Inventronics Limited — Interim / Quarterly Report 2020

May 28, 2020

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INVENTRONICS LIMITED

2020 FIRST QUARTER FINANCIAL REPORT

UNAUDITED FINANCIAL STATEMENTS

For the periods ended March 31, 2020 and 2019

INVENTRONICS LIMITED FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION

As at	March 31	December 31
(in thousands)	2020	2019
	Unaudited	Audited
ASSETS
Current
Cash	$ -	$ 52
Trade and other receivables_[Note 6]_	648	307
Inventories_[Note 7]_	1,118	772
Other current assets	40	16
	1,806	1,147
Non-current
Property, plant and equipment	2,151	2,145
Total Assets	$3,957	$3,292
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Bank indebtedness_[Note 8]_	$ 420	$ -
Trade and other payables [Note 9]	648	424
Current portion of restructuring obligation	63	63
Current portion of long-term debt_[Note 10]_	41	40
	1,172	527
Non-current liabilities
Restructuring obligation	21	36
Long-term debt_[Note 10]_	2,097	2,108
Total Liabilities	3,290	2,671
Shareholders’ equity
Share capital_[Note 11]_	2,276	2,276
Contributed surplus	184	182
Accumulated deficit	(1,793)	(1,837)
Total Shareholders' Equity	667	621
Total Liabilities and Shareholders' Equity	$3,957	$3,292

See accompanying notes

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INVENTRONICS LIMITED FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME Unaudited

For the three months ended March 31
(in thousands, except per share amounts)	2020	2019
Revenue	$ 1,044	$ 1,132
Cost of sales_[Note 7]_	820	964
Gross profit	224	168
Selling and administration expense	137	110
Interest expense	43	38
Earnings, before restructuring costs	44	20
Restructuring costs	-	-
Net income	$44	$20
Basic and diluted earnings (loss) per share_[Note 12]_	1.0¢	0.5¢

See accompanying notes

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INVENTRONICS LIMITED FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS Unaudited

For the three months ended March 31
(in thousands)	2020	2019
OPERATING ACTIVITIES
Net income	$ 44	$ 20
Add:
Interest on long-term debt	38	33
Depreciation and amortization	23	22
Other items not involving cash	2	-
	107	75
Changes in non-cash working capital balances_[Note 13]_	(487)	(105)
Cash provided (used) by operating activities	(380)	(30)
FINANCING ACTIVITIES
Repayment of long-term debt_[Note 10]_	(10)	(11)
Interest on long-term debt_[Note 10]_	(38)	(33)
Payment of long term restructuring obligation	(15)	(15)
Increase (Decrease) in bank indebtedness	420	90
Cash provided (used) by financing activities	357	31
INVESTING ACTIVITIES
Acquisition of property, plant and equipment	(29)	(1)
Cash provided (used) by investing activities	(29)	(1)
Increase (Decrease) in cash and cash equivalents	(52)	-
Cash and cash equivalents, beginning of year	52	-
Cash and cash equivalents,end of theyear	$-	$-

See accompanying notes

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INVENTRONICS LIMITED FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY Unaudited

				Total
	Share	Contributed	Accumulated	Shareholders’
(in thousands)	capital	surplus	Deficit	equity
Balance, December 31, 2018	$ 2,276	$ 182	$ (2,032)	$ 426
Net income for the three months ended March 31, 2019	-	-	20	20
Balance,March 31,2019	$2,276	$182	$ (2,012)	$446
Balance, December 31, 2019	$ 2,276	$ 182	$ (1,837)	$ 621
Valuation of vested options	-	2	-	2
Netincomeforthe threemonths endedMarch31,2020	-	-	44	44
Balance,March 31,2020	$2,276	$184	$ (1,793)	$667

