ZTEST Electronics Inc. — Interim / Quarterly Report 2021

Nov 25, 2021

ZTEST Electronics Inc.

Unaudited Condensed Interim Consolidated Financial Statements

September 30, 2021

(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 24, 2021. 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, 2021

Sept. 30 2021 Assets Current assets Cash $ 528,386 Accounts receivable 394,945 Inventories_(note 3) 692,952 Prepaid expenses 21,605 1,637,888 Equipment(note 4) 556,893 Right-of-use asset(note 5) 780,986 Investments(note 6) 1 $ 2,975,768 Liabilities Current liabilities Accounts payable and accrued liabilities(note 11) $ 992,799 Customer deposits - Current portion of lease liability(note 8) 151,496 Current portion of long-term debt(note 9) 59,407 1,203,702 Lease liability(note 8) 604,643 Long-term debt(note 9) 290,200 2,098,545 Shareholders’ Equity Share capital(note 10) 23,922,372 Warrants(note 10) 40,913 Contributed surplus(note 10)_ 1,642,968 Deficit (24,729,030) 877,223 $ 2,975,768	June 30 2021 $ 557,013 654,758 488,333 17,416
	1,717,520 580,807 822,430 1
	$ 3,120,758
	$ 959,507 1 149,092 58,932 1,167,532 643,568 305,223 2,116,323
	23,859,872 53,052 1,650,929 (24,559,418)
	1,004,435
	$ 3,120,758

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, 2021

Share Contributed Capital Warrants Surplus Deficit Balance, June 30, 2020 $ 23,613,546 $ 217,665 $ 1,538,667 $ (24,605,180) Preferred shares issued 1 - - - Warrants expired - (3,682) 3,682 - Net income for the period - - - 81,886 Balance, September 30, 2020 23,613,547 213,983 1,542,349 (24,523,294) Stock options exercised 17,961 - (7,961) - Warrants exercised 228,365 (44,390) - - Warrants expired - (116,541) 116,541 - Preferred shares redeemed (1) - - - Net loss for the period - - - (36,124) Balance, June 30, 2021 23,859,872 53,052 1,650,929 (24,559,418) Stock options exercised 17,961 - (7,961) - Warrants exercised 44,539 (12,139) - - Net loss for the period - - - (169,612) Balance, September 30, 2021 $ 23,922,372 $ 40,913 $ 1,642,968 $ (24,729,030)	Total
	$ 764,698 1 - 81,886
	846,585 10,000 183,975 - (1) (36,124)
	1,004,435 10,000 32,400 (169,612)
	$ 877,223

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) Income (Stated in Canadian Dollars)

For the three month periods ended September 30

2021 Product sales $ 630,121 Cost of product sales(note 3) 481,985 148,136 Expenses Selling, general and administrative_(note 12) 308,190 Interest expense - long-term debt 2,521 Interest expense–lease liability(note 8) 6,486 Interest expense - other 133 Finance fees(note 11)_ - Depreciation of equipment 1,375 Foreign exchange (gain) (957) 317,748 (Loss) income before provision for income taxes (169,612) Provision for income taxes - Net(loss) income and comprehensive(loss) income for theperiod $ (169,612) Net (loss) income per share Basic $ (0.01) Fully diluted $ (0.01) Weighted average shares outstanding Basic 24,435,239 Fully diluted 24,435,239	2020 $ 1,053,501 696,573 356,928 273,774 - 878 162 - 1,089 (861)
	275,042
	81,886 -
	$ 81,886
	$ 0.00 $ 0.00
	22,876,696 25,446,682

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

2021 Cash flow from operating activities Net (loss) income for the period $ (169,612) Items not involving cash Depreciation of equipment 26,993 Depreciation of right of use assets 41,444 Accreted lease interest 6,486 Changes in non-cash working capital items: Accounts receivable 259,813 Inventories (204,619) Prepaid expenses (4,189) Customer deposits (1) Accounts payable and accrued liabilities 33,292 (10,393) Cash flow from investing activities Purchase of equipment (3,079) Cash flow from financing activities Repayment of long-term debt (14,548) Repayment of lease obligation (43,007) Share issuance 42,400 (15,155) (Decrease) increase in cash (28,627) Cash, beginning of period 557,013 Cash, end of period $ 528,386	2020 $ 81,886 10,660 25,700 878 70,115 57,783 13,679 - (21,691) 239,010
	- - (26,935) -
	(26,935) 212,075 220,403
	$ 432,478

Supplemental Disclosure of Cash Flow Information:

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

Interest	$	2,658	$	162
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, 2021

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, 2021.

