Composite Alliance Group — Interim / Quarterly Report 2021

May 26, 2021

Composite Alliance Group Inc.

Condensed Consolidated Interim Financial Statements

March 31, 2021 (In Canadian dollars) (Unaudited)

1

Composite Alliance Group Inc. Condensed Consolidated Interim Statements of Financial Position (In Canadian dollars) (Unaudited)

Composite Alliance Group Inc. Condensed Consolidated Interim Statements of Financial Position (In Canadian dollars) (Unaudited)
March 31, 2021 (Unaudited) Assets Cash and cash equivalents $ 4,484,221 Accounts receivable 4,000,068 Contract asset 1,062,201 Prepaid expense and others 157,009 Other receivables 931,999	December 31, 2020 $ 2,929,679 5,240,788 68,858 237,195 1,014,757
Total current assets 10,635,498 Other assets and receivables (Note 4) 364,391 Property and equipment (Note 5) 795,408 Intangible assets(Note 6) 976,762	9,491,277 385,353 910,835 1,180,269
Total assets $ 12,772,059	$ 11,967,734
Liabilities Accounts payable and accrued liabilities (Note 8) $ 4,699,663 Contract liabilities - Current portion of lease obligation (Note 10) 207,963 Currentportion of long-term borrowings(Note 11 & 17) 2,566,149	$ 4,273,678 256,327 256,310 1,152,684
Total current liabilities 7,473,775	5,938,999
Convertible debentures (Note 9 & 17) 2,301,353 Lease obligation (Note 10) 405,852 Long-term borrowings (Note 11 & 17) 3,708,975 Long-term provisions (Note 12) 152,270 Post-employment benefits plans 271,352 Researchtaxcredit 327,025	2,391,863 471,224 4,015,296 161,029 286,961 364,102
Total liabilities **14,640,602 **	13,629,474
Shareholders' equity Share capital (Note 13) 4,890,766 Contributed surplus (Note 13 & 14) 1,688,405 Equity component of convertible debentures (Note 9) 553,346 Accumulated other comprehensive loss (173,339) Deficit (8,768,689)	4,890,766 1,528,065 553,346 (163,488) (8,414,317)
Total shareholders’ equity attributable to common shareholders (1,809,511)	(1,605,628)
Non-controlling interest (59,032)	(56,112)
Total liabilities and shareholders’ equity $ 12,772,059	$ 11,967,734

Going concern (Note 1) Contingency (Note 16)

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

1

Composite Alliance Group Inc. Condensed Consolidated Interim Statements of Loss and Comprehensive Loss For the three-month period ended March 31 (In Canadian dollars)

	2021	2020
	(Unaudited)	(Unaudited)
Revenue	2,069,473	2,393,086
Expenses
Purchased raw material and goods	738,532	825,359
Payroll expenses and social security contributions	636,325	915,376
Subcontractor	501,895	748,288
Selling, general and administrative	304,489	372,821
Property and apprenticeship taxes	23,737	30,336
Depreciation and amortization	248,823	252,736
Provision variations	(146,180)	65,553
	(238,148)	(817,383)
Other expenses (income)
Stock based compensation (Note 13 & 14)	160,340	169,803
Foreign exchange gain	(27,701)	(13,237)
Finance costs	124,923	170,780
Other income (Note11)	(129,073)	-
Net loss	(366,637)	(1,144,729)
Net loss attributable to
Common shareholders	(354,372)	(1,131,389)
Non-controllinginterest	(12,265)	(13,340)
Net loss	(366,637)	(1,144,729)
Loss per common share (Note 15) Basic and diluted	(0.00)	(0.01)
Other comprehensive (loss) income
Items that will be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations	(506)	109,834
Total comprehensive loss	(367,143)	(1,034,895)
Comprehensive (loss) income attributable to
Common shareholders	(364,223)	(1,015,636)
Non-controlling interest	(2,920)	(19,259)
Total comprehensive loss	(367,143)	(1,034,895)

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

2

Composite Alliance Group Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity For the three-month periods ended March 31 (In Canadian dollars)