See accompanying notes

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INVENTRONICS LIMITED NOTES TO THE FINANCIAL STATEMENTS

For the periods ended March 31, 2020 and 2019 Unaudited

1. DESCRIPTION OF BUSINESS

Inventronics Limited (“Corporation”), a corporation publicly traded on the TSX Venture Exchange under the symbol IVX is an individual entity incorporated in Alberta, Canada that is not part of any group of other entities. The Corporation, with its operations located in Brandon, Manitoba, designs and manufactures custom protective enclosures and related products for the telecommunications, electric transmission, cable, oil & gas and other industries in North America. The operations of the Corporation have historically been subject to seasonal fluctuations showing a close correlation with the North American construction industry. Typically, the pattern has been an elevated order volume beginning in the Corporation’s first quarter and continuing through much of the second quarter, a slowdown through the first part of the third quarter as summer vacations take effect, with a second wave of elevated activity in the latter part of the third quarter usually extending into the mid-fourth quarter.

2. DATE OF AUTHORIZATION FOR ISSUE

The Corporation’s financial statements were authorized for issue on May 28, 2020 by the Corporation’s Board of Directors.

3. SIGNIFICANT ACCOUNTING POLICIES

These unaudited interim financial statements of the Corporation have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”) International Accounting Standard ("IAS") 34 Interim Financial Reporting using accounting policies and methods applied in the preparation of the Corporation's audited annual financial statements for the year ended December 31, 2019. As such, these interim financial statements do not include all of the disclosures with respect to the requirements under IFRS for annual financial statements and thus should be read in conjunction with the Corporation's 2019 audited annual financial statements. The accounting principles applied are on the basis that the Corporation is a going concern, which assumes that the Corporation will continue operations into the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. Management routinely plans future activities including forecasting cash flows using detailed projections that are based in part on historical experience as well as anticipated revenue and profit streams. If any working capital shortages are projected, management ensures that adequate lending facilities are in place to address them. It is management’s opinion and judgement that the Corporation will continue to have adequate resources to operate over the next twelve months based on the Corporation’s cash flow projections. All amounts in these financial statements are reported in Canadian dollars unless specifically stated to the contrary.

4. ADOPTION OF NEW ACCOUNTING STANDARDS

There are no new accounting standards, interpretations and/or amendments that the Corporation is required to adopt for 2020.

5. FINANCIAL INSTRUMENTS - FAIR VALUE MEASUREMENT

The Corporation's financial instruments consist of cash and cash equivalents, trade and other receivables, bank indebtedness, trade and other payables and long-term debt. The carrying values of these assets and liabilities are considered to approximate fair value due to the short-term maturity of these items or, in the case of long-term debt, due to the market interest rate attached to the long-term debt. Cash and cash equivalents and bank indebtedness are disclosed at fair value under Level 1 of the fair value hierarchy. Trade and other receivables, trade and other payables, and long-term debt are disclosed at fair value under Level 2.

6. TRADE AND OTHER RECEIVABLES

6. TRADE AND OTHER RECEIVABLES
As at	March 31	December 31
(in thousands)	2020	2019
Trade receivables	$648	$307

At March 31, 2020, based on management's review, a provision for doubtful accounts was deemed unnecessary. The Corporation did not incur any credit losses for the three and twelve month periods ended March 31, 2020 and December 31, 2019, respectively.

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INVENTRONICS LIMITED NOTES TO THE FINANCIAL STATEMENTS

For the periods ended March 31, 2020 and 2019

Unaudited

7. INVENTORIES

7. INVENTORIES
As at	March 31	December 31
(in thousands)	2020	2019
Raw materials	$ 829	$ 734
Work-in-progress	54	-
Finished goods	235	38
	$1,118	$772

For the three months ended March 31, 2020, the Corporation expensed inventory costs of $604 (2019 - $743) through cost of sales. At March 31, 2020, the provision for net realizable value was $71 (December 31, 2019 - $71).

8. BANK CREDIT FACILITIES

The Corporation has a demand operating credit facility in the form of an overdraft lending account which provides an authorized limit of $850 with an interest rate of prime plus 2.50% (2019 – prime plus 2.50%). At March 31, 2019, an amount of $575 under this facility was available, of which $420 was drawn (December 31, 2019 - $575 available and $Nil drawn).The credit facility is margined on the Corporation’s accounts receivable and inventory balances and secured by a general security agreement over those assets. The Corporation is in compliance with all covenants and obligations pertaining to its demand operating credit facility.

