Mission Ready Solutions Inc. — Audit Report / Information 2020

May 1, 2021

MISSION READY SOLUTIONS INC.

Consolidated Financial Statements

For the year ended December 31, 2020 (Expressed in Canadian dollars)

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UNIT 114B (2[nd] Floor) – 8988 FRASERTON COURT BURNABY, BC V5J 5H8

A CHAN AND COMPANY LLP CHARTERED PROFESSIONAL ACCOUNTANT

T: 604.239.0868 F: 604.239.0866

INDEPENDENT AUDITOR’S REPORT

To: The Shareholders of Mission Ready Solutions Inc.

Opinion

We have audited the consolidated financial statements of Mission Ready Solutions Inc. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31, 2019, and the consolidated statements of loss and comprehensive loss, consolidated statements of cash flows and consolidated statements of changes in shareholders’ equity for the years ended December 31, 2020 and December 31, 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and December 31, 2019, and its financial performance and its cash flow for the years ended December 31, 2020 and December 31, 2019 in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net comprehensive loss of $1,015,201 during the year ended December 31, 2020 and, as of that date, the Company had not yet achieved profitable operations, had accumulated losses of $33,206,033 since its inception, and expects to incur further losses in the development of its business. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information comprises the Management Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

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

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Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement practitioner on the audit resulting in this independent auditor’s report is Anthony Chan, CPA, CA.

“A Chan & Company LLP” Chartered Professional Accountant

Unit# 114B (2nd floor) – 8988 Fraserton Court Burnaby, BC, Canada V5J 5H8 April 30, 2021

MISSION READY SOLUTIONS INC. Consolidated Statements of Financial Position As at December 31, 2020 and 2019

(Expressed in Canadian dollars)

		December 31,	December 31,
	Notes	2020	2019
		$	$
ASSETS
Current Assets
Cash		1,631,390	645,965
Trade and other receivables		6,513,954	3,560,203
GST recoverable		52,588	42,109
Inventories	4	388,523	623,213
Prepaid expenses and deposits		3,666,148	2,684,672
		12,252,603	7,556,162
Property and equipment	5	249,854	320,589
Deferred income tax assets	18	2,108,784	-
Goodwill	16	17,279,399	17,279,399
Other intangible assets	6	1,910,495	2,214,333
		33,801,135	27,370,483
LIABILITIES
Current Liabilities
Trade and other payables	15	21,994,592	10,412,475
Current portion of equipment loans payable	7	-	3,418
Current portion of notes payable	16, 17	3,883,339	8,819,266
Due to related parties	8	163,893	254,753
Lease liability	10	-	15,730
		26,041,824	19,505,642
Notes payable	16, 17	**989,197 **	1,917,091
		27,031,021	21,422,733
SHAREHOLDERS’ EQUITY
Share capital	9	33,357,788	31,973,915
Reserves	9	6,618,359	5,876,507
Deficit		(33,206,033)	(31,902,672)
Total shareholders’ equity		6,770,114	5,947,750
		33,801,135	27,370,483
Nature of operations and going concerns	1
Commitments	10
Contingencies	15
Subsequent event	19

Approved and authorized for issuance by the Board of Directors on April 30, 2021:

Approved on Behalf of the Board of Directors:

“Buck L. Marshall” Director	“Terrace L. Nixon”
	Director

MISSION READY SOLUTIONS INC. Consolidated Statements of Loss and Comprehensive Loss For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

Notes Year ended December 31, 2020	Year ended December 31, 2019
$ Revenue 105,069,731 Cost of goods sold (97,011,786)	$ 21,192,948 (18,772,872)
Gross profit 8,057,945	2,420,076
General and administrative expenses Amortization, depreciation and accretion 5, 6, 10 349,805 Bad debt (recovery) (1,634) Interests and bank charges 2,113,477 Computer services & software 20,246 Consulting fees 8 635,379 Corporate governance costs 8 204,086 Insurance 42,080 Marketing and promotion 111,941 Office and miscellaneous 374,543 Professional fees 1,018,779 Rent and utilities 227,588 Royalty fees - Stock-based compensation 8 1,491,192 Supplies and materials - Travel 31,795 Wages and benefits 8 4,476,277	466,850 445,242 1,267,222 79,643 934,437 237,825 38,211 63,411 249,058 309,923 206,670 378 1,812,251 9,423 75,305 2,375,135
Total expenses (11,095,554)	(8,570,984)
Other items Foreign exchange gain 38,631 Finance income - Gain on settlement of debts 9, 17 1,353,613 Loss on disposition of property and equipment - Other income 11,334 Write-down of inventories - Write-off of other receivables - Write-off of other payables 473,359 Current income tax expenses 18 (2,402,010) Deferredincome tax recovery 18 2,221,909	6,539 - - (168,128) 5,733 (1,260,167) (5,380) 134,753 -
Total other items 1,696,836	(1,286,650)
Net loss (1,340,773)	(7,437,558)
Foreign currency translation adjustments 325,572	(258,180)
Comprehensive loss (1,015,201)	(7,695,738)
Basic and diluted lossper common share (0.006)	(0.05)
Weighted average number of common shares outstanding 188,620,953	160,206,569

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

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MISSION READY SOLUTIONS INC.

