Inventronics Limited — Interim / Quarterly Report 2021

Aug 18, 2021

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INVENTRONICS LIMITED

2021 SECOND QUARTER

UNAUDITED FINANCIAL STATEMENTS

For the periods ended June 30, 2021 and 2020

INVENTRONICS LIMITED FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION

As at		June 30	December 31
(in thousands)		2021	2020
	Unaudited		Audited
ASSETS
Current
Cash	$	14	$ 131
Trade and other receivables_[Note 6]_		1,241	623
Inventories_[Note 7]_		1,603	652
Other current assets		28	26
		2,886	1,432
Non-current
Property, plant and equipment		2,309	2,310
Total Assets	$5,195		$3,742
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Bank indebtedness_[Note 8]_	$ -		$ -
Trade and other payables [Note 9]		1,145	268
Current portion of restructuring obligation		5	36
Current portion of long-term debt_[Note 10]_		51	50
		1,201	354
Non-current liabilities
Long-term debt_[Note 10]_		2,054	2,079
Total Liabilities		3,255	2,433
Shareholders’ equity
Share capital_[Note 11]_		2,286	2,276
Contributed surplus		186	186
Accumulated deficit		(532)	(1,153)
Total Shareholders' Equity		1,940	1,309
Total Liabilities and Shareholders' Equity	$5,195		$3,742

See accompanying notes

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INVENTRONICS LIMITED FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME Unaudited

For the periods ended June 30		Three months		Six months
(in thousands, except per share amounts)	2021	2020	2021	2020
Revenue	$ 2,776	$ 1,591	$ 4,576	$ 2,635
Cost of sales_[Note 7]_	2,005	1,274	3,370	2,094
Gross profit	771	317	1,206	541
Selling and administration expense	301	197	523	334
Interest expense	34	40	66	82
Earnings, before government assistance and tax	436	80	617	125
Government assistance_[Note 15]_	-	291	-	291
Income tax	(4)	-	(4)	-
Net earnings	$440	$371	$621	$415
Basic and diluted earnings (loss) per share_[Note 12]_	9.8¢	8.4¢	13.8¢	9.4¢

See accompanying notes

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INVENTRONICS LIMITED FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS Unaudited

For the periods ended June 30	Three	months		Six months
(in thousands)	2021	2020	2021	2020
OPERATING ACTIVITIES
Net earnings	$ 440	$ 371	$ 621	$ 415
Add:
Interest on long-term debt	31	34	62	72
Depreciation and amortization	34	24	64	47
Other items not involving cash	-	-	-	3
	505	429	747	537
Changes in non-cash working capital balances_[Note 13]_	403	63	(695)	(424)
Cash provided (used) by operating activities	102	492	52	113
FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness	(18)	(420)	-	-
Repayment of long-term debt_[Note 10]_	(12)	(3)	(24)	(13)
Interest on long-term debt_[Note 10]_	(31)	(34)	(62)	(72)
Issuance of share capital_[Note 11]_	-	-	10	-
Payment of long-term restructuring obligation	(15)	(16)	(31)	(32)
Cash provided (used) by financing activities	(76)	(473)	(107)	(117)
INVESTING ACTIVITIES
Acquisition of property, plant and equipment	(12)	(14)	(62)	(43)
Cash provided (used) by investing activities	(12)	(14)	(62)	(43)
Increase (decrease) in cash and cash equivalents	14	5	(117)	(47)
Cash and cash equivalents, beginning of year	-	-	131	52
Cash and cash equivalents,end of theyear	$14	$5	$14	$5

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, 2019	$ 2,276	$ 182	$ (1,837)	$ 621
Valuation of vested options	-	2	-	2
Net earnings for the six months ended June 30, 2020	-	-	415	415
Balance,June 30,2020	$2,276	$184	$ (1,422)	$1,038
Balance, December 31, 2020	$ 2,276	$ 186	$ (1,153)	$ 1,309
Exercise of options	10	-	-	10
Net earningsforthe threemonths ended June 30,2021	-	-	621	621
Balance,June 30,2021	$2,286	$186	$ (532)	$1,940

See accompanying notes

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INVENTRONICS LIMITED NOTES TO THE FINANCIAL STATEMENTS

For the periods ended June 30, 2021 and 2020 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 protective enclosures and related products for the telecommunications, electric transmission, cable, energy 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 August 18, 2021 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, 2020. 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 2020 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. All amounts in these financial statements are reported in Canadian dollars unless specifically stated to the contrary.

4. ADOPTION OF NEW ACCOUNTING STANDARDS

Accounting pronouncements that became effective during the period covered by the these unaudited interim financial statements did not have a material impact on the Corporation’s reporting. Likewise, accounting pronouncements issued, but not effective until after June 30, 2021, are not expected to have a material impact on the Corporation’s financial statements.