9. TRADE AND OTHER PAYABLES

9. TRADE AND OTHER PAYABLES
As at	March 31	December 31
(in thousands)	2020	2019
Trade payables and other accrued expenses	$ 483	$ 302
Payroll accruals	132	103
Governmentremittances payable	33	19
	$648	$424
10. LONG-TERM DEBT
As at	March 31	December 31
(in thousands)	2020	2019
Fixed rate mortgage bearing interest of 7.0%; maturing in 2042; repayable	$ 2,161	$ 2,171
monthly in blended principal and interest installments of $16; secured by a
first mortgage on the Corporation's manufacturing facility and land in
Brandon, Manitoba, a general security agreement providing a security
interest in all of the Corporation's present and after acquired personal
property but accepting a subordinate position to all existing registered
charges.
Unamortized transactioncosts	(23)	(23)
	2,138	2,148
Less: current portion	41	40
Long-termportion of long-term debt	$2,097	$2,108

Effective April 10, 2020, after a one-year period from the last rate reset, the Corporation selected a fourteen-year fixed interest rate term with an interest rate of 6.0% and blended monthly payments of $15. Although containing general performance conditions, the loan agreement does not contain any financial covenants that must be periodically tested. The Corporation is in compliance with all covenants and obligations pertaining to this agreement.

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INVENTRONICS LIMITED NOTES TO THE FINANCIAL STATEMENTS For the periods ended March 31, 2020 and 2019 Unaudited

11. SHARE CAPITAL

An unlimited number of common shares, with no par value, are authorized for issue. The authorized, issued and outstanding common shares of the Corporation, which are fully paid, are as follows:

For the	Three months ended	Three months ended	Twelve months ended	Twelve months ended
(dollar amounts in thousands)	March	31, 2020	December	31, 2019
	Number of		Number of
	shares	Amount	shares	Amount
Outstanding, beginning of period	4,405,145	$ 2,276	4,405,145	$ 2,276
Outstanding,end ofperiod	4,405,145	$2,276	4,405,145	$2,276

A corporation, wholly-owned by a group consisting primarily of the members of the Corporation's senior management team, holds a controlling interest in the Corporation amounting to 3,020,000 common shares, or 68.6% of the outstanding common shares of the Corporation.

Stock option plan

The Corporation maintains a stock option plan for the benefit of employees and directors. At March 31, 2020, there were 400,000 stock options granted, outstanding and exercisable (December 31, 2019 – 400,000).

12. EARNING PER SHARE

12. EARNING PER SHARE
For the three months ended March 31
(in thousands, except per share amounts)	2020	2019
Net income (loss)	$ 44	$ 20
Weighted average commonshares outstanding	4,405	4,405
Basic and diluted earnings(loss) per share	1.0¢	0.5¢

For the three month period ended March 31, 2020 and 2019, the calculation of diluted earnings per share does not differ materially from basic earnings per share.

13. SUPPLEMENTARY CASH FLOW INFORMATION

13. SUPPLEMENTARY CASH FLOW INFORMATION
For the three months ended March 31
(in thousands)	2020	2019
Changes in non-cash working capital balances:
Trade and other receivables	$ (342)	$ 177
Inventories	(345)	(114)
Other current assets	(24)	(13)
Trade and otherpayables	224	(155)
	$ (487)	$ (105)

14. RELATED PARTY TRANSACTIONS

Three members of Inventronics' senior management team, as a group, control the corporation that owns approximately 69% of the outstanding common shares of the Corporation. The senior management team are members of Inventronics' Board of Directors ("Board") and receive no compensation for their service as Board members. The Corporation pays fixed and variable compensation to its senior management team for their employment services. For the three months ended March 31, 2020, the Corporation expensed $96 (2019 - $102) related to those compensation arrangements.

The Corporation pays a fee of $1 per month to the corporation that holds a controlling interest in the Corporation ( see Note 11 Share Capital ). For the three months ended March 31, 2020, the Corporation expensed $3 (2019 - $3) for this fee.

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