ZTEST Electronics Inc. — Interim / Quarterly Report 2020

May 28, 2020

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Financial Statements

March 31, 2020

(Stated in Canadian Dollars)

Notice To Reader

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the unaudited condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

These unaudited condensed interim consolidated financial statements were approved by the Board of Directors on May 27, 2020. They have not been reviewed by the Company ’ s auditors.

The accompanying unaudited condensed interim consolidated financial statements have been prepared by and are the responsibility of management. These condensed interim consolidated financial statements are presented on the accrual basis of accounting and accordingly, a precise determination of many assets and liabilities is dependent upon future events. Where necessary, management has made informed judgments and estimates in accounting for these assets and liabilities and for transactions which were not complete at the end of the reporting period. Recognizing that the Company is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these unaudited condensed interim consolidated financial statements have been fairly presented.

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statements of Financial Position

(Stated in Canadian Dollars) March 31, 2020

Mar. 31 2020 Assets Current assets Cash $ 65,090 Accounts receivable 509,900 Inventories_(note 4) 663,575 Prepaid expenses 15,384 1,253,949 Equipment(note 5) 224,032 Right-of-use asset(note 3) 137,798 Investments(note 6) 690,371 Lease deposit(note 3) - $ 2,306,150 Liabilities Current liabilities Bank operating loan(note 7) $ 115,000 Accounts payable and accrued liabilities(note 10) 784,669 Customer deposits 25,000 Current portion of lease liability(note 3) 104,985 Current portion of long-term debt(note 8) - 1,029,654 Shareholders’ equity Share capital(note 9) 23,613,546 Warrants(note 9) 222,959 Contributed surplus(note 9)_ 1,533,373 Deficit (24,093,382) 1,276,496 $ 2,306,150	June 30 2019
	$ 66,628 591,575 636,894 7,960 1,303,057 258,976 - 737,640 35,000
	$ 2,334,673
	$ 150,000 857,322 - - 3,291
	1,010,613
	23,394,174 182,956 1,533,373 (23,786,443) 1,324,060 $ 2,334,673

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

Approved by the Board:

Signed: “Steve Smith”

Signed: “K. Michael Guerreiro”

Director

Director

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statements of Changes in Equity (Stated in Canadian Dollars) March 31, 2020

Share Contributed Capital Warrants Surplus Deficit Balance, June 30, 2018 $ 23,215,877 $ 137,470 $ 1,531,134 $ (23,442,258) Stock options exercised 27,426 - (12,426) - Private placements 150,871 60,151 - - Warrants expired - (14,665) 14,665 - Net loss for the period - - - (332,801) Balance, March 31, 2019 23,394,174 182,956 1,533,373 (23,775,059) Net loss for the period - - - (11,384) Balance, June 30, 2019 23,394,174 182,956 1,533,373 (23,786,443) Shares for debt 153,450 - - - Private placement 65,922 40,003 - - Net loss for the period - - - (306,939) Balance,March 31,2020 $ 23,613,546 $ 222,959 $ 1,533,373 $(24,093,382)	Total
	$ 1,442,223 15,000 211,022 - (332,800) 1,335,444 (11,384) 1,324,060 153,450 105,925 (306,939)
	$ 1,276,496

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

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statements of Comprehensive (Loss) Income (Stated in Canadian Dollars) March 31, 2020