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, 2021. 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, 2021.

These unaudited condensed interim consolidated financial statements were authorized for issuance by the Board of Directors of the Company on November 24, 2021.

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)

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 the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

2. Significant Accounting Policies - continued

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.

3. Inventories

The carrying value of inventory is comprised of:

Sept. 30 2021 Raw materials and supplies(1) $ 640,480 Work in process 25,538 Finished goods 26,934 $ 692,952	June 30 2021
	$ 432,917 31,859 23,557 $ 488,333

(1) Raw materials and supplies is presented net of provisions for obsolete and/or slow moving items in the amount of $12,704 (June 2021 - $4,373).

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

3. Inventories - continued

Inventory utilization during the period was as follows:

Sept. 30 2021 Raw materials and supplies used $ 273,067 Labour costs_(note 16)_ 150,765 Depreciation 25,618 Repairs and maintenance 1,148 Other costs 28,444 Net change in finished goods and work in process 2,943 Cost of product sales $ 481,985	Sept. 30 2020
	$ 531,064 143,771 9,571 1,439 25,001 (14,273) $ 696,573

4. Equipment

Computer Office Manufacturing Leasehold Equipment Equipment Equipment Improvements Cost: Balance, June 30, 2020 $ 186,418 $ 71,277 $ 2,597,014 $ 84,143 Additions - - - - Balance, Sept. 30, 2020 186,418 71,277 2,597,014 84,143 Additions 5,703 - 407,517 - 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 Accumulated Depreciation: Balance, June 30, 2020 $ (180,952) $ (70,449) $ (2,405,117) $ (71,416) Depreciation (410) (41) (9,631) (579) Balance, Sept. 30, 2020 (181,362) (70,490) (2,414,748) (71,995) Depreciation (1,920) (124) (28,891) (1,735) 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) Carrying Amounts: June 30, 2020 $ 5,466 $ 828 $ 191,897 $ 12,727 September 30, 2020 $ 5,056 $ 787 $ 182,266 $ 12,148 June 30, 2021 $ 8,839 $ 663 $ 560,892 $ 10,413 September 30, 2021 $ 9,235 $ 629 $ 537,194 $ 9,835	Total $ 2,937,482 - 2,937,482 413,220 3,352,072 3,079 (313,331)
	$ 3,041,820
	$ (2,727,934) (10,661)
	(2,738,595) (32,670)
	(2,771,265) (26,993) 313,331
	$(2,738,595)
	$ 210,918 $ 200,257 $ 580,807 $ 556,893

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) September 30, 2021

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.

remeasurement of the lease liability.
Cost recognized upon adoption of IFRS 16 Depreciation recorded as an element of occupancy costs Balance at June 30, 2020 Depreciation recorded as an element of occupancy costs Balance at September 30, 2020 Cost recognized upon extension of the lease Depreciation recorded as an element of occupancy costs Balance at June 30, 2021 Depreciation recorded as an element of occupancy costs Balance at September 30, 2021	$ 214,897 (102,798)
	112,099 (25,700)
	86,399 828,873 (92,842)
	822,430 (41,444)
	$ 780,986

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.

During the 2021 fiscal year, ZTEST entered into an agreement with the founder and majority shareholder of Conversance Inc. whereby ZTEST issued 1,250,000 Convertible First Preferred Shares Series 1 to that majority shareholder in exchange for 25,000 Class A common shares of Conversance Inc. The ZTEST Series 1 shares would have been automatically converted to common shares of ZTEST if, and only if, Conversance had completed an arm ’ s length financing by June 30, 2021 whereby at least 130,139 Class A shares were issued at a price of at least $10 per Class A share. No such financing occurred therefore the preferred shares were redeemed for an aggregate price of $1 and the 25,000 Class A common shares of Conversance Inc. were to be returned to the majority shareholder. However, the Class A shares were not returned and a replacement agreement was executed subsequent to the end of this financial reporting period. This replacement agreement replaced the 1,250,000 Convertible First Preferred Shares Series 1 shares with 1,250,000 Convertible First Preferred Shares Series 2 shares and the expiry date was extended to June 30, 2022. The trigger for automatic conversion to common shares on a 1:1 basis remained unchanged.

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 was set to expire December 31, 2022 but the replacement agreement noted above extended that expiry to June 30, 2023.

