Baylin Technologies Inc. — Interim / Quarterly Report 2021

Nov 10, 2021

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BAYLIN TECHNOLOGIES INC.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS AT SEPTEMBER 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 nine months ended September 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: November 10, 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

	September 30,	December 31,
	2021	2020
ASSETS
CURRENT ASSETS
Cashand cashequivalents	$ 17,677	$ 11,205
Trade and other receivables	19,905	20,327
Othercurrent assets	4,962	6,820
Inventories	14,560	19,669
	57,104	58,021
NON-CURRENT ASSETS
Property, plant and equipment	21,254	23,658
Right ofuse assets	12,507	12,669
Other long-termassets	444	727
Deferred taxassets	7,128	7,126
Equitymethodinvestment	253	119
Intangibles	11,476	15,245
Goodwill	-	15,908
	53,062	75,452
TOTAL ASSETS	$ 110,166	$ 133,473
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Creditfrombanks	$ 10,675	$ 10,129
Accounts payable and accruedliabilities	28,541	21,220
Short-termportionof long-term loans	3,822	3,820
Short-termportionof leaseliability	1,439	1,200
Short-termportionofother long-term liabilities	1,141	-
Income taxpayable	127	101
	45,745	36,470
NON-CURRENT LIABILITIES
Long-termportionof leaseliability	10,880	11,180
Long-term loans	17,276	17,937
Convertible debentures	4,955	14,178
Employee benefitliabilities,net	2,110	2,314
Deferred tax liabilities	1,115	1,489
Other long-term liabilities	567	1,042
	36,903	48,140
TOTAL LIABILITIES	82,648	84,610
SHAREHOLDERS' EQUITY
Share capital	168,415	142,160
Share-based paymentreserve	3,942	4,426
Accumulated othercomprehensiveincome	10,964	10,785
Accumulated deficit	(155,803 )	(108,508 )
TOTAL EQUITY	27,518	48,863
TOTAL LIABILITIES AND EQUITY	$ 110,166	$ 133,473

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

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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 nine months ended September 30,	For the nine months ended September 30,		For the three months ended September 30,	For the three months ended September 30,
	2021	2020		2021	2020
Revenues	$ 75,298	$ 94,148	$ 30,216		$ 36,577
Cost of sales	68,968	65,472		23,934	26,178
Gross profit (loss)	6,330	28,676		6,282	10,399
Operating expenses
Selling andmarketing expenses	5,745	7,496		1,538	2,487
Researchand development expenses	10,660	9,153		2,558	3,047
Generaland administrative expenses	16,060	17,204		6,072	5,623
Goodwill impairment	15,908	-		-	-
	48,373	33,853		10,168	11,157
Operating loss	(42,043 )	(5,177 )		(3,886 )	(758 )
Finance expense,net	2,920	4,510		1,445	1,129
Investmentincome,net	(134 )	(19 )		(133 )	106
Fair value adjustments	2,632	(139 )		(162 )	176
Loss before income taxes	(47,461 )	(9,529 )		(5,036 )	(2,169 )
Income tax(recovery)expense	(166 )	(1,996 )		(138 )	(1,804 )
Net loss	$ (47,295 )	$ (7,533 )	$ (4,898 )		$ (365 )
Items thatmay bereclassified to profit or loss
Amount arising from translation of foreign operations, net oftax	179	1,366		643	(295 )
Items that will not bereclassified to profit or loss
Actuarial(loss) gain,net of tax	-	-		-	-
Other comprehensive income (net of tax effect)	$ 179	$ 1,366	$ 643		$ (295 )
Total comprehensive loss	$ (47,116 )	$ (6,167 )	$ (4,255 )		$ (660 )
Basic and diluted net loss per share	$ (0.84 )	$ (0.18 )	$ (0.07 )		$ (0.01 )
Weighted average shares outstanding	56,125,410	40,259,828	66,283,427		40,882,313

