Mission Ready Solutions Inc. — Interim / Quarterly Report 2021

May 27, 2021

MISSION READY SOLUTIONS INC.

Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2021

(Expressed 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 condensed consolidated interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management.

The Company’s independent auditor has not performed a review of these condensed consolidated interim financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

2

MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Financial Position As of March 31, 2021 and December 31, 2020

(Expressed in Canadian dollars)

		March 31,	December 31,
	Notes	2021	2020
		$	$
ASSETS
Current Assets
Cash		3,474,978	1,631,390
Trade and other receivables		23,142,154	6,513,954
GST recoverable		56,557	52,588
Inventories	4	423,194	388,523
Prepaid expenses and deposits		1,893,036	3,666,148
		28,989,919	12,252,603
Property and equipment	5	233,687	249,854
Deferred income tax assets		2,082,781	2,108,784
Goodwill	14	17,279,399	17,279,399
Other intangible assets	6	1,823,005	1,910,495
		50,408,791	33,801,135
LIABILITIES
Current Liabilities
Trade and other payables	13	32,556,513	21,994,592
Current portion of notes payable	14, 15	846,574	3,883,339
Due to related parties	7	151,948	163,893
		33,555,035	26,041,824
Notes payable	14, 15	2,682,253	989,197
		36,237,288	27,031,021
SHAREHOLDERS’ EQUITY
Share capital	8	34,336,989	33,357,788
Reserves	8	6,619,716	6,618,359
Deficit		(26,785,202)	(33,206,033)
Total shareholders’ equity		14,171,503	6,770,114
		50,408,791	33,801,135
Nature of operations and going concerns	1
Contingencies	13
Subsequent events	16

Approved and authorized by the Board of Directors on May 26, 2021:

Approved on Behalf of the Board of Directors:

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

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

3

MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss) For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

		Three months	Three months
		ended	ended
		March 31,	March 31,
	Notes	2021	2020
		$	$
Revenue		66,726,040	15,086,440
Cost of goods sold		(58,492,630)	(14,281,205)
Gross profit		8,233,410	805,235
General and administrative expenses
Amortization, depreciation and accretion	5, 6	76,288	102,045
Bad debt		147	-
Interests and bank charges		44,249	453,173
Computer services & software		9,053	27,777
Consulting fees	7	101,062	145,270
Corporate governance costs	7	155,027	44,156
Insurance		31,320	6,730
Marketing and promotion		28,077	32,714
Office and miscellaneous		116,893	121,599
Professional fees		343,801	123,249
Rent and utilities		65,642	48,696
Research and development		3,675	-
Stock-based compensation	7	268,824	1,149,752
Travel		521	19,997
Wages and benefits	7	837,806	754,517
Total expenses		(2,082,385)	(3,029,675)
Other items
Foreign exchange gain (loss)		3,802	(18,796)
Gain on settlement of debts	8, 15	1,137,850	949,285
Gain on disposition of property and equipment		3,814	-
Other income		607,807	1,422
Write-off of other payables		39,459	-
Current income tax expenses		(1,522,926)	-
Total other items		269,806	931,911
Net income(loss)		6,420,831	(1,292,529)
Foreigncurrency translationadjustments		**19,187 **	(701,990)
Comprehensive income(loss)		6,440,018	(1,994,519)
Basic and diluted earnings (loss) per
common share		0.03	(0.01)
Weighted average number of common
shares outstanding
Basic		191,871,844	188,043,898
Diluted		201,865,876	188,043,898

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

4

MISSION READY SOLUTIONS INC.