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

6. Investments - continued

Investments - continued
Sept. 30 2021 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 2021
	$ 1,129,762 (152,109) (977,652)
	$ 1

7. Bank operating loan

The Company has a line of credit, which was not drawn upon as at September 30, 2021 or June 30, 2021. It may 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.

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 5.7% for the initial lease and 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:

Present value of lease payments remaining upon adoption of IFRS 16 Lease payments paid Interest imputed at 5.7% Balance at June 30, 2020 Lease payments paid during period Interest imputed at 5.7% Balance at September 30, 2020 Lease payments paid during period Interest imputed Present value of lease payments upon lease extension Balance at June 30, 2021 Lease payments paid during period Interest imputed at 3.386% Balance at September 30, 2021 Less current portion	$ 179,897 (107,742) 7,141
	79,296 (26,935) 878
	53,239 (96,878) 7,426 828,873
	792,660 (43,007) 6,486
	$ 756,139 (151,496)
	$ 604,643

Subsequent to the financial reporting date, the Company has negotiated a new extension to this lease which establishes the monthly lease payments required from April 2021 to March 2026.

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

9. Long-Term Debt

Long-Term Debt
Sept. 30 2021 Canadian Emergency Business Account (CEBA), non-interest bearing until December 31, 2022, then 5% per annum, payable monthly until maturity December 31, 2025. Principal repayments are not required until maturity. The principal amount may be pre-paid in whole or in part at any time without penalty. Provided the loan balance is no more than $20,000 as at December 31, 2022 the remaining balance of the loan 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. 289,607 349,607 Less: current portion 59,407 $ 290,200 The minimum annual future principal repayments are as follows: 2022 2023 2024 2025 2026	June 30 2021
	$ 60,000 304,155
	364,155 58,932
	$ 305,223
	$ 59,407 71,451 83,550 85,742 49,457
	$ 349,607

10. Share Capital

Authorized

Unlimited Common shares

Unlimited Preferred shares in one or more series.

1,250,000 Convertible Preferred Shares Series 1, which were issued and later redeemed.

Issued

Sept. 30 2021 Common shares $ 23,922,372 Common shares Number of Shares (1) Balance June 30, 2020 and September 30, 2020 22,876,696 Warrants exercised 1,150,500 Stock options exercised 200,000 Balance June 30, 2021 24,227,196 Warrants exercised 540,000 Stock options exercised 200,000 Balance September 30, 2021 24,967,196	June 30 2021
	$ 23,859,872 Amount
	$ 23,623,546 228,365 17,961
	23,859,872 44,539 17,961
	$ 23,922,372

(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.

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

10. Share Capital - continued

Details of warrants outstanding:

Number of Warrants Balance June 30, 2020 4,378,400 Warrants expired (15,400) Balance September 30, 2020 4,363,000 Warrants exercised (1,150,500) Warrants expired (852,500) Balance June 30, 2021 2,360,000 Warrants exercised (540,000) Balance September 30, 2021 1,820,000 Number of Exercise Warrants Price	Amount
	$ 217,665 (3,682)
	213,983 (44,390) (116,541)
	53,052 (12,139)
	$ 40,913 ExpiryDate
Issued Dec. 15, 2016 1,820,000 $ 0.06 Dec. 15, 2021 Number of Weighted Average Weighted Average Warrants Priceper Warrant ExpiryDate
Beginning of period 2,360,000 $ 0.06 Dec. 15, 2021 Warrants exercised duringtheperiod (540,000) $ 0.06 Dec. 15,2021
End ofperiod 1,820,000 $ 0.06 Dec. 15,2021

No warrants options were issued during the period ended September 30, 2021 or during the year ended June 30, 2021.

Details of options outstanding:

		Common Shares	Weighted Average	Weighted Average	Weighted Average	Weighted Average
		Under Option		Priceper Option		ExpiryDate
Balance, beginning of the period		550,000		$	0.62	May 9, 2022
Exercised duringtheperiod		(200,000) (1)		$	0.05	Aug. 26,2021
Balance,end of theperiod		350,000(2)		$	0.95	Jan. 12,2023
	Common Shares	Number of			Exercise
	Under Option	Options Vested			Price	ExpiryDate
Granted January12,2018	350,000(2)	350,000		$	0.95	Jan. 12,2023

• (1) The expiry date of these options had been extended in accordance with the terms of the stock options agreements.

