Mission Ready Solutions Inc. — Interim / Quarterly Report 2021

Aug 27, 2021

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MISSION READY SOLUTIONS INC.

Condensed Consolidated Interim Financial Statements

For the six months ended June 30, 2021

(Expressed in Canadian dollars)

Protecting Those Who Protect Us

MRSCorp.com

1

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 June 30, 2021, and December 31, 2020 (Expressed in Canadian dollars)

		June 30,	December 31,
	Notes	2021	2020
		$	$
ASSETS
Current Assets
Cash		4,438,566	1,631,390
Trade and other receivables		1,032,801	6,513,954
GST recoverable		61,964	52,588
Inventories	4	519,167	388,523
Prepaid expenses and deposits		1,729,609	3,666,148
		7,782,107	12,252,603
Property and equipment	5	218,629	249,854
Deferred income tax assets		2,052,802	2,108,784
Goodwill	14	17,279,399	17,279,399
Other intangible assets	6	1,733,756	1,910,495
		29,066,693	33,801,135
LIABILITIES
Current Liabilities
Trade and other payables	13	13,274,213	21,994,592
Current portion of notes payable	14, 15	1,067,573	3,883,339
Due to related parties	7	136,862	163,893
		14,478,648	26,041,824
Notes payable	14, 15	2,044,839	989,197
		16,523,487	27,031,021
SHAREHOLDERS’ EQUITY
Share capital	8	36,263,910	33,357,788
Reserves	8	6,616,445	6,618,359
Deficit		(30,337,149)	(33,206,033)
Total shareholders’ equity		12,543,206	6,770,114
		29,066,693	33,801,135
Nature of operations and going concerns	1
Contingencies	13
Subsequent events	16

Approved and authorized for issuance by the Board of Directors on August 26, 2021:

Approved on Behalf of the Board of Directors:

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

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

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MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss) For the three and six months ended June 30, 2021, and 2020 (Expressed in Canadian dollars)

		Three	Three	Six	Six
		months	months	months	months
		ended	ended	ended	ended
		June 30,	June 30,	June 30,	June 30,
	Notes	2021	2020	2021	2020
		$	$	$	$
Revenue		12,008,561	27,210,102	78,734,601	42,296,542
Cost of goods sold		(13,959,168)	(25,159,129)	(72,451,798)	(39,440,334)
Gross profit		(1,950,607)	2,050,973	6,282,803	2,856,208
General and administrative expenses
Amortization, depreciation and accretion	5, 6	74,017	85,890	150,305	187,935
Bad debt		(2)	118,005	145	118,005
Interests and bank charges		17,677	561,742	61,926	1,014,915
Computer services & software		1,096	3,408	10,149	31,185
Consulting fees	7	99,560	129,206	200,622	274,476
Corporate governance costs	7	91,398	24,676	246,425	68,832
Insurance		29,518	14,653	60,838	21,383
Marketing and promotion		18,772	54,930	46,849	87,644
Office and miscellaneous		64,893	116,075	181,786	237,674
Professional fees		173,485	131,390	517,286	254,639
Rent and utilities		48,170	49,154	113,812	97,850
Research and development		3,287	-	6,962	-
Supplies and materials		834	-	834	-
Stock-based compensation	7	724,740	112,253	993,564	1,262,005
Travel		214	(4,935)	735	15,062
Wages and benefits	7	871,389	1,016,337	1,709,195	1,770,854
Total expenses		(2,219,048)	(2,412,784)	(4,301,433)	(5,442,459)
Other items
Foreign exchange gain (loss)		5,577	8,087	9,379	(10,709)
Gain on settlement of debts	8, 15	(17,077)	-	1,120,773	949,285
Gain on disposition of property and equipment		(57)	-	3,757	-
Other income		196	72	608,003	1,494
Write-off of other payables		(1,959)	-	37,500	-
Currentincome tax recovery (expenses)		631,028	-	(891,898)	-
Total other items		617,708	8,159	887,514	940,070
Net income(loss)		(3,551,947)	(353,652)	2,868,884	(1,646,181)
Foreign currency translation adjustments		138,530	405,686	157,717	(296,304)
Comprehensive income(loss)		(3,413,417)	52,034	3,026,601	(1,942,485)
Basic and diluted earnings (loss) per
common share		(0.02)	0.00	0.01	(0.01)
Weighted average number of common
shares outstanding
Basic		195,825,436	188,525,361	193,859,561	188,284,629
Diluted		195,825,436	188,525,361	202,001,951	188,284,629