Condensed Consolidated Interim 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, 2019 Shares issued for debt 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 - - 112,252 - - - 112,252 - - - - (701,990) (1,292,529) (1,994,519)
Balance, March 31, 2020 Exercise of warrants Fair value of finder’s warrants expired Stock-based compensation Comprehensiveloss	188,525,361 33,215,288 5,495,974 37,412 (246,617) (33,195,201) 5,306,856 950,000 142,500 - - - - 142,500 - - - (37,412) - 37,412 - - - 341,440 - - - 341,440 - - - - 1,027,562 (48,244) 979,318
Balance, December 31, 2020 Exercise of options Exercise of warrants Stock-based compensation Comprehensive income	189,475,361 33,357,788 5,837,414 - 780,945 (33,206,033) 6,770,114 1,600,000 630,654 (286,654) - - - 344,000 2,323,645 348,547 - - - - 348,547 - - 268,824 - - - 268,824 - - - - 19,187 6,420,831 6,440,018
Balance, March 31, 2021	193,399,006 34,336,989 5,819,584 - 800,132 (26,785,202) 14,171,503

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

5

MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the three months ended March 31, 2021 and 2020

(Expressed in Canadian dollars)

	2021	2020
	$	$
Operating activities
Net income (loss)	6,420,831	(1,292,529)
Adjustments for non-cash items:
Amortization and depreciation	76,288	102,045
Bad debts	147	-
Gain on settlement of debts	(1,137,850)	(949,285)
Gain on disposition of property and equipment	(3,814)	-
Stock-based compensation	(338,676)	1,149,752
Write-off of other payables	(39,459)	-
Change in non-cash working capital components:
Trade and other receivables	(16,628,347)	(4,098,565)
GST recoverable	(3,969)	(3,176)
Inventories	(34,671)	84,503
Prepaid expenses and deposits	1,773,112	(670,413)
Trade and other payables	11,208,880	4,859,728
Lease liability	-	(18,156)
Due to related parties	(11,945)	241,827
Net cash provided by (used in) operating activities	1,280,527	(594,269)
Investing activities
Proceeds from disposal of property and equipment	5,064	-
Net cash provided by investing activities	5,064	-
Financing activities
Bank overdraft	-	59,238
Exercise of options	344,000	-
Exercise of warrants	348,547	-
Proceeds from notes payable	-	345,901
Repayments on notes payable	(154,452)	-
Repayments on loans payable	-	(3,418)
Net cash provided by financing activities	538,095	401,721
Increase (decrease) in cash	1,823,686	(192,548)
Effect of exchange rate changes on cash	19,902	(223,608)
Cash, beginning	1,631,390	645,965
Cash, ending	3,474,978	229,809
Cash paid for interest expense	-	-
Cashpaid for income taxes	-	-

Supplemental Information with Respect to Cash Flows (Note 10)

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

6

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (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.

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.

7

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

2. BASIS OF PRESENTATION

These condensed consolidated interim financial statements are prepared in accordance with International Accounting Standards 34 - Interim Financial Reporting of the International Financial Reporting Standards (" IFRS ") as issued by the International Accounting Standards Board (“ IASB ”) and interpretations of the International Financial Reporting Interpretation Committee (“ IFRIC ”). The consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as of and for the year ended December 31, 2020.

These condensed consolidated interim financial statements are prepared on a historical cost basis except for certain financial instruments as described at Note 11, which are stated at their fair value. In addition, these condensed consolidated interim 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:

follows:
Name	Country of		Functional
	incorporation	Holding	currency
Mission Ready Holdings Ltd.	Canada	100.0%	Canadian dollar
Mission Ready Holdings USA Inc.	United States	100.0%	U.S. dollar
Unifire, Inc.(1)	United States	100.0%	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 condensed consolidated interim financial statements requires management to make judgements and estimates that affect the reported amounts of assets and liabilities at the date of the condensed consolidated interim financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these judgements and estimates. The condensed consolidated interim 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.

8

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (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 assets 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 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.

