SEDAR Interim Financial Statements

ZTEST Electronics Inc. Unaudited Condensed Interim Consolidated Financial Statements December 31, 2025 (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, 2026. 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, 2025 Approved by the Board: Signed: “Steve Smith” Signed: “William R. Johnstone” Director Director Dec. 31 June 30 2025 2025 Assets Current assets Cash $ 4,414,914 $ 4,104,731 Accounts receivable 1,359,197 1,027,720 Inventories (note 3) 1,266,133 1,048,391 Prepaid expenses 46,872 63,727 7,087,116 6,244,569 Equipment (note 4) 714,962 793,517 Right-of-use asset (note 5) 76,443 159,331 Investments (note 6) 1 1 $ 7,878,522 $ 7,197,418 Liabilities Current liabilities Accounts payable and accrued liabilities (note 11) $ 1,057,249 $ 1,000,647 Government remittances payable 67,349 34,982 Customer deposits 21,395 6,916 Current portion of lease liability (note 8) 46,271 137,649 Current portion of long-term debt (note 9) 22,667 56,091 1,214,931 1,236,285 Deferred taxes (note 13) 131,686 154,516 1,346,617 1,390,801 Shareholders’ equity Share capital (note 10) 25,143,154 25,081,033 Warrants (note 10) - 421,385 Contributed surplus (note 10) 2,349,952 1,962,362 Deficit (20,961,201) (21,658,163) 6,531,905 5,806,617 $ 7,878,522 $ 7,197,418 The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements. ZTEST Electronics Inc. Unaudited Condensed Interim Consolidated Statements of Changes in Equity (Stated in Canadian Dollars) December 31, 2025 Share Contributed, Capital Warrants Surplus Deficit Total Balance, June 30, 2024 $ 25,186,285 $ 444,229 $ 1,773,957 $ (22,907,753) $ 4,496,718 Stock options granted - - 105,029 - 105,029 Stock options exercised 65,817 - (20,817) - 45,000 Net income for the period - - - 532,724 532,724 Balance, December 31, 2024 25,252,102 444,229 1,858,169 (22,375,029) 5,179,471 Stock options granted - - 104,193 - 104,193 Warrants exercised 67,844 (22,844) - - 45,000 Shares repurchased and cancelled (238,913) - - 160,841 (78,072) Net income for the period - - - 556,025 556,025 Balance, June 30, 2025 25,081,033 421,385 1,962,362 (21,658,163) 5,806,617 Stoc --- k options granted - - 26,648 - 26,648 Warrants exercised 115,288 (60,443) - - 54,845 Warrants expired - (360,942) 360,942 - - Shares repurchased and cancelled (53,167) - - 34,095 (19,072) Net income for the period - - - 662,867 662,867 Balance, December 31, 2025 $ 25,143,154 $ - $ 2,349,952 $ (20,961,201) $ 6,531,905 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 (Stated in Canadian Dollars) December 31, 2025 Three months ended Six months ended 2025 2024 2025 2024 Product sales $ 2,481,516 $ 2,080,861 $ 4,304,944 $ 4,100,368 Cost of product sales (note 3) 1,401,939 1,251,028 2,447,673 2,349,091 1,079,577 829,833 1,857,271 1,751,277 Expenses Selling, general and administrative (note 12) 508,875 466,533 987,820 956,573 Stock compensation (notes 10 and 11) 13,381 70,019 26,648 105,029 Interest expense - long term debt 251 815 647 1,769 Interest expense - lease liability (note 8) 520 2,045 1,426 4,464 Interest expense - other 84 76 167 152 Depreciation of equipment 2,108 2,577 4,215 5,153 Foreign exchange loss (gain) (1,198) 13,739 807 12,257 524,021 555,804 1,021,730 1,085,397 Income before other income and provision for income taxes 555,556 274,029 835,541 665,880 Other income Interest income 22,434 33,704 49,699 67,622 Gain on disposal of assets - - 13,274 - 22,434 33,704 62,973 67,622 Income before provision for income taxes 577,990 307,733 898,514 733,502 (Provision for) recovery of income taxes (note 13) Current (164,433) (91,232) (258,477) (201,578) Deferred 12,356 (7,897) 22,830 800 (152,077) (99,129) (235,647) (200,778) Net income and comprehensive income for the period $ 425,913 $ 208,604 $ 662,867 $ 532,724 Comprehensive income per share Basic $ 0.01 $ 0.01 $ 0.02 $ 0.01 Fully diluted $ 0.01 $ 0.01 $ 0.02 $ 0.01 Weighted average shares outstanding Basic 36,745,088 36,815,386 36,771,583 36,753,158 Fully diluted 36,960,862 37,407,693 36,994,029 37,126,474 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, 2025 Three months ended Six months ended 2025 2024 2025 2024 Cash flow from operating activities Net income for the period $ 425,913 $ 208,604 $ 662,867 $ 532,724 Items not involving cash Depreciation of equipment 40,747 47,963 81,448 95,927 Depreciation of right of use assets 41,444 41,444 82,888 82,887 Imputed interest on lease liability 520 2,045 1,426 4,464 Stock compensation expense 13,381 70,019 26,648 105,029 Provision for income taxes - deferred (12,356) 7,897 (22,830) (800) 509,649 377,972 832,447 820,231 Changes in non-cash working capital items: Accounts receivable (250,453) (2,944) (331,477) 494,573 Inventories 136,666 88,520 (217,742) (21,680) Prepaid expenses (5,670) (4,190) 16,855 6,005 Accounts payable and accrued liabilities (287,264) 58,590 56,603 (3,240) Government remittances payable 51,378 4,677 32,367 (299,511) Customer deposits 16,271 (70,769) 14,479 (13,288) 170,577 451,856 403,532 983,090 Cash flow from investing activities Purchase of equipment (2,893) - (2,893) - Cash flow from financing activities Repayment of long-term debt (16,791) (16,231) (33,425) (32,315) Repayment of lease liability (46,402) (46,402) (92,804) (92,804) Issuance of common sha --- res 42,164 30,000 54,845 45,000 Normal course issuer bid share repurchases - - (19,072) - (21,029) (32,633) (90,456) (80,119) Increase in cash and cash equivalents 146,655 419,223 310,183 902,971 Cash and cash equivalents, start of period 4,268,259 3,259,432 4,104,731 2,775,684 Cash and cash equivalents, end of period $ 4,414,914 $ 3,678,655 $ 4,414,914 $ 3,678,655 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 $ 367 $ 919 $ 890 $ 1,985 Cash paid for income taxes $ 113,055 $ 86,555 $ 226,110 $ 501,089 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, 2025 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. 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 the same accounting policies and methods of computation as disclosed in the annual financial statements as at June 30, 2025. 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, 2025. 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, 2025. These unaudited condensed interim consolidated financial statements were authorized for issuance by the Board of Directors of the Company on February 26, 2026. Basis of presentation 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. 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 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 the --- se 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 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: Classification Cash and cash equivalents Amortized cost Accounts receivable Amortized cost ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 2. Significant Accounting Policies - continued Financial instruments - continued Financial liabilities: Classification Accounts payable and accrued liabilities Amortized cost Government remittances payable Amortized cost Customer deposits Amortized cost Lease liability Amortized cost Long-term debt 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. Cash and cash equivalents Cash equivalents consist of term deposits having a term of 90-days or less, held at the Company’s financial institution. They are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Income per share The Company presents basic and diluted income per share data for its common shares, calculated by dividing the income attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the financial reporting period. Diluted income per share is determined by adjusting the income attributable to common shareholders and the weighte --- d 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 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. Accounting standards effective for future periods IFRS18, Presentation and Disclosure in Financial Statements: issued April 2024 and effective for annual periods beginning on or after January 1, 2027, with early adoption permitted. It supersedes IAS 1, Presentation of Financial Statements, and replaces presentation aspects of many existing standards, to set out requirements for the presentation and disclosure of information in general purpose financial statements. The Company intends to adopt IFRS 18 in its financial statements for the annual period beginning on July 1, 2027 and anticipates that its adoption may alter the way certain amounts and information are presented in its consolidated financial statements. ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 3. Inventories The carrying value of inventory is comprised of: Dec. 31 June 30 2025 2025 Raw materials and supplies (1) $ 1,213,640 $ 979,018 Work in process 25,814 47,792 Finished goods 26,679 21,581 $ 1,266,133 $ 1,048,391 (1) Raw materials and supplies is presented net of provisions for obsolete and/or slow-moving items in the amount of $37,535 (June 2025 - $9,889). 