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

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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 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 - - - (37,412) - 37,412 - - - 224,505 - - - 224,505 - - - - (296,304) (1,646,181) (1,942,485)
Balance, June 30, 2020 Exercise of warrants Stock-based compensation Comprehensiveincome	188,525,361 33,215,288 5,608,227 - 159,069 (33,511,441) 5,471,143 950,000 142,500 - - - - 142,500 - - 229,187 - - - 229,187 - - - - 621,876 305,408 927,284
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 6,005,138 2,557,575 (1,153,195) - - - 1,404,380 2,323,645 348,547 - - - - 348,547 - - 993,564 - - - 993,564 - - - - 157,717 2,868,884 3,026,601
Balance, June 30, 2021	197,804,144 36,263,910 5,677,783 - 938,662 (30,337,149) 12,543,206

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 six months ended June 30, 2021, and 2020

(Expressed in Canadian dollars)

	2021	2020
	$	$
Operating activities
Net income (loss)	2,868,884	(1,646,181)
Adjustments for non-cash items:
Accrued interest	-	1,334
Amortization and depreciation	150,305	187,935
Bad debts	145	-
Gain on settlement of debts	(1,120,773)	(949,285)
Gain on disposition of property and equipment	(3,757)	-
Stock-based compensation	993,564	1,262,005
Write-off of other payables	(37,500)	-
Change in non-cash working capital components:
Trade and other receivables	5,481,008	(16,607,638)
GST recoverable	(9,376)	(7,612)
Inventories	(130,644)	5,704
Prepaid expenses and deposits	1,936,539	(642,584)
Trade and other payables	(8,682,879)	17,273,792
Lease liability	-	(18,429)
Due torelated parties	(27,031)	278,328
Net cash provided by (used in) operating activities	1,418,485	(862,631)
Investing activities
Proceeds from disposal of property and equipment	4,988	-
Net cash provided by investing activities	4,988	-
Financing activities
Exercise of options	1,404,380	-
Exercise of warrants	348,547	-
Proceeds from notes payable	-	671,201
Repayments on notes payable	(519,999)	-
Net cash provided by financing activities	1,232,928	671,201
Increase (decrease) in cash	2,656,401	(191,430)
Effect of exchange rate changes on cash	150,775	(107,825)
Cash, beginning	1,631,390	645,965
Cash, ending	4,438,566	346,710
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 six months ended June 30, 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 Best 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. The Company cannot predict the duration or magnitude of the adverse impacts 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. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 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 described in 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 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%	US dollar
Unifire, Inc.(1)	United States	100.0%	US dollar
Protect The Force Inc.	United States	100.0%	US dollar
PTF Manufacturing Inc.	United States	100.0%	US dollar
No Contact, LLC	United States	100.0%	US dollar
10-20 Services Inc.	United States	100.0%	US dollar

(1) Unifire, Inc. 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.

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MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 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
	June 30,	December 31,
	2021	2020
	$	$
Raw materials	175,501	251,132
Finished goods	343,666	137,391
Total	519,167	388,523

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MISSION READY SOLUTIONS INC.