Three months ended 2020 2019 Product sales $ 1,102,355 $ 1,065,043 Cost ofproduct sales (note 4) 757,560 808,222 344,795 256,821 Expenses Selling, general and administrative_(note 11) 336,238 350,000 Interest expense - long term - 247 Interest expense - lease liability(note 3) 1,608 - Interest expense - other 1,826 2,607 Finance fees(note 10) 5,171 4,811 Depreciation of equipment 1,223 1,249 Foreign exchange loss(gain) 11,920 (25) 357,986 358,889 Loss before miscellaneous income and income taxes (13,191) (102,068) Equity in loss of Conversance Inc.(note 6)_ (11,003) (19,504) Equity in loss of Twenty49 Ltd. - (5,707) Miscellaneous income - - Loss before provision for income taxes (24,194) (127,279) Provision for income taxes - - Net loss and comprehensive loss for the period $ (24,194) $ (127,279) Net loss per share Basic $ (0.00) $ (0.01) Fullydiluted $ (0.00) $ (0.01) Weighted average shares outstanding Basic 21,746,652 20,990,363 Fullydiluted 21,746,652 20,990,363	Nine months ended 2020 2019 $ 2,811,761 $ 3,129,365 1,994,076 2,308,856 817,685 820,509
	1,035,427 1,068,163 5 1,143 5,894 - 5,207 7,582 12,292 13,774 3,465 3,689 15,069 5,761
	1,077,359 1,100,112
	(259,674) (279,603) (47,269) (47,491) - (5,707) 4 -
	(306,939) (332,801) - - $ (306,939) $ (332,801) $ (0.01) $ (0.02) $ (0.01) $ (0.02)
	21,316,456 20,475,375 21,316,456 20,475,375

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

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statements of Cash Flows

(Stated in Canadian Dollars) March 31, 2020

		Three	months ended	months ended		Nine	months ended	months ended
		2020		2019		2020		2019
Cash flow from operating activities
Net loss for the period	$	(24,194)	$	(127,279)	$	(306,939)	$	(332,801)
Items not involving cash
Depreciation of equipment		13,114		16,009		39,083		47,969
Depreciation of right of use assets		25,700		-		77,099		-
Imputed interest on lease liability		1,608		-		5,894		-
Equity in loss of Conversance Inc.		11,003		19,504		47,269		47,491
Equity in loss of Twenty49 Ltd.		-		(5,707)		-		(5,707)
Changes in non-cash working capital items:
Accounts receivable		(175,268)		54,807		81,675		38,969
Inventories		(22,272)		(207,542)		(26,681)		(261,980)
Prepaid expenses		1,875		(5,044)		(7,424)		(1,931)
Accounts payable and accrued liabilities		144,778		154,920		80,797		377,227
Customer deposits		9,556		27,642		25,000		12,681
		(14,100)		(61,276)		15,773		(66,668)
Cash flow from investing activities
Purchase of equipment		(1,369)		-		(4,139)		(1,942)
Acquisition of investment		-		(112,000)		-		(112,000)
		(1,369)		(112,000)		(4,139)		(113,942)
Cash flow from financing activities
Net (repayment) proceeds of bank operating	loan	(25,000)		(20,000)		(35,000)		60,000
Repayment of long-term debt		-		(9,873)		(3,291)		(29,619)
Repayment of lease liability		(26,935)		-		(80,806)		-
Issuance of common shares		105,925		92,913		105,925		226,023
		53,990		63,040		(13,172)		256,404
Increase (decrease) in cash		38,521		(110,236)		(1,538)		75,794
Cash(deficiency), beginning ofperiod		26,569		138,656		66,628		(47,374)
Cash, end ofperiod	$	65,090	$	28,420	$	65,090	$	28,420
Supplemental Disclosure of Cash Flow Information:
During the period the Company had cash flows	arising from interest			and income taxes		paid as follows:
Cash paid for interest	$	1,821	$	2,887	$	5,218	$	8,775
Cashpaid for income taxes	$	-	$	-	$	-	$	-

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

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

1. Business of the Company

ZTEST Electronics Inc. ( “ the Company ” ) amalgamated under the laws of Ontario and carries on business at 523 McNicoll Avenue, Toronto, Ontario designing, developing, and assembling printed circuit boards and other electronic equipment. The Company's shares trade on the Canadian Securities Exchange ( “ CSE ” ) under the symbol "ZTE".

2. Significant Accounting Policies

Statement of compliance

The Company has prepared these unaudited condensed interim financial statements in accordance with IAS 34, Interim Financial Reporting , employing all of the same accounting policies and methods of computation as disclosed in the annual financial statements as at June 30, 2019 with the exception of the changes arising from the adoption of IFRS 16 Leases (note 3), with a date of initial application of July 1, 2019.