4. INVENTORIES

INVENTORIES
	March 31,	December 31,
	2021	2020
	$	$
Raw materials	266,969	251,132
Finished goods	156,225	137,391
Total	423,194	388,523

9

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

5. PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT
	Wash & Other	Computer	Leasehold	Right-of-Use
	Equipment	Equipment	Improvements	Asset	TOTAL
	$	$	$	$	$
COSTS
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
Disposition	(17,978)	-	-	-	(17,978)
Foreigncurrency adjustments	(4,968)	(1,015)	(1,003)	(1,000)	(7,986)
Balance, March 31, 2021	352,297	88,301	69,961	80,117	590,676
ACCUMULATED DEPRECIATION
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
Depreciation	7,687	2,216	2,021	-	11,924
Disposition	(16,729)	-	-	-	(16,729)
Foreign currency adjustments	(3,120)	(536)	(336)	(1,000)	(4,992)
Balance, March 31, 2021	**210,467 **	**48,937 **	17,468	80,117	356,989
NET BOOK VALUE
Balance, December 31, 2020	152,614	42,059	55,181	-	249,854
Balance, March 31, 2021	141,830	39,364	52,493	-	233,687

10

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

6. INTANGIBLE ASSETS

INTANGIBLE ASSETS
	Product
	Development	Licenses &
	Costs	Certifications	Patents	Rights	TOTAL
	$	$	$	$	$
COSTS
Balance, December 31, 2019	1,152,356	229,228	429,313	1,164,492	2,975,389
Foreign currency 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
Foreign currency adjustments	(13,930)	(942)	(5,653)	(19,625)	(40,150)
Balance, March 31, 2021	1,115,712	225,451	414,442	1,112,867	2,868,472
ACCUMULATED AMORTIZATION
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
Foreign currency 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
Amortization	14,041	2,110	8,650	39,563	64,364
Foreign currency adjustments	(3,228)	(467)	(3,740)	(9,589)	(17,024)
Balance, March 31, 2021	264,982	188,373	265,182	326,930	1,045,467
NET BOOK VALUE
Balance, December 31, 2020	875,473	39,663	159,823	835,536	1,910,495
Balance, March 31, 2021	850,730	37,078	149,260	785,937	1,823,005

11

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (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 14 and 15).

7. 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 three months ended March 31, 2021 and 2020 are as follows:

as follows:
	March 31,	March 31,
	2021	2020
	$	$
Salaries and other short-term employee benefits	220,083	242,838
Director fees	75,960	18,000
Stock-based compensation	188,151	-
	484,194	260,838

12

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

7. RELATED PARTIES (continued)

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 March 31, 2021 and December 31, 2020, the Company has the following amounts owed to related parties that are noninterest bearing, unsecured, and have no specified terms of repayment. The option pricing differential payable has been included in trade and other payables.

payables.
	March 31,	December 31,
	2021	2020
	$	$
Option pricing differential payable	115,000	707,500
Director fees payable	89,450	100,753
Due to officers and former officers	62,498	166,953
	266,948	975,206

8. 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 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 15). 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.

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.

During the three months ended March 31, 2021, the Company issued 1,600,000 common shares on the exercise of options for total proceeds of $344,000.

During the three months ended March 31, 2021, the Company issued 2,323,645 common shares on the exercise of warrants for total proceeds of $348,547.

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.

13

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

8. SHARE CAPITAL (continued)

c) Stock Options (continued)

As of March 31, 2021, 19,541,667 options, with an average exercise price of $0.32 per share and an average remaining life of 4.70 years, have been vested.