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 Dec. 31 2025 2024 Raw materials and supplies used $ 1,789,349 $ 1,670,086 Labour costs 468,729 479,908 Depreciation 77,233 90,774 Shipping and packaging 71,128 57,787 Stencils and tooling 17,835 13,010 Repairs and maintenance 6,519 15,812 Net change in finished goods and work in process 16,880 21,714 Cost of product sales $ 2,447,673 $ 2,349,091 4. Equipment Computer Office Manufacturing Leasehold Equipment Equipment Equipment Improvements Total Cost: Balance, June 30, 2024 $ 220,187 $ 71,277 $ 3,358,177 $ 84,143 $ 3,733,784 Additions - - - - - Balance, Dec. 31, 2024 220,187 71,277 3,358,177 84,143 3,733,784 Additions 2,031 - 50,756 - 52,787 Balance, June 30, 2025 222,218 71,277 3,408,933 84,143 3,786,571 Additions 1,534 - 1,359 - 2,893 Balance, Dec. 31, 2025 $ 223,752 $ 71,277 $ 3,410,292 $ 84,143 $ 3,789,464 Accumulated Depreciation: Balance, June 30, 2024 $ (193,776) $ (70,938) $ (2,450,433) $ (80,672) $ (2,795,819) Depreciation (3,962) (34) (90,774) (1,157) (95,927) Balance, Dec. 31, 2024 (197,738) (70,972) (2,541,207) (81,829) (2,891,746) Depreciation (4,267) (34) (95,850) (1,157) (101,308) Balance, June 30, 2025 (202,005) (71,006) (2,637,057) (82,986) (2,993,054) Depreciation (3,032) (26) (77,233) (1,157) (81,448) Balance, Dec. 31, 2025 $ (205,037) $ (71,032) $ (2,714,290) $ (84,143) $ (3,074,502) ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Sta --- tements (Stated in Canadian Dollars) December 31, 2025 4. Equipment - continued Carrying Amounts: June 30, 2024 $ 26,411 $ 339 $ 907,744 $ 3,471 $ 937,965 December 31, 2024 $ 22,449 $ 305 $ 816,970 $ 2,314 $ 842,038 June 30, 2025 $ 20,213 $ 271 $ 771,876 $ 1,157 $ 793,517 December 31, 2025 $ 18,715 $ 245 $ 696,002 $ - $ 714,962 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. After 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, June 30, 2024 $ 325,105 Depreciation recorded as an element of occupancy costs (82,887) Balance, December 31, 2024 242,218 Depreciation recorded as an element of occupancy costs (82,887) Balance, June 30, 2025 159,331 Depreciation recorded as an element of occupancy costs (82,888) Balance, December 31, 2025 $ 76,443 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. During the 2024 fiscal year, ZTEST declined the opportunity to participate in a convertible promissory note financing proposed by Conversance. Under that financing the creditor has 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. Had conversions arisen then the Company’s interest would have been reduced however, to the best of the Company’s knowledge, no conversions have taken place. Dec. 31 June 30 2025 2025 296,250 Class A common shares, representing a 25.29% interest $ 1,129,762 $ 1,129,762 Equity in post-acquisition losses and impairment provisions (1,129,761) (1,129,761) $ 1 $ 1 ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 7. Bank operating --- loan The Company has a line of credit, which can be drawn to a maximum of $1,000,000, bears interest at the TD Bank prime lending rate plus 1.8% (June 2025 – prime + 1.8%), is due upon demand, and is secured by a general security agreement covering the assets of PEC. No amount was drawn on this line of credit on December 31, 2025 or June 30, 2025. 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 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 June 30, 2024 $ 315,834 Lease payments paid during period (92,804) Interest imputed 4,464 Balance at December 31, 2024 227,494 Lease payments paid during period (92,803) Interest imputed 2,958 Balance, June 30, 2025 137,649 Lease payments paid during period (92,804) Interest imputed 1,426 Balance at December 31, 2025 46,271 Less current portion (46,271) $ - The Company has signed a new five year lease extension which will become effective April 1, 2026 and will result in the recognition of a new lease liability predicated upon prevailing market conditions on April 1, 2026. If those market conditions remain unchanged then the new lease liability is expected to approximate $1,035,000. 9. Long-Term Debt Dec. 31 June 30 2025 2025 Term loan bearing interest at 3.386% is secured by a general security agreement covering the assets of PEC, and matures April 2026. Monthly payments of $5,691, blended as to principal and interest, are required until maturity. $ 22,667 $ 56,091 Less: current portion (22,667) (56,091) $ - $ - The minimum annual future principal repayments as at December 31, 2025, are as follows: 2026 $ 22,667 10. Share Capital Authorized Unlimited Common shares Unlimited Preferred shares in one or more series. ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 10. Share Capital - continued Issued Dec. 31 June 30 2025 2025 Common shares $ 25,143,154 $ 25,081,033 Number of Common shares: Shares (1) Amount Balance, June 30, 2024 36,545,821 $ 25,186,285 Stock options exercised 450,000 65,817 Balance December 31, 2024 36,995,821 25,252,102 Warrants exercised 150,000 67,844 Shares repurchased under Normal Course Issuer Bid (2) (350,500) (238,913) Balance, June 30, 2025 36,795,321 25,081,033 Broker warrants exercised 219,380 115,288 Shares repurchased under Normal Course Issuer Bid (2) (78,000) (53,167) Balance, December 31, 2025 36,936,701 $ 25,143,154 (1) Following the 2013 conversion of Class A Special Shares to common shares, 8,246 common shares remain reserved to be issued in the event the remaining Class A shareholders identify themselves to the Company. (2) The Company initiated a Normal Course Issuer Bid (NCIB) under which it may, through a registered securities dealer, repurchase up to 2,727,923 of its common shares on the open market between April 1, 2025 and March 31, 2026. Up to December 31, 2025 the Company had repurchased and cancelled 428,500 common shares at an aggregate cost of $131,959. The Company is not obligated to acquire any common shares and may suspend or discontinue purchases under the NCIB at any time. D --- etails of warrants outstanding: Number of Warrants Amount Balance, June 30, 2024 and December 31, 2024 2,739,380 $ 444,229 Warrants exercised (150,000) (22,844) Balance, June 30, 2025 2,589,380 421,385 Broker warrants exercised (219,380) (60,443) Warrants expired (2,370,000) (360,942) Balance, December 31, 2025 - $ - Number of Weighted Average Weighted Average Warrants Price per Warrant Expiry Date Balance, June 30, 2024 and December 31, 2024 2,739,380 $ 0.30 Nov. 8, 2025 Broker warrants exercised during the period (219,380) $ 0.25 Nov. 8, 2025 Warrants expired during the period (2,370,000) $ 0.30 Nov. 8, 2025 Balance, December 31, 2025 - $ - - No warrants were issued during the period ended December 31, 2025, or the year ended June 30, 2025, and no warrants were outstanding on December 31, 2025. ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 10. Share Capital - continued Details of options outstanding: Common Shares Weighted Average Weighted Average Under Option Price per Option Expiry Date Balance, June 30, 2025 1,550,000 $ 0.26 Mar. 13, 2029 Stock options granted 900,000 $ 0.28 Dec. 15, 2030 Balance, December 31, 2025 2,450,000 $ 0.27 Nov. 4, 2029 The following weighted average assumptions were used to calculate the fair value of stock options granted: Dec. 31 June 30 2025 2025 Dividend yield Nil Nil Risk free interest rate (%) 3.00 1.05 – 2.92 Expected stock volatility (%) 134.98 143.56 – 146.09 Expected life (years) 5 5 The following stock options were outstanding on December 31, 2025: Common Shares Number of Exercise Under Option Options Vested Price Expiry Date Common Shares Number of Exercise Under Option Options Vested Price Expiry Date Granted September 30, 2022 300,000 (1) 300,000 $ 0.10 Sep. 30, 2027 Granted March 28, 2024 250,000 (1) 250,000 $ 0.27 Mar. 28, 2029 Granted March 28, 2024 100,000 100,000 $ 0.27 Mar. 28, 2029 Granted August 15, 2024 800,000 (1) 800,000 $ 0.30 Aug. 15, 2029 Granted January 17, 2025 100,000 100,000 $ 0.40 Jan. 17, 2030 Granted December 15, 2025 800,000 (1,2) - $ 0.28 Dec. 15, 2030 Granted December 15, 2025 100,000 (2) - $ 0.28 Dec. 15, 2030 (1) Directors and/or Officers of the Company and its subsidiary hold these options. (2) These options will vest as to 50% on June 15, 2026 and 50% on December 15, 2026. 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 10% 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 a consultant and may also grant stock options to 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 June 30 2025 2025 Contributed surplus, beginning of period $ 1,962,362 $ 1,773,957 Stock options granted (1) 26,648 209,222 Stock options exercised - (20,817) Warrants expired 360,942 - Contributed surplus, end of period $ 2,349,952 $ 1,773,957 (1) Under the Black Scholes valuation model, $186,717 was ascribed to the stock options granted August 15, 2024, $35,772 to the stock options granted January 15, 2025, and $217,491 to the stock options granted December 15, 2025. These amounts are charged to net income ov --- er the applicable vesting periods and resulted in $26,648 being recognized in the current period. As of December 31, 2025, $203,870 of the value ascribed to the stock options granted December 15, 2025 is yet to be charged to net income. ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 11. Related Party Transactions and Balances The Company had transactions during the period 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 Dec. 31 2025 2024 Employee and consultant compensation (note 12) $ 297,887 $ 284,326 Professional fees (note 12) 43,707 42,369 $ 341,954 $ 326,695 Stock-based compensation $ 23,564 $ 105,029 On December 31, 2025 there was a balance of $181,029 (June 30, 2025 - $309,281) 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 Dec. 31 2025 2024 Employee and consultant compensation (note 11) $ 631,542 $ 628,263 Occupancy costs (note 5) 169,350 165,885 Professional fees (note 11) 78,394 70,959 Shareholder services 36,605 26,002 Travel and promotional activities 33,817 28,533 Insurance 20,568 19,548 Office and general expenses 17,544 17,383 $ 987,820 $ 956,573 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% (2024 – 26.50%) is as follows: Dec. 31 Dec. 31 2025 2024 Net income before income taxes $ 898,478 $ 733,502 Expected income tax $ 238,096 $ 194,378 Amounts not deductible for income tax purposes 4,840 8 Temporary timing differences 15,541 7,192 Income tax expense - current $ 258,477 $ 201,578 Deferred Tax Deferred taxes are provided because of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. The following table summarizes the components of deferred tax: ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 13. Income Taxes - continued Deferred Tax - continued Dec. 31 June 30 2025 2025 Deferred tax assets: Inventory $ 9,947 $ 2,621 Deferred tax liabilities: Temporary timing differences 141,633 157,137 Net deferred tax liabilities $ 131,686 $ 154,516 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 June 30 2025 2025 Share issuance costs $ 13,568 $ 16,282 Equipment 3,762 3,757 Resource related expenditures 85,463 92,498 Scientific research and experimental development 278,414 278,414 Non-capital loss carry-forwards 483,571 480,116 Net capital loss carry-forwards 4,132,142 4,132,142 Income tax expense - deferred 4,996,920 5,003,209 Unrecognized deferred tax assets (4,996,920) (5,003,209) Net deferred tax assets $ - $ - Share i --- ssue costs expire in 2028, and non-capital loss carry-forwards expire from 2035 to 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 June 30 2025 2025 Long-term debt $ 22,667 $ 56,092 Share Capital 25,143,154 25,081,033 Warrants - 421,385 Contributed surplus 2,349,952 1,962,362 Deficit (20,961,201) (21,658,163) Net capital under management $ 6,554,572 $ 5,862,709 ZTEST Electronics Inc. Notes to Unaudited Condensed Interim Consolidated Financial Statements (Stated in Canadian Dollars) December 31, 2025 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 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, 2025 or December 31, 2024. Concentration of credit risk Concentration of credit risk arises when one or more customers, defined as a major customer, individually account for 10% or more of the Company’s revenues during a reporting period. During the current period, the Company had 2 major customers which represented 20% and 12% of revenues (Dec. 31, 2024 - 2 customers, 25% and 15% of revenues). Amounts due from these customers represented approximately 39% of accounts receivable at December 31, 2025 (Dec. 31, 2024 – 42%). The loss of a major customer, 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. On December 31, 2025 the Company had current financial assets of $5,774,111 (June 30, 2025 - $5,132,451) available to settle current financial liabilities of $1,214,931 (June 30, 2025 - $1,236,285). 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 to 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 fiscal year, the Company has reported a foreign exchange loss in the amount of $807 (Dec. 31, 2024 – loss of $12,257). Sensitivity to market risks On December 31, 2025, the Company had: · A bank operating loan of which $Nil was drawn (June 30, 2025 - $Nil) bears interest predicated upon the TD Bank prime lending rate. A change of 1% in that prime lending rate would result in no impact on cash flows over the next 12 months, based on the current loan balance. · US$20,702 (June 30, 2025 – US$66,792) 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 $1,035 in future cash inflow. · US$132,881 (June 30, 2025 –US$218,283) 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 $6,644 in future cash outflow. Based upon observations of recent market trends management believes that each of these outcomes is possible.