			Equity	Accumulated		Non-
			Component of	Other		Controlling
	Share	Contributed	Convertible	Comprehensive		Interest
	capital	Surplus	Debentures	Income (loss)	Deficit	(“NCI”)	Total
Balance December 31, 2019	4,890,766	662,014	751,579	(71,763)	(4,914,428)	(173,878)	1,144,290
Share based compensation (Note 13 &14)	-	169,803	-	-	-	-	169,803
Equity acquired from NCI (Note 1)	-	-	-	(360)	(118,531)	115,919	(2,972)
Comprehensiveincome (loss)	-	-	-	115,753	(1,131,389)	(19,259)	(1,034,895)
Balance March 31, 2020 (unaudited)	4,890,766	831,817	751,579	43,630	(6,164,348)	(77,218)	276,226
Balance December 31, 2020	4,890,766	1,528,065	553,346	(163,488)	(8,414,317)	(56,112)	(1,661,740)
Share based compensation (Note 13 &14)	-	160,340	-	-	-	-	160,340
Comprehensive loss	-	-	-	(9,851)	(354,372)	(2,920)	(367,143)
Balance March 31, 2021 (unaudited)	4,890,766	1,688,405	553,346	(173,339)	(8,768,689)	(59,032)	(1,868,543)

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

3

Composite Alliance Group Inc. Condensed Consolidated Interim Statements of Cash Flows For the three-month periods ended March 31 (In Canadian dollars)

For the three-month periods ended March 31 (In Canadian dollars)
		2021	2020
		(unaudited)	(unaudited)
Operating
Net loss	$	(366,637)$	(1,144,729)
Items not affecting cash:
Depreciation and amortization		248,823	252,736
Provisions		(146,180)	65,553
Finance costs		124,923	170,780
Other income		(128,088)	-
Stock based compensation		160,340	169,803
Change in working capital requirement
Change in inventory		36,423	4,050
Change in trade and other receivables		944,357	485,749
Changeintrade and otherpayables		(476,313)	540,008
Net cash provided by operating activities		397,648	543,950
Investing
Acquisition of tangible assets		(17,509)	(156,834)
Net cash used in investing activities		(17,509)	(156,834)
Financing
Proceeds from new borrowings		1,525,134	1,223,344
Repayment of borrowings		(86,108)	(357,668)
Repayment of lease obligation		(62,376)	(52,146)
Net cash provided by financing activities		1,376,649	813,530
Effect of exchange on cash		(202,246)	438,026
Net increase in cash		1,554,542	1,638,672
Cash and cash equivalents, beginningofperiod		2,929,679	735,750
Cash and cash equivalents, end of period	$	4,484,221$	2,374,422

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

4

Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

1. NATURE OF OPERATIONS

Composite Alliance Group Inc. (the “Company” or “CAG”) was incorporated on June 26, 2008 under the Business Corporations Act (Alberta). The Company completed a reverse acquisition of Techni-Modul Engineering (“TME”) on February 12, 2019. TME which is located in Coudes, France, specializes in industrial turn-key solutions by designing and manufacturing machines that it sells to customers for use in the fabrication of composite materials for the aerospace and automotive industries. In order to facilitate the Company’s role as an exclusive regional distributor, the Company set up a wholly owned subsidiary Composite Alliance Asia (“CAA”) in Hong Kong in September 2019.

Prior to January 2, 2020, the Company owned 70% of the issued shares of Composite Alliance, Corp (“CAC”), a company registered in Delaware, US and based in Dallas, US. Effective January 2, 2020, the Company acquired an additional 20% shares from a non-controlling shareholder of CAC, giving a 90% interest in CAC. The acquisition of the additional 20% interest was accounted for as an equity transaction.

The Company’s shares are listed for trading on the TSX Venture Exchange (“TSXV”) under the symbol “CAG”. The Company’s registered office is located at Suite 1600, 333-7 Avenue S.W., Calgary, Alberta, Canada.