Consolidated Statements of Changes in Shareholders’ Equity (Expressed in Canadian dollars)

	Share Capital Number of Shares Amount Stock options reserves Warrants reserves Foreign currency translation reserve Accumulated Deficit Total
Balance, December 31, 2018 Shares to acquire Unifire, Inc. (Note 16) Shares issued for cash Share issuance costs Shares issued for debt Exercise of options Exercise of warrants Stock-based compensation Comprehensive loss	$ $ $ $ $ $ 130,391,887 20,377,159 3,655,663 47,995 713,553 (24,465,114) 329,256 26,315,790 7,631,579 - - - - 7,631,579 12,626,500 3,156,625 - - - - 3,156,625 - (103,148) - 10,178 - - (92,970) 1,481,818 326,000 - - - - 326,000 350,000 171,692 (84,192) - - - 87,500 2,754,979 414,008 - (20,761) - - 393,247 - - 1,812,251 - - - 1,812,251 - - - - (258,180) (7,437,558) (7,695,738)
Balance, December 31, 2019 Shares issued for debt Exercise of warrants Fair value of finder’s warrants expired Stock-based compensation Comprehensive loss	173,920,974 31,973,915 5,383,722 37,412 455,373 (31,902,672) 5,947,750 14,604,387 1,241,373 - - - - 1,241,373 950,000 142,500 - - - - 142,500 - - - (37,412) - 37,412 - - - 453,692 - - - 453,692 - - - - 325,572 (1,340,773) (1,015,201)
Balance, December 31, 2020	189,475,361 33,357,788 5,837,414 - 780,945 (33,206,033) 6,770,114

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

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MISSION READY SOLUTIONS INC. Consolidated Statements of Cash Flows For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

	2020	2019
	$	$
Operating activities
Net loss	(1,340,773)	(7,437,558)
Adjustments for non-cash items:
Amortization and depreciation	349,805	466,850
Bad debts	-	445,242
Gain on settlement of debts	(1,353,613)	-
Deferred income tax recovery	(2,108,784)
Loss on disposition of property and equipment	-	168,128
Stock-based compensation	1,491,192	1,812,251
Write-off of other receivables	-	5,380
Write-off of other payables	-	(134,753)
Write-down of inventories	-	1,260,167
Change in non-cash working capital components:
Trade and other receivables	(2,953,751)	(3,294,850)
GST recoverable	(10,479)	(19,606)
Inventories	234,690	115,628
Prepaid expenses and deposits	(981,476)	(2,145,476)
Trade and other payables	11,236,455	4,742,360
Lease liability	(18,429)	(72,140)
Due to related parties	(90,860)	(143,843)
Net cash provided by (used in) operating activities	4,453,977	(4,232,220)
Investing activities
Acquisition of property and equipment – net	(9,125)	(1,695)
Proceeds from disposal of property and equipment	-	1,460
Cash acquired from Unifire	-	65,276
Net cash (used in) provided by investing activities	(9,125)	65,041
Financing activities
Shares issued for cash, net of share issue costs	-	3,063,655
Exercise of options	-	87,500
Exercise of warrants	142,500	393,247
Proceeds from notes payable	655,189	1,358,220
Repayments on notes payable	(4,444,124)	-
Repayments on loans payable	-	(10,945)
Net cash (used in) provided by financing activities	(3,646,435)	4,891,677
Increase in cash	798,417	724,498
Effect of exchange rate changes on cash	187,008	(91,023)
Cash, beginning	645,965	12,490
Cash, ending	1,631,390	645,965
Cash paid for interest expense	-	-
Cashpaid for income taxes	-	-

Supplemental Information with Respect to Cash Flows (Note 12)

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

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

1. NATURE OF OPERATIONS

Mission Ready Solutions Inc. (“ Mission Ready ” or the “ Company ”) is governed by the Business Corporations Act (British Columbia). The head office is located at Suite 400 – 1681 Chestnut Street, Vancouver, B.C., Canada, V6J 4M6. The Company’s common shares are traded on the TSX Venture Exchange (“ TSXV ”) under the symbol “MRS” and OTCQX Venture Market under the symbol “MSNVF”.

Mission Ready specializes in providing comprehensive government contracting solutions – through its wholly-owned subsidiary, Unifire, Inc. (“ Unifire ”) Unifire is a designated Small Business and an industry-leading manufacturer and distributor of over 1.5 million fire, military, emergency, and law enforcement products. Unifire has extensive knowledge and experience in providing solutions to the US Federal Government, Unifire utilizes its highly efficient and scalable technology infrastructure to provide procurement solutions for program managers, military and federal contracting offices, base supply centers, and other governmental supply agencies.

The Company’s ability to continue as a going concern is dependent upon its ability to generate profits from its operations and the continuing financial support of its shareholders and related parties to finance its operations and expansion activities. From inception to December 31, 2020, the Company has incurred losses from operations and has not generated any positive cash flow from operating activities. Although the Company has raised funds in the past, there can be no assurance the Company will be able to secure sufficient debt or equity financing for its working capital and expansion activities, in which case the Company may be unable to meet its obligations as they come due in the normal course of business. It is not possible to predict whether financing efforts will be successful or if the Company will attain profitable level of operations.

The current cash resources are not adequate to pay the Company’s current liabilities and to meet its minimum commitments at the date of these financial statements; accordingly, there is significant doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts or classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

In March 2020, the World Health Organization declared a global pandemic related to the virus known as COVID-19. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company’s. This outbreak could decrease spending, adversely affect demand for the Company’s products and harm the Company’s business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

2. BASIS OF PRESENTATION

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretation Committee (“IFRIC”).

These consolidated financial statements are prepared on a historical cost basis except for certain financial instruments as described at Note 13, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

Basis of consolidation

Consolidated financial statements include the assets, liabilities and results of operations of all entities controlled by the Company. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the Company’s the consolidated financial statements. Where control of an entity is obtained during a financial year, its results are included in the consolidated statements of comprehensive loss from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control exists.

These consolidated financial statements include the accounts of the Company and its subsidiaries as follows:

Name	Country of		Functional
	**incorporation **	Holding	currency
Mission Ready Holdings Ltd.	Canada	100.0%	Canadian dollar
Mission Ready Holdings USA Inc. Unifire, Inc.(1)	United States United States	100.0% 100.0%	U.S. dollar U.S. dollar
Protect The Force Inc.	United States	100.0%	U.S. dollar
PTF Manufacturing Inc.	United States	100.0%	U.S. dollar
No Contact, LLC	United States	100.0%	U.S. dollar
10-20 Services Inc.	United States	100.0%	U.S. dollar

• (1) Unifire, Inc. (“ Unifire ”) was acquired effective April 22, 2019. These consolidated financial statements include the financial statements of Unifire from the date of acquisition.

