (unaudited) Canadian dollars in thousands except per share and weighted average share figures

	For the six months ended	For the six months ended	For the three months ended	For the three months ended
	**June **	30,	June 30,
	2021	2020	2021	2020
Revenues Note 14	$ 45,082	$ 57,571	$ 21,622	$ 30,629
Cost of sales	45,034	39,294	25,171	20,951
Gross profit (loss)	48	18,277	(3,549 )	9,678
Operating expenses
Selling andmarketing expenses	4,207	5,009	2,114	2,323
Researchand development expenses	8,102	6,106	5,019	2,678
Generaland administrative expenses	9,988	11,581	5,992	5,881
Goodwill impairment	15,908	-	15,908	-
	38,205	22,696	29,033	10,882
Operating loss	(38,157 )	(4,419 )	(32,582 )	(1,204 )
Finance expense (income),net Note 15	1,475	3,381	561	(258 )
Investmentincome,net Note 11	(1 )	(125 )	(13 )	67
Fair value adjustments	2,794	(315 )	851	3,077
Loss before income taxes	(42,425 )	(7,360 )	(33,981 )	(4,090 )
Income tax(recovery)expense	(28 )	(192 )	(46 )	617
Net loss	$ (42,397 )	$ (7,168 )	$ (33,935 )	$ (4,707 )
Items thatmay bereclassified to profit or loss
Amount arising from translation of foreign operations,net of tax	(464 )	1,661	(249 )	(1,074 )
Other comprehensive (loss) income (net of tax effect)	$ (464 )	$ 1,661	$ (249 )	$ (1,074 )
Total comprehensive loss	$ (42,861 )	$ (5,507 )	$ (34,184 )	$ (5,781 )
Basic and diluted net loss per share	$ (0.83 )	$ (0.18 )	$ (0.64 )	$ (0.12 )
Weighted average shares outstanding	50,962,220	40,259,828	53,144,490	40,255,962

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

• 4 -

Baylin Technologies Inc. Interim Condensed Consolidated Statements of Changes in Equity (unaudited) Canadian dollars in thousands except number of shares outstanding

Balance as of January 1, 2021 Net loss Other comprehensive loss Share-based payment Share issuance Balance as of June 30, 2021		Number of shares outstanding 48,014,660 - - - 14,432,354 62,447,014		Share capital $ 142,160 - - 250 16,283 $ 158,693	Share capital $ 142,160 - - 250 16,283 $ 158,693	Share- based payment reserve $ 4,426 - - (746 ) - $ 3,680	Share- based payment reserve $ 4,426 - - (746 ) - $ 3,680	Accumulated deficit $ (108,508 ) (42,397 ) - - - $ (150,905)	Accumulated deficit $ (108,508 ) (42,397 ) - - - $ (150,905)	Accumulated other comprehensive income (loss) $ 10,785 - (464 ) - - $ 10,321	Total equity $ 48,863 (42,397 ) (464 ) (496 ) 16,283 $ 21,789
		Number of shares outstanding		Share capital							Total equity
Balance as of January1,2020		40,231,090	$	137,195	$ 2,715		$ (91,584 )		$ 10,555		$ 58,881
Netloss		-		-	-		(7,168 )		-		(7,168 )
Other comprehensive income		-		-	-		-		1,661		1,661
Share-based payments		651,223		688	382		-		-		1,070
Employee Share Compensation Plan and Purchase Plan		-		125	(54 )		-		-		71
Balance as of June 30, 2020		40,882,313	$	138,008	$ 3,043		$ (98,752 )		$ 12,216		$ 54,515

The accompanying notes are an integral part of the interim condensed consolidated financial statements. - 5 -

Baylin Technologies Inc. Interim Condensed Consolidated Statements of Cash Flows (unaudited) Canadian dollars in thousands

	For the six months endedJune 30,	For the six months endedJune 30,
	2021	2020
Cash flows from operating activities
Netloss	$ (42,397 )	$ (7,168 )
Adjustments to reconcile net loss to net cash generated by (used in) operating activities
Share-based payment	319	892
Depreciation, amortizationandimpairment	5,554	6,129
Finance expense,net	1,475	3,381
Loss (gain)fromsale ofproperty, plant and equipment	10	(230 )
Lossfromdisposalof right ofuse asset	-	107
Inventory provision	6,588	-
Share of netincome ofequitymethodinvestment	(1 )	(125 )
Income taxbenefit	(28 )	(192 )
Fairvalue adjustment	2,792	(315 )
Goodwill impairment	15,908	-
Unrealized foreign exchangegains	(692 )	355
	31,925	10,002
Changesinasset andliabilityitems
Decrease (increase)intradereceivables	3,018	(4,076 )
(Increase) decreaseinothercurrent assets	(46 )	2,256
(Increase) decreasein inventories	(2,160 )	367
Increase in current liabilities and employee benefits	4,611	2,706
	5,423	1,253
Cashpaid andreceived during the year for
Interestpaid,net	(908 )	(1,446 )
Taxespaid,net	(183 )	119
	(1,091 )	(1,327 )
Net cash(usedin) generated by operating activities	(6,140 )	2,760
Cash flows from investing activities
Purchase ofproperty, plant and equipment	$ (519 )	$ (4,566 )
Proceedsfromsale ofproperty, plant and equipment	-	497
Purchase of other long-term assets and development costs	-	(396 )
Net cashusedin investing activities	(519 )	(4,465 )
Cash flows from financing activities
Cash received from share issuance	$ 3,333	$ 248
Receipt ofcreditfrombanks and other long term loans	3,686	4,716
Repayment of term loan	(1,873 )	(1,064 )
Principal elements of leasepayments	(674 )	(784 )
Net cashgenerated byfinancingactivities	4,472	3,116
Exchange differences on balances of cash and cash equivalents	(436 )	497
(Decrease)increaseincashand cashequivalents	$ (2,623 )	$ 1,908
Cash and cash equivalents at the beginningof theperiod	11,205	13,974
Cash and cash equivalents at the end of the period	$ 8,582	$ 15,882

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

• 6 -

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

Baylin Technologies Inc.

