ZTEST Electronics Inc. — Interim / Quarterly Report 2024

Feb 27, 2024

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Financial Statements

December 31, 2023

(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 February 26, 2024. 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) December 31, 2023

Dec. 31 2023 Assets Current assets Cash $ 621,667 Accounts receivable 1,115,172 Inventories_(note 3) 1,898,521 Prepaid expenses 11,968 3,647,328 Equipment(note 4) 363,496 Right-of-use asset(note 5) 407,993 Investments(note 6) 1 $ 4,418,818 Liabilities Current liabilities Bank operating loan(note 7) $ - Accounts payable and accrued liabilities(note 11) 1,409,133 Customer deposits 150,485 Government remittances payable 119,902 Current portion of lease liability(note 8) 174,070 Current portion of long-term debt(note 9) 64,087 1,917,677 Lease liability(note 8) 227,494 Long-term debt(note 9) 88,968 Deferred taxes 43,565 2,277,704 Shareholders’ equity Share capital(note 10) 24,421,726 Contributed surplus(note 10)_ 1,704,197 Deficit (23,984,809) 2,141,114 $ 4,418,818	June 30 2023
	$ 232,875 957,504 1,829,953 27,608 3,047,940 402,921 490,880 1
	$ 3,941,742
	$ 110,000 1,749,562 209,694 - 168,904 77,454
	2,315,614 315,834 166,840 36,043 2,834,331
	24,064,236 1,704,197 (24,661,022)
	1,107,411 $ 3,941,742

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) December 31, 2023

Share Contributed Capital Surplus Deficit Balance, June 30, 2022 $ 24,064,236 $ 1,645,217 $ (24,826,296) Stock options granted - 58,980 - Net loss for the period - - (221,992) Balance, December 31, 2022 24,064,236 1,704,197 (25,048,288) Net income for the period - - 387,266 Balance, June 30, 2023 24,064,236 1,704,197 (24,661,022) Shares issued in settlement of debt 357,490 - - Net income for the period - - 676,213 Balance,December 31,2023 $ 24,421,726 $ 1,704,197 $(23,984,809)	Total
	$ 883,157 58,980 (221,992)
	720,145 387,266
	1,107,411 357,490 676,213
	$ 2,141,114

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 Income (Loss) (Stated in Canadian Dollars) December 31, 2023

Three months ended 2023 2022 Product sales $ 2,459,917 $ 1,141,352 Cost ofproduct sales (note 3) 1,486,902 885,374 973,015 255,978 Expenses Selling, general and administrative_(note 12) 425,845 356,616 Stock compensation(notes 10 and 11) - - Interest expense - long term 1,359 1,888 Interest expense - lease liability(note 8) 3,508 4,882 Interest expense - other 652 164 Depreciation of equipment 1,055 1,140 Foreign exchange loss(gain) 9,008 3,414 441,427 368,104 Income (loss) before government grant and income taxes 531,588 (112,126) Governmentgrant (note 9) 20,000 - Income (loss) before income taxes 551,588 (112,126) Provision for income taxes(note 13)_ Current 52,888 - Deferred (5,629) - 47,259 - Net income (loss) and comprehensive income(loss) for theperiod $ 504,329 $ (112,126) Comprehensive income (loss) per share Basic $ 0.02 $ (0.00) Fullydiluted $ 0.02 $ (0.00) Weighted average shares outstanding Basic 28,532,932 26,687,196 Fullydiluted 28,541,178 26,687,196	Six months ended 2023 2022 $ 4,339,403 $ 2,310,308 2,716,508 1,742,096 1,622,895 568,212
	815,764 720,873 - 58,980 2,854 3,905 7,366 10,096 2,714 791 2,056 2,279 8,504 (6,720)
	839,258 790,204
	783,637 (221,992) 20,000 -
	803,637 (221,992) 119,902 - 7,522 -
	127,424 -
	$ 676,213 $ (221,992)
	$ 0.02 $ (0.01) $ 0.02 $ (0.01)
	27,610,064 26,687,196 27,618,310 26,687,196