Going concern

These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) that are applicable to a going concern which contemplates the realization of assets and settlement of liabilities in the normal course of operations. There are material uncertainties that may cast significant doubt on the validity of this assumption. The outbreak of the novel strain of coronavirus, identified as “COVID-19”, was declared a pandemic by the World Health Organization on March 11, 2020, resulted in governments worldwide enacting several emergency measures such as lockdown, travel bans and social distancing. These measures have negatively impacted the Company’s operations, especially in China, France and North America. The aeronautic sector which TME and CAC focus on continues to suffer from such downturn. As of the date of these condensed consolidated interim financial statements, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted. COVID-19 may have an effect on the Company’s ability to generate a profit from operations, and accordingly affect the going concern uncertainty. The Company has incurred a net loss of $366,637 (December 31, 2020 - $3,380,575) and an accumulated deficit of $8,768,689 (December 31, 2020 - $8,414,317). As discussed in Note 11, during the three months ended March 31, 2021, the Company, through TME, has successfully acquired additional relief loans in the total amount of €1,000,000 backed by the French government. The Company’s ability to continue as a going concern is dependent on continued support from related parties, generating a profit from operations, and obtaining additional financing as required.

These condensed consolidated interim financial statements do not reflect adjustments in the carrying value of the assets and liabilities, the reported revenues and expenses and the balance sheet classifications that would be necessary if the going concern assumption were not appropriate. These adjustments could be material.

5

Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

2. STATEMENT OF COMPLIANCE

These unaudited condensed consolidated interim financial statements were prepared in accordance with IAS 34 Interim Financial Reporting using accounting policies consistent with IFRS issued by the International Accounting Standards Board (“IASB”). These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors on May 26, 2021.

These condensed consolidated interim financial statements do not include all disclosures normally provided in annual financial statements and should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended December 31, 2020.

These unaudited condensed consolidated interim financial statements have been prepared on a historical cost basis. All financial information is reported in Canadian dollars, unless otherwise noted.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are consistent with those disclosed in Note 2 of the December 31, 2020 audited consolidated financial statements.

3. SIGNIFICANT ACCOUNTING POLICIES

These unaudited condensed consolidated interim financial statements follow the same accounting policies as outlined in the audited financial statements for the year ended December 31, 2020.

4. OTHER ASSETS AND RECEIVABLES

Other assets and receivables consist of:

		March 31,		December 31,
		2021		2020
Long term investments	$	13,845	$	14,642
Deposit and guarantees		58,395		61,755
Amount receivable from shareholder(Note 17)		292,151		308,956
	$	364,391	$	385,353

Amount receivable from shareholder bears no interest and has no terms of repayment.

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Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

5. PROPERTY AND EQUIPMENT

Cost	December 31, 2020	Additions	Reductions	Foreign Exchange	March 31, 2021
Right of use assets	1,196,494	-	-	(65,084)	1,131,410
Technical facilities, equipment and
industrial tools	746,153	17,509	-	(41,153)	722,509
Leaseholds and furniture	306,785	-	-	(16,616)	290,169
Cost	2,249,432	17,509	-	(122,853)	2,144,088
Depreciation	December 31, 2020	Additions	Reductions	Foreign **Exchange **	March 31, 2021
Right of use assets	496,869	63,280	-	(29,069)	531,080
Technical facilities, equipment and
industrial tools	612,811	16,518	-	(33,868)	595,461
Leasehold and furniture	228,917	5,789	-	(12,567)	222,139
Depreciation	1,338,597	85,587	-	(75,504)	1,348,680
Net tangible assets	910,835	(68,078)	-	(47,349)	795,408
Cost	December 31, 2019	Additions	Reductions	Foreign Exchange	December 31, 2020
Right of use assets	1,011,613	111,519	-	73,362	1,196,494
Technical facilities, equipment and
industrial tools	770,459	79,019	(157,348)	54,023	746,153
Leaseholds and furniture	270,443	15,312	-	21,030	306,785
Cost	2,052,515	205,850	(157,348)	148,415	2,249,432
Depreciation	December 31, 2019	Additions	Reductions	Foreign **Exchange **	December 31, 2020
Right of use assets	215,704	261,966	-	19,199	496,869
Technical facilities, equipment and
industrial tools	637,304	80,448	(157,348)	33,811	612,811
Leasehold and furniture	189,392	24,015	-	15,510	228,917
Depreciation	1,042,400	366,429	(157,348)	68,520	1,338,597
Net tangible assets	1,010,115	(160,579)	-	79,895	910,835