NOTE 1: NATURE OF OPERATIONS

Baylin Technologies Inc. (“Baylin”) was incorporated pursuant to the laws of the Province of Ontario on September 24, 2013. Baylin's registered office is located at 181 Bay Street, Suite 1800, Toronto, Ontario, Canada.

Baylin, together with its subsidiaries (collectively, the “Company” or the “Group”), is a leading diversified global wireless technology company. Baylin focuses on research, design, development, manufacturing and sales of passive and active radio frequency (“RF”) and terrestrial microwave products and services. The Company’s products are marketed and sold under the brand names Galtronics, Advantech Wireless, Alga Microwave and Mitec VSAT. Baylin’s common shares and convertible debentures are publicly traded on the Toronto Stock Exchange (TSX: BYL and BYL.DB).

Approval of financial statements

These interim condensed consolidated financial statements of the Company for the three and six months ended June 30, 2021 have been prepared by management of Baylin and were authorized for issuance in accordance with a resolution of the board of directors on August 11, 2021.

NOTE 2: BASIS OF PREPARATION

The interim condensed consolidated financial statements for the three and six months ended June 30, 2021 have been prepared in accordance with IAS 34, Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended December 31, 2020 (the “Annual Financial Statements”), which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

NOTE 3: SIGNIFICANT ACCOUNTING POLICIES

As of June 30, 2021 there have been no material changes to the significant accounting policies as outlined in Note 3 of the Annual Financial Statements, except as disclosed in Note 4.

NOTE 4: DISCLOSURES OF NEW STANDARDS ADOPTED AND PRIOR TO ADOPTION

New standards and amendments adopted

Certain new standards and amendments that have an impact on the interim condensed consolidated financial statements of the Company became effective on January 1, 2021 are as follows:

On August 27, 2020, the IASB issued 'Interest Rate Benchmark Reform — Phase 2’ which amend IFRS 9 Financial Instruments, IFRS 7 Financial Instruments: Disclosures, IAS 39 Financial Instruments: Recognition and

• 7 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

Measurement, and IFRS 16 Leases. The amendments require additional disclosures for users to understand the nature and extent of risks arising from the IBOR reform and how the entity manages those risks.

New standards and interpretations not yet adopted

The following are new standards that have been issued but are not yet in effect and which are relevant to the Group:

On January 23, 2020, the IASB issued Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) providing a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments are effective for annual reporting periods beginning on or after January 1, 2022. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.

On May 14, 2020, the IASB issued amendments to IFRS 3 Business Combinations that added an explicit statement that an acquirer does not recognize contingent assets acquired in a business combination. The amendments are effective for annual periods beginning on or after January 1, 2022. The Company did not have a business combination since the issuance of the standard but expects to apply the amendment for future business combinations.

On May 14, 2020, the IASB issued amendments to IAS 16, Property, Plant and Equipment which prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of producing those items, in profit or loss. An entity applies the amendments retrospectively only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. The amendments are effective for annual periods beginning on or after January 1, 2022. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.

On May 14, 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets providing guidance regarding the costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. The amendments specify that the cost of fulfilling a contract comprises the costs that relate directly to the contract and can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendments are effective for annual periods beginning on or after January 1, 2022 with comparative figures not restated. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.

On May 14, 2020, the IASB issued amendments to IFRS 9, Financial Instruments, which clarify which fees an entity includes when it applies the “10 per cent test” in assessing whether to derecognize a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf. The amendments are effective for annual periods beginning on or after January 1, 2022. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.

• 8 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

NOTE 5: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements requires management to make judgements, estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. Changes in accounting estimates are reported in the period of the change in estimate.

Management regularly reviews and makes an assessment of the Company’s ability to continue as a going concern. This assessment relies on significant judgements and assumptions, taking into account known future information, including whether events or conditions create material uncertainties that may cast significant doubt on the ability to continue as a going concern.

In assessing the Company’s ability to continue as a going concern, management has a reasonable expectation that the Company will be able (i) to raise $10,000 in common share financing and that it will be adequate to fund operating and debt service requirements for the next 12 months (see Note 16) and (ii) to refinance the Revolving Facility and Term Loan (together, the “Credit Facilities”) when they mature on March 29, 2022.

The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence.

There have been no other significant changes to the Company’s critical accounting judgments, estimates and assumptions made since our annual financial reporting for the year ended December 31, 2020, except as discussed in Note 4. Impacts of the COVID-19 pandemic have been considered as of June 30, 2021 when assessing accounting judgments, estimates and assumptions.

NOTE 6: GOODWILL

The Company determined that Advantech and Alga were one cash generating unit and thus should be assessed as a combined group (“Advantech and Alga Group”). The Company performed an impairment test as at June 30, 2021 due to indications that the Advantech and Alga Group as a cash generating unit may be impaired. The recoverable amount of the Company's goodwill has been determined by a value-in-use calculation using a discounted cash flow model, based on a 5 year projection period, together with a terminal value. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive.

The following key assumptions were used in the discounted cash flow model for Advantech and Alga Group cash generating unit as at June 30, 2021:

i. 20.5% pre-tax discount rate; ii. -26.0% per annum growth rate for year 1;

iii. 35.0% per annum growth rate for year 2; iv. 20.0% per annum growth rate for year 3; v. 5.0% per annum growth rate for year 4; vi. 2.0% per annum growth rate for year 5 and subsequent to year 5

• 9 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

Based on the impairment analysis performed, the Company concluded the recoverable amount of the CGU, which has been determined by a value-in-use calculation using a discount cash flow model for the Advantech and Alga Group, is less than the carrying value, resulting in a goodwill impairment charge. The Company recorded an impairment expense during the six months ended June 30, 2021 of $15,908 within operating expenses.

NOTE 7: CREDIT FROM BANKS AND LOANS

Canada

On March 29, 2019, Baylin entered into a credit agreement (the “Credit Agreement”) with Royal Bank of Canada and HSBC Bank Canada (collectively, the “Lenders”) pursuant to which the Lenders established in favour of the Company:

• a revolving facility (the “Revolving Facility”) for up to $20,000; and

• a term facility (“Term Loan”) for up to $26,027.

