ZTEST Electronics Inc. — Interim / Quarterly Report 2023

Nov 29, 2022

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Financial Statements

September 30, 2022

(Stated in Canadian Dollars)

Responsibility for Financial Statements

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.

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.

These unaudited condensed interim consolidated financial statements were approved by the Board of Directors on November 28, 2022. They have not been reviewed by the Company ’ s auditors.

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statements of Financial Position

(Stated in Canadian Dollars) September 30, 2022

Sept. 30 2022 Assets Current assets Cash $ 491,416 Accounts receivable 587,293 Inventories_(note 3) 1,107,833 Prepaid expenses 44,289 2,230,831 Equipment(note 4) 479,403 Right-of-use asset(note 5) 615,211 Investments(note 6) 1 $ 3,325,446 Liabilities Current liabilities Accounts payable and accrued liabilities(note 11) $ 1,329,428 Customer deposits 268,904 Current portion of lease liability(note 8) 161,317 Current portion of long-term debt(note 9) 61,451 1,821,100 Lease liability(note 8) 443,326 Long-term debt(note 9) 228,749 2,493,175 Shareholders’ Equity Share capital(note 10) 24,064,236 Contributed surplus(note 10)_ 1,681,068 Deficit (24,913,033) 832,271 $ 3,325,446	June 30 2022 $ 267,640 783,150 857,045 12,535
	1,920,370 504,898 656,655 1
	$ 3,081,924
	$ 1,249,976 - 158,830 60,929 1,469,735 484,737 244,295 2,198,767
	24,064,236 1,645,217 (24,826,296)
	883,157
	$ 3,081,924

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

Approved by the Board:

Signed: “K. Michael Guerreiro”

Signed: “Steve Smith”

Director

Director

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statement of Changes in Equity (Stated in Canadian Dollars) September 30, 2022

Share Contributed Capital Warrants Surplus Deficit Balance, June 30, 2021 $ 23,859,872 $ 53,052 $ 1,650,929 $ (24,559,418) Stock options exercised 17,960 - (7,960) - Warrants exercised 44,539 (12,139) - - Preferred shares issued 1 - - - Net loss for the period - - - (169,612) Balance, September 30, 2021 23,922,372 40,913 1,642,969 (24,729,030) Warrants exercised 141,865 (38,665) - - Warrants expired - (2,248) 2,248 - Preferred shares redeemed (1) - - - Net loss for the period - - - (97,266) Balance, June 30, 2022 24,064,236 - 1,645,217 (24,826,296) Stock options granted - - 35,851 - Net loss for the period - - - (86,737) Balance,September 30,2022 $ 24,064,236 $ - $ 1,681,068 $(24,913,033)	Total
	$ 1,004,435 10,000 32,400 1 (169,612) 877,224 103,200 - (1) (97,266)
	883,157 35,851 (86,737)
	$ 832,271

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

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statements of Comprehensive Loss (Stated in Canadian Dollars)

For the three month periods ended September 30

2022 Product sales $ 1,168,956 Cost of product sales(note 3) 856,722 312,234 Expenses Selling, general and administrative_(note 12) 364,257 Stock compensation(notes 10 and 12) 35,851 Interest expense - long-term debt 2,017 Interest expense–lease liability(note 8)_ 5,214 Interest expense - other 627 Depreciation of equipment 1,139 Foreign exchange gain (10,134) 398,971 Loss before provision for income taxes (86,737) Provision for income taxes - Net loss and comprehensive loss for theperiod $ (86,737) Net loss per share Basic $ (0.00) Fully diluted $ (0.00) Weighted average shares outstanding Basic 26,687,196 Fully diluted 26,687,196	2021 $ 630,121 481,985 148,136 308,190 - 2,521 6,486 133 1,375 (957)
	317,748
	(169,612) -
	$ (169,612)
	$ (0.01) $ (0.01)
	24,435,239 24,435,239

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

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Statements of Cash Flows

(Stated in Canadian Dollars)