3. SIGNIFICANT ACCOUNTING POLICIES

The preparation of these consolidated financial statements requires management to make judgements and estimates that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these judgements and estimates. The consolidated financial statements include judgements and estimates which, by their nature, are uncertain. The impacts of such judgements and estimates are pervasive throughout the 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 the revision affects both current and future periods.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant assumptions about the future and other sources of judgements and estimates that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

i) Impairment of property and equipment and intangible assets

An impairment loss is recognized for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each asset or cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results. In addition, when determining the applicable discount rate, estimation is involved in determining the appropriate adjustments to market risk and asset specific risk factors. These assumptions relate to future events and circumstances. Actual results may vary and may cause significant adjustments to the Company’s assets within the next financial year.

ii) Useful lives of property and equipment and intangible assets

Management reviews the useful lives of property and equipment and intangible assets at each reporting date, based on the expected utility of these assets to the Company. The useful lives of these assets may be shortened due to future technological developments.

Foreign currency

These consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the parent company. Each subsidiary determines its own functional currency and items included in the financial statements of each subsidiary are measured using that functional currency.

i) Transactions and Balances in Foreign Currencies

Foreign currency transactions are translated into the functional currency of the respective entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognized in profit or loss.

Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction and are not retranslated. Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.

ii) Foreign operations

On consolidation, the assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on the translation are recognized in other comprehensive income and accumulated in the foreign currency translation reserve in equity. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in earnings and recognized as part of the gain or loss on disposal.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is recorded to the extent that collection is reasonably assured.

Revenues from the sale of protective services gear are recognized when the products are delivered.

Revenues from the cleaning and repairing services of protective services gear are recognized when the services are completed.

Consulting fees under a consulting service agreement are recognized on an accrual basis when services are performed. Sales commission income, representing fees earned from the sale of products by the Company’s clients and determined based on fixed commission rates specified under consulting service agreements, is recognized when earned.

Convertible debentures

Convertible debentures are compound financial instruments that are recorded in part as a liability and in part as shareholders’ equity. The Company uses the “residual valuation” method to determine the debt and equity components of the convertible debentures. Under the residual valuation method, the liability component is determined by estimating the present value of the future cash payments discounted at a rate of interest which the Company would be charged by the market for similar debt without the conversion option. The difference between the net proceeds of the debenture and the liability component is recorded as a separate component of shareholders’ equity. Debentures payable is accreted to its face value at maturity over the term of the debt through a charge to operations. The value of the equity component is not remeasured subsequent to its initial measurement date, and remains in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital.

On the early redemption of convertible debentures, the Company allocates the consideration paid on extinguishment to the liability based on its fair value at the date of the transaction and the residual is allocated to the conversion option. Any resulting gain or loss relating to the liability component is charged to profit or loss, and the difference between the carrying amount and the amount considered to be settled relating to the equity component is treated as a capital transaction and charged to share capital.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. As at December 31, 2020 and 2019, other than contingencies disclosed in Note 15, the Company has no material provisions.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is recognized to write off the cost of the property and equipment less their residual values over their useful lives using the declining balance method at various rates ranging from 20% to 30% per annum for furniture and equipment and computer equipment, except in the year of acquisition when one-half of the rate is used, and the straight-line method for leasehold improvements over the term of the lease. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Intangible assets

Intangible assets include a license to use a proprietary wash technology, U.S. National Institute of Justice ballistic certifications, a patent in a proprietary technology in electrically charged self-defense wearable technology, and customer-related and vendor-related intangible assets (Note 6). Intangible assets acquired are measured on initial recognition at cost, while the cost of intangible assets acquired in a business combination is initially recorded at their fair values as at the date of acquisition.

An intangible asset is derecognized on disposal or when no future economic benefits are expected from use or disposal. Any gain or loss arising from the derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in profit or loss.

The useful life of the Company’s license to a proprietary wash technology ceases upon the expiry of the underlying patent on August 18, 2019. The useful life of the Company’s patent to a proprietary technology in electrically charged self-defense wearable technology expires on November 1, 2025.

The Company capitalizes wages, materials, and direct costs related to product development of advanced wearable technologies in accordance with the requirements as set out in IAS 38, Intangible Assets. Commencing in 2016, capitalized product development costs are amortized on a straight-line basis over 20 years being the estimated useful life of the underlying patents pending.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of property and equipment and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its property and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. Individual assets are grouped together as a cash generating unit for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are independent from other group assets.

If any such indication of impairment exists, the Company makes an estimate of its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. Where the carrying amount of a cash generating unit exceeds its recoverable amount, the cash generating unit is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the cash generating unit and are discounted to their present value with a discount rate that reflects the current market indicators.

Where an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the revised estimate of its recoverable amount, to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the cash generating unit in prior years. A reversal of an impairment loss is recognized as income immediately.

Share capital and share subscriptions

Share capital includes cash consideration received for share issuances, net of commissions and issue costs. Share subscriptions represent proceeds received for shares that have not yet been issued as at the reporting date.

Loss per share

Loss per share is calculated using the weighted average number of common shares issued and outstanding during the reporting period. Diluted loss per share is the same as basic loss per share, as the issuance of shares on the exercise of stock options and share purchase warrants is anti-dilutive.

Reserves

Stock options reserve and share purchase warrants reserve are used to recognize the fair value of stock options and finders’ warrants prior to their exercise, expiry, or cancellation. Fair value of stock options and finder’s warrants is determined on the date of grant using the Black-Scholes Model.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Share-based payments

The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of stock options and other share-based payments is recorded based on the estimated fair value using the Black Scholes option-pricing model at the grant date and charged to profit over the vesting period. The amount recognized as an expense is adjusted to reflect the number of equity instruments expected to vest.

Upon the exercise of stock options and other share-based payments, consideration received on the exercise of these equity instruments is recorded as share capital and the related share-based payment reserve is transferred to share capital.

Upon the expiry or cancellation of stock options and other share-based payments, their fair value previously recorded in reserve is transferred to deficit.

Income taxes

Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity.

i) Current income tax

Current income tax assets and/or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the consolidated financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

ii) Deferred income tax

Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always provided for in full.

Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and liabilities from the same taxation authority.

Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.

14

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments

Classification

• The Company classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through OCI or through profit or loss), and

• those to be measured at amortized cost.

The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

The Company reclassifies debt instruments when and only when its business model for managing those assets changes.

Recognition and derecognition

Regular way purchases and sales of financial assets are recognized on trade-date, the date on which the Company commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transactions costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

15

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Debt instruments

Subsequent measurement of debt instrument depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Company classifies its debt instruments:

• Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss.

• FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the statement of profit or loss.

• FVPL: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognized in profit or loss and presented net within other gains/(losses) in the period in which it arises.

Equity instruments

The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Company’s right to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

Impairment

The Company assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

16

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Comparative figures

Certain comparative figures have been reclassified to conform with the financial statement presentation adopted for the current period. These reclassifications have no effect on the consolidated net loss for the year ended December 31, 2019.

Changes in accounting policies

i) IFRS 16 – Leases

On January 13, 2016, the International Accounting Standards Board published a new standard, IFRS 16, Leases, eliminating the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees will recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant. IFRS 16 is effective for reporting periods beginning on or after January 1, 2019, with early application permitted.

See Notes 5 and 10 for the effect of the adoption of IFRS 16.

4. INVENTORIES

	December 31,	December 31,
	2020	2019
	$	$
Raw materials	251,132	167,491
Finished goods	**137,391 **	455,722
Total	388,523	623,213

17

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

5. PROPERTY AND EQUIPMENT

	Wash & Other	Computer	Leasehold	Right-of-Use
	Equipment	Equipment	Improvements	Asset	TOTAL
	$	$	$	$	$
COSTS
Balance, December 31, 2018	1,232,612	62,442	175,502	-	1,470,556
Additions (Note 10)	-	1,695	-	84,685	86,380
Acquired from Unifire, Inc. (Note 16)	10,880	50,429	74,155	-	135,464
Disposition	(751,320)	(24,925)	(167,089)	-	(943,334)
Foreign currency adjustments	(112,267)	(3,868)	(9,969)	(1,937)	(128,041)
Balance, December 31, 2019	379,905	85,773	72,599	82,748	621,025
Additions	3,756	5,369	-	-	9,125
Foreign currency adjustments	(8,418)	(1,826)	(1,635)	(1,631)	(13,510)
Balance, December 31, 2020	375,243	89,316	**70,964 **	81,117	616,640
ACCUMULATED DEPRECIATION
Balance, December 31, 2018	725,652	45,255	175,502	-	946,409
Depreciation	88,307	16,932	8,476	67,630	181,345
Disposition	(587,572)	(22,644)	(167,089)	-	(777,305)
Foreigncurrency adjustments	(37,518)	(2,187)	(8,876)	(1,432)	(50,013)
Balance, December 31, 2019	188,869	37,356	8,013	66,198	300,436
Depreciation	40,231	11,105	8,568	17,094	76,998
Foreigncurrency adjustments	(6,471)	(1,204)	(798)	(2,175)	(10,648)
**Balance, December 31, 2020 **	222,629	**47,257 **	15,783	81,117	366,786
NET BOOK VALUE
Balance, December 31, 2019	191,036	48,417	64,586	16,550	320,589
Balance, December 31, 2020	152,614	42,059	55,181	-	249,854

18

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

6. INTANGIBLE ASSETS

	Product
	Development	Licenses &
	Costs	Certifications	Patents	Rights	TOTAL
	$	$	$	$	$
COSTS
Balance, December 31, 2018	1,210,384	233,217	442,193	-	1,885,794
Acquired from Unifire, Inc. (Note 16)	-	-	9,630	1,210,117	1,219,747
Foreign currency adjustments	(58,028)	(3,989)	(22,510)	(45,625)	(130,152)
Balance, December 31, 2019	1,152,356	229,228	429,313	1,164,492	2,975,389
Foreigncurrency adjustments	(22,714)	(2,835)	(9,218)	(32,000)	(66,767)
Balance, December 31, 2020	1,129,642	226,393	420,095	**1,132,492 **	2,908,622
ACCUMULATED AMORTIZATION
Balance, December 31, 2018	151,299	158,680	206,221	-	516,200
Amortization	58,863	21,332	36,263	165,862	282,320
Foreigncurrency adjustments	(8,500)	(1,202)	(11,703)	(16,059)	(37,464)
Balance, December 31, 2019	201,662	178,810	230,781	149,803	761,056
Amortization	59,512	8,943	36,662	167,690	272,807
Foreigncurrency adjustments	(7,005)	(1,023)	(7,171)	(20,537)	(35,736)
Balance, December 31, 2020	254,169	186,730	260,272	296,956	998,127
NET BOOK VALUE
Balance, December 31, 2019	950,694	50,418	198,532	1,014,689	2,214,333
Balance, December 31, 2020	875,473	39,663	159,823	835,536	1,910,495

19

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

6. INTANGIBLE ASSETS (continued)

a) Product Developments Costs

The Company has capitalized wages, materials, and direct costs related to the development of its proprietary protective services gear including the No Contact riot shield cover, Ballistic Combat Shirt, and Flex9Armor Tactical Police Shirt. Commencing in 2016, these capitalized costs are amortized on a straight-line basis over 20 years being the estimated useful life of the underlying patents pending.

b) License and Certifications

On September 19, 2016, the Company acquired certain certifications that comply with the U.S. National Institute of Justice standard for ballistic resistance of body armor. The certifications are amortized on a straight-line basis over the same period as the No Contact patent (Note 6(c)) until November 1, 2025.

c) Patents

In 2012, the Company acquired No Contact, LLC which carries on the business of research and development activities focused on wearable technologies synthesizing advanced textiles with electronics and computation for personal protection and safety. The Company holds a patent on the No-Contact Electro Muscular Disruption technology. The Company allocated the purchase price of US$275,000 to the patent acquired. The patent is amortized on a straight-line basis over its useful life until its expiry on November 1, 2025.

d) Rights

On March 25, 2016, the Company purchased various assets and rights from Source One Distributors, Inc. for US$1,253,600. These assets were purchased to expand access to military contracts and vendor relationships. A former shareholder of Unifire provided a loan of US$1,250,000 to the Company for this purchase (Notes 16 and 17).