The notes to these unaudited condensed interim consolidated financial statements are intended to provide a description of events and transactions that are significant to an understanding of the changes in the Company ’ s financial position and performance since June 30, 2019. Certain disclosures that appear in the annual financial statements have not been reproduced in these unaudited condensed interim consolidated financial statements and, in this regard only, these unaudited condensed interim financial statements do not conform in all respects to the requirements of IFRS for annual consolidated financial statements. Accordingly, these unaudited condensed interim consolidated financial statements should only be read in conjunction with the annual financial statements as at June 30, 2019.

These unaudited condensed interim consolidated financial statements were authorized for issuance by the Board of Directors of the Company on May 27, 2020.

Basis of presentation and going concern considerations

These unaudited condensed interim consolidated financial statements have been prepared on a historical cost basis using the accrual basis of accounting, except for cash flow information, and in accordance with IFRS applicable to a “ going concern ” . Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. If the going concern assumption were not appropriate for these unaudited condensed interim consolidated financial statements then adjustments would be necessary in the carrying values of assets and liabilities, the reported revenues and expenses, and the statement of financial position classifications used.

Basis of consolidation

These unaudited condensed interim consolidated financial statements include the accounts of the Company as well as the following subsidiaries' assets and liabilities and the revenues and expenses arising, subsequent to the date of acquisition:

e of acquisition:
Permatech Electronics Corporation (“PEC”)	- 100%	owned
Twenty49 Ltd	- 100%	owned
Northern Cross Minerals Inc.	- 66.7%	owned (inactive)

Significant accounting judgments and estimates

The preparation of these unaudited condensed interim consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates. These unaudited condensed interim consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and also in future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions, and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

2. Significant Accounting Policies - continued

Significant accounting judgments and estimates - continued

Significant estimates and judgments include, but are not limited to, the assessment of the Company as a going concern, recoverability of inventory, the inputs used in applying the Black-Scholes valuation model, and the recognition and valuation of deferred tax amounts.

Impairment of non-financial assets

At the end of each reporting period, the Company reviews the carrying amounts of its non-financial assets with finite lives to determine whether there is any indication that those assets have suffered an impairment loss. The Company has assessed the assets of all its operating entities and has determined that there is no impairment of its non-financial assets.

Segment disclosure

The Company has a single location and operating segment. Accordingly, all revenues are generated in Canada and all assets are located in Canada.

3. Changes in Accounting Policies

The Company ’ s accounting policies typically change only when there is a change in IFRS. Effective July 1, 2019 the Company adopted IFRS 16, Leases which eliminates the classification of leases as either operating leases or finance leases and provides a single lessee accounting model, specifying how leases are recognized, measured, presented, and disclosed.

The Company occupies its operating facility under a lease that, requires monthly lease payments of $8,979 until expiry March 2021. A refundable deposit of $35,000 was paid at the inception of the lease. This lease was previously classified as an operating lease in accordance with IAS 17, with the lease deposit reported as an asset, lease payments charged to net income as occupancy costs, and disclosure of the remaining lease payments as a commitment. The Company adopted IFRS 16 using the modified retrospective approach where comparative amounts are not restated.

Upon adoption of IFRS 16, the Company recognized a lease liability and a right-of-use asset. The lease liability was initially recorded at the present value of the remaining lease payments, discounted using the Company ’ s incremental borrowing rate which was determined to be prime plus 1.75% or 5.7%. The lease liability was subsequently reduced by the lease payments paid and interest, imputed at the discount rate, was added to the obligation. The right-of-use asset was initially recorded at cost, determined to be equal to the present value of the remaining lease payments plus the deposit paid at the inception of the lease. Subsequent to initial recording, the right-of-use asset is measured using the cost model where cost is reduced by any accumulated depreciation and any accumulated impairment losses and is adjusted for any remeasurement of the lease liability. Depreciation is calculated on a straight-line basis over the remaining term of the lease and charged to net income as an element of occupancy costs. There have been no impairment losses and no remeasurement of the lease liability.