Notes to the Condensed Consolidated Interim Financial Statements For the six months ended June 30, 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	(17,709)	-	-	-	(17,709)
Foreigncurrency adjustments	(10,848)	(2,186)	(2,159)	(2,153)	(17,346)
Balance, June 30, 2021	346,686	87,130	68,805	78,964	581,585
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	15,164	4,366	3,982	-	23,512
Disposition	(16,478)	-	-	-	(16,478)
Foreign currency adjustments	(6,843)	(1,150)	(718)	(2,153)	(10,864)
Balance, June 30, 2021	214,472	50,473	19,047	**78,964 **	362,956
NET BOOK VALUE
Balance, December 31, 2020	152,614	42,059	55,181	-	249,854
Balance, June 30, 2021	132,214	36,657	49,758	-	218,629

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MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 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	(29,989)	(2,028)	(12,170)	(42,250)	(86,437)
Balance, June 30, 2021	1,099,653	224,365	407,925	1,090,242	2,822,185
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	27,660	4,157	17,040	77,936	126,793
Foreign currency adjustments	(6,916)	(1,000)	(8,032)	(20,543)	(36,491)
Balance, June 30, 2021	274,913	189,887	269,280	354,349	1,088,429
NET BOOK VALUE
Balance, December 31, 2020	875,473	39,663	159,823	835,536	1,910,495
Balance, June 30, 2021	824,740	34,478	138,645	735,893	1,733,756

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MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the six months ended June 30, 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 US 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 six months ended June 30, 2021, and 2020 are as follows:

follows:
	June 30,	June 30,
	2021	2020
	$	$
Salaries and other short-term employee benefits	434,080	492,142
Director fees	149,640	36,000
Stock-based compensation	579,745	-
	1,163,465	528,142

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MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 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 June 30, 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.

	June 30,	December 31,
	2021	2020
	$	$
Option pricing differential payable	115,000	707,500
Director fees payable	74,364	100,753
Due to officers and former officers	62,498	166,953
	251,862	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 six months ended June 30, 2021, the Company issued 6,005,138 common shares on the exercise of options for total proceeds of $1,404,380.

During the six months ended June 30, 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. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 2021, and 2020 (Expressed in Canadian dollars)

8. SHARE CAPITAL (continued)

c) Stock Options (continued)

As of June 30, 2021, 16,628,197 options, with an average exercise price of $0.28 per share and an average remaining life of 4.58 years, have been vested.

	Six months ended	Six months ended	Year ended	Year ended
	June 30,	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	5,300,000	0.67	2,250,000	0.17
Exercised	(6,005,138)	0.23	-	-
Cancelled	-	-	(6,150,000)	0.24
Ending	20,569,862	$0.35	21,275,000	$0.24

As of June 30, 2021, the following options remain outstanding:

		Exercise	Expiry
Number of options	Exercisable	price	date
600,000	600,000	$0.25	May 1, 2023
200,000	200,000	$0.25	June 11, 2023
25,000	25,000	$0.35	May 8, 2024
1,519,862	1,519,862	$0.22	August 15, 2024
775,000	775,000	$0.25	September 2, 2024
3,750,000	3,750,000	$0.24	September 23, 2024
150,000	150,000	$0.35	November 21, 2024
6,500,000	6,500,000	$0.25	September 25, 2027
1,000,000	750,000	$0.20	October 9, 2025
750,000	750,000	$0.15	December 14, 2025
4,400,000	1,466,668	$0.70	March 18, 2026
400,000	100,000	$0.50	May 18, 2026
500,000	41,667	$0.50	June 22, 2026
20,569,862	16,628,197

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MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 2021, and 2020 (Expressed in Canadian dollars)

8. SHARE CAPITAL (continued)

d) Share Purchase Warrants

	Six months ended	Six months ended	Six months ended	Year ended	Year ended
	June	30,	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 June 30, 2021, these warrants expired unexercised.

e) Finders’ Warrants

Finders’ Warrants
	Six months ended			Year ended
	June	30,	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		-	$ -	-	$-

f) Finders’ Unit Warrants

	Six months ended	Six months ended	Six months ended	Year ended	Year ended
	June	30,	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		-	$ -	-	$-

15

MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 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 six months ended June 30, 2021 and 2020:

	Six months ended	Six months ended
	June 30, 2021	June 30, 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 six months ended June 30, 2021 was $0.52 per option (2020 - $Nil per option).