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) December 31, 2023

		Three	months ended	months ended		Six	months ended	months ended
		2023		2022		2023		2022
Cash flow from operating activities
Net income (loss) for the period	$	504,329	$	(112,126)	$	676,213	$	(221,992)
Items not involving cash
Government grant		(20,000)		-		(20,000)		-
Depreciation of equipment		20,642		25,494		41,229		50,989
Depreciation of right of use assets		41,443		41,444		82,887		82,888
Imputed interest on lease liability		3,508		4,883		7,366		10,097
Stock compensation expense		-		-		-		58,980
Provision for income taxes - deferred		(5,629)		-		7,522		58,980
		544,293		(40,305)		795,217		(19,038)
Changes in non-cash working capital items:
Accounts receivable		278,656		2,491		(157,668)		198,348
Inventories		163,614		207,862		(68,568)		(458,650)
Prepaid expenses		10,287		33,878		15,640		2,033
Accounts payable and accrued liabilities		(385,171)		47,804		17,061		127,256
Government remittances payable		52,888		-		119,902		-
Customer deposits		(29,604)		-		(59,209)		268,904
		634,963		(164,085)		662,375		118,853
Cash flow from investing activities
Purchase of equipment		-		-		(1,804)		-
Cash flow from financing activities
Repayment of operating loan - net		(115,000)		-		(110,000)		-
Repayment of lease liability		(45,270)		(44,138)		(90,540)		(88,276)
Repayment of long-term debt		(45,694)		(15,174)		(71,239)		(30,198)
		(205,964)		(59,312)		(271,779)		(118,474)
Increase (decrease) in cash		428,999		(223,397)		388,792		379
Cash, beginning ofperiod		192,668		491,416		232,875		267,640
Cash, end ofperiod	$	621,667	$	268,019	$	621,667	$	268,019
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	$	2,032	$	2,064	$	5,623	$	4,742
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) December 31, 2023

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 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, 2023.

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, 2023. 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, 2023.

These unaudited condensed interim consolidated financial statements were authorized for issuance by the Board of Directors of the Company on February 26, 2024.

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:

cquisition:
Permatech Electronics Corporation (“PEC”)	- 100%	owned
Twenty49 Ltd	- 100%	owned (inactive)
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.

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.

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) December 31, 2023

2. Significant Accounting Policies - continued

Financial instruments

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

Financial assets: Cash Accounts receivable Financial liabilities: Bank operating loan 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

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.

3. Inventories

The carrying value of inventory is comprised of:

Dec. 31 2023 Raw materials and supplies(1) $ 1,781,189 Work in process 87,743 Finished goods 29,589 $ 1,898,521	June 30 2023
	$ 1,773,817 36,812 19,324
	$ 1,829,953

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) December 31, 2023

3. Inventories - continued

• (1) Raw materials and supplies is presented net of provisions for obsolete and/or slow-moving items in the amount of $74,216 (June 2023 - $36,200). Management makes estimates of future demand when establishing appropriate provisions. To the extent that actual inventory losses differ from these estimates both inventories and net income (loss) will be affected.

Inventory utilization during the period was as follows:

Dec. 31 2023 Raw materials and supplies used $ 2,107,633 Labour costs 537,496 Depreciation 39,173 Other costs 93,402 Net change in finishedgoods and work inprocess (61,196) Cost ofproduct sales $ 2,716,508	Dec. 31 2022
	$ 1,214,623 406,435 48,710 88,245 (15,917) $ 1,742,096

4. Equipment

Computer Office Manufacturing Leasehold Equipment Equipment Equipment Improvements Cost: Balance, June 30, 2022 $ 193,221 $ 71,277 $ 2,697,773 $ 84,143 Additions - - - - Balance, Dec. 31, 2022 193,221 71,277 2,697,773 84,143 Additions - - - - Balance, June 30, 2023 193,221 71,277 2,697,773 84,143 Additions 1,804 - - - Balance,Dec. 31,2023 $ 195,025$ 71,277$ 2,697,773$ 84,143 Accumulated Depreciation: Balance, June 30, 2022 $ (186,099) $ (70,747) $ (2,208,627) $ (76,043) Depreciation (1,068) (53) (48,710) (1,158) Balance, Dec. 31, 2022 (187,167) (70,800) (2,257,337) (77,201) Depreciation (1,068) (53) (48,710) (1,157) Balance, June 30, 2023 (188,235) (70,853) (2,306,047) (78,358) Depreciation (857) (42) (39,173) (1,157) Balance,Dec. 31,2023 $ (189,092) $ (70,895) $ (2,345,220) $ (79,515) Carrying Amounts: June 30, 2022 $ 7,122 $ 530 $ 489,146 $ 8,100 December 31, 2022 $ 6,054 $ 477 $ 440,436 $ 6,942 June 30, 2023 $ 4,986 $ 424 $ 391,726 $ 5,785 December 31,2023 $ 5,933$ 382$ 352,553$ 4,628	Total
	$ 3,046,414 - 3,046,414 - 3,046,414 1,804 $ 3,048,218
	$ (2,541,516) (50,989)
	(2,592,505) (50,988)
	(2,643,493) (41,229)
	$ (2,684,722)
	$ 504,898 $ 453,909 $ 402,921 $ 363,496

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) December 31, 2023

5. Right of use asset

The Company occupies its operating facility under a lease 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 term of the lease and charged as an element of occupancy costs (note 12) . There have been no impairment losses and no remeasurement of the lease liability.