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	June 30	December 31
(in thousands)	2021	2020
Trade receivables	$1,241	$623

At June 30, 2021, based on management's review, a provision for doubtful accounts continued to be carried in the amount of $6 (2020 - $Nil). The Corporation did not incur any credit losses for the three month period ended June 30, 2021. A credit loss of $37 was recorded in the twelve month period ended December 31, 2020.

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INVENTRONICS LIMITED NOTES TO THE FINANCIAL STATEMENTS

For the periods ended June 30, 2021 and 2020 Unaudited

7. INVENTORIES

7. INVENTORIES
As at	June 30	December 31
(in thousands)	2021	2020
Raw materials	$ 1,131	$ 622
Work-in-progress	212	-
Finished goods	260	30
	$1,603	$652

For the three months ended June 30, 2021, the Corporation expensed inventory costs of $1,626 (2022 - $922) through cost of sales. At June 30, 2021, the provision for net realizable value was $77 (December 31, 2020 - $27).

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 1.75% (2020 – prime plus 1.75%). At June 30, 2021, an amount of $850 under this facility was available, of which $Nil was drawn (December 31, 2020 - $1,016 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 constituting a first ranking security interest in all personal property of the Corporation and Section 427 of the Bank Act (Canada) security over inventory. 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	June 30	December 31
(in thousands)	2021	2020
Trade payables and other accrued expenses	$ 838	$ 148
Payroll accruals	265	94
Governmentremittances payable	42	26
	$1,145	$268

10. LONG-TERM DEBT

10. LONG-TERM DEBT
As at	June 30	December 31
(in thousands)	2021	2020
Fixed rate mortgage bearing interest of 5.75%; maturing in 2042;	$ 2,125	$ 2,151
repayable monthly in blended principal and interest installments of $14;
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	(22)	(22)
	2,103	2,129
Less: current portion	51	50
Long-termportion of long-term debt	$2,054	$2,079

Effective April 10, 2020, the Corporation selected a 14-year fixed interest rate term bearing an interest rate of 5.75% with a blended monthly payment of $14. Prior to April 10, 2020, the interest rate was 7.0% with a monthly blended principal and interest installment of $16. 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 obligations pertaining to this agreement.

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INVENTRONICS LIMITED NOTES TO THE FINANCIAL STATEMENTS

For the periods ended June 30, 2021 and 2020 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	Six months ended	Six months ended	Twelve months ended	Twelve months ended
(dollar amounts in thousands)	June	30, 2021	December	31, 2020
	Number of		Number of
	shares	Amount	shares	Amount
Outstanding, beginning of period	4,405,145	$ 2,276	4,405,145	$ 2,276
Options exercised	100,000	10	-	-
Outstanding,end ofperiod	4,505,145	$2,286	4,405,145	$2,276

A corporation, wholly-owned by a group consisting 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 67% 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 June 30, 2021, there were 300,000 stock options granted and outstanding (December 31, 2020 – 400,000). In the first six months of 2021, there were 100,000 options exercised at a price of $0.10 per share.

12. EARNING PER SHARE

12. EARNING PER SHARE
For the periods ended June 30	Three	months	Six	months
(in thousands, except per share amounts)	2021	2020	2021	2020
Net earnings	$ 440	$ 371	$ 621	$ 415
Weighted average commonshares outstanding	4,505	4,405	4,505	4,405
Basic and diluted earningsper share	9.8¢	8.4¢	13.8¢	9.4¢

For the three month periods ended June 30, 2021 and 2020, the calculation of diluted earnings per share does not differ materially from basic earnings per share.

13. SUPPLEMENTARY CASH FLOW INFORMATION

For the periods ended June 30	Three	months	Six	months
(in thousands)	2021	2020	2021	2020
Changes in non-cash working capital balances:
Trade and other receivables	$ (91)	$ (160)	$ (618)	$ (501)
Inventories	(38)	(53)	(951)	(399)
Other current assets	58	10	(2)	(13)
Trade and otherpayables	(332)	266	876	489
	$(403)	$63	$ (695)	$ (424)

14. RELATED PARTY TRANSACTIONS

Three members of Inventronics' senior management team, as a group, control the corporation that owns approximately 67% 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 and nine months ended June 30, 2021, the Corporation expensed $380 (2020 - $144) and $516 (2020 - $258), respectively, 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 June 30, 2021, the Corporation expensed $3 (2020 - $3) for this fee.

15. GOVERNMENT ASSISTANCE

Due to the COVID-19 restrictions that were imposed in the second quarter of 2020, the Corporation experienced a significant decline in revenues through most of that quarter, which qualified the Corporation for government assistance through the Canada Emergency Wage Subsidy program in the amount of $291. The Corporation has not qualified for any government assistance through the first six months of 2021.

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