7

Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

6. INTANGIBLE ASSETS

	December 31,		Foreign	March 31,
Costs	2020	Additions	Exchange	2021
Development costs	5,137,673	-	(279,464)	4,858,209
Software	71,875	-	(3,910)	67,965
Concessions, patents and distribution rights	858,600	-	(21,241)	837,359
Costs	6,068,148	-	(304,615)	5,763,533
	December 31,		Foreign	March 31,
Amortization	2020	Additions	Exchange	2021
Development costs	4,395,511	138,166	(243,555)	4,290,122
Software	-	-	-	-
Concessions, patents and distribution rights	492,368	25,070	(20,789)	496,649
Amortization	4,887,879	163,236	(264,344)	4,786,771
Net intangible assets	1,180,269	(163,236)	(40,271)	976,762
	December 31,		Foreign	December 31,
Costs	2019	Additions	Exchange	2020
Development costs	4,800,271	-	337,402	5,137,673
Software	-	71,875	-	71,875
Concessions, patents and distribution rights	832,956	-	25,644	858,600
Costs	5,633,227	71,875	363,046	6,068,148
	December 31,		Foreign	December 31,
Amortization	2019	Additions	Exchange	2020
Development costs	3,479,025	658,618	257,868	4,395,511
Software	-	-	-	-
Concessions, patents and distribution rights	347,551	120,210	24,607	492,368
Amortization	3,826,576	778,828	282,475	4,887,879
Net intangible assets	1,806,651	(706,953)	80,571	1,180,269

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Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

7. SHORT-TERM DEBT

The following facilities are available to the Company as at March 31, 2021 and December 31, 2020:

• i) An aggregate credit line up to a maximum of €500,000 (CAD $737,950) for advanced payment refunds for its French customers that are due on demand, bear weighted average interest at 1.2% per annum (December 31, 2020 – limit of €500,000 at 1.2% per annum). These facilities will be used when the Company must produce letters of guarantees of restitution of deposit, good execution of contract or retention of guarantee for its French customers. As at March 31, 2021, CAD $nil (€nil) was outstanding on the facility (December 31, 2020 – CAD $nil (€nil)).

• ii) Credit facility up to a maximum of €550,000 (CAD $811,745), secured by 10% of the amount in factoring, due on the maturity of invoices issued to its customers and bears weighted average interest at 3-month Euribor rate plus 2.51% per annum. (December 31, 2020 – €550,000 at 3-month Euribor rate plus 2.51% per annum). This facility will be used to finance its working capital prior to the payment receipt from its French customers. As at March 31, 2021, CAD $nil (€nil) was outstanding on this facility (December 31, 2020- CAD $nil (€nil)).

• iii) Credit facility for an aggregated amount of €1,350,000 (CAD $1,992,465), unsecured, due on the maturity of invoices issued to its customers and bears weighted average interest at 1-month Euribor rate plus 1.80% per annum. (December 31, 2020 – €1,350,000 at 1-month Euribor rate plus 1.80% per annum). This facility will be used to finance its working capital prior to the delivery of goods to its foreign customers. As at March 31, 2021, CAD $nil (€nil) was outstanding on this facility (December 31, 2020 – CAD $nil (€nil)).

• iv) An aggregate bank guarantees up to a maximum of €1,100,000 (CAD $1,623,490) for advanced payment refunds for its foreign customers that are due on demand, bear weighted average interest at 1.72% per annum (December 31, 2020 – €1,100,000 at 1.72% per annum). These facilities will be used when the Company must produce letters of guarantees of restitution of deposit, good execution of contract or retention of guarantee for its foreign customers. As at March 31, 2021, there were $213,710 (€144,800) guarantees outstanding (December 31, 2020 - $174,497 (€111,800)).

• v) An aggregate foreign exchange cover line up to a maximum of €4,500,000 (CAD $76,641,550) (December 31, 2020 – €4,500,000).