For the three month periods ended September 30

2022 Cash flow from operating activities Net (loss) income for the period $ (86,737) Items not involving cash Depreciation of equipment 25,495 Depreciation of right of use assets 41,444 Accreted lease interest 5,214 Stock compensation expense 35,851 Changes in non-cash working capital items: Accounts receivable 195,857 Inventories (250,788) Prepaid expenses (31,754) Customer deposits 268,904 Accounts payable and accrued liabilities 79,452 282,938 Cash flow from investing activities Purchase of equipment - Cash flow from financing activities Repayment of long-term debt (15,024) Repayment of lease obligation (44,138) Share issuance - (59,162) Increase (decrease) in cash 223,776 Cash, beginning of period 267,640 Cash, end of period $ 491,416	2021 $ (169,612) 26,993 41,444 6,486 - 259,813 (204,619) (4,189) (1) (33,292)) (10,393) (3,079) (14,548) (43,007) 42,400
	(15,155)
	(28,627) 557,013
	$ 528,386

Supplemental Disclosure of Cash Flow Information:

During the period the Company had cash flows arising from interest and income taxes paid as follows:

Interest	$	2,678	$	2,658
Income taxes	$	-	$	-

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

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) September 30, 2022

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, 2022.

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, 2022. 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, 2022.

These unaudited condensed interim consolidated financial statements were authorized for issuance by the Board of Directors of the Company on November 28, 2022.

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

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

Accounting standards adopted

Amendment to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or NonCurrent - In January 2020, the IASB issued amendments to paragraphs 69-76 of IAS 1 to clarify the requirements for classifying liabilities as current or non-current. The amendments specify that the conditions which exist at the end of a reporting period will be used to determine if a right to defer settlement of a liability exists. The amendments also clarify the situations that are considered a settlement of a liability. The amendments are effective for annual periods commencing on or after January 1, 2022. They have been adopted effective July 1, 2022 and had no impact on the Company ’ s consolidated financial statements.

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.

ZTEST Electronics Inc.

(Stated in Canadian Dollars) September 30, 2022

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

2. Significant Accounting Policies - continued

Significant accounting judgments and estimates - continued

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.

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.

Financial instruments

The Company ’ s financial instruments are comprised of the following:

Financial assets: Cash Accounts receivable Financial liabilities: Accounts payable and accrued liabilities Customer deposits Lease liability Long-term debt	Classification Amortized cost Amortized cost Classification Amortized cost Amortized cost Amortized cost Amortized cost

Amortized cost – The amount at which a financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit losses.

The effective interest method - The effective interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating interest and any transaction costs over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net carrying amount on initial recognition.

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.

Income (loss) per share

The Company presents basic and diluted income (loss) per share data for its common shares, calculated by dividing the income (loss) attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the financial reporting period. Diluted income (loss) per share is determined by adjusting the income (loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares.

Stock options and warrants outstanding are excluded from the computation of diluted income (loss) per share if their inclusion would increase the income per share, or decrease the loss per share, or if their exercise price exceeds the average market price of the Company ’ s shares for the financial reporting period.

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.

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2022

3. Inventories

The carrying value of inventory is comprised of:

Inventories The carrying value of inventory is comprised of:
Sept. 30 2022 Raw materials and supplies(1) $ 1,053,395 Work in process 48,141 Finished goods 6,297 $ 1,107,833	June 30 2022
	$ 810,822 41,264 4,959
	$ 857,045

(1) Raw materials and supplies is presented net of provisions for obsolete and/or slow moving items in the amount of $12,704 (June 2022 - $16,547).

Inventory utilization during the period was as follows:

Sept. 30 2022 Raw materials and supplies used $ 597,175 Labour costs_(note 16)_ 202,289 Depreciation 24,355 Repairs and maintenance 3,559 Other costs 37,558 Net change in finished goods and work in process (8,214) Cost of product sales $ 856,722	Sept. 30 2021
	$ 273,067 150,765 25,618 1,148 28,444 2,943
	$ 481,985