The availability of the Revolving Facility is based on the Company’s accounts receivables and inventory balances. The interest rate on the Revolving Facility is determined based on the type of advance, the applicable margin and the Company’s Senior Debt to EBITDA ratio (as defined in the Credit Agreement) and is payable monthly in arrears, as set out in the Credit Agreement. The interest rate on the Revolving Facility and the standby fee on the undrawn portion of the Revolving Facility as at June 30, 2021 and December 31, 2020 were as follows:

	June 30, 2021 December 31, 2020
Canadiandollaradvances	4.95% 4.70%
USdollar advances	6.25% 6.00%
LIBORate advances	3.60% 3.40%
Standby fee	0.70% 0.65%

The Group may draw on its available revolving credit lines under the Revolving Facility, the China loan (defined below) and the Korea loan (defined below) as needed. As at June 30, 2021, the aggregate revolving credit facilities of the Group were approximately $18,877, of which $10,482 was drawn and utilized. As at December 31, 2020, the aggregate revolving credit facilities of the Group were approximately $21,976 of which $10,129 was drawn and utilized.

As at June 30, 2021, $6,941 was outstanding, and as at December 31, 2020, $6,621 was outstanding, under the Revolving Facility.

The principal amount under the Term Loan was fully advanced in US dollars and was used to repay existing indebtedness. Quarterly principal payments in the amount of $930 commenced on June 30, 2019. The interest rate on the Term Loan is determined based on the LIBO Rate (as defined in the Credit Agreement) plus the applicable margin and the Senior Debt to EBITDA Ratio and is payable quarterly in arrears. The Lenders also agreed that the scheduled principal repayments on the Term Loan on June 30, 2020 and September 30, 2020 may be deferred at the Company’s option. The scheduled principal repayments on the Term Loan for June 30, 2020 and September 30, 2020 were deferred.

• 10 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

Commencing July 26, 2019, the Company entered into an interest rate swap arrangement where the LIBO Rate portion of the interest rate on the Term Loan was fixed at 2% until maturity. The interest rate swap contract has been valued as a liability within other long-term liabilities on the balance sheet of $435 as at June 30, 2021 and $482 at December 31, 2020. The fair value of the interest rate swap contract was valued using a future LIBOR curve. The Revolving Facility and Term Loan (together, the “Credit Facilities”) mature on March 29, 2022.

The Credit Facilities are guaranteed by Baylin's principal operating subsidiaries (other than those in Vietnam) and are secured by substantially all the assets of Baylin and the guarantors. The Credit Agreement includes certain financial covenants, including a Senior Debt to Equity Ratio and Fixed Charge Coverage Ratio (as defined in the Credit Agreement), calculated on a quarterly basis, minimum EBITDA (as defined in the Credit Agreement) and minimum Liquidity (as defined in the Credit Agreement). The Credit Agreement also includes other customary positive and negative covenants (including limitations on dispositions, additional debt, investments, financial assistance, distributions, capital expenditures and changes to the business), and events of default.

The Credit Agreement has previously been amended, most recently as of May 10, 2021. The effect of these amendments is that:

• for the period from June 30 to December 31, 2021, there is no Senior Debt to EBITDA Ratio, and for the quarters ended March 31, 2022 and following, the Senior Debt to EBITDA Ratio will be 3.00:1.00;

• there is a minimum EBITDA covenant for the trailing twelve months ended September 30 and December 31, 2021;

• the Company is required at all times to maintain a minimum Liquidity of $7,000;

• the maximum availability under the Revolving Facility has been reduced to $15,000;

• the rate of interest that would otherwise apply at any time the Senior Debt to EBITDA Ratio is equal to or more than 2.75:1.00 has been increased by 0.25%; and

• the standby fee that would otherwise apply at any time the Senior Debt to EBITDA Ratio is equal to or more than 2.75:1.00 has been increased by 0.05%.

The amendments also included a waiver of compliance with applicable financial covenants for the quarter ended March 31, 2021.

The Company and its Lenders have agreed to further amendments to the Credit Agreement. These amendments include a waiver of compliance with the Fixed Charge Coverage Ratio as at June 30, 2021, change to the manner in which the Fixed Charge Coverage Ratio is calculated for the quarters ending September 30 and December 31, 2021, so that the twelve month calculation period commences July 1, 2021 on a cumulative basis, removal of the minimum EBITDA covenant and increase in the minimum Liquidity covenant from $7,000 to $10,000. The Lenders have also agreed to waive the obligation to apply the net proceeds from the Offering to repay debt provided that the proceeds are deposited in an account with one of the Lenders not later than September 1, 2021.

China

The Company’s Chinese subsidiary has a $3,438 (December 31, 2020 - $3,508) short-term credit facility in Chinese Yuan and United States Dollar currency equivalency with the Shanghai Pudong Development Bank (“SPD”). The

• 11 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

facility is secured by the Company’s Chinese subsidiary’s building. The loan interest rate is set at 1.55% plus the Chinese Central Bank lending rate. As at June 30, 2021 and December 31, 2020, the full balance was outstanding.

Korea

The Company’s Korean subsidiary has a South Korean Won equivalent $439 (December 31, 2020 - $468) shortterm credit facility with the Shinhan Bank. The facility is secured by an irrevocable letter of credit issued by Baylin to the lender in Korea. The loan interest rate is set at 1.4% plus the Korean Central Bank lending rate. As at June 30, 2021, $103 was outstanding, and as at December 31, 2020, there was no amount outstanding under this facility.