7. EQUIPMENT LOANS PAYABLE

On September 30, 2013, the Company received an equipment financing loan of US$245,071 from Aztec Financial, LLC. The loan is repayable in 60 monthly installments of US$4,936 including interest at the rate of 8.00%. The loan is secured by the Company’s wash equipment located at Fayetteville, North Carolina in the United States.

On November 11, 2013, the Company received a vehicle financing loan of US$24,108 from Aztec Financial, LLC. The loan is repayable in 60 monthly installments of US$486 including interest at the rate of 7.87%. The loan is secured by the Company’s vehicle in the United States.

On May 14, 2015, the Company received a vehicle financing loan of US$31,640 from Aztec Financial, LLC. The loan is repayable in 60 monthly installments of US$658 including interest at the rate of 8.51%. The loan is secured by the Company’s vehicle in the United States.

As of December 31, 2020 and 2019, the outstanding loans payable was $Nil (US$Nil) and $3,418 (US$2,632), respectively.

20

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

8. RELATED PARTIES

Details of transactions between the Company and other related parties, in addition to those transactions disclosed elsewhere in these consolidated financial statements, are described as follows.

a) Compensation of Key Management Personnel

The compensation paid or payable to directors and key management personnel, including consulting and professional fees for administrative, management, accounting, and legal services provided by these related parties, during the year ended December 31, 2020 and 2019 are as follows:

	December 31,	December 31,
	2020	2019
	$	$
Option pricing differential compensation (Note 9(c))	992,500	-
Salaries and other short-term employee benefits	1,307,033	628,195
Director fees	138,362	78,068
Stock-based compensation	140,738	1,085,196
	2,578,633	1,791,459

All related party transactions were in the ordinary course of business and were measured at their exchange amount as agreed between the related parties.

b) Related Party Balances

As of December 31, 2020 and 2019, the Company has the following amounts owed to related parties that are noninterest bearing, unsecured, and have no specified terms of repayment.

	December 31,	December 31,
	2020	2019
	$	$
Option pricing differential payable (Note 9(c))	707,500	-
Director fees payable	100,753	84,324
Due to officers and former officers	166,953	170,429
	975,206	254,753

9. SHARE CAPITAL

a) Authorized Share Capital

The Company is authorized to issue an unlimited number of common shares without par value.

b) Issued and Outstanding Common Shares

On February 15, 2019, the Company issued 1,390,000 common shares on the exercise of warrants at $0.15 per share for total proceeds of $208,500.

On March 14, 2019, the Company issued 400,000 common shares on the exercise of finders’ unit warrants at $0.15 per share for total proceeds of $60,000.

21

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

9. SHARE CAPITAL (continued)

b) Issued and Outstanding Common Shares (continued)

On March 29, 2019, the Company issued 400,000 common shares on the exercise of finders’ warrants at $0.10 per share for total proceeds of $40,000.

On April 2, 2019, the Company closed a non-brokered private placement (the “ Offering ”) and issued an aggregate of 10,889,500 units at a price of $0.25 per unit for gross proceeds of $2,722,375. Each unit consisted of one common share (“ Share ”) and one transferable common share purchase warrant (“ Warrant ”), with each Warrant exercisable into one Share at an exercise price of $0.40 per Share until April 2, 2020. Management of the Company acquired an aggregate of 320,000 units in the Offering. The Company has paid cash commissions of $92,970 and issued 371,880 finder’s warrants to finders as compensation in relation to the Offering. Each finder’s warrant is exercisable to acquire one common share at an exercise price of $0.40 per share until April 2, 2020.

On April 18, 2019, the Company issued 150,000 common shares on the exercise of options at $0.25 per share for total proceeds of $37,500.

On April 23, 2019, the Company closed the Acquisition of Unifire following the receipt of the Final Acceptance from the TSXV and issued 26,315,790 common shares valued at $7,631,579 (Note 16).

On May 15, 2019, the Company issued 100,000 common shares on the exercise of options at $0.25 per share for total proceeds of $25,000.

On May 28, 2019, the Company issued 100,000 common shares on the exercise of options at $0.25 per share for total proceeds of $25,000.

On July 9, 2019, the Company issued 364,979 common shares on the exercise of warrants at $0.15 per share for total proceeds of $54,747.

On July 17, 2019, the Company issued 200,000 common shares on the exercise of warrants at $0.15 per share for total proceeds of $30,000.

On August 15, 2019, the Company closed a non-brokered private placement and issued an aggregate of 1,737,000 units at a price of $0.25 per unit for gross proceeds of $434,250. Each unit consisted of one common share and one transferable common share purchase warrant. Each warrant is exercisable to acquire one common share at an exercise price of $0.40 per share for a period of one year.

On August 27, 2019, the Company issued a total of 1,481,818 common shares to settle certain outstanding director fees, consulting fees, and other amounts owed totaling $326,000.

On January 3, 2020, the Company issued 14,604,387 common shares of the Company valued at $1,241,373 to settle certain outstanding creditors of the Company for an aggregate amount of $2,190,658 in which $1,983,750 was included in notes payable and $206,908 was included in trade and other payables (Note 17). The issuance of common shares resulted in a gain on settlement of debts of $949,285.

On September 28, 2020, the Company issued 800,000 common shares on the exercise of warrants at $0.15 per share for total proceeds of $120,000.

22

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

9. SHARE CAPITAL (continued)

b) Issued and Outstanding Common Shares (continued)

On December 7, 2020, the Company issued 150,000 common shares on the exercise of warrants at $0.15 per share for total proceeds of $22,500.

c) Stock Options

Under the Company’s stock option plan, the maximum number of shares that may be reserved for issuance is limited to 20% of the issued and outstanding common shares of the Company at any time. Under the plan, the exercise price of an option may not be less than the discounted market price. The options may have a maximum term of 10 years and be vested at the discretion of the board of directors.