4. Equipment

Computer Office Manufacturing Leasehold Equipment Equipment Equipment Improvements Cost: Balance, June 30, 2021 $ 192,121 $ 71,277 $ 3,004,531 $ 84,143 Additions 1,100 - 1,979 - Disposals - - (313,331) - Balance, Sept. 30, 2021 193,221 71,277 2,693,179 84,143 Additions - - 4,594 - Balance, June 30, 2022 193,221 71,277 2,697,773 84,143 Additions - - - - Balance, Sept. 30, 2022 $ 193,221 $ 71,277 $ 2,697,773 $ 84,143 Accumulated Depreciation: Balance, June 30, 2021 $ (183,282) $ (70,614) $ (2,443,639) $ (73,730) Depreciation (704) (34) (25,677) (579) Disposals - - 313,331 - Balance, Sept. 30, 2021 (183,986) (70,648) (2,155,985) (74,309) Depreciation (2,113) (99) (52,642) (1,734) Balance, June 30, 2022 (186,099) (70,747) (2,208,627) (76,043) Depreciation (534) (27) (24,355) (579) Balance, Sept. 30, 2022 $ (186,633) $ (70,774) $ (2,232,982) $ (76,622)	Total
	$ 3,352,072 3,079 (313,331)
	3,041,820 4,594
	3,046,414 -
	$ 3,046,414
	$ (2,771,265) (26,993) 313,331
	(2,738,595) (32,670)
	(2,541,516) (25,495)
	$(2,567,011)

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2022

4. Equipment - continued

Equipment - continued
Carrying Amounts: June 30, 2021 $ 8,839 $ 663 $ 560,892 $ 10,413 September 30, 2021 $ 9,235 $ 629 $ 537,194 $ 9,835 June 30, 2022 $ 7,122 $ 530 $ 489,146 $ 8,100 September 30, 2022 $ 6,588 $ 503 $ 464,791 $ 7,521
	$ 580,807 $ 556,893 $ 504,898 $ 479,403

5. Right of use asset

The Company occupies its operating facility under a lease extension that expires March 2026. The right-of-use asset was initially recorded at cost equal to the present value of the remaining lease payments, plus a refundable deposit paid at the inception of the lease. Subsequent to initial recording, the carrying-value of the right-of-use asset is equal to cost less accumulated depreciation and, if any, impairment losses and 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 (note 11) . There have been no impairment losses and no remeasurement of the lease liability.

Balance at June 30, 2021 Depreciation recorded as an element of occupancy costs Balance at September 30, 2021 Depreciation recorded as an element of occupancy costs Balance at June 30, 2022 Depreciation recorded as an element of occupancy costs Balance at September 30, 2022	$ 822,430 (41,444)
	780,986 (124,331)
	656,655 (41,444)
	$ 615,211

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 absence of cash flows, or the ability to predict when any may arise, made it infeasible for the Company to ascertain the value of Conversance Inc. as a going concern as at June 30, 2020. Accordingly, a provision for impairment was recognized to reduce the carrying value of the investment to $1. Should future circumstances warrant doing so, this provision may be reversed, but only to the extent that the carrying value of the investment at the time of reversal does not exceed the carrying value that would have resulted had the provision not been recorded.

Conversance holds a 28% interest in 3955 trading Inc. (o/a Cannamerx) pursuant to a purchase agreement dated August 1, 2021. Cannamerx operates an international cannabis and hemp exchange platform and facilitates trade in bulk cannabis, hemp, and cannabis and hemp products, between licensed producers worldwide. It is expected that Conversance will first upgrade the existing Cannamerx platform then replace it with a new platform developed from the Conversance proprietary technology. Conversance will receive additional shares of Cannamerx upon completion of these objectives as well as when Cannamerx achieves a certain level of operations based upon these new platforms. Based upon the current share structure of Cannamerx, the issuance of these additional shares would provide Conversance with a controlling interest.

ZTEST retains its right to maintain its 25.29% interests by subscribing for the requisite number of Class A common shares of Conversance, at the same price and payment terms applicable to any financing. ZTEST has been granted an option by Conversance Inc., to acquire 75,000 Class A common shares from treasury, in exchange for a cash payment of $1,000,000. This option expires June 30, 2023.

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2022

6. Investments - continued

Investments - continued
Sept. 30 2022 296,250 Class A common shares, representing a 25.29% interest $ 1,129,762 Equity in post-acquisition loss (152,109) Impairmentprovision (977,652) Aggregate investment $ 1	June 30 2022
	$ 1,129,762 (152,109) (977,652)
	$ 1

7. Bank operating loan

Bank operating loan
Sept. 30 2022 Line of credit, which can be drawn to a maximum of $500,000, 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. $ -	June 30 2022
	$ -

8. Lease liability

The Company occupies its operating facility under a lease extension that expires March 2026. A refundable deposit of $35,000 was paid at the inception of the lease. 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 3.386% for the extension. The lease liability is subsequently reduced by the lease payments paid and increased by interest imputed at the discount rate as follows:

Balance at June 30, 2021 Lease payments paid during period Interest imputed at 3.386% Balance at September 30, 2021 Lease payments paid during period Interest imputed at 3.386% Balance at June 30, 2022 Lease payments paid during period Interest imputed at 3.386% Balance at September 30, 2022 Less current portion	$ 792,660 (43,007) 6,486
	756,139 (130,152) 17,580
	643,567 (44,138) 5,214
	604,643 (161,317)
	$ 443,326

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2022

9. Long-Term Debt

Long-Term Debt
Sept. 30 2022 Canadian Emergency Business Account (CEBA) bearing interest at 0% until December 2023 then 5% payable monthly until maturity December 2025. Principal may be repaid, in whole or in part, at any time prior to maturity. If the loan balance is no more than $20,000 as at December 31, 2023 the remaining balance will be forgiven. $ 60,000 Term loan bearing interest at 3.386% matures April 2026. Monthly payments of $5,691, blended as to principal and interest, are required until maturity. 230,200 290,200 Less: current portion 61,451 $ 228,749 The minimum annual future principal repayments are as follows: 2023 2024 2025 2026	June 30 2022
	$ 60,000 245,224 305,224 60,929 $ 244,295
	$ 61,451 85,351 96,109 47,289
	$ 290,200

10. Share Capital

Authorized

Unlimited Common shares

Unlimited Preferred shares in one or more series.

Issued

Sept. 30 2022 Common shares $ 24,064,236 Common shares Number of Shares (1) Balance June 30, 2021 24,227,196 Warrants exercised 540,000 Stock options exercised 200,000 Balance September 30, 2021 24,967,196 Warrants exercised 1,720,000 Balance June 30, 2022 and September 30, 2022 26,687,196	June 30 2022
	$ 24,064,236
	Amount
	$ 23,859,872 44,539 17,960
	23,922,371 141,865
	$ 24,064,236

(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.

Details of warrants outstanding:

Number of Warrants Balance June 30, 2021 2,360,000 Warrants exercised (540,000) Balance September 30, 2021 1,820,000	Amount
	$ 53,052 (12,139)
	$ 40,913

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2022

10. Share Capital - continued

Details of warrants outstanding - continued:

Balance September 30, 2021 1,820,000 Warrants exercised (1,720,000) Warrants expired (100,000) Balance June 30, 2022 and September 30, 2022 -	$ 40,913 (38,665) (2,248)
	$ -

No warrants were issued during the period ended September 30, 2022 or during the year ended June 30, 2022.

Details of options outstanding:

Details of options outstanding:
	Common Shares	Weighted Average	Weighted Average
	Under Option	Price per Option	Expiry Date
Balance, beginning of the period	350,000	$ 0.95	Jan. 12, 2023
Options granted	1,275,000	$ 0.10	Sep. 30, 2027
Balance,end of theperiod	1,625,000	$ 0.28	Sep. 24,2026

The following weighted average assumptions were used to calculate the fair value of stock options granted:

Sept. 30 2022 Dividend yield Nil Risk free interest rate (%) 3.24% Expected stock volatility (%) 135.92% Expected life (years) 5 The following stock options were outstanding as at September 30, 2022: Common Shares Number of Exercise Under Option Options Vested Price	June 30 2022
	None issued None issued None issued None issued
	ExpiryDate
Granted January 12, 2018 350,000(1) 350,000 $ 0.95 Granted September 30, 2022 100,000 100,000 $ 0.10 Granted September 30,2022 1,175,000(1) 1,175,000 $ 0.10	Jan. 12, 2023 Sep. 30, 2027 Sep. 30,2027

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

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:

Sept. 30 2022 Contributed surplus, beginning of period $ 1,645,217 Stock options granted 35,851 Stock options exercised - Warrants expired - Contributed surplus, end of period $ 1,681,068	June 30 2022
	$ 1,650,929 - (7,960) 2,248
	$ 1,645,217

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) September 30, 2022

11. Related Party Transactions and Balances

The Company had transactions during the periods presented with key management personnel.

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.

Sept. 30 Description 2022 Employee and consultant compensation $ 85,412 Professional fees 7,341 $ 92,753 Stock-based compensation $ 33,039	Sept. 30 2021
	$ 85,415 4,568
	$ 89,983
	$ -

As at September 30, 2022 there was a balance of $724,051 (June 30, 2022 - $674,775) included in accounts payable and accrued liabilities that was payable to these related parties.