Right-of-use asset

Cost recognized upon adoption of IFRS 16 Depreciation recorded as an element of occupancy costs_(note 11)_ Balance at March 31, 2020 Lease liability Present value of lease payments remaining upon adoption of IFRS 16 Lease payments paid during period Interest imputed at 5.7% Balance at March 31, 2020 Less current portion Balance at March 31, 2020	$ 214,897 (77,099)
	$ 137,798
	$ 179,897 (80,806) 5,894 104,985 (104,985) $ -

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

4. Inventories

The carrying value of inventory is comprised of:

Mar. 31 2020 Raw materials and supplies(1) $ 619,768 Work in process 33,388 Finishedgoods 10,419 $ 663,575	June 30 2019 $ 609,921 22,615 4,358 $ 636,894

(1) Raw materials and supplies is presented net of provisions for obsolete and/or slow moving items in the amount of $25,824 (June 30, 2019 - $25,413).

Inventory utilization during the period was as follows:

Mar. 31 2020 Raw materials and supplies used $ 1,315,132 Labour costs 568,977 Depreciation 35,618 Other costs 91,184 Net change in finishedgoods and work inprocess (16,835) Cost ofproduct sales $ 1,994,076	Mar. 31 2019
	$ 1,572,247 590,675 44,280 130,743 (29,089)
	$ 2,308,856

5. Equipment

Computer Office Manufacturing Leasehold Equipment Equipment Equipment Improvements Cost: Balance, June 30, 2018 $ 183,106 $ 71,277 $ 2,594,244 $ 84,143 Additions 1,942 - - - Balance, March 31, 2019 185,048 71,277 2,594,244 84,143 Additions - - - - Balance, June 30, 2019 185,048 71,277 2,594,244 84,143 Additions 1,369 - 2,770 - Balance,March 31,2020 $ 186,417$ 71,277$ 2,597,014$ 84,143 Accumulated Depreciation: Balance, June 30, 2018 $ (176,685) $ (69,983) $ (2,298,302) $ (66,788) Depreciation (1,649) (194) (44,391) (1,735) Balance, March 31, 2019 (178,334) (70,177) (2,342,693) (68,523) Depreciation (568) (65) (14,797) (579) Balance, June 30, 2019 (178,902) (70,242) (2,357,490) (69,102) Depreciation (1,486) (155) (35,707) (1,735) Balance,March 31,2019 $ (180,388) $ (70,397) $ (2,393,197) $ (70,837) Carrying Amounts: June 30, 2018 $ 6,421 $ 1,294 $ 295,942 $ 17,355 March 31, 2019 $ 6,714 $ 1,100 $ 251,551 $ 15,620 June 30, 2019 $ 6,146 $ 1,035 $ 236,754 $ 15,041 March 31,2020 $ 6,029$ 880$ 203,817$ 13,306	Total
	2,932,770 1,942
	2,934,712 -
	2,934,712 4,139
	$ 2,938,851
	$ (2,611,758) (47,969)
	(2,659,727) (16,009)
	(2,675,736) (39,083)
	$ (2,714,819)
	$ 321,012 $ 274,985 $ 258,976 $ 224,032

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

6. Investments

The Company holds a non-controlling interest in Conversance Inc., a private Canadian technology company. The shares of Conversance Inc. are subject to a hold period and, unless permitted under securities legislation, the shares may not be traded before the date that is four months and a day after the issuer becomes a reporting issuer in any province or territory.

Conversance Inc. is engaged in the development of its proprietary technology and has not yet produced any revenues. The timing of such revenues, if any, is not currently determinable.

The Company has determined that as at March 31, 2020, and June 30, 2019, there had been no loss event and accordingly no test for impairment was completed.