Vietnam

On October 14, 2020, one of the Company’s subsidiaries in Vietnam (“GTD”) entered into a credit agreement (the “Vietnam Credit Agreement”) with HSBC Bank Vietnam Ltd. (“HSBC Vietnam”) pursuant to which HSBC Vietnam established a credit facility in favour of GTD for up to the Vietnamese Dong equivalent of $3,113 (the “Vietnam Loan”). As at June 30, 2021, $3,016 was outstanding, and as at December 31, 2020, no amount was outstanding, under the Vietnam Loan. The interest rate on the Vietnam Loan is determined based on the base lending rate in Vietnam plus a margin of up to 2% and is payable monthly in arrears. The Vietnam Loan matures on February 18, 2024 and the quarterly principal repayments commence on March 1, 2022. The Company’s other Vietnamese subsidiary (“GTV”) is a guarantor of the Vietnam Loan. The Vietnam Loan is secured by certain assets of GTD. The Vietnam Credit Agreement contains certain financial covenants, for both GTD and GTV, including a Debt Service Coverage Ratio and a Tangible Net Worth Ratio (as defined in the Vietnam Credit Agreement). The Vietnam Credit Agreement also includes other customary covenants and events of default.

NOTE 8: CONVERTIBLE DEBENTURES

On July 10, 2018, the Company completed a public offering of 7,419,355 subscription receipts (“Subscription Receipts”) at $3.10 per Subscription Receipt and $17,250 principal amount of 6.5% extendible convertible unsecured debentures (“Debentures”) for aggregate gross proceeds of $40,250 (the “2018 Offering”). The Debentures bear interest at a rate of 6.5% per annum, payable in arrears semi-annually on June 30 and December 31 of each year and mature on July 10, 2023 (the “Maturity Date”). On July 11, 2018, each Subscription Receipt was converted into one common share.

The Debentures are convertible at the holder’s option into common shares at any time prior to the close of business on the earlier of: (i) last business day before the Maturity Date; or (ii) if called for redemption, the business day immediately preceding the date specified by the Company for redemption, at a conversion price of $3.85 per common share (the “Conversion Price”), being a ratio of approximately 260 common shares per $1 principal amount of Debentures, subject to adjustment in certain events in accordance with a convertible debenture indenture dated July 10, 2018 (the “Indenture”).

The Debentures are not redeemable by the Company prior to July 10, 2021 (except in certain limited circumstances following a Change of Control (as defined in the Indenture). On or after July 10, 2021, and prior to the Maturity Date, the Company may, at its option, subject to providing not more than 60 days’ and not less than 30 days’ prior

• 12 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

notice, redeem the Debentures, in whole or, from time to time, in part, at par plus accrued and unpaid interest provided that the volume-weighted average trading price of the common shares on the Toronto Stock Exchange (the “TSX”) for the 20 consecutive trading days ending five trading days preceding the date on which notice of redemption is given (the “Current Market Price”) is not less than 125% of the Conversion Price. The Company may, at its option, subject to regulatory approval, elect to satisfy its obligation to pay the principal amount of Debentures on redemption or at maturity, provided no Event of Default (as defined in the Indenture) has occurred and is continuing at such time, upon not more than 60 days’ and not less than 30 days’ prior written notice, by delivering that number of freely tradeable common shares obtained by dividing the principal amount of the Debentures being repaid by 95% of the Current Market Price on the date of redemption or maturity, as applicable.

Following approval of the holders of Debentures on April 8, 2021 and of the shareholders of the Company on May 11, 2021, the Indenture was amended (the Amendment”) to reduce, for a period of 30 days, the Conversion Price from $3.85 to $1.11, the current market price of the common shares at the time the Amendment become effective on May 19, 2021 determined in accordance with the Amendment (the “New Conversion Price”). The terms of the Debentures otherwise remained unchanged. As a result of Amendment, holders of $12,135,000 principal amount of the Debentures converted their Debentures into 10,932,429 common shares of the Company at the New Conversion Price, leaving $5,115,000 of the Debentures outstanding. The 30-day period during which the New Conversion Price remained in effect ended on June 18, 2021, following which the Conversion Price reverted to $3.85.

Upon a Change of Control of the Company, the Company may be required to repurchase the Debentures, at the option of the holder, in whole or in part, at a price equal to 101% of the principal amount of the Debentures outstanding, plus accrued interest.

On May 14, 2020, the Company offered holders of the Debentures the option to receive common shares (at 85% of their current market price) as an alternative to cash as payment of interest due on the interest payment date on June 30, 2020. The Company issued 355,840 common shares for a total of $329 to holders who exercised this option.

	Debentures Principal	Debentures Fair Value
Balance as of January 1, 2021	$ 5,115	$ 14,178
Fair value adjustment		2,842
Conversionofconvertible debentures to commonshares		(12,135 )
Balance as of June 30, 2021	$ 5,115	$ 4,885

• 13 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

	Debentures Principal	Debentures Fair Value
Balance as ofJanuary1,2020	$ 17,250	$ 14,231
Fairvalue adjustment		(3,879 )
Balance as of June 30, 2020	$ 17,250	$ 10,352

NOTE 9: EMPLOYEE BENEFIT LIABILITIES

The Group accounts for that part of the payment of compensation that is not covered by contributions in defined contribution plans as a defined benefit plan for which an employee benefit liability is recognized and for which the Group deposits amounts in qualifying insurance policies.

The liability for employee benefits shown in the statement of financial position reflects the present value of the defined benefit obligation less the fair value of the plan assets. The present value of the benefits is determined at year end, based on actuarial valuations.

NOTE 10: SHARE CAPITAL AND SHARE-BASED PAYMENTS

• a. On August 13, 2020, the shareholders of the Company approved a new Omnibus Equity Incentive Plan (the “Omnibus Plan”). The Omnibus Plan permits the board of directors to grant a wide range of long-term incentive awards to participants. The awards include deferred share units (“DSUs”), which are for directors only, performance share units (“PSUs”), restricted share units (“RSUs”) and stock options. The Omnibus Plan replaced the separate Deferred Share Unit Plan (“DSU Plan”), Stock Option Plan and Employee Share Compensation Plan (“ESCP”). Awards granted after August 13, 2020 are governed by the Omnibus Plan. Awards granted before that date will continue to be governed by the plan under which they were granted. The number of common shares issuable under the Omnibus Plan, and any other security-based compensation arrangements, including the DSU Plan, Stock Option Plan and ESCP, may not exceed 10% of the number of common shares outstanding from time to time. However, the Omnibus Plan is an “evergreen plan”, meaning that any awards that are exercised or settled or terminated without being exercised or settled are available for subsequent grant and do not reduce the number of common shares available to be granted. There are also limitations on the number of common shares that may be issued to insiders.