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

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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 September 30, 2021	Number of shares outstanding 48,014,660 - - - 26,197,354 74,212,014	Share capital $ 142,160 - - 250 26,005 $ 168,415	Share- based payment reserve $ 4,426 - - (484 ) - $ 3,942	Accumulated deficit $ (108,508 ) (47,295 ) - - - $ (155,803)	Accumulated other comprehensive income		Total equity $ 48,863 (47,295 ) 179 (234 ) 26,005 $ 27,518
					$ 10,785 - 179 - -
					$ 10,964
	Number of shares outstanding	Share capital	Share- based payment reserve	Accumulated deficit	Accumulated		Total equity
					other
					comprehensive
					income
Balance as ofJanuary1,2020	40,231,090	$ 137,195	$ 2,715	$ (91,584 )	$ 10,555		$ 58,881
Netloss	-	-	-	(7,533 )	-		(7,533 )
Othercomprehensiveincome	-	-	-	-	1,366		1,366
Share-basedpayments	651,223	689	547	-	-		1,236
Employee Share Compensation Plan and Purchase Plan	-	125	(39 )	-	-		86
Balance as of September 30, 2020	40,882,313	$ 138,009	$ 3,223	$ (99,117 )	$ 11,921		$ 54,036

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

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

	For the nine months ended September 30,	For the nine months ended September 30,
	2021	2020
Cash flows from operating activities
Netloss	$ (47,295 )	$ (7,533 )
Adjustments to reconcile net loss to net cash (used in) generated by operating activities
Share-basedpayment	639	1,355
Depreciation	4,459	5,255
Amortization	3,759	3,910
Finance expense,net	2,920	4,510
Loss(gain)from sale ofproperty, plant and equipment	9	(230 )
Lossfromdisposalof right ofuse asset	-	107
Inventory provision	5,978	-
Share of netincome ofequitymethodinvestment	(134 )	(19 )
Income tax benefit	(166 )	(1,996 )
Fairvalue adjustment	2,632	(139 )
Goodwill impairment	15,908	-
Unrealized foreign exchangegains	(1,154 )	(518 )
	34,850	12,235
Changesinasset andliabilityitems
Decrease(increase)in trade receivables	830	(6,026 )
(Increase) decreaseinothercurrent assets	2,523	3,414
(Increase)decrease in inventories	(785 )	877
Increase in current liabilities and employee benefits	6,896	7,029
	9,464	5,294
Cashpaid andreceived during the year for
Interestpaid,net	(1,841 )	(2,068 )
Taxespaid,net	(447 )	(791 )
	(2,288 )	(2,859 )
Net cash(usedin) generated by operating activities	(5,269 )	7,137
Cash flows from investing activities
Purchase ofproperty, plant and equipment	$ (736 )	$ (6,670 )
Proceedsfromsale ofproperty, plant and equipment	-	497
Purchase of other long-term assets and development costs	-	(593 )
Net cashusedin investing activities	(736 )	(6,766 )
Cash flows from financing activities
Cash receivedfromshareissuance	$ 12,997	$ 248
Receipt ofcreditfrombanks and other long term loans	3,585	2,346
Repayment ofterm loan	(2,819 )	(1,064 )
Principal elements of leasepayments	(1,128 )	(1,306 )
Net cashgenerated byfinancing activities	12,635	224
Exchange differences on balances of cash and cash equivalents	(158 )	286
Increaseincashand cashequivalents	$ 6,472	$ 881
Cash and cash equivalents at the beginningof theperiod	11,205	13,974
Cash and cash equivalents at the end of the period	$ 17,677	$ 14,855
Supplemental cash flow information:
Shares issued as compensation	620	270

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

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

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 nine months ended September 30, 2021 have been prepared by management of Baylin and were authorized for issuance in accordance with a resolution of the board of directors passed on November 10, 2021.

NOTE 2: BASIS OF PREPARATION

The interim condensed consolidated financial statements for the three and nine months ended September 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 September 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

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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 interest rate benchmark 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.

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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 fund operating and debt service requirements for the next 12 months (see Note 7) and (ii) to refinance the Revolving Facility and Term Loan 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 the 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 September 30, 2021 when assessing accounting judgments, estimates and assumptions.

NOTE 6: GOODWILL

The Company previously determined that Advantech and Alga were one cash generating unit (“CGU”) 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 CGU may be impaired. The recoverable amount of the Company's goodwill was 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 were 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:

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

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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, was less than the carrying value at June 30, 2021, resulting in a goodwill impairment charge. The Company recorded an impairment expense of $15,908 included within operating expenses for the nine months ended September 30, 2021.

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 $26,756.