Mar. 31 2020 155,000 Class A common shares representing a 15.05% interest $ 294,562 Impairment provision (294,562) 62,500 Class A common shares representing a 4.86% interest 330,450 78,750 Class A common shares representinga 5.38% interest 504,750 Investment representing a 25.29% interest (June 30, 2019–25.29%) 835,200 Equityinpost-acquisition loss (144,829) Aggregate investment $ 690,371	June 30 2019 $ 294,562 (294,562) 330,450 504,750
	835,200 (97,560)
	$ 737,640

7. Bank operating loan

8.	Mar. 31 2020 Line of credit, which can be drawn to a maximum of $250,000, bears interest at the TD Bank prime lending rate plus 2.5%, is due upon demand, and is secured by a general security agreement covering the assets of PEC. $ 115,000 Long-Term Debt	June 30 2019
		$ 150,000
	Mar. 31 2020 Term loan bearing interest at the TD Bank prime lending rate plus 1.75% matured July 2019. $ - Less currentportion - $ -	June 30 2019
		$ 3,291 3,291
		$ -

9. Share Capital

Authorized: Unlimited Common shares Unlimited Preferred shares in one or more series. Issued:

Mar. 31 2020 Common shares $ 23,613,546	June 30 2019
	$ 23,394,174

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

9. Share Capital - continued

Common shares Number of Shares(1) Balance June 30, 2018 20,173,696 Exercise of stock options 150,000 Privateplacement(2) 780,000 Balance March 31, 2019 and June 30, 2019 21,103,696 Shares issued in settlement of debt(3) 1,023,000 Privateplacement(4) 750,000 Balance March 31,2020 22,803,696	Amount $ 23,215,877 27,426 150,871
	23,394,174 153,450 65,922
	$ 23,613,546

• (1) Following the 2013 conversion of Class A Special Shares to common shares, 8,246 common shares remain reserved to be issued if and when the remaining Class A shareholders identify themselves to the Company.

• (2) The Company completed a private placement, through two closings, whereby an aggregate of 780,000 working capital units were issued for gross proceeds of $234,000. In the first closing 440,000 units where issued for gross proceeds of $132,000 and in the second 340,000 units where issued for gross proceeds of $102,000. Each unit consisted of one common share and one-half common share purchase warrant. Each full common share purchase warrant entitles the holder to acquire one additional common share of the Company at a price of $0.40 until eighteen months following the closing date. Through the two closings the Company paid aggregate finders ’ fees of $11,760, incurred other costs of $11,218, attributed a value of $51,176 to the common share purchase warrants, and issued 39,200 broker warrants valued at $8,975. Each broker warrant entitles the holder to acquire one common share of the Company for $0.30 until eighteen months following the closing date.

• (3) The Company entered into agreements with its Chief Executive Officer and a former Director to settle the amounts due to them as at December 31, 2019 with common shares. Accordingly, the Company issued 1,023,000 common shares, valued at $0.15 per share, in settlement of debts aggregating $153,450 (note 10).

• (4) The Company completed a private placement whereby an aggregate of 750,000 working capital units were issued for gross proceeds of $112,500. Each unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to acquire one additional common share of the Company at a price of $0.25 until twelve months following the closing date. The Company paid finders ’ fees of $1,575, incurred other costs of $5,000, attributed a value of $38,756 to the common share purchase warrants, and issued 10,500 broker warrants valued at $1,247. Each broker warrant entitles the holder to acquire one common share of the Company for $0.15 until twelve months following the closing date.