• vi) Import credit line up to a maximum of €nil (CAD $nil) to facilitate the negotiation of the purchases from suppliers by offering the certainty of payment through the drafting of an import credit line contract. (December 31, 2020 – €100,000) Each party is required to comply with the obligations outlined in the contract. The import credit line bears interest at 1.25% per annum. This facility was made available during 2020 and was cancelled during the year. As at March 31, 2021, CAD $nil (€nil) was outstanding on this facility (December 31, 2020– CAD $nil (€nil)).

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

		March 31,		December 31,
		2021		2020
Trade payable	$	3,521,562	$	3,214,712
Social security payable		483,043		566,231
Value added tax payable		587,305		370,929
Other liabilities		107,753		121,806
	$	4,699,663	$	4,273,678

9

Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

9. CONVERTIBLE DEBENTURES

The Company completed a series of private placement of convertible unsecured debentures between December 2016 and March 2017. A total of 31,915 bonds were issued at €47 each, for a total principal amount of €1,500,005 (CAD $2,187,457), to a shareholder of the Company. The convertible debentures accrue interest at 3% per annum, mature in December 2022. All or any of the debentures are convertible by the holder into common shares of TME at a conversion price of €18.16 per share at any time prior to the maturity date, or at any time subsequent to the maturity date if and only if the Company has failed to repay the full amount of the debentures at maturity. The early conversion prior to the maturity date is subject to approval by TSXV.

The value of the conversion option was calculated by subtracting the net present value of the debenture from the face value of the convertible debenture. The net present value of the debenture was calculated using a discount rate of 8%. An amount of CAD $1,651,352 (€1,132,382) and CAD $553,346 (€367,623) was allocated to the liability and equity component of the convertible debenture respectively. The amount outstanding as at March 31, 2021 is $2,301,353 (December 31, 2020 - $2,391,863). Accrued interest of $16,923 has been recorded as finance costs for the three months ended March 31, 2021 (March 31, 2020 - $16,672). Accretion expense of $27,853 (March 31, 2020 – $23,133) was recorded as finance costs to accrete the liability to its principal amount.

10. LEASE OBLIGATION

The Company has a number of property rental and movable property rental leases whose maturity goes from September 2021 to April 2027. The leases have an incremental borrowing rate ranging from 2 to 5% and interest expense for the period ended March 31, 2021 was $29,191 (March 31, 2020 - $27,653).

		March 31,		December 31,
		2021		2020
Balance, beginning of period	$	727,534	$	813,450
Additions		-		107,182
Lease payments		(62,376)		(247,434)
Foreign exchange		(51,343)		54,336
		613,815		727,534
Less: current portion		(207,963)		(256,310)
	$	405,852	$	471,224
Future lease payments are as follows:
Less than one year		$		189,605
1-3 years				226,177
3-5 years				162,351
More than 5years				99,898
				678,031
Less: finance costs				(64,216)
		$		613,815

10

Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

11. LONG-TERM BORROWINGS

		March 31,		December 31,
		2021		2020
Loan denominated in Euro is unsecured, bears interest
at 5.72%, Interest only payments and matures on
December 31, 2022. This loan extinguished during the
year	$	-	$	1,482,760
Loan denominated in Euro is unsecured, bears interest
at 1.70%, Interest only payments and matures on
December 31, 2022		1,278,152		-
Loan denominated in Euro is unsecured, bears interest
at 1.50%, quarterly payments of principal and interest
of €4,159 and matures on September 30, 2021		24,327		32,098
Loan denominated in CAD is unsecured, bears interest
at 5.00%, Interest only payments and matures on		400,000		400,000
January 31, 2026
Loan denominated in USD is unsecured, bears interest
at 5.00%, Interest only payments and matures on		442,020		447,539
October 7, 2024
Loan denominated in CAD is unsecured, non-interest
bearing and with no repayment term until December		30,000		30,000
31, 2022.
Loan denominated in CAD is unsecured, bears interest
at 5.00% per annum, and with interest only payments		264,829		264,829
and matures on November 15, 2025.
Loan denominated in Euro is unsecured, bears interest
at 0.95%, monthly blended payment of €4,228 and		148,290		176,214
matures on March 4, 2023
Loan denominated in Euro is guaranteed by the French
national fund guarantee “Garantie Atout PME”, bears interest at 2.50%, quarterly payment of €30,555 plus		766,649		858,440
interest and matures on May 31, 2025
Loan denominated in Euro is guaranteed by the French
government “PGE”, bears interest at 3-month Euribor rate plus 0.25%, accrued interest and principal amount		811,745		858,440
repayable at maturity and matures on May 20, 2021
Loan denominated in Euro is guaranteed by the French
government “PGE”, bears interest at 0.25%, accrued interest and principal amount repayable at maturity and		1,475,900		-
matures on February 2, 2022
Loan denominated in USD is unsecured, non-interest bearing and with no repayment term		45,899		46,472
Loan denominated in USD is unsecured, non-interest bearing and with no repayment term		91,798		92,944
		5,779,609		4,689,736
Add: accrued interest		495,515		478,244
Less: current portion		(2,566,149)		(1,152,684)
	$	3,708,975	$	4,015,296