Black-Scholes option pricing model requires 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.

rotective services gear.
		Inspection,
	Manufacturing,	Cleaning &		Corporate
	Research &	Repair		Head Office
	Development	Services	Unifire (WA,	(BC,
	(TN, USA)	(NC, USA)	USA)	Canada)	TOTAL
	$	$	$	$	$
Six months ended June 30,	2021
Revenues	851,598	-	77,883,003	-	78,734,601
Totalexpenses	(955,776)	-	(74,527,767)	(382,174)	(75,865,717)
Net income (loss)	(104,178)	-	3,355,236	(382,174)	2,868,884
Six months ended June 30,	2020
Revenues	351,411	-	41,945,131	-	42,296,542
Total expenses	(716,664)	-	(41,395,151)	(1,830,908)	(43,942,723)
Netincome (loss)	(365,253)	-	549,980	(1,830,908)	(1,646,181)
As of June 30, 2021
Current assets	661,592	-	6,511,419	609,096	7,782,107
Total assets	1,792,540	-	26,665,057	609,096	29,066,693
Total liabilities	998,200	158,650	11,589,994	3,776,643	16,523,487
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. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 2021, and 2020 (Expressed in Canadian dollars)

10. SUPPLEMENTAL INFORMATION IN RESPECT TO CASH FLOWS

Non-cash investing and financing activities for the six months ended June 30, 2021, and 2020 are as follows:

	June	30,	2021	June 30,2020
			$	$
Shares issued for debt			-	1,241,373

11. FINANCIAL INSTRUMENTS

Classification of financial instruments

Classification of financial instruments
		Financial	Financial
As of June 30, 2021	Financial	assets –	liabilities –
	assets -	amortized	amortized
	FVTPL	costs	costs
	$	$	$
Cash	4,438,566	-	-
Trade and other receivables	-	1,032,801	-
Trade and other payables	-	-	13,274,213
Due to related parties	-	-	136,862
Notespayable	-	-	3,112,412
		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 highquality external credit ratings and customers with no history of default.

17

MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 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 $6,696,541 as of June 30, 2021, 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 exposure is the US 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 US 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. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 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 ”) in the amount of $56,115 (US$45,000). During the six months ended June 30, 2021, this amount has been fully repaid.

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 six months ended June 30, 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. During the six months ended June 30, 2021, this amount has been fully satisfied.

As of June 30, 2021, the Company accrued $8,799,740 (US$7,100,000) as accounts payable pending the outcome of a claim currently in dispute. Product Source Group, LLC and JD. 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 US 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 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. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 2021, and 2020 (Expressed in Canadian dollars)

14. BUSINESS ACQUISITION (continued)

The Acquisition 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 totalling US$4,000,000 (CAD 5,341,200) (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 six months ended June 30, 2021.

20

MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the six months ended June 30, 2021, and 2020 (Expressed in Canadian dollars)

15. NOTES PAYABLE (continued)

As of June 30, 2021, the Company had a note payable to the two former shareholders of Unifire in the amount of US$2,324,224 (CAD 2,880,644) (December 31, 2020 – US$3,640,000 (CAD 4,634,448)), of which $835,805 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 June 30, 2021, the Company had an outstanding balance for the PPP Loans in the amount of $231,768 (US$187,000), due within 1 year, which has been forgiven by the US Small Business Administration subsequent to the six months ended June 30, 2021 (Note 16).

16. SUBSEQUENT EVENTS

On July 23, 2021, the Company issued 600,000 common shares on the exercise of options for total proceeds of $150,000.

In July 2021, the Company received loan forgiveness from the US Small Business Administration for US$187,000 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (Note 15).

21