Details of warrants outstanding:

Details of warrants outstanding:
Number of Warrants Balance June 30, 2018 3,256,250 Warrants issued via private placement 390,000 Broker warrants issued via private placement 39,200 Warrants expired (43,750) Balance March 31, 2019 and June 30, 2019 3,641,700 Warrants issued via private placement 750,000 Broker warrants issued via private placement 10,500 Balance March 31, 2020 4,402,200	Amount
	$ 137,470 51,176 8,975 (14,665)
	182,956 38,756 1,247
	$ 222,959

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) March 31, 2020

9. Share Capital - continued

	Number of		Exercise
	Warrants		Price	ExpiryDate
Issued Dec. 15, 2016	2,900,000	$	0.06	Dec. 15, 2021
Issued Jan. 30, 2018(1)	312,500	$	0.40	Jan. 31, 2021
Issued Dec. 28, 2018	220,000	$	0.40	June 28, 2020
Issued Dec. 28, 2018	23,800	$	0.30	June 28, 2020
Issued Jan. 31, 2019	170,000	$	0.40	July 31, 2020
Issued Jan. 31, 2019	15,400	$	0.30	July 31, 2020
Issued Feb. 28, 2020	750,000	$	0.25	Feb. 28, 2021
Issued Feb. 28, 2020	10,500	$	0.15	Feb. 28, 2021

• (1) During the reporting period the Company received exchange approval to amend the terms of these warrants to reduce the exercise price from $1.10 to $0.40 and to extend the expiry from January 31, 2020 to the earlier of January 31, 2021, and the date that is thirty seven days after the tenth consecutive trading day for which the closing price for the Company ’ s shares is at least $0.40.

	Number of	Weighted Average	Weighted Average	Weighted Average
	Warrants	Priceper Warrant		ExpiryDate
Beginning of period	3,641,700	$	0.19	Aug. 16, 2021
Issued during the period	760,500	$	0.25	Feb. 28, 2021
Warrants altered during the period	(312,500)	$	1.10	Jan. 31, 2020
Warrants altered duringtheperiod	312,500	$	0.40	Jan. 31,2021
End ofperiod	4,402,200	$	0.15	Aug. 13,2021

The following weighted average assumptions were used to calculate the fair value of warrants issued:

The following weighted average assumptions were used to calculate the fair value of warrants issued:	sued:
Mar. 31 June 30 2020 2019 Dividend yield Nil Nil Risk free interest rate (%) 1.27 1.76–1.84 Expected stock volatility (%) 119.88 116.25–116.52 Expected life (years) 1.0 1.5 Details of options outstanding: Common Shares Number of Exercise Under Option Options Vested Price ExpiryDate	June 30 2019
	ExpiryDate
Granted Mar. 3, 2016 400,000(1) 400,000 $ 0.05 Granted December 21, 2016 50,000 50,000 $ 0.15 Granted January 12, 2018 200,000(2) 200,000 $ 0.95 Granted January12,2018 350,000(1) 350,000 $ 0.95	Mar. 3, 2021 Dec. 21, 2021 Jul. 17, 2020 Jan. 12,2023

• (1) Directors and/or Officers of the Company hold these options.

(2) In accordance with the terms of these options, the expiry date has been amended to be six months from the date of resignation of the former Director that holds them.

date of resignation of the former Director	that holds them.
	Common Shares	Weighted Average		Weighted Average
	Under Option	Priceper Option		ExpiryDate
Balance, beginning of the period	1,200,000	$	0.52	Oct 12, 2021
Expired during the period	(200,000)	$	0.35	Jul. 9, 2019
Expiry date reduced during the period	(200,000)	$	0.95	Jan. 12, 2023
Expirydate reduced duringtheperiod	200,000	$	0.95	Jul. 17,2020
End ofperiod	1,200,000	$	0.55	Sep. 25,2021

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

9. Share Capital - continued

No stock options were granted during the period ended March 31, 2020 or during the year ended June 30, 2019.

Share based payment transactions and contributed surplus

The Company has a stock option plan. The aggregate number of common shares reserved for issuance under this plan cannot exceed 20% of the aggregate number of common shares of the Company that are issued and outstanding. The Company has granted options for the purchase of common shares to employees, directors, officers and other service providers. The fair values of stock options granted have been determined using the Black-Scholes model and are added to contributed surplus as follows:

Mar. 31 2020 Contributed surplus, beginning of period $ 1,533,373 Stock options exercised - Warrants expired - Contributed surplus,end ofperiod $ 1,533,373	June 30 2019 $ 1,531,134 (12,426) 14,655 $ 1,533,373

10. Related Party Transactions

The Company had transactions during the period with key management personnel and with 1114377 Ontario Inc., a company controlled by the spouse of a director of Permatech Electronics Corporation.

