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October 2002 Monthly Update

ZTEST Electronics Monthly Corporate Update for October 2002

ZTEST Electronics Inc.'s (TSXVE: YZT) wholly-owned subsidiary, Permatech Electronics Corp., is an ISO 9002 certified Electronic Manufacturing Services (EMS) provider founded in 1982. Permatech's offerings include Materials Management, Printed Circuit Board (PCB) Assembly, Testing and Design services. Permatech operates from a 20,000 square foot facility in North York, Ontario, Canada.

Manufacturing Industry Activity and the EMS Sector

On November 1st, 2002 the Institute for Supply Management, http://www.ism.ws/ISMReport/ROB112002.cfm, reported that economic activity in the manufacturing sector declined in October for the second consecutive month. The Purchasing Managers' Index (PMI) was calculated at 48.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. The report was issued by Norbert J. Ore, C.P.M., who commented that; "The manufacturing sector continued its recent trend as it lost momentum again in October. There has been very little month-over-month change in manufacturing activity as the PMI has averaged 49.8 percent over the last four months."

Looking at indicators that relate specifically to the Electronics Manufacturing (EMS) sector, IPC reported October 25, 2002, http://www.ipc.org/html/sep02btb.htm, that the U.S. Printed Circuit Board (PCB) Industry Book-to-Bill Ratio for September 2002 was 0.95. Sales billed (shipments) in September 2002 decreased 5.0 percent from September 2001 and orders booked increased 4.2 percent from September 2001.

Compared to 2001, bookings of PCBs are down 16.1 percent year-to-date, while shipments of PCBs are down 26.8 percent year-to-date.
The ratio is calculated by averaging the number of orders booked over the past three months and dividing by the average sales billed during the same period.

The chart below shows that EMS industry revenues are expected to grow marginally in 2002 to $104.1 Billion, an increase of $3 Billion from 2001. Technology Forecasters expects stronger growth in the next three years with revenues reaching $126.0, $157.5 and $206.1 Billion respectively.

Dollar value of EMS assembly in a given year and the penetration rate  
Source: Technology Forecasters

Permatech Established Business

With Permatech's long operating history, it has built a core base of customers who provide a stream of consignment and turnkey assembly orders. This core customer base is well diversified in the Medical, Power, Computer, Telecommunication, Wireless, Industrial and Consumer Electronics markets, limiting therefore the company's exposure to any one industry. The charts below show on a rolling six-month basis:

The proportion of revenue generated by each market served

The proportion of revenue generated by each market served

The proportion of revenue attributed to turnkey vs. consignment business,

The proportion of revenue attributed to turnkey vs. consignment business

New Business Development

Permatech continues with production setup for point-of-sale terminals, as per the contract disclosed by press release on September 23, 2002. Such setup includes transfer of documentation and manufacturing procedures from the customer, as well as sourcing of components from Permatech suppliers. It is expected that starting in December, Permatech will supply full ongoing product requirements for the customer.

The company continues to work on new product development with a customer in the safety equipment industry. While the pre-production run of one board was deferred until mid November due to a component change, ZTEST was asked to design a layout for the next prototype board. This task was completed in October.

During the month of October, a company in the telecommunication industry accepted Permatech as a vendor of choice for turnkey assembly services. Both companies are currently in the process of negotiating a Strategic Manufacturing Alliance Agreement that, if successfully concluded, will provide Permatech with an opportunity to start product deliveries in January 2003.