• b. The Company may settle DSUs, PSUs and RSUs in (i) common shares issued from treasury, (ii) common shares purchased in the market, (iii) cash or (iv) a combination of common shares and cash. Holders of stock options may exercise their options, (i) by paying the option exercise price or (ii) with the consent of the Company, through a cashless exercise or by receiving a cash payment in lieu of shares.

• c. In the case of DSUs, unless otherwise approved by the board of directors, eligible directors must elect to receive at least 50% and up to 100% of their annual retainers in DSUs. The DSUs are issued on a monthly basis while the director serves as a board member and vest immediately. The DSUs are settled after the member ceases to be a director.

• 14 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

The following table lists the number of DSUs outstanding as at June 30, 2021 and 2020:

	Number of DSUs	Weighted average price in CAD
DSUs outstandingas atJanuary1,2021	583,106	$ 1.96
DSUs granted during2021	152,090	$ 1.25
DSUs redeemed during2021	(24,936 )	$ 3.15
DSUs outstanding as at June 30, 2021	710,260	$ 1.65
DSUs outstanding as at January1,2020	395,449	$ 2.51
DSUs granted during2020	88,836	$ 1.42
DSUs redeemed during2020	(52,759 )	$ 2.10
DSUs outstanding as at June 30, 2020	431,526	$ 2.34

The Company recognized an expense of $191 in the six months ended June 30, 2021 and $126 in the six months ended June 30, 2020 within general and administrative expenses with regards to the DSU Plan. DSU of $78 were settled in the six months ended June 30, 2021.

• d. In the case of stock options, at the time of granting a stock option, the board of directors will determine (i) the exercise price, being not less than the fair market value of the common shares, (ii) the vesting provisions, generally being three to five years with an equal number of common shares vesting on each anniversary of the grant date, and (iii) the expiry date, generally being no more than seven years after the grant date.

The following table summarizes grants of stock options:

			Options as atJune 30, 2021	Options as atJune 30, 2021
Stock option grant date	Stock options granted	Vested	Expired	Surrendered	Net Outstanding
Mar. 30,2017	685,000	456,666	145,000	290,000	250,000
Aug. 8,2017	500,000	500,000	-	-	500,000
Mar.10,2018	30,000	30,000	-	-	30,000
May17,2018	275,000	131,666	43,334	21,666	210,000
May22,2018	25,000	5,000	20,000	5,000	-
Jul.11,2018	197,500	72,000	90,400	48,600	58,500
Nov. 9,2018	250,000	166,666	-	-	250,000
Mar.25,2019	325,000	70,000	150,000	-	175,000
May21,2019	270,000	90,000	-	-	270,000
Aug.16,2019	60,000	20,000	-	-	60,000
Nov.23,2020	150,000	-	-	-	150,000
Jun. 21,2021	900,000	-	-	-	900,000
	3,667,500	1,541,998	448,734	365,266	2,853,500

• 15 -

Baylin Technologies Inc.

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

			Options as at December 31, 2020	Options as at December 31, 2020
Stock option grant date	Stock options granted	Vested	Expired	Surrendered	Net Outstanding
Mar. 30,2017	685,000	456,666	145,000	290,000	250,000
Aug. 8,2017	500,000	500,000	-	-	500,000
Mar.10,2018	30,000	20,000	-	-	30,000
May17,2018	275,000	131,666	43,334	21,666	210,000
May22,2018	25,000	5,000	20,000	5,000	-
Jul.11,2018	197,500	72,000	90,400	48,600	58,500
Nov. 9,2018	250,000	166,666	-	-	250,000
Mar.25,2019	325,000	35,000	150,000	-	175,000
May21,2019	270,000	90,000	-	-	270,000
Aug.16,2019	60,000	20,000	-	-	60,000
Nov. 23,2020	150,000	-	-	-	150,000
	2,767,500	1,496,998	448,734	365,266	1,953,500

The fair value of the stock options was estimated at the grant date using the Black Scholes option pricing model, taking into account the terms and conditions upon which the stock options were granted.

Stock option grant date	Stock options granted	Exercise price	Expected volatility of the stock prices (%)	Risk-free interest rate(%)	Expected life of stock options (years) Option fair value at the grant date(CAD)
Mar. 30,2017	685,000	$ 1.98	50.48	1.10	5.0 $ 0.89
Aug. 8,2017	500,000	$ 2.00	48.69	1.55	5.0 $ 0.89
Mar.10,2018	30,000	$ 3.51	50.68	1.98	5.0 $ 1.42
May17,2018	275,000	$ 3.34	50.20	2.04	5.0 $ 1.89
May22,2018	25,000	$ 3.34	50.29	2.30	5.0 $ 1.45
Jul.11,2018	197,500	$ 3.50	48.87	2.07	5.0 $ 1.36
Nov. 9,2018	250,000	$ 3.84	48.29	2.48	5.0 $ 1.78
Mar.25,2019	325,000	$ 3.89	48.42	1.44	5.0 $ 1.76
May21,2019	270,000	$ 3.57	47.88	1.65	5.0 $ 1.67
Aug.16,2019	60,000	$ 3.18	46.32	1.19	5.0 $ 1.48
Nov.23,2020	150,000	$ 0.87	77.47	0.44	5.0 $ 0.55
Jun. 21,2021	900,000	$ 1.05	86.46	0.97	5.0 $ 0.73
	2,767,500

The Company recognized expenses during the six months ended June 30, 2021 due to the stock options under the Stock Option Plan in the amount of $172 as general and administrative expenses and $367 during the six months ended June 30, 2020.

