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Mission Ready Solutions Inc. — Management Reports 2022
Nov 29, 2022
46550_rns_2022-11-29_d5894804-c379-4378-a9b9-c3d1b3ec1d9a.pdf
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MISSION READY SOLUTIONS INC.
Management Discussion and Analysis
For the Nine Months Ended September 30, 2022
Protecting Those Who Protect Us
MRSCorp.com
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MISSION READY SOLUTIONS INC. Management’s Discussion and Analysis For the Nine Months Ended September 30, 2022
Introduction
The following management discussion and analysis (" MD&A "), prepared as of November 29, 2022, is a review of the operations, current financial position and outlook for Mission Ready Solutions Inc. (" Mission Ready ") and should be read in conjunction with the Company's (as defined below) most recently issued audited consolidated financial statements for the year ended December 31, 2021, and the unaudited condensed consolidated interim financial statements for the nine months ended September 30, 2022, copies of which are filed on the SEDAR website: www.sedar.com.
The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards (" IFRS "). All dollar figures included herein and in the following discussion and analysis are quoted in Canadian dollars unless otherwise noted.
Management is responsible for the information contained in this MD&A and its consistency with the information presented to the Audit Committee and Board of Directors. All information in this document has been reviewed and approved by the Audit Committee and Board of Directors. This review was performed by management with information available as of November 29, 2022.
The financial information in this MD&A is derived from the Company's consolidated financial statements prepared in accordance with IFRS. This MD&A may contain forward-looking statements based on assumptions and judgments of management regarding events or results that may prove to be inaccurate as a result of risk factors beyond its control. Actual results may differ materially from the expected results.
Forward-Looking Information
This MD&A may include certain "forward-looking statements" within the meaning of applicable Canadian securities legislation. Other than statements of historical facts, all statements included in this MD&A that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future business strategy, competition, strengths, goals, expansion and growth of the Company's businesses, operations, plans and other such matters are forward-looking statements. When used in this MD&A, the words "estimate", "plan", "anticipate", "expect", "intend", "believe", "pipeline", and similar expressions are intended to identify forward-looking statements. Forward-looking information is based in part, on assumptions that may change, thus causing actual results or anticipated events to differ materially from those expressed or implied in any forward-looking information. Such assumptions include the stability or improvement of general economic conditions. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward statements are made as of the date of this MD&A and are expressly qualified in their entirety by this cautionary statement. Subject to applicable securities laws, the Company does not assume any obligation to update or revise them to reflect new events or circumstances. Such factors include, among others, risks related to unavailability of financing, unfavorable market conditions and other factors. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
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MISSION READY SOLUTIONS INC. Management’s Discussion and Analysis For the Nine Months Ended September 30, 2022
Mission Ready serves to prevent injuries and enhance the performance of military personnel, first-responders and all those serving on the front lines by equipping them with the next generation of personal protective equipment (" PPE "). The Company specializes in providing personal protective solutions to the global defense, security and first-responder markets as a product manufacturer and an experienced government contractor. Mission Ready leverages its privileged access to valuable federal procurement vehicles, including the Multiple Award Schedule (" MAS ") contracts administered by the US General Services Administration (" GSA ").
Mission Ready's operations are conducted through its wholly-owned subsidiaries, including Mission Ready Holdings Ltd., Mission Ready Holdings USA Inc., 10-20 Services Inc. Protect The Force, Inc., No-Contact LLC (dba PTF Innovations), PTF Manufacturing Inc. and Unifire, Inc. (collectively, the " Company "). As at September 30, 2022, the Company had a corporate office in Vancouver, British Columbia, Canada, a manufacturing facility in Jacksboro, Tennessee, USA, and a Unifire, Inc. office in Spokane, Washington, USA.
SUMMARY OF RECENT EVENTS
Loan from Northwest Bank of Coeur d'Alene
In December 2021, the Company received a loan for US$6,000,000 from Northwest Bank of Coeur d'Alene (the " Lender ") to facilitate payment of certain payables. The Company will repay US$87,651 per month from February 1, 2022, to January 1, 2027, at which time all sums owing become fully due and payable. The interest payable is based on the index rate of the Lender (3.25% per annum as of the effective date of the loan) plus 2.75%, which is subject to adjustment from time to time based on changes in the Wall Street Journal Prime Rate. Subsequently, the Company and the Lender entered into a forbearance agreement, effective September 27, 2022, (the “Forbearance Agreement”) permitting the satisfaction of certain scheduled payments from the reserve account, and thereby facilitating, on an interim basis, utilization of the Company’s available capital resources for operational activities. Pursuant to the Forbearance Agreement, and a subsequent amendment dated October 28, 2022, the Lender agreed to deduct the October 1, 2022 payment from the reserve account provided that a.) the Company replenish the reserve account within 30 days of the effective date of the amended Forbearance Agreement, and b.) the Company satisfy the minimum liquidity requirement by November 19, 2022. The Company and Lender are engaged in ongoing discussions in respect of the Company’s request for temporary relief from certain obligations under the Forbearance Agreement pending an infusion of working capital into the Company facilitated by operational and/or financing activities.