11

Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

11. LONG-TERM BORROWINGS (continued)

Principal repayments are as follows:

Remaining of	2021	$	1,026,639
2022			3,038,756
2023			199,075
2024			622,404
2025			355,036
2026			400,000
Thereafter			137,699
		$	5,779,609

The Company reached an agreement with a related party to reduce the interest rate on a long-term borrowing denominated in Euro from 5.72% to 1.70% per annum, effective January 1, 2021.The initial long-term borrowing was treated as extinguishment and new borrowing was recognized at its fair value of €866,015 (CAD $1,312,979) and gain on extinguishment of €83,985 (CAD $128,088) was recorded in other income. Accrued interest of $6,006 has been recorded as finance costs for the three months ended March 31, 2021. Accretion expense of $14,663 was recorded as finance costs to accrete the liability to its principal amount for the three months ended March 31, 2021.

12. LONG TERM PROVISION

	December			Foreign	March
LONG TERM PROVISION	31, 2020	Increase	Decrease	**Exchange **	31, 2021
Provisions for contingent liabilities	$161,029	-	-	(8,759)	152,270

A provision is recorded when the Company has an obligation to a third party prior to the statement of financial position date, and where the loss or liability is likely and can be reliably measured. If the loss or liability is not likely and cannot be reliably estimated, but remains possible, the Company discloses it as a contingent liability. Provisions are calculated on a case-by-case or statistical basis and discounted when due in over a year.

13. SHARE CAPITAL

Authorized: an unlimited number of voting common shares, no par value an unlimited number of preferred shares, no par value

Shares issued:

Common	Shares	Number of	Amount
		shares	($)
Balance	March 31, 2021 and December 31, 2020	110,233,610	4,890,766

12

Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

13. SHARE CAPITAL (continued)

• i) An aggregate of 81,685,129 Common Shares and 17,901,398 Preferred Shares held by the Principals of the Company are subject to Tier 2 Value Escrow and will be released from escrow as follows: ten percent (10%) of the escrowed shares will be released from escrow on the issuance of the Final Exchange bulletin and an additional fifteen percent (15%) will be released every 6 months thereafter.

• ii) In addition, an aggregate of 5,924,871 Common Shares and 1,298,601 Preferred Shares held by certain non-principal shareholders of CAG are subject to TSX Venture Exchange (“TSXV”) seed share resale restrictions (SSRR) and will be released as follows: thirty-three percent (33%) will be released every anniversary of the Final Exchange Bulletin.

Preferred Shares

19,200,000 Preferred Shares was issued as part of the reverse acquisition completed on February 12, 2019. Management has determined that the ability of the holder of these Preferred Shares to convert into Commons Shares is contingent on meeting an earnings target and the continuing employment of a specified executive of the Company. Therefore, the issuance is related to services rendered post acquisition. It is management’s opinion that such conditions will be met. Accordingly, the transaction has been treated as equity-settled sharebased payment as per IFRS 2 Share-Based Payment. The fair value of the preferred shares was estimated to be $0.10 per share for a total of $1,920,000. During the three months ended March 31, 2021, the Company recognized $157,808 (March 31, 2020 – $159,562) of share-based compensation on the condensed consolidated interim statement of loss and a corresponding credit to contributed surplus on the condensed consolidated interim statement of financial position.