• e. The Company also provides for the issuance of common shares to employees of the Company under the terms of the Employee Share Compensation Plan (“ESCP”).

In February 2018, the Company granted certain employees and executives 49,738 restricted common shares of which 50% vest 12 months subsequent to the date of grant and 50% vest 24 months subsequent to the date of the grant. The Company recognized $8 in general and administrative expenses for the six months ended June 30, 2020.

In March 2019, the Company issued 64,263 restricted common shares of which 50% vest 12 months subsequent to the date of grant and 50% vest 24 months subsequent to the date of grant. The Company recognized $16 in general and administrative expenses for the six months ended June 30, 2021 in terms of the ESCP. The Company recognized an expense of $63 for the six months ended June 30, 2020 in terms of the ESCP.

• 16 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

• f. On June 30, 2020, the Company issued 355,840 common shares to holders of the Debentures for $329 to partially pay the June 30, 2020 interest payment on the Debentures. The Company also completed a private placement of 267,566 common shares for proceeds of $248. A portion of the proceeds were used to pay interest on the Debentures on the June 30, 2020 interest payment date. The remaining portion of the proceeds were used to pay interest on the Debentures on the December 31, 2020 interest payment date.

• g. On September 30, 2020, the Company issued 271,960 RSUs to certain employees in consideration for deferred salary from April 2020 to September 2020 and were valued at $269. In the third quarter of 2020, 14,577 RSUs of the September 30, 2020 issuance were settled and were valued at $14. On December 31, 2020, the Company issued 43,716 RSUs to certain employees in consideration for deferred salary from October 2020 to December 2020 and were valued at $38.

• h. On December 15, 2020, the Company completed a private placement of 6,666,700 Units (the “Units”) at a price of $0.75 per Unit, each Unit comprised of one common share in the capital of Baylin and one-half of one common share purchase warrant (each whole warrant, a “Common Warrant”). Each Common Warrant is exercisable for one common share at an exercise price of $1.05 per common share. In connection with the private placement, the agents received a cash commission of $266 and 200,001 broker warrants (“Broker Warrants”). Each Broker Warrant entitles the holder to acquire one common share at an exercise price of $0.87 per common share with an exercise period of two years from the closing of the private placement and were valued at $51. On February 22, 2021, the Company exercised its right to accelerate the expiry date of the Common Warrants to 30 days after delivery of the notice. As of the expiry date, 3,175,450 of the 3,333,350 Common Warrants were exercised for proceeds of $3,333.

In the third quarter of 2020, 14,577 common shares were issued to settle restricted share units having a value of $14. In the six months ended June 30, 2021, 301,099 common shares were issued to settle restricted share units having a value of $293.

On December 31, 2020, the Company issued 451,070 common shares to holders of the Debentures for $332 to partially pay the December 31, 2020 interest payment on the Debentures.

NOTE 11: EQUITY METHOD INVESTMENT

Baylin’s equity-method investments consist of a 19% interest in Galtronics Canada Ltd. (“GTC”), a Canadian technology company that provides innovative antenna designs and RF test services for wireless communication products, and a 19% interest in Advantech Wireless Research Inc. (“AWR”), a Canadian technology company that designs terrestrial and satellite communications solutions for wireless broadband communication companies. For the six months ended June 30, 2021, transactions between the Company and GTC totaled $1,193 and between the Company and AWR totaled $1,798 consisting primarily of R&D expenses related to the services agreements the Company has with GTC and AWR. As at June 30, 2021, the Company was owed $1,417 from GTC and $2,241 from AWR. For the six months ended June 30, 2020, transactions between the Company and GTC totaled $1,154 and between the Company and AWR totaled $2,464. As at December 31, 2020, the Company was owed $2,839 from GTC and was owed $1,193 by AWR.

• 17 -

Baylin Technologies Inc.

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

Summary financial information for the Corporation’s equity-method investments as follows:

	As	ofJune 30, 2021		As of December 31, 2020	As of December 31, 2020	As of December 31, 2020
	Galtronics	Advantech Wireless		Galtronics	Advantech Wireless
	Canada Ltd.	Research Inc.	Total	Canada Ltd.	Research Inc.	Total
Cash	$ 87	$ 54	$ 141	$ 238	$ 118	$ 356
Othercurrent assets	33	1,374	1,407	753	1,829	2,582
Accountsreceivables	1,701	1,429	3,130	1,691	1,242	2,933
Property, plant and equipment	2,787	426	3,213	1,044	384	1,428
Accountspayables and accrued liabilities	(4,766 )	(2,771 )	(7,537 )	(3,637 )	(3,033 )	(6,670 )
Net assets	$ (158 )	$ 511	$ 353	$ 89	$ 540	$ 629
Share of equity method investment net assets
(liability)	(30 )	120	90	17	102	119
Unrecognized equitymethod losses	30	-	30	-	-	-
	$ -	$ 120	$ 120	$ 17	$ 102	$ 119
	For the six months endedJune 30, 2021			For the six months endedJune 30, 2020
	Galtronics Canada Ltd.	Advantech Wireless		Galtronics Canada Ltd.	Advantech Wireless Research Inc.	Total
		Research
		Inc.	Total
Revenue	$ 1,296	$ 1,798	$ 3,094	$ 2,100	$ 2,464	$ 4,564
Expenses	1,640	1,704	3,344	1,569	2,340	3,909
Net income(loss)	$ (344 )	$ 94	$ (250 )	$ 531	$ 124	$ 655
Share ofequitymethodinvestmentnetincome (loss)	(65 )	18	(47 )	101	24	125
Unrecognized share of equity method investment	48	-	48	-	-	-
net loss
	$ (17 )	$ 18	$ 1	$ 101	$ 24	$ 125

NOTE 12: RELATED PARTY TRANSACTIONS

Share-based payment for executive officers

These amounts represent the costs of the key executives and employees’ grants under the Company’s employee share compensation plans and are recognized within general and administrative expenses.

Share-based payment for directors

These amounts represent the costs of directors' grants under the Company’s DSU Plan and are recognized within general and administrative expenses.