	Three months ended	Three months ended	Year ended	Year ended
	March 31, 2021		December 31, 2020
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	options	price	options	price
Opening	21,275,000	$0.24	25,175,000	$0.24
Granted	4,400,000	0.70	2,250,000	0.17
Exercised	(1,600,000)	0.22	-	-
Cancelled	-	-	(6,150,000)	0.24
Ending	24,075,000	$0.32	21,275,000	$0.24

As of March 31, 2021, the following options remain outstanding:

		Exercise	Expiry
Number of options	Exercisable	price	date
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
1,800,000	1,800,000	$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
7,350,000	7,350,000	$0.25	September 25, 2027
1,000,000	500,000	$0.20	October 9, 2025
750,000	750,000	$0.15	December 14, 2025
4,400,000	366,667	$0.70	March 18, 2026
24,075,000	19,541,667

14

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

8. SHARE CAPITAL (continued)

d) Share Purchase Warrants

	Three months ended	Three months ended	Year ended	Year ended
	March 31, 2021		December 31, 2020
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	warrants	price	warrants	price
Opening	2,323,645	$0.15	15,775,488	$0.25
Exercised	(2,323,645)	$0.15	(550,000)	$0.15
Expired	-	$-	(12,901,843)	$0.27
Ending	-	$ -	2,323,645	$0.15

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 March 31, 2021, these warrants expired unexercised.

e) Finders’ Warrants

Finders’ Warrants
	Three months ended		Year ended
	March 31, 2021		December 31, 2020
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	warrants	price	warrants	price
Opening		- $ -	371,880 $0.40
Expired		- $-	(371,880) $0.40
Ending		- $ -		- $-
Finders’ Unit Warrants
	Three months ended		Year	ended
	March	31, 2021	December 31, 2020
		Weighted		Weighted
		average		average
	Number of	exercise	Number of	exercise
	warrants	price	warrants	price
Opening	-	$ -	400,000	$0.15
Exercised	-	$-	(400,000)	$0.15
Ending	-	$ -	-	$-

f) Finders’ Unit Warrants

15

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

8. SHARE CAPITAL (continued)

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 three months ended March 31, 2021 and 2020:

	Three months ended	Three months ended
	March 31, 2021	March 31, 2020
Risk-Free Annual Interest	0.98%	-
Expected Volatility	136%	-
Expected Life of Option	5 years	-
Expected Annual Dividend	0%	-

The weighted average fair value of stock options issued during the three months ended March 31, 2021 were $0.54 per option (2020 - $Nil 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.

9. 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.

of protective services gear.
		Inspection,
	Manufacturing,	Cleaning &		Corporate
	Research &	Repair		Head Office
	Development	Services	Unifire (WA,	(BC,
	(TN, USA)	(NC, USA)	USA)	Canada)	TOTAL
	$	$	$	$	$
Three months ended March 31, 2021
Revenues	423,058	-	66,302,982	-	66,726,040
Total(expenses)recovery	(625,133)	-	(60,573,881)	893,805	(60,305,209)
Net income (loss)	(202,075)	-	5,729,101	893,805	6,420,831
Three months ended March 31, 2020
Revenues	272,024	-	14,814,416	-	15,086,440
Total expenses	(185,729)	-	(14,696,141)	(1,497,099)	(16,378,969)
Netincome (loss)	86,295	-	118,275	(1,497,099)	(1,292,529)
As of March 31, 2021
Current assets	461,430	-	28,092,030	436,459	28,989,919
Total assets	1,640,492	-	48,331,840	436,459	50,408,791
Total liabilities	1,064,258	160,967	30,606,559	4,405,504	36,237,288
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

16

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

10. SUPPLEMENTAL INFORMATION IN RESPECT TO CASH FLOWS

Non-cash investing and financing activities for the three months ended March 31, 2021 and 2020 are as follows:

	March 31,	March 31,
	2021	2020
	$	$
Shares issued for debt	-	1,241,373

11. FINANCIAL INSTRUMENTS

Classification of financial instruments

Classification of financial instruments
		Financial	Financial
As of March 31, 2021	Financial	assets –	liabilities –
	assets -	amortized	amortized
	FVTPL	costs	costs
	$	$	$
Cash	3,474,978	-	-
Trade and other receivables	-	23,142,154	-
Trade and other payables	-	-	32,556,513
Due to related parties	-	-	151,948
Notespayable	-	-	3,528,827
		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

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.