As of December 31, 2020, 20,291,667 options, with an average exercise price of $0.24 per share and an average remaining life of 4.83 years, have been vested.

	Year ended	Year ended	Year ended	Year ended
	December	31, 2020	December 31, 2019
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	options	price	options	price
Opening	25,175,000	$0.24	16,664,571	$0.26
Granted	2,250,000	0.17	12,750,000	$0.23
Exercised	-	-	(350,000)	$0.25
Cancelled	(6,150,000)	0.24	(3,889,571)	$0.27
Ending	21,275,000	$0.24	25,175,000	$0.24

As of December 31, 2020, the following options remain outstanding:

		Exercise	Expiry
Number of options	Exercisable	price	date
400,000	400,000	$0.25	April 16, 2021
625,000	625,000	$0.25	May 1, 2023
200,000	200,000	$0.25	June 11, 2023
25,000	25,000	$0.35	May 8, 2024
2,000,000	2,000,000	$0.22	August 15, 2024
775,000	775,000	$0.25	September 2, 2024
7,000,000	7,000,000	$0.24	September 23, 2024
150,000	150,000	$0.35	November 21, 2024
400,000	166,667	$0.15	July 28, 2025
7,850,000	7,850,000	$0.25	September 25, 2027
1,000,000	250,000	$0.20	October 9, 2025
850,000	850,000	$0.15	December 14,2025
21,275,000	20,291,667

23

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

9. SHARE CAPITAL (continued)

c) Stock Options (continued)

The Company finalized an arrangement with certain optionees to remedy the increase in the exercise price of certain stock options due to an administrative delay in formalizing the option terms. Each optionee will receive cash compensation from the Company to offset the additional cost to exercise the optionee’s options. As a result, the Company recorded a provision of $1,037,500 as stock-based compensation related to this remedial arrangement and is included in trade and other payables at December 31, 2020 (Note 8).

d) Share Purchase Warrants

	Year ended	Year ended	Year ended	Year ended
	December	31, 2020	December 31, 2019
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	warrants	price	warrants	price
Opening	15,775,488	$0.25	8,588,787	$0.29
Issued	-	$ -	12,626,500	$0.40
Exercised	(550,000)	$0.15	(1,954,979)	$0.15
Expired	(12,901,843)	$0.27	(3,484,820)	$0.50
Ending	2,323,645	$0.15	15,775,488	$0.35

As of December 31, 2020, the following warrants remain outstanding:

Number of	Exercise	Expiry
warrants	price	date
2,323,645	$0.15	April 28,2021
2,323,645

On February 10, 2020, the Company received approval from TSX Venture Exchange to amend 10,889,500 warrants issued on April 2, 2019 from the original exercise price of $0.40 to $0.27 and the original expiry date of April 2, 2020 to December 31, 2020. In addition, 1,055,000 warrants issued on August 15, 2019 were amended from the original exercise price of $0.40 to $0.25 and original expiry date of August 15, 2020 to December 31, 2020. As of December 31, 2020, these warrants expired unexercised.

e) Finders’ Warrants

Finders’ Warrants
	Year ended		Year ended
	December	31, 2020	December 31, 2019
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	warrants	price	warrants	price
Opening	371,880	$0.40	584,820	$0.23
Issued	-	$ -	371,880	$0.40
Exercised	-	$ -	(400,000)	$0.10
Expired	(371,880)	$0.40	(184,820)	$0.50
Ending	-	$ -	371,880	$0.40

24

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

9. SHARE CAPITAL (continued)

f) Finders’ Unit Warrants

	Year ended	Year ended	Year ended	Year ended
	December	31, 2020	December 31, 2019
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	warrants	price	warrants	price
Opening	400,000	$0.15	400,000	$0.15
Issued	-	$ -	400,000	$0.15
Exercised	(400,000)	$0.15	(400,000)	$0.15
Ending	-	$ -	400,000	$0.15

g) Fair Value of Stock Options and Finders Warrants

The fair value of stock options, finders’ warrants and finders’ unit warrants granted are estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions made during the year ended December 31, 2020 and 2019:

	Year ended	Year ended
	December 31, 2020	December 31, 2019
Risk-Free Annual Interest	0.30% - 0.44%	1.15% - 1.71%
Expected Volatility	127% - 133%	53% - 116%
Expected Life of Option	5 years	1 year – 5 years
Expected Annual Dividend	0%	0%

The weighted average fair value of stock options issued during the year ended December 31, 2020 were $0.15 per option (2019 - $0.14 per option).

Black-Scholes option pricing model require the input of highly subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models may not necessarily provide a single reliable measure of the fair value of the Company’s stock options, finders’ warrants, and finders’ unit warrants.

10. LEASE COMMITMENTS

The Company has entered into various agreements to lease office and warehouse premises. On April 9, 2018, the lease in Jacksboro, Tennessee was extended for another 2 years.

On adoption of IFRS 16, Leases, the Company recognized the right-of-use asset (Note 5), and a corresponding increase in a lease liability, in the amount of $84,685 which represented the present value of future lease payments using a discount rate of 10% during the year ended December 31, 2019.

During the year ended December 31, 2020, the Company recorded an accretion expense of $Nil (2019 - $3,185) related to the lease liability.

25

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

11. SEGMENTED INFORMATION

The assets and operations of the Company are located in Canada and the United States. The Company has two reportable business segments in the global defense, security, and first-responder markets: consulting and manufacturer representation; and inspection, cleaning, and repair services of protective services gear.