12. Selling, general and administrative expenses

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

Sept. 30 2022 Employee and consultant compensation_(notes 11 and 16) $ 226,464 Occupancy costs(note 5) 82,018 Professional fees(note 11)_ 23,841 Shareholder services 12,047 Insurance 9,453 Other 10,434 $ 364,257	Sept. 30 2021
	$ 203,842 68,878 12,318 4,550 7,956 10,646
	$ 308,190

13. Income Taxes

Deferred Tax

The following table summarizes the components of deferred tax:

Sept. 30 2022 Deferred tax assets: Non-capital losses carried forward $ 4,248 Deferred tax liabilities: Temporary timing differences (4,248) Net deferred tax liabilities $ -	Sept. 30 2021
	$ 2,223 (2,223)
	$ -

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:

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) September 30, 2022

13. Income Taxes - continued

Unrecognized Deferred Tax Assets - continued

Sept. 30 2022 Inventory $ 32,579 Share issuance costs 7,224 Property, plant and equipment 29,986 Resource related expenditures 349,050 Scientific research and experimental development 1,050,618 Net capital loss carry-forwards 2,450,784 Non-capital loss carry-forwards 15,592,989	June 30 2022
	$ 16,547 7,224 29,986 349,050 1,050,618 2,425,289 15,592,989

Share issue costs expire from 2022-2023 and non-capital loss carry-forwards expire from 2030-2042. 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.

14. 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.

Sept. 30 2022 Long-term debt $ 290,200 Share Capital 24,064,236 Contributed surplus 1,681,068 Deficit (24,913,033) Net capital under management $ 1,122,471	June 30 2022
	$ 305,224 24,064,236 1,645,217 (24,826,296) $ 1,188,381

15. 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. In an effort to mitigate this risk, management actively manages and monitors its receivables and obtains prepayments where warranted. It has been determined that no allowance is required, as all amounts outstanding are considered collectible. The Company incurred no bad debts during the periods ended September 30, 2022 or September 30, 2021 .

Concentration of credit risk

Concentration of credit risk arises when one or more customers individually account for 10% or more of the Company ’ s revenues during a reporting period. The Company had 4 customers during the current period, representing 12%, 12%, 11% and 10% of revenues (Sept. 30, 2021 - 2 customers, 17% and 11% of revenues). Amounts due from these customers represented 36% of accounts receivable at September 30, 2022 (Sept. 30, 2021 - 6%). The loss of, or significant curtailment of purchases by, such a 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.

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2022

15. Financial risk factors - continued

Liquidity risk

Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. At September 30, 2022 the Company had current financial assets of $1,078,709 (June 30, 2022 - $1,050,790) available to settle current financial liabilities of $1,821,200 (June 30, 2022 - $1,469,735). The Company manages its liquidity risk through the management of its capital (note 14) 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, 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 has – reported a foreign exchange gain of $10,134 (Sept. 30, 2021 gain of $957).

Sensitivity to market risks

At September 30, 2022, the Company had:

• A bank operating loan that had not been drawn upon (June 30, 2022 - $Nil) 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 no additional interest expense over the next 12 month period.

• US$130,683 (June 30, 2022 – US$187,460) included in accounts receivable. A 5% increase in the value of the Canadian dollar relative to the US dollar would result in a reduction of $6,534 in future cash inflow.

• US$65,332 (June 30, 2022 – US$126,498) included in accounts payable. A 5% decrease in the value of the Canadian dollar relative to the US dollar would result in an increase of $3,267 in future cash outflow.

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

16. COVID-19

On March 11, 2020 the World Health Organization (WHO) declared COVID-19 a pandemic. This declaration was soon followed by numerous restrictions implemented by domestic and international governments affecting the way people could interact and how business was conducted. Some of these restrictions remain in place as of the financial reporting date.

The Company was permitted to, and did, continue operations throughout the pandemic after encouraging certain personnel to work from home and taking steps to facilitate physical distancing and other safety measures for those for whom working from home was not feasible.

The present and future economic effects of COVID-19 cannot be accurately predicted at this time, including the potential impact on the Company ’ s suppliers and customers, and on the market risks described in note 15. Although these potential effects cannot be quantified, the Company anticipates that COVID-19 could have an adverse impact on its future business, results of operations, financial position and cash flows.