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 September 30, 2021 and December 31, 2020, were as follows:

	September 30, 2021 December 31, 2020
Canadian dollar advances	4.95% 4.70%
US dollaradvances	6.25% 6.00%
LIBORate advances	3.59% 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 September 30, 2021, the aggregate revolving credit facilities of the Group were approximately $18,969, of which $10,675 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 September 30, 2021, $7,135 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 $956 commenced on June 30, 2019 with the scheduled interest payments for June 30 and September 30, 2021 being deferred with the consent of the Lenders. 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.

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

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

valued as a liability within other long-term liabilities on the balance sheet of $- as at September 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 October 12, 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 ending March 31, 2022 and following, the Senior Debt to EBITDA Ratio will be 3.00:1.00; for the quarters ending December 31, 2021 and following, the Fixed Coverage Ratio remains at 1.15:1.00 but with the 12-month calculation period for determining compliance with the ratio to commence on July 1, 2021 on a cumulative basis;

• there is no more minimum EBITDA covenant;

• the Company is required at all times to maintain a minimum Liquidity of $10,000;

• 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 waivers of compliance with certain financial covenants for the quarters ended March 31 and June 30, 2021.

China

The Company’s Chinese subsidiary has a $3,540 (December 31, 2020 - $3,508) short-term credit facility in Chinese Yuan and United States Dollar currency equivalent with the Shanghai Pudong Development Bank (“SPD”). The 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 September 30, 2021 and December 31, 2020, the full balance was outstanding.

Korea

The Company’s Korean subsidiary has a South Korean Won equivalent $429 (December 31, 2020 - $468) shortterm credit facility with the Shinhan Bank. The facility is secured by an irrevocable letter of credit issued by Baylin

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

to the lender in Korea. The loan interest rate is set at 1.4% plus the Korean Central Bank lending rate. As at September 30, 2021 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 $3,233 (the “Vietnam Loan”). As at September 30, 2021, $3,133 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 semi-annually 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 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

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

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 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 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 ofJanuary1,2021	$ 17,250	$ 14,178
Fairvalue adjustment		2,912
Conversion of convertible debentures to common shares	(12,135 )	(12,135 )
Balance as of September 30, 2021	$ 5,115	$ 4,955
	Debentures Principal	Debentures Fair Value
Balance as ofJanuary1,2020	$ 17,250	$ 14,231
Fairvalue adjustment		(248 )
Balance as of September 30, 2020	$ 17,250	$ 13,983

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Baylin Technologies Inc.

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

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.

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

• 14 -

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

	Number of DSUs	Weighted average price in CAD
DSUs outstanding as at January1,2021	583,106	$ 1.96
DSUsgranted during2021	273,369	$ 1.06
DSUs redeemed during2021	(29,934 )	$ 3.15
DSUs outstanding as at September 30, 2021	826,541	$ 1.52
DSUs outstanding as at January1,2020	395,449	$ 2.51
DSUsgranted during2020	137,545	$ 1.24
DSUs redeemed during2020	(52,759 )	$ 2.10
DSUs outstanding as at September 30, 2020	480,235	$ 2.20

The Company recognized an expense of $291 in the nine months ended September 30, 2021 and $152 in the nine months ended September 30, 2020 within general and administrative expenses with regards to the DSU Plan. DSUs of $78 were settled in the nine months ended September 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 at September 30, 2021	Options as at September 30, 2021	Options as at September 30, 2021	Options as at September 30, 2021
Stock option grant date		Stock optionsgranted		Vested	Expired or surrendered			Net Outstanding
Mar. 30,2017		685,000		456,666		435,000		250,000
Aug. 8,2017		500,000		500,000		200,000		300,000
Mar.10,2018		30,000		30,000		-		30,000
May17,2018		275,000		181,666		65,000		210,000
May22,2018		25,000		5,000		25,000		-
Jul.11,2018		197,500		81,200		151,500		46,000
Nov. 9,2018		250,000		166,666		-		250,000
Mar.25,2019		325,000		70,000		150,000		175,000
May21,2019		270,000		180,000		-		270,000
Aug.16,2019		60,000		40,000		-		60,000
Nov.23,2020		150,000		-		-		150,000
Jun.21,2021		900,000		-		-		900,000
Aug. 23,2021		75,000		-		-		75,000
		3,742,500		1,711,198		1,026,500		2,716,000

• 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	Options as at December 31, 2020
Stock option grant date		Stock optionsgranted	Vested	Expired or surrendered	Net Outstanding
Mar. 30,2017		685,000	456,666	435,000	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	65,000	210,000
May22,2018		25,000	5,000	25,000	-
Jul.11,2018		197,500	72,000	139,000	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	814,000	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
Aug. 23,2021	75,000	$ 0.78	87.43	0.82	5.0 $ 0.49
	3,742,500

The Company recognized expenses related the Stock Option Plan during the nine months ended September 30, 2021 in the amount of $334 as general and administrative expenses and $487 during the nine months ended September 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 nine months ended September 30, 2020 in terms of the ESCP.