All expenses and period end balances with related parties are at exchange amounts established and agreed to by the related parties. All transactions with related parties are in the normal course of operations and have been carried out on the same terms as those accorded to unrelated parties.

Mar. 31 2020 Employee and consultant compensation $ 341,554 Professional fees 31,705 Financing fees 12,292 Legal fees included as share issuance costs 5,000 $ 390,551 Stock-based compensation $ -	Mar. 31 2019
	$ 370,413 38,675 13,774 10,318
	$ 433,180
	$ -

During the period, $153,450 owing to related parties was settled through the issuance of 1,023,000 common shares of the Company. As at March 31, 2020 $333,497 (June 30, 2019 - $352,759) was payable to these related parties and included in accounts payable and accrued liabilities.

11. Selling, general and administrative expenses

Selling, general and administrative expenses are comprised of the following amounts:

Mar. 31 2020 Employee and consultant compensation_(note 10) $ 710,137 Occupancy costs(note 3) 203,920 Professional fees(note 10)_ 51,066 Shareholder services 12,227 Insurance 24,670 Other 33,407 $ 1,035,427	Mar. 31 2019
	$ 735,174 193,551 49,676 21,838 23,809 44,115
	$ 1,068,163

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

12. Income Taxes

Deferred Tax

The following table summarizes the components of deferred tax:

Mar. 31 2020 Deferred tax assets: Non-capital losses carried forward $ 11,978 Deferred tax liabilities: Temporary timing differences (11,978) Net deferred tax liabilities $ -	June 30 2019 $ 8,450 (8,450)
	$ -

Unrecognized Deferred Tax Assets

Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

Mar. 31 2020 Inventory $ 25,824 Share issuance costs 59,953 Property, plant and equipment 46,498 Resource related expenditures 349,050 Scientific research and experimental development 1,050,618 Net capital loss carry-forwards 2,107,516 Non-capital loss carry-forwards 15,592,989	June 30 2019
	$ 25,413 53,378 46,409 349,050 1,050,618 2,068,522 15,592,989

Share issue costs expire from 2021 to 2024 and non-capital loss carry-forwards expire from 2027 to 2039. The remaining deductible temporary differences may be carried forward indefinitely but net capital loss carryforwards can only be used to reduce capital gains. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the group can utilize the benefits therefrom.

13. Capital disclosures

The Company ’ s objective when managing capital is to ensure its ability to meet operating commitments as they become due and to provide return for shareholders. This is achieved by continuously monitoring actual and projected cash flows and making adjustments to capital as necessary. Except for the repayment terms associated with long-term debt instruments, there are no externally imposed capital requirements.

Management includes the following items in its definition of capital:

Mar. 31 2020 Long-term debt $ - Share Capital 23,613,546 Warrants 222,959 Contributed surplus 1,533,373 Deficit (24,093,382) Net capital under management $ 1,276,496	June 30 2019 $ 3,291 23,394,174 182,956 1,533,373 (23,786,443)
	$ 1,327,351

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

14. Financial risk factors

The Company is exposed in varying degrees to the following financial instrument related risks:

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company ’ s primary exposure to credit risk is in its accounts receivable. To help mitigate this risk, management actively manages and monitors its receivables and obtains pre-payments where warranted. It has been determined that all outstanding amounts are collectible. No bad debts were recognized during the periods ended March 31, 2020 or March 31, 2019.

Concentration of credit risk

Concentration of credit risk arises when one or more customers, defined as a major customer, individually account for 10% or more of the Company ’ s revenues during a reporting period. During the nine-month period ended March 31, 2020 the Company had two major customers who represented 19% and 17% of total revenues. In the comparative period, there were two major customers which represented 15% and 11% of revenues. Amounts due from major customers represented 13% of accounts receivable at March 31, 2020 (Mar. 31, 2019 - 10%). The loss of a major customer, or significant curtailment of purchases by such customer, could have a material adverse effect on the Company's results of operations and financial condition. The Company monitors the relationship with all customers closely and ensures that every customer is subject to the same risk management criteria.