Balance at June 30, 2022 Depreciation recorded as an element of occupancy costs Balance at December 31, 2022 Depreciation recorded as an element of occupancy costs Balance at June 30, 2023 Depreciation recorded as an element of occupancy costs Balance at December 31, 2023	656,655 (82,888)
	573,767 (82,887)
	490,880 (82,887)
	$ 407,993

6. Investments

The Company holds a non-controlling interest in Conversance Inc., a private Canadian technology company engaged in the development of its proprietary technology, which has not yet produced any revenues. The timing of such revenues is not currently determinable. The absence of cash flows made it infeasible for the Company to ascertain the value of Conversance Inc. as a going concern in a prior period and 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.

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.

ZTEST retains its right, provided it holds more than 15%, to maintain its ownership 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. Subsequent to the financial reporting date, ZTEST declined the opportunity to participate in a convertible promissory note financing proposed by Conversance. Under this financing the creditor will have the right to convert all or a portion of the promissory notes into Class A common shares of Conversance, with the conversion rate dependent upon the timing of conversion. Based on the information currently available to ZTEST, if subscribers convert 100% of the promissory notes prior to June 1, 2024, the ZTEST interests would be reduced to 17.89%.

to 17.89%.
Dec. 31 2023 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 2023
	$ 1,129,762 (152,109) (977,652)
	$ 1

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) December 31, 2023

7. Bank operating loan

Dec. 31 2023 Line of credit, which can be drawn to a maximum of $1,000,000 (June 2023 - $500,000), bears interest at the TD Bank prime lending rate plus 2.0% (June 2023–prime plus 2.5%), is due upon demand, and is secured byageneral securityagreement coveringthe assets of PEC. $ -	June 30 2023 $ 110,000

8. Lease liability

9.	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 recorded at the present value of the lease payments, discounted using the Company’s incremental borrowing rate at the time the lease was extended, of 3.386%. The lease liability is subsequently reduced by lease payments paid and increased by imputed interest as follows: Balance at June 30, 2022 $ 643,567 Lease payments paid during period (88,276) Interest imputed 10,097 Balance at December 31, 2022 565,388 Lease payments paid during period (89,407) Interest imputed 8,757 Balance at June 30, 2023 484,738 Lease payments paid during period (90,540) Interest imputed 7,366 Balance at December 31, 2023 401,564 Less current portion (174,070) $ 227,494 Long-Term Debt	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 recorded at the present value of the lease payments, discounted using the Company’s incremental borrowing rate at the time the lease was extended, of 3.386%. The lease liability is subsequently reduced by lease payments paid and increased by imputed interest as follows: Balance at June 30, 2022 $ 643,567 Lease payments paid during period (88,276) Interest imputed 10,097 Balance at December 31, 2022 565,388 Lease payments paid during period (89,407) Interest imputed 8,757 Balance at June 30, 2023 484,738 Lease payments paid during period (90,540) Interest imputed 7,366 Balance at December 31, 2023 401,564 Less current portion (174,070) $ 227,494 Long-Term Debt
		565,388 (89,407) 8,757
		484,738 (90,540) 7,366
		401,564 (174,070)
		$ 227,494
	Dec. 31 2023 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. 153,055 Canadian Emergency Business Account (CEBA)(1) $ - 153,055 Less: current portion 64,087 $ 88,968	June 30 2023
		184,294 $ 60,000 244,294 77,454 $ 166,840

(1) In accordance with the CEBA terms, the Company repaid $40,000 during the period to reduce the remaining balance to $20,000, which was then forgiven. The forgiven amount has been designated as a government grant and included in net income for the period.

The minimum annual future principal repayments as at December 31, 2023, are as follows: 2024 2025 2026	$ 64,087 66,301 22,667
	$ 153,055

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) December 31, 2023

10. Share Capital

Authorized

Unlimited Common shares

Unlimited Preferred shares in one or more series.

Issued

Dec. 31 2023 Common shares $ 24,421,726 Common shares Number of Shares (1) Balance June 30, 2023, Dec. 31, 2022 and June 30, 2022 26,687,196 Shares issued in settlement of debt 4,468,625 Balance December 31, 2023 31,155,821	June 30 2023
	$ 24,064,236 Amount
	$ 24,064,236 357,490
	$ 24,421,726

Details of warrants outstanding:

No warrants were outstanding at June 30, 2023 or have been issued subsequent to that date.