		Inspection,
	Manufacturing,	Cleaning &		Corporate
	Research &	Repair		Head Office
	Development	Services	Unifire (WA,	(BC,
	(TN, USA)	(NC, USA)	USA)	Canada)	TOTAL
	$	$	$	$	$
Year ended December 31,	2020
Revenues	1,305,749	-	103,763,982	-	105,069,731
Total expenses	(1,690,105)	24,298	(101,177,741)	(3,566,956)	(106,410,504)
Net income (loss)	(384,356)	24,298	2,586,241	(3,566,956)	(1,340,773)
Year ended December 31,	2019
Revenues	2,251,821	145,513	18,795,614	-	21,192,948
Total expenses	(3,255,849)	(428,991)	(21,695,563)	(3,250,103)	(28,630,506)
Net loss	(1,004,028)	(283,478)	(2,899,949)	(3,250,103)	(7,437,558)
As of December 31, 2020
Current assets	492,392	-	11,597,632	162,579	12,252,603
Total assets	1,718,169	-	31,920,387	162,579	33,801,135
Total liabilities	1,020,302	162,977	19,216,731	6,631,011	27,031,021
As of December 31,
2019
Current assets	519,335	5,830	6,844,902	186,095	7,556,162
Total assets	1,920,994	7,128	25,256,266	186,095	27,370,483
Total liabilities	1,613,622	199,599	19,063,825	545,687	21,422,733

12. SUPPLEMENTAL INFORMATION IN RESPECT TO CASH FLOWS

Non-cash investing and financing activities for the year ended December 31, 2020 and 2019 are as follows:

	December 31,	December 31,
	2020	2019
	$	$
Shares issued for debt	1,241,373	326,000
Finder’s warrants	-	10,178
Fair value reallocation on exercise of stock options & warrants	-	104,953

26

MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

13. FINANCIAL INSTRUMENTS

Classification of financial instruments

		Financial	Financial
As of December 31, 2020	Financial	assets –	liabilities –
	assets -	amortized	amortized
	FVTPL	costs	costs
	$	$	$
Cash	1,631,390	-	-
Trade and other receivables	-	6,513,954	-
Trade and other payables	-	-	21,994,592
Due to related parties	-	-	163,893
Notespayable	-	-	4,872,536
		Financial	Financial
As at December 31, 2019	Financial	assets –	liabilities –
	assets -	amortized	amortized
	FVTPL	costs	costs
	$	$	$
Cash	645,965	-	-
Trade and other receivables	-	3,560,203	-
Trade and other payables	-	-	10,412,475
Other loans payable	-	-	3,418
Due to related parties	-	-	254,753
Lease liability	-	-	15,730
Notespayable	-	-	10,736,357

The fair value of the Company’s financial assets and liabilities approximates the carrying amount.

Management of industry and financial risk

The Company is exposed to various risks in relation to financial instruments. The Company’s risk management is coordinated at its head office in Canada in close cooperation with the board of directors and focuses on actively securing the Company’s short to medium-term cash flows and raising finances for the Company’s capital expenditure program. The Company does not actively engage in the trading of financial assets for speculative purposes. The most significant financial risks to which the Company is exposed are described below.

Credit risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfil its payment obligations. The Company limits its exposure to credit loss for cash by placing its cash with high quality financial institutions and for trade receivables by performing standard credit checks. The credit risk for cash and trade receivables is considered negligible since the counterparties are reputable banks with high quality external credit ratings and customers with no history of default.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company ensures, as far as reasonably possible, that it will have sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash. The Company has working capital deficit of $13,789,221 as of December 31, 2020.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

13. FINANCIAL INSTRUMENTS (continued)

Foreign exchange risk

The Company operates internationally and is exposed to foreign currency risk arising from currency exposures to Canadian dollars. The main currency to which the Company has an exposure is the U.S. dollar. The Company is exposed to currency risk to the extent of its cash, trade and other payables, purchase agreements payable, and loans payable that are denominated in U.S. dollars. The Company does not hedge its exposure to fluctuations in the related foreign exchange rates. The Company’s exposure to currency risk is currently considered insignificant.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Interests on the Company’s promissory notes payable and loan payable are based on fixed rates, and as such, the Company is not exposed to significant interest rate risk.

14. CAPITAL DISCLOSURES

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development and expansion of its business and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk level.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may attempt to issue new shares or debt, dispose of assets, or adjust the amount of cash and cash equivalents. There can be no assurance that the Company will be able to obtain debt or equity capital in the case of operating cash deficits.

In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The Company does not pay out dividends in order to conserve cash reserves and to maximize ongoing development efforts. The Company’s share capital is not subject to external restrictions. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.

15. CONTINGENCIES

The Company is party to litigation (the “ Claim ”) filed by a former 10-20 Services employee who worked at the Company’s Barstow, California location until the facility was closed due to the lease expiry and finalization of a service contract. During the year ended December 31, 2018, the Company settled the Claim for US$75,000. Subsequent to the year ended December 31, 2020, the Company and former 10-20 Services employee entered into a general release and settlement agreement to settle and fully release all claims against the Company in the amount of US$88,620. As at December 31, 2020, the Company accrued $100,043 (US$88,620) related to this Claim, included in trade and other payables, and will be paid in equal monthly installments during the year ended December 31, 2021.

The Company has a contingent liability related to outstanding payables incurred in the amount of US$7,100,000 during the year ended December 31, 2020. This matter is in dispute and the Company plans to vigorously contest this claim. As at December 31, 2020, the Company accrued $9,039,720 (US$7,100,000) as accounts payable pending the outcome of this claim.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

16. BUSINESS ACQUISITION

On July 31, 2018, the Company announced that it had entered into a non-binding letter of intent to acquire (the “ Acquisition ”) Unifire, a company based in Spokane, Washington. On April 22, 2019, the Company received approval from the TSXV for its Acquisition of Unifire. The Acquisition has been structured as a merger between Unifire and a wholly-owned subsidiary of the Company which was incorporated for purposes of the Acquisition. The consideration for the acquisition includes:

1. The issuance of an aggregate of 26,315,790 common shares of the Company (issued).

2. a. The common shares are subject to a four-month statutory hold period and are subject to contractually agreed upon escrow restrictions whereby the common shares will vest incrementally up to the final release date of January 1, 2022.

3. Deferred cash payments totaling US$4,000,000.

4. a. The cash payments will be payable incrementally pursuant to a contractually agreed upon schedule with the final payment to be remitted on January 1, 2022 (Note 17).

5. b. The cash consideration is subject to adjustment to the extent that the net working capital of Unifire on the effective date of the Acquisition is greater or less than US$1,856,798.