Liquidity risk

Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. At March 31, 2020 the Company had current financial assets of $574,990 (June 30, 2019 - $591,575) available to settle current financial liabilities of $1,029,654 (June 30, 2019 - $943,985). The Company manages its liquidity risk through the management of its capital (note 13) which incorporates the continuous monitoring of actual and projected cash flows to ensure that it has sufficient liquidity to meet its operating commitments without incurring unacceptable losses or risking damage to the Company ’ s reputation.

Market risks

The Company is exposed to interest rate risk due a bank operating loan that has a floating interest rate as well as currency risk related to accounts receivable, accounts payable, customer deposits, and nominal amounts of cash, prepaid expenses, and customer deposits denominated in US dollars. Market risks give rise to the potential for future cash flows to fluctuate because of changes in interest rates or foreign exchange rates. Market risks are closely monitored and attempts are made to match foreign cash inflows and outflows. During the current period – the Company reported a foreign exchange loss in the amount of $15,069 (Mar. 31, 2019 loss of $5,761).

Sensitivity to market risks

At March 31, 2020, the Company had:

• A bank operating loan in the amount of $115,000 (June 30, 2019 - $150,000) which bears interest predicated upon the TD Bank prime lending rate. Based upon the current amount due on the operating loan, a 1% increase in the TD Bank prime lending rate, as at the financial reporting date, would result in additional –

• interest expense other of $1,150 over the next 12 month period.

• US$16,982 (June 30, 2019 – US$74,831) included in accounts receivable. A 10% increase in the value of the Canadian dollar relative to the US dollar would result in a reduction of $725 in future cash inflow.

• US$117,347 (June 30, 2019 – US$155,987) included in accounts payable. A 10% decrease in the value of the Canadian dollar relative to the US dollar would result in an increase of $4,975 in future cash outflow.

Based upon observations of recent market trends management believes that each of these outcomes is possible.

15. COVID-19 and related subsequent events

On January 30, 2020 the World Health Organization (WHO) declared COVID-19 a global health emergency and on March 11, 2020 they declared it a pandemic. These WHO declarations were soon followed by announcements of numerous restrictions by domestic and international governments affecting the way people could interact and how business was conducted.

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) March 31, 2020

15. COVID-19 and related subsequent events - continued

As a contract manufacturer, the Company met the Ontario definition of an essential business thus allowing it to continue operations. The Company encouraged certain personnel to work from home and took steps to facilitate physical distancing and other safety measures for those for whom working from home was not feasible. To the date of the release of these unaudited condensed consolidated financial statements, none of the Company ’ s personnel, including its subsidiaries and investee company, have tested positive for COVID-19.

The health and safety of our personnel is our top priority however continuing to operate free of COVID-19 infections does not ensure that there will be no related implications to the business. The present and future economic effects of COVID-19cannot be accurately determined or predicted at this time. This includes the potential impact the pandemic may have on the Company ’ s suppliers and customers as well as the market risks described in note 14. Although these potential effects cannot be quantified, the Company anticipates that COVID-19 could have an adverse impact on its business, results of operations, financial position and cash flows in 2020.

In an effort to help mitigate the uncertainty created by the COVID-19 pandemic, the Company has availed itself of related subsidies made available to it by the Canadian Federal government. Subsequent to the balance sheet date, the Company applied for subsidy under the Canada Emergency Business Account (CEBA) and the Canada Emergency Wage Subsidy (CEWS). The Company has obtained CEBA benefit in the form of a $40,000 loan which is interest free, and requires no repayment prior to December 31, 2022. The Company also obtained CEWS benefit in the amount of $53,852. The company will continue to monitor all government subsidies and will make application wherever it satisfies the eligibility criteria..