Employee Purchase Plan

These amounts represent the costs of grants under the Company’s ESPP and are recognized within general and administrative expenses.

• 18 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

Advantech Wireless Inc.

On January 17, 2018, through a wholly-owned subsidiary, the Company acquired from Advantech Wireless Inc. and certain of its affiliates 100% of the assets (the “Advantech Acquisition”) of their radio frequency, terrestrial microwave and antenna equipment divisions. Advantech Wireless Inc. (now known as SpaceBridge Inc. (“SpaceBridge”)) was owned and controlled by David Gelerman, a director of the Company until April 3, 2020.

Pursuant to the terms of the Advantech Acquisition, SpaceBridge was entitled to additional compensation of between $750 and $3,000 per year in each of 2018 and 2019 conditional on the Advantech Wireless business meeting certain EBITDA targets in those years. The EBITDA targets were not met in 2018 and 2019. On June 1, 2020 SpaceBridge contested that the 2019 EBITDA targets were not met. The Company is opposing the objection.

SpaceBridge and certain of its affiliates acted as an agent for the Company and as at June 30, 2021, $2,401 was due to the Company and was included in trade receivables and $1,495 due to the agent was included in accounts payable and accrued liabilities. As at December 31, 2020, $2,506 due to the Company was included in trade receivables and $1,495 due to the agent was included in accounts payable and accrued liabilities.

During the six months ended June 30, 2021, the Company recognized $86 related to the sale of goods to SpaceBridge and certain of its affiliates. During the six months ended June 30, 2020, the Company recognized revenue in the amount of $74 related to the sale of goods to SpaceBridge.

The Company did not provide services to SpaceBridge or its affiliates during the six months ended June 30, 2021 and the six months ended June 30, 2020. As of June 30, 2021 and December 31, 2020, $397 was included within trade receivables.

Legal Proceedings

The Company is both a plaintiff and defendant in various claims arising out of the Advantech Acquisition. In October 2018, the Company received a payment from the escrow agent of approximately $1,800 as a result of an indemnity claim made by the Company against the portion of the cash purchase price being held in escrow pursuant to the terms of the Advantech Acquisition. The sum was released by the escrow agent because SpaceBridge failed to contest the indemnity claim within the prescribed time period. After the payment, SpaceBridge filed an application for relief from forfeiture to have the sum returned to the escrow agent. The Company is opposing the application. No date has been set to hear the application.

The Company has filed statements of claim for certain other indemnity obligations of SpaceBridge pursuant to the terms of the Advantech Acquisition. The claims, in the aggregate, total approximately $5,596. SpaceBridge has filed statements of defence as well as statements of counterclaim. In July 2019, SpaceBridge delivered multiple indemnity claims pursuant to the terms of the Advantech Acquisition, seeking to set off the amounts being claimed by the Company. The Company has contested the indemnity claims.

In June 2019, SpaceBridge filed an application asserting oppression for, among other things, unspecified amounts in relation to the 2018 earn out under the terms of the Advantech Acquisition and for shares in the Company for which set-off has been claimed by the Company. SpaceBridge alleges that Mr. Gelerman was improperly denied from participating in the management of the Company resulting in a lower earn out. The Company will defend the

• 19 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

allegations. No date has been set for the application related to claims for compensation. The issue of whether the Company is entitled to assert set-off on the common shares was the subject of an appeal by the Company from a lower court ruling. In February 2021, the Ontario Court of Appeal found in favour of the Company, overturning the lower court’s ruling and confirming that the Company is entitled to a right of set-off on the shares. On July 29, 2021, the Supreme Court of Canada denied (with costs), SpaceBridge’s application for leave to appeal the judgment of the Court of Appeal.

In January 2020, SpaceBridge filed a statement of claim claiming damages against the Company for various breaches of the asset purchase and other agreements related to the Advantech Acquisition. These claims include the multiple indemnity claims previously made by SpaceBridge as well as additional claims for breach of an agreement governing transitional services provided by the Company following the Advantech Acquisitions and the Consulting Agreement. The claims include loss of business opportunities, improper use of SpaceBridge’s books and records, unpaid rent on premise subleased from SpaceBridge as part of the Advantech Acquisition, diminution in the value of Baylin common shares payable as part of the consulting fees under the Consulting Agreement and conversion of inventory after completion of the Advantech Acquisition. Where specified, the amount of damages claimed by SpaceBridge under all claims is at least $7,165.

In the case of the Company’s claims under the asset purchase agreement for breaches of representations related to working capital and closing inventory levels, documentary discovery is currently being conducted and oral discovery is expected to occur, once scheduled, later in 2021.

The Company is unable to determine at this time whether it will be entitled to recover or required to pay any amounts related to these legal proceedings. Accordingly, no provision has been recorded in respect of the claims other than certain rent amounts.

Alga

On July 11, 2018, the Company acquired all of the issued and outstanding shares of Alga Microwave Inc. (“Alga”) through a newly incorporated, wholly-owned subsidiary of the Company (the “Alga Acquisition”).

For the six months ended June 30, 2021 and the six months ended June 30, 2020, $78 was recognized in revenue for premises leased to a company partly owned by Michael Perelshtein, a former employee of Alga.

Legal Proceedings

In the third quarter of 2019, the former shareholders of Alga filed an application asserting that an event occurred which triggered the payment of an earnout in the amount of $1,000 as detailed in the share purchase agreement. The Company does not agree that the payment has been triggered and has contested the application. No date has been set for the application. The Company is unable to determine at this time whether it will be required to pay any amounts related to these legal proceedings. Accordingly, no provision has been recorded in respect of the claim.

In December 2020, a former employee of Alga filed an application asserting he had been constructively dismissed and claiming damages of $543. The Company is opposing the application and has cross-claimed against the former employee. Alga has made a separate claim against the employee and others, claiming damages for approximately $2

• 20 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

million, alleging, among other things, a conspiracy to damage Alga’s business, wrongful interference with Alga’s economic relations and breach of fiduciary duty. The defendants in the previous action have started a separate proceeding against Alga and others claiming the previous action is an abuse of procedure. These four actions have now been joined in one proceeding. The Company is unable to determine at this time whether it will be required to pay any amounts related to these legal proceedings. Accordingly, no provision has been recorded in respect of the claim.