14. OPTIONS

The Company has an equity settled stock option plan under which the Board of Directors may grant options to directors, officers, other employees and key consultants. The purpose of the plan is to advance the interests of the Company by encouraging these individuals to acquire shares in the Company and thereby remain associated with, and seek to maximize the value of, the Company. Under the plan, the number of shares reserved for issuance pursuant to the exercise of all options under the plan may not exceed 10% of the issued and outstanding common shares on a non-diluted basis at any time. The options expire not more than five years from the date of grant, or earlier if the individual ceases to be associated with the Company, and vest over terms determined at the time of grant.

During three months ended March 31, 2021, the Company recognized $2,532 (March 31, 2020 – $10,242) of share-based compensation on the condensed consolidated interim statement of loss with a corresponding credit to contributed surplus on the condensed consolidated interim statement of financial position.

The following tables summarize information about stock options outstanding as at:

Opening Granted Closing	March31,2021 Options Weighted-average exercise price 2,400,000 $0.125 - - 2,400,000 $0.125	December31,2020
		Options Weighted-average exercise price
		2,400,000 $0.125 - -
		2,400,000 $0.125

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Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

14. OPTIONS (continued)

The following table summarizes information on stock options outstanding and exercisable at March 31, 2021:

Exercise Price $0.125	Number Outstanding 2,400,000	Number Exercisable 1,600,000	Weighted Average Contractual Life (years) 0.88

15. NET LOSS PER COMMON SHARE

		Three months		Three months
		ended March 31,		ended March 31,
		2021		2020
Net loss	$	(366,637)	$	(1,144,729)
Net loss attributable to common shareholders for the
period	$	(354,372)	$	(1,131,389)
Weighted average number of common shares – basic and diluted		110,233,610		110,233,610

16. CONTINGENCY

A former customer of TME in Belgium is taking a legal action against the Company. The amount claimed for this litigation is $1,350,000. The court ruling for this claim was first postponed to September 2020 but then was delayed again. In November, the court accepted the Belgium company’s request to have a technical expert involved before making any final ruling. While the result is still pending, the Company has not made a provision regarding this litigation as the claim is excessive and the amount of outflow is uncertain.

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Composite Alliance Group Inc. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021 (In Canadian dollars)

17. RELATED PARTY TRANSACTIONS AND BALANCES

Key management includes all persons named or performing the duties of Chief Executive Officer, Chief Financial Officer, President, Vice-President and Directors of the Company. The compensation paid or accrued to key management for services is shown below:

	Three months	Three months	Three months	Three months
	ended March 31,		ended March 31,
		2021		2020
Stock based compensation to directors and officers of the
Company	$	2,532$		10,242
Director fees to non-executive directors		2,625		2,625
Salaries		234,185		242,845

The following is a summary of the Company’s other related party transactions during the period:

		Three months	Three months
		ended March 31,	ended March 31,
		2021	2020
Real property leases paid to a company controlled by a director
of the Company	$	35,228$	28,528
Finance cost paid or accrued to a company controlled by a director of the Company		65,445	59,881
Finance cost paid or accrued to two of the directors of the Company		15,690	45,541
Stock based compensation to companies controlled by directors of the Company		157,808	159,562
Professional fees paid to a partnership controlled by a director of the Company		3,548	3,897
Commission expense paid or accrued to two companies controlled by two directors of the Company		18,992	71,374
The following is a summary of financial instruments held by related	parties:
		March 31,	December 31,
		2021	2020
Receivable from a company controlled by a director of the
Company	$	292,151$	308,956
Convertible debentures issued to a company controlled by a director of the Company Long term borrowing advanced from a company controlled by a director of the Company		2,301,353 1,693,126	2,391,863 1,896,321
Long term borrowing advanced from a company controlled by an officer of the Company		908,641	900,120
Long term borrowing advanced from companies controlled by two of the directors of the Company		354,041	334,897

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