The acquisition of Unifire was accounted for as a business combination, in which the assets acquired and the liabilities assumed are recorded at their estimated fair value. The allocation of the purchase consideration is as follows:

Purchase consideration Share considerations Cash considerations (Note 17) TOTAL Assets acquired: Cash Trade and other receivables Inventories Prepaid expenses and deposits Property and equipment Other intangible assets Liabilities assumed: Trade and other payables Notes payables (Note 17) Due to related parties (Notes 6 and 17) Net liabilities assumed Goodwill acquired TOTAL	$ 7,631,579 5,341,200
	$ 12,972,779
	$ 65,276 307,828 1,726,594 462,264 135,464 1,219,747 (4,186,855) (1,575,570) (2,461,368)
	(4,306,620) 17,279,399
	$ 12,972,779

Goodwill recognized comprises the assembled workforce and their knowledge, regulatory affairs and expected revenue growth and future market development.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

17. NOTES PAYABLE

On October 24, 2017, the Company entered into a promissory note agreement with Triumph Business Capital in the amount of $500,000. The promissory note was repayable in a weekly instalment of $3,820.25 per week starting January 1, 2018 and ending on December 31, 2020 and bears interest at 12% per annum. The note was secured by all assets of the Company. During the period ended September 30, 2019, this note was repaid in full.

As of December 31, 2020, the Company has $Nil (2019 - $3,700,092) due to SOS Capital and Capstone Capital Group, LLC (collectively, “Creditors”) for short-term loans received for working capital purposes.

During the year ended December 31, 2019, the Company issued two promissory notes to former shareholders of Unifire in relation to the Acquisition of Unifire totalling US$4,000,000 (CAD$5,341,200), of which $3,424,109 is due within 1 year (Note 16). On December 12, 2019, the Company entered into a debt settlement agreement with one of the former shareholders of Unifire in the amount of US$250,000 (CAD$330,625) by issuing 2,204,167 common shares of the Company (Note 9). The Company received approval from the TSX Venture Exchange on December 23, 2019 and issued the common shares on January 3, 2020. As of December 31, 2020, the Company had a note payable to the two former shareholders of Unifire in the amount of US$3,640,000 (CAD$4,634,448) (2019 – US$4,000,000 (CAD$5,341,200)), of which $3,707,906 is due within 1 year.

As of December 31, 2020, the Company has US$Nil (CAD$Nil) (2019 – US$1,250,000 (CAD$1,623,500)) due to a former shareholder of Unifire related to the acquisition of various assets and rights in 2016 (Note 6). On December 12, 2019, the Company entered into a debt settlement agreement for an aggregate amount of US$1,381,357 (CAD$1,826,845) in which US$1,250,000 (CAD$1,653,125) was included in notes payable and US$131,357 (CAD$173,720) was included in trade and other payables by issuing 12,178,967 common shares of the Company (Note 9). The Company received approval from the TSX Venture Exchange on December 23, 2019 and issued the common shares on January 3, 2020.

During the year ended December 31, 2020, the Company applied for the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act (the “PPP Loans”), administered by the US Small Business Administration. Under the PPP Loans, the Company received US$301,400 and US$187,000 on April 8, 2020 and May 4, 2020, respectively, which bears interest at a rate of 1.00% per annum and matures in 2 years. The PPP Loans are payable monthly with the first six monthly payments deferred and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Company can obtain limited loan forgiveness on eligible expenses, including amounts incurred for US payroll costs and US utility expenses. During the year ended December 31, 2020, the Company received loan forgiveness from US Small Business Administration on $404,328 (US$301,400) under this program. As of December 31, 2020, the Company had an outstanding balance for the PPP Loans in the amount of $238,088 (US$187,000), of which $175,433 (US$137,789) is due within 1 year.

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

18. INCOME TAX

a) Income Tax Expense

The income tax expense of the Company is reconciled to the net loss as follows:

	2020 $ 2019 $
Expected income tax recovery at statutory tax rates Permanent differences Change in valuation allowance Foreign exchange, change in tax rates and other Income Tax Expense (Recovery) Franchise Tax Expense Total Current Income Tax Expense (Recovery) Deferred Income Tax Expense (Recovery) Net Current and Deferred Income Tax Expense	(362,008) (2,008,141) 198,259 464,206 (2,191,868) 1,341,802 (1,633) 202,133
	2,357,250 - 44,760 -
	2,402,010 -
	(2,221,909) -
	180,100 -

b) Deferred Tax Assets and Liabilities

As at December 31, 2020 and 2019, the Company has temporary differences between the carrying value of the assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Accordingly, the Company recorded deferred tax assets as follows:

DeferredTax Assets	2020 $ 2019 $
Non-capital losses Property and Equipment Intangible Assets Accounts payable Financing Fees Other Valuation Allowance Net Deferred Tax Assets	6,019,638 5,951,552 28,814 268,371 195,155 281,644 2,440,724 33,568 33,568 22,755 73,972 (6,631,870) (6,609,107)
	2,108,784 -

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MISSION READY SOLUTIONS INC. Notes to Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

18. INCOME TAX (continued)

As at December 31, 2020, the Company has Canadian non-capital losses of $8,755,000 and U.S. net operating losses of US$13,021,000 which are available to offset future taxable income earned in Canada and the United States respectively. These tax losses expire as follows:

	Canadian Losses C$ U.S. Losses US$
2027 2028 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040	2,106 - 8,932 - 281,556 - 339,094 7,200 288,197 639,572 883,300 1,382,195 174,902 2,284,352 858,185 512,796 610,602 3,710,642 1,622,949 1,475,173 1,228,304 2,001,366 1,493,820 443,827 963,078 564,219
	8,755,025 13,021,342

Deferred tax assets are recognized to the extent that the realization of the related tax benefit through future taxable income is probable. The Company has recorded a full valuation allowance against its deferred tax assets because of uncertainty as to the realization of these assets.

19. SUBSEQUENT EVENT

On March 19, 2021, the Company granted 4,400,000 stock options at an exercise price of $0.70 per share for a period of five years to certain directors, officers, employees and consultants of the Company.

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