Other

The Company retains the services of Mr. Jeffrey C. Royer, pursuant to a services agreement between Mr. Royer and the Company dated as of January 1, 2015, to fulfill the position of Chairman of the board of directors and to provide related strategic leadership and guidance to the board of directors and management of the Company. As consideration for the services provided under the agreement, the Company agreed to pay Mr. Royer an annual fee of $150 either in cash or securities of the Company as mutually agreed between the Company and Mr. Royer. For the six months ended June 30, 2020, the Company paid $6 to Mr. Royer under this agreement. In March 2020, Mr. Royer agreed to forego the fee for an unspecified period and no amount was paid to Mr. Royer for the six months ended June 30, 2021.

Director and executive officer remuneration

The following comprise the remuneration for directors and executive officers:

• a. Short-term benefits, pension and post-retirement benefits

These amounts comprise of executive officers’ salary and benefits earned during the year, plus bonuses awarded for the year. The amounts also represent the estimated costs of providing defined benefit pensions and other post-retirement benefits to executive officers in respect of the current year of service.

• b. Directors’ remuneration

These amounts represent fees and expense reimbursement paid to directors.

• c. Share-based payment for executive officers

These amounts represent the costs of stock option grants and cost of ESCP, EPP and RSUs.

• d. Share-based payment for directors

These amounts represent the costs of DSU grants.

• 21 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

The following table summarizes the remuneration of directors and executive officers:

	For the six months endedJune 30,
	2021 2020
Short-term benefits, pension andpost-retirement benefits	$ 2,616 $ 3,255
Directors’remuneration	6 38
Share-based paymentforexecutivemanagement	172 438
Share-based payment for directors	113 126

There are no other material related party transactions other than as described herein.

NOTE 13: FAIR VALUE MEASUREMENTS

The Company classifies its financial instruments into the three levels prescribed under the accounting standards.

The following table presents the Company’s financial liabilities measured and recognized at fair value:

		As atJune 30, 2021	As atJune 30, 2021
	Level 1	Level 2	Level 3 Total
ConvertibleDebentures	$ 4,885	$ -	$ - $ 4,885
Interest Rate Swap	$ -	$ 435	$ - $ 435
		As at December 31, 2020
	Level 1	Level 2	Level 3 Total
Convertible Debentures	$ 10,352	$ -	$ - $ 10,352
Interest Rate Swap	$ -	$ 678	$ - $ 678

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted (unadjusted) market prices at the end of the reporting period. The quoted market price used for financial assets held by the group is the current bid price.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over–the–counter derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The present value of future cash flows based on observable yield curves was the valuation technique used to determine the fair value of the interest rate swap.

• 22 -

Baylin Technologies Inc.

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

NOTE 14: REVENUE

Revenues by geographic destination are as follows:

	For the six months ended June 30,	For the six months ended June 30,	For the three months ended June 30,	For the three months ended June 30,
	2021	2020	2021	2020
United States of America	$ 13,948	$ 16,673	$ 7,788	$ 9,793
Vietnam	13,644	12,582	5,261	6,461
China	4,899	9,691	1,881	5,724
South Korea	2,208	2,410	1,135	1,182
Singapore	168	1,171	62	291
Sweden	732	1,915	504	583
UnitedKingdom	141	177	69	68
Canada	902	3,729	397	1,618
Taiwan	362	301	199	163
Russia	202	1,244	166	867
India	1,453	187	563	115
Romania	-	1,524	-	523
Other	6,423	5,967	3,597	3,241
	$ 45,082	$ 57,571	$ 21,622	$ 30,629

NOTE 15: FINANCE INCOME AND EXPENSE

	For the six months ended June 30,	For the six months ended June 30,	For the three months ended June 30,	For the three months ended June 30,
	2021	2020	2021	2020
Interest income	$ (3 )	$ (20 )	$ (2 )	$ (12 )
Interest expense	1,556	1,552	721	779
Interest cost on lease liabilities	346	399	172	198
Bank charge expense	40	47	20	21
Changes from foreign exchange rate changes	(464 )	1,403	(350 )	(1,244 )
Finance expense, net	$ 1,475	$ 3,381	$ 561	$ (258 )

• 23 -

Baylin Technologies Inc. Notes to the Interim Condensed Consolidated Financial Statements (unaudited) Canadian dollars in thousands, except per share amounts

NOTE 16: SUBSEQUENT EVENT

The Company has entered into an agreement dated August 11, 2021, with Paradigm Capital Inc., as lead agent, on behalf of a syndicate of agents (collectively, the “Agents”), in connection with a proposed best efforts private placement financing (the “Offering”) of 11,112,000 common shares of the Company at a price of $0.90 per common share for total proceeds of approximately $10,000. The Company has granted the Agents an option to sell up to an additional 15% of the common shares at the same price per common share to cover over-allotments. As part of the Offering, the Company entered into a separate agreement with 2385796 Ontario Inc. (the “Insider”), the Company’s largest shareholder, under which the Insider has agreed to support the Offering by agreeing to purchase common shares of the Company with a purchase price equal to the lesser of (i) $10,000 (subject to increase by the amount (if any) of the over-allotment option); and (ii) the difference between the full amount of the Offering and the aggregate purchase price paid by all other investors (if any) in the Offering. Accordingly, the Company is assured of receiving at least $10,000 in proceeds from the Offering, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions, including listing of the common shares on the Toronto Stock Exchange (“TSX”). Jeffrey C. Royer, Chairman of the Board of Directors of the Company, exercises control and direction over investment decisions of the Insider. The Company is relying of the “financial hardship” exemption available to it under the rules of the TSX to permit the Insider to purchase more than 10% of the 62,447,014 common shares of the Company currently outstanding without having to obtain disinterested shareholder approval. The Offering is expected to close on or about September 1, 2021.

• 24 -