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 nine months ended September 30, 2021 in terms of the ESCP. The Company recognized an expense of $78 for the nine months ended September 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 (for an equal number of common shares issued from treasury) 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. During the nine months ended September 30, 2021, all remaining outstanding RSUs were settled (for an equal number of common shares issued from treasury) and were valued at $293.

• 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.

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.

The Company entered into an agency agreement dated September 1, 2021, as amended with Paradigm Capital Inc. and Raymond James Ltd, as agents (collectively, the “Agents”), in connection with a “best efforts” private placement financing (the “Private Placement”) of a minimum of 11,765,000 common shares and up to a maximum of 17,648,000 common shares at a subscription price of $0.85 per common share. On September 1, 2021, the Company completed the first tranche of the Private Placement of 11,765,000 common shares resulting in proceeds to the Company of $10,000. In connection with the Private Placement, the Company entered into an agreement with 2385796 Ontario Inc. (the “Insider”), the Company’s largest shareholder, in which the Insider agreed effectively to purchase common shares in the first tranche with a purchase price equal to the difference between (i) $10,000 and (ii) the amount paid by other investors (if any) for common shares in the first tranche. Pursuant to that agreement, the Insider purchased all 11,765,000 common shares. Mr. Jeffrey C. Royer, Chairman of the Board of Directors of the Company, exercises control and direction over investment decisions made by the Insider.

• 17 -

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

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 nine months ended September 30, 2021, transactions between the Company and GTC totaled $1,674 and between the Company and AWR totaled $2,703, consisting primarily of R&D expenses related to the services agreements the Company has with GTC and AWR. As at September 30, 2021, the Company was owed $718 from GTC and $1,768 from AWR. For the nine months ended September 30, 2020, transactions between the Company and GTC totaled $1,266 and between the Company and AWR totaled $3,418. As at December 31, 2020, the Company was owed $2,839 from GTC and was owed $1,193 by AWR.

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

	As of	September 30, 202	1	As o	f December 31, 20	20
	Galtronics Canada Ltd.	Advantech Wireless Research Inc.	Total	Galtronics Canada Ltd.	Advantech Wireless Research Inc.	Total
Cash	$ 326	$ 71	$ 397	$ 238	$ 118	$ 356
Othercurrent assets	31	1,974	2,005	753	1,829	2,582
Accountsreceivables	1,678	2,149	3,827	1,691	1,242	2,933
Property, plant and equipment	2,735	259	2,994	1,044	384	1,428
Accountspayables and accrued liabilities	(3,978 )	(3,912 )	(7,890 )	(3,637 )	(3,033 )	(6,670 )
Net assets	$ 792	$ 541	$ 1,333	$ 89	$ 540	$ 629
Share of equity method investment net assets	150	103	253	17	102	119
(liability)
Unrecognized equitymethod losses	-	-	-	-	-	-
	$ 150	$ 103	$ 253	$ 17	$ 102	$ 119

	For the nine mo	nths ended September 30, 2021	nths ended September 30, 2021	For the nine m	onths ended September 30, 2020	onths ended September 30, 2020
	Galtronics Canada Ltd.	Advantech		Galtronics Canada Ltd.	Advantech Wireless Research Inc.	Total
		Wireless
		Research Inc.	Total
Revenue	$ 2,887	$ 2,703	$ 5,590	$ 2,212	$ 3,418	$ 5,630
Expenses	2,652	2,699	5,351	2,391	3,249	5,640
Net income(loss)	$ 235	$ 4	$ 239	$ (179 )	$ 169	$ (10 )
Share of equity method investment net income	45	1	46	(34 )	32	(2 )
(loss)
Unrecognized share of equity method investment	88	-	88	21	-	21
net loss
	$ 133	$ 1	$ 134	$ (13 )	$ 32	$ 19

• 18 -

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

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 of DSUs under the Company’s equity compensation plans 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.