17

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

11. FINANCIAL INSTRUMENTS (continued)

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 to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash. The Company had a working capital deficit of $4,565,116 as of March 31, 2021, which is a significant improvement from the Company’s working capital deficit of $13,789,221 at December 31, 2020.

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.

12. 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.

18

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

13. CONTINGENCIES

During the year ended December 31, 2018, Company settled a whistleblower reprisal complaint filed under Title 10, United States Code, Section 2409, “Contractor employees: protection from reprisal for disclosure of certain information,” implemented by Defense Federal Acquisition Regulation Supplement, Subpart 203.9, “Whistleblower Protections for Contractor Employees” (the “ Whistleblower Matter ”). As of March 31, 2021, the Company accrued $56,588 (USD $45,000) related to this settlement and is included in trade and other payables. Subsequent to March 31, 2021, this amount has been fully repaid (Note 16).

The Company is party to litigation 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 (the “ 10-20 Claim ”). During the year ended December 31, 2018, the Company settled the 10-20 Claim for US$75,000. During the three months ended March 31, 2021, 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 of March 31, 2021, the Company had a remaining balance outstanding of $55,720 (US$44,310) related to the 10-20 Claim, included in trade and other payables, to be paid in equal monthly installments during the year ended December 31, 2021. Subsequent to March 31, 2021, this amount has been fully satisfied (Note 16).

As of March 31, 2021, the Company accrued $8,928,250 (US$7,100,000) as accounts payable pending the outcome of a claim currently in dispute. Product Source Group, LLC and J.D. United Manufacturing Co. Ltd. filed a lawsuit against Unifire in New York Supreme Court, Monroe County, Index No. E2020010244 alleging failure to pay for the purchase of isolation gowns. Unifire removed the case to the U.S. District Court for the Western District of New York, Case No. 6:21-cv-06272, and moved to dismiss for lack of personal jurisdiction. The motion to dismiss is pending. The parties have exchanged settlement offers. On May 14, 2021, the plaintiffs filed an amended complaint adding Mission Ready and three current or former officers of Unifire or Mission Ready as defendants. The Company plans to vigorously contest this matter.

14. 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. See Note 15 for subsequent amendments to the deferred cash payments.

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.

19

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

14. BUSINESS ACQUISITION (continued)

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 15) 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 15) Due to related parties (Notes 6 and 15) 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.

15. NOTES PAYABLE

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 14).

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. The Company received approval from the TSX Venture Exchange on December 23, 2019 and issued the common shares on January 3, 2020.

The Company entered into an agreement to defer payments with one of the former shareholders of Unifire to monthly payments of US$25,000 from June 1, 2021 to June 1, 2026 with the last payment consisting of a balloon payment for the remaining balance. A late payment fee has been accrued in the amount of US$109,091 consisting of 5% of each quarterly payment that was not paid within 30 days after the date the quarterly payment becomes due pursuant to the original promissory note agreement. The agreement to defer payments is initially measured at the present value of the payments in the amount of US$2,093,315 on the debt settlement date, using a discount rate of 10%. This resulted in the Company recognizing a gain on settlement of debt of $1,137,850 (US$898,776) during the three months ended March 31, 2021.

20

MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars)

As of March 31, 2021, the Company had a note payable to the two former shareholders of Unifire in the amount of US$2,619,224 (CAD$3,293,675) (December 31, 2020 – US$3,640,000 (CAD$4,634,448)), of which $636,174 is due within 1 year.

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 March 31, 2021, the Company had an outstanding balance for the PPP Loans in the amount of $235,152 (US$187,000), of which $210,400 (US$167,316) is due within 1 year.

16. SUBSEQUENT EVENTS

Subsequent to the three months ended March 31, 2021:

1. The Company issued 1,975,000 common shares on the exercise of options for total proceeds of $476,250.

2. The Company fully satisfied the amounts accrued for the Whistleblower Matter and the 10-20 Claim as discussed in Note 13.

21