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

No stock options were granted during the period ended September 30, 2021 or during the year ended June 30, 2021.

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:

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

10. Share Capital - continued

Share based payment transactions and contributed surplus - continued

Sept. 30 2021 Contributed surplus, beginning of period $ 1,650,929 Stock options exercised (7,961) Warrants expired - Contributed surplus, end of period $ 1,642,968	June 30 2021
	$ 1,538,667 (7,961) 120,223
	$ 1,650,929

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 2021 Employee and consultant compensation $ 85,415 Professional fees 4,568 $ 89,983 Stock-based compensation $ -	Sept. 30 2020
	$ 80,733 16,845
	$ 97,578
	$ -

As at September 30, 2021 there was a balance of $544,394 (June 30, 2021 - $517,217) 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 2021 Employee and consultant compensation_(notes 11 and 16) $ 203,842 Occupancy costs(note 5) 68,878 Professional fees(note 11)_ 12,318 Shareholder services 4,550 Insurance 7,956 Other 10,646 $ 308,190	Sept. 30 2020
	$ 163,519 66,562 23,721 4,309 8,526 7,137
	$ 273,774

13. Income Taxes

Deferred Tax

The following table summarizes the components of deferred tax:

Sept. 30 2021 Deferred tax assets: Non-capital losses carried forward $ 2,223 Deferred tax liabilities: Temporary timing differences (2,223) Net deferred tax liabilities $ -	Sept. 30 2020
	$ 2,294 (2,294)
	$ -

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) September 30, 2021

13. Income Taxes - continued

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:

Sept. 30 2021 Inventory $ 12,704 Share issuance costs 23,799 Property, plant and equipment 34,191 Resource related expenditures 349,050 Scientific research and experimental development 1,050,618 Net capital loss carry-forwards 2,190,401 Non-capital loss carry-forwards 15,592,989	June 30 2021
	$ 4,373 23,799 34,132 349,050 1,050,618 2,166,546 15,592,989

Share issue costs expire from 2021-2023 and non-capital loss carry-forwards expire from 2030-2041. 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 2021 Long-term debt $ 349,607 Share Capital 23,922,372 Warrants 40,913 Contributed surplus 1,642,968 Deficit (24,729,030) Net capital under management $ 1,226,830	June 30 2021
	$ 364,155 23,859,873 53,052 1,650,929 (24,559,418)
	$ 1,368,591

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, 2021 or September 30, 2020 .

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

15. Financial risk factors - continued

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 2 customers during the current period, representing 17% and 11% of revenues (Sept. 30, 2020 - 2 customers, 20% and 15% of revenues). Amounts due from these customers represented 6% of accounts receivable at September 30, 2021 (Sept. 30, 2020 - 36%). 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.

Liquidity risk

Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. At September 30, 2021 the Company had current financial assets of $923,331 (June 30, 2021 - $1,211,771) available to settle current financial liabilities of $1,203,702 (June 30, 2021 - $1,167,532). 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 $957 (Sept. 30, 2020 gain of $861).

Sensitivity to market risks

At September 30, 2021, the Company had:

• A bank operating loan that had not been drawn upon (June 30, 2021 - $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$38,255 (June 30, 2021 – US$175,397) 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 $1,913 in future cash inflow.

• US$93,297 (June 30, 2021 – US$103,251) 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 $4,665 in future cash outflow.

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

16. COVID-19

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. Many of these restrictions remain in place as of the financial reporting date.

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 approval of these unaudited condensed consolidated financial statements, the Company, including its subsidiaries and investee company, have operated free of positive tests positive for COVID-19.

ZTEST Electronics Inc.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

(Stated in Canadian Dollars) September 30, 2021

16. COVID-19 - continued

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-19 cannot be accurately 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 future business, results of operations, financial position and cash flows.

To help mitigate the uncertainty created by COVID-19, the Company has availed itself of subsidies made available to it by the Canadian Federal government. The Company has obtained subsidy under the Canada Emergency Business Account (CEBA, note 9), the Canada Emergency Wage Subsidy (CEWS), and the Canada Emergency Rent Subsidy (CERS). During the period, obtained CERS benefits of $12,848 which has been applied to reduce Occupancy costs (note 12) and CEWS benefit during the year in the amount of $60,242 which has been applied to reduce Labour costs (note 4) and Employee and consultant compensation (note 12) . The Company will continue to monitor all government subsidies and will make application wherever it satisfies the eligibility criteria.