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. As at September 30, 2021, $2,439 was due to the Company and included in trade receivables, and $1,495 was due to the agent 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 nine months ended September 30, 2021, the Company recognized $86 related to the sale of goods to SpaceBridge and certain of its affiliates. During the nine months ended September 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 nine months ended September 30, 2021 and the nine months ended September 30, 2020. As of September 30, 2021 and December 31, 2020, $397 was included within trade receivables.

• 19 -

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

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 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, in 2022.

• 20 -

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

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 nine months ended September 30, 2021 and the nine months ended September 30, 2020, $117 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 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 $75

either in cash or securities of the Company as mutually agreed between the Company and Mr. Royer. For the nine months ended September 30, 2021 and for the nine months ended September 30, 2020, the Company paid $25 in cash to Mr. Royer under this agreement.

2385796 Ontario Inc. (the “Insider”), the Company’s largest shareholder, purchased 17,225,192 common shares in the Private Placement. Mr. Royer exercises control and direction over investment decisions of the Insider. See note 10h and note 16.

• 21 -

Baylin Technologies Inc.

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Canadian dollars in thousands, except per share amounts

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.

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

	For the nine months ended September 30,
	2021 2020
Short-term benefits, pension and post-retirement benefits	$ 3,815 $ 4,487
Directors’remuneration	35 38
Share-based paymentforexecutivemanagement	334 573
Share-based payment for directors	213 171

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 at September 30, 2021	As at September 30, 2021
	Level 1	Level 2	Level 3 Total
ConvertibleDebentures	$ 4,955	$ -	$ - $ 4,955
Interest Rate Swap	$ -	$ -	$ - $ -
		As at December 31, 2020
	Level 1	Level 2	Level 3 Total
ConvertibleDebentures	$ 10,352	$ -	$ - $ 10,352
Interest Rate Swap	$ -	$ 678	$ - $ 678
	- 22 -

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

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.

NOTE 14: REVENUES

Revenues by geographic destination are as follows:

	For the nine months ended September 30,	For the nine months ended September 30,	For the three months ended September 30,	For the three months ended September 30,
	2021	2020	2021	2020
Vietnam	$ 23,059	$ 24,755	$ 8,846	$ 9,629
United States of America	21,726	20,401	8,346	6,273
China	8,593	16,188	3,694	6,498
India	3,342	610	1,890	422
Thailand	3,267	2,872	1,357	1,777
South Korea	3,051	3,357	844	947
Canada	1,747	4,325	845	596
Sweden	1,481	2,653	750	738
Indonesia	1,093	267	382	202
Hungary	907	1,106	196	308
Taiwan	481	745	119	444
Philippines	452	63	-	63
Portugal	451	427	24	187
Brazil	428	550	180	521
Israel	402	263	254	46
Singapore	389	3,729	221	2,559
Australia	338	692	72	33
France	310	846	124	597
Germany	273	388	153	131
Russia	252	2,703	50	1,458
Other	3,256	7,208	1,869	3,148
	$ 75,298	$ 94,148	$ 30,216	$ 36,577

• 23 -

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

NOTE 15: FINANCE INCOME AND EXPENSE

	For the nine months ended September 30,	For the nine months ended September 30,	For the three months ended September 30,	For the three months ended September 30,
	2021	2020	2021	2020
Interestincome	$ (3 )	$ (22 )	$ -	$ (2 )
Interest expense	2,113	2,406	557	854
Interest cost on lease liabilities	522	598	176	199
Bankcharge expense	72	77	32	30
Changes from foreign exchange rate changes	216	1,451	680	48
Finance expense, net	$ 2,920	$ 4,510	$ 1,445	$ 1,129

NOTE 16: SUBSEQUENT EVENT

On October 21, 2021, the Company completed the second and final tranche of the Private Placement, issuing the remaining 5,883,000 common shares resulting in proceeds to the Company of $5,000. In connection with the final tranche, the Company entered into an agreement with 2385796 Ontario Inc. (the “Insider”), the Company’s largest shareholder, in which the Insider agreed effectively to purchase common shares in the final tranche with a purchase price equal to the difference between (i) $5,000 and (ii) the amount paid by other investors (if any) for common shares in the final tranche. Pursuant to that agreement, the Insider purchased 5,460,192 common shares. Mr. Jeffrey C. Royer, Chairman of the Board of Directors of the Company, exercises control and direction over investment decisions made by the Insider. The remaining 422,808 common shares were purchase by other insiders of the Company.

• 24 -