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	1,275,000	$ 0.10	Mar. 17, 2027
Options expired	175,000	$ 0.10	Nov. 1, 2023
Balance, end of the period	1,100,000	$ 0.10	Sep. 30, 2027

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

Dec. 31 2023 Dividend yield None Issued Risk free interest rate (%) None Issued Expected stock volatility (%) None Issued Expected life (years) None Issued	June 30 2023 Nil 3.243 135.92 5

The following stock options were outstanding as at December 31, Dec. 31 :

			Common Shares	Number of		Exercise
			Under Option	Options Vested		Price	ExpiryDate
Granted September	30,	2022	1,100,000(1)	1,275,000	$	0.10	Sep. 30, 2027

(1) Directors and/or Officers of the Company and its subsidiary 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:

Dec. 31 2023 Contributed surplus, beginning of period $ 1,704,197 Stock options granted(1) - Contributed surplus, end of period $ 1,704,197	June 30 2023 $ 1,645,217 58,980 $ 1,704,197

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2023

10. Share Capital - continued

• (1) Due to a computational error, the compensation amount related to these stock options was originally reported as $35,851 during the period ended December 31, 2022. All comparative amounts at December 31, 2022 have been revised to include this correction.

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.

Dec. 31 2023 Employee and consultant compensation_(note 12) $ 221,179 Professional fees(note 12)_ 26,646 $ 247,825 Stock-based compensation $ -	Dec. 31 2022
	$ 174,118 12,372
	$ 186,490
	$ 54,355

During the period, 3,956,250 common shares were issued in settlement of $316,500 owing to these related parties. At December 31, 2023 there was a balance of $599,214 (June 30, 2023 - $883,182) 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:

Dec. 31 2023 Employee and consultant compensation_(note 11) $ 539,720 Occupancy costs(note 5) 166,826 Professional fees(note 11)_ 52,082 Shareholder services 10,596 Insurance 18,084 Other 28,456 $ 815,764	Dec. 31 2022
	$ 456,095 160,014 39,947 17,936 18,905 27,976
	$ 720,873

13. Income Taxes

Current Income Tax

A reconciliation of combined federal and provincial corporate income taxes at the Company ’ s effective tax rate of – 26.50% (2022 26.50%) is as follows:

Dec. 31 2023 Net income (loss) before income taxes $ 803,637 Expected income tax (recovery) $ 212,964 Amounts not deductible for income tax purposes (61) Temporary timing differences (93,001) Income tax expense-current $ 119,902	Dec. 31 2022
	$ (221,992)
	$ (58,828) 16,878 41,950
	$ -

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) December 31, 2023

13. Income Taxes - continued

Deferred Tax

The following table summarizes the components of deferred tax:

Dec. 31 2023 Deferred tax assets: Non-capital losses carried forward $ - Deferred tax liabilities: Temporary timing differences 7,522 Net deferred tax liabilities $ -	Dec. 31 2022
	$ 9,456 (9,456)
	$ -

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:

Dec. 31 2023 Share issuance costs $ 656 Property, plant and equipment 24,997 Resource related expenditures 349,050 Scientific research and experimental development 1,050,618 Non-capital loss carry-forwards 1,999,559 Net capital loss carry-forwards 15,592,989	June 30 2023
	$ 1,313 26,445 349,050 1,050,618 2,312,531 15,592,989

Share issue costs expire in 2024 and non-capital loss carry-forwards expire from 2030-2043. The remaining deductible temporary differences may be carried forward indefinitely but net capital loss carry-forwards 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.

Dec. 31 2023 Long-term debt $ 153,055 Share Capital 24,421,726 Contributed surplus 1,704,197 Deficit (23,984,809) Net capital under management $ 2,294,169	June 30 2023
	$ 244,294 24,064,236 1,704,197 (24,661,022)
	$ 1,351,705

ZTEST Electronics Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) December 31, 2023

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. To mitigate this risk, management actively manages and monitors its receivables and obtains pre-payments 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 December 31, 2023 or December 31, 2022 .

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. The Company had 2 major customers during the current period, representing 20% and 16% of revenues (December 2022 - 4 customers, 15%, 14%, 11% and 11% of revenues). Amounts due from these customers represented 57% of accounts receivable at December – 31, 2023 (December 2022 40%). The loss of, or significant curtailment of purchases by a major 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 December 31, 2023 the Company had current financial assets of $852,821 (June 30, 2023 - $1,190,379) available to settle current financial liabilities of $1,871,931 (June 30, 2023 - $2,315,614). The Company also has a bank operating line available in the mount of $1,000,000 (June 30, 2023 - $500,000) of which $Nil (June 2023 - $110,000) had been utilized at December 31, 2023. 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 loss in the amount of $8,504 (December 2022 gain of $6,720).

Sensitivity to market risks

At December 31, 2023, the Company had:

• A bank operating loan that had not been drawn upon (June 2023 - $110,000), 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 no additional interest expense over the next 12 month period.

• US$116,461 (June 30, 2023 – US$183,892) 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 $5,823 in future cash inflow.

• US$157,510 (June 30, 2023 – US$124,491) 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 $7,876 in future cash outflow.

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