Debt Settlement
On November 5, 2021, the Company entered into a debt settlement (the "Settlement Agreement") with Product Sources Group, LLC and JD. United Manufacturing Co. Ltd. (the "Creditor") for the payment of the principal amount outstanding of US$7,100,000 (the "Debt"). Pursuant to the Settlement Agreement, the principal balance payable to the Creditor was reduced from US$7.5 million (including accrued interest) to US$6 million. The Company secured a loan from Northwest Bank of Coeur d'Alene to facilitate its payment of US$6 million on or before March 30, 2022, pursuant to the terms of the discount provision of the Settlement Agreement. The Company remitted an initial payment of US$1 million, and subsequently, the Creditor agreed to accept 3,595,856 common shares of the Company in satisfaction of US$1 million (issued on February 3, 2022). The remaining balance of US$4 million was paid in cash by the Company to fully extinguish the outstanding balance to the Creditor.
Master Distribution and Marketing Agreement
In March 2022, the Company entered into a Master Distribution and Marketing Agreement with NuGen M.D. ("NuGen") whereby the Company has been granted exclusive rights to sell NuGen's needle-free injection device InsuJet into various US government agencies and non-exclusive rights to sell into government agencies in Israel and Australia.
Non-Brokered Private Placement Offering
On November 14, 2022, the Company announced that it intends to complete a non-brokered private placement offering of up to 18,750,000 units at a price of $0.08 per unit for gross proceeds of $1,500,000. Each unit will consist of one common share and one transferable common share purchase warrant. Each warrant will entitle the holder to purchase one common share at a price of $0.15 per share for a period of three years from the date of closing. The net proceeds from this offering will be used for ongoing activities and general corporate purposes. The offering is expected to close on or before December 15, 2022.
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MISSION READY SOLUTIONS INC. Management’s Discussion and Analysis For the Nine Months Ended September 30, 2022
RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ended September 30, 2022
The Company's gross revenues for the nine months ended September 30, 2022, were $4.05 million, a decrease of $80.69 million from the $84.74 million realized in the same period in 2021. This is primarily attributable to delays in contracts being awarded. The Company recorded a cost of goods sold of $2.74 million for the nine months ended September 30, 2022, compared to $77.19 million in 2021. The gross margin was 32% for the period. The higher margin reflects the generally higher margins the Company receives on products manufactured in-house without the influence of lower margined government contracts.
Total operating expenses expressed in dollars were lower during the nine months ended September 30, 2022, as compared to the same period in 2021. The decrease in total expenses can be mainly attributed to significant reduction in professional fees, wages and benefits and stock-based compensation related to the granting and vesting of stock options during the period. The decrease in operating expenses was partially offset by an increase in interest and bank charges related to the loan from Northwest Bank of Coeur d'Alene and note payable for the Unifire, Inc. acquisition and accretion expense from the loan from Northwest Bank of Coeur d'Alene.
The Company's corporate head office costs was $0.27 million as compared to an expense of $2.16 million for the same period in 2021, mainly due to a decrease in wages and benefits, decrease in stock-based compensation and a gain on settlement of debts of $1.63 million related to fully extinguishing the outstanding balance to Product Sources Group, LLC and JD. United Manufacturing Co. Ltd. during the period.
Net loss for the nine months ended September 30, 2022, was $3.43 million, an increase in net loss of $4.97 million from a net income of $1.54 million in the prior period. Adjusted EBITDA, consisting of earnings before interest, taxes, depreciation, amortization and stock-based compensation, for the nine months ended September 30, 2022, was $(2.03) million, a decrease of $7.30 million from an adjusted EBITDA of $5.27 million in the prior period. This decrease in adjusted EBITDA is mainly due to the timing of contract awards.
The Company derives approximately 97% of its revenues from customers and clients where the end customer is the US Department of Defense, law enforcement, or private security.
Results of Operations for the Three Months Ended September 30, 2022
The Company's gross revenues for the three months ended September 30, 2022, were $1.05 million, a decrease of $4.96 million from the $6.01 million realized in the same period in 2021. The Company recorded a cost of goods sold of $0.60 million for the three months ended September 30, 2022, compared to $4.74 million in 2021.
Total operating expenses were lower by $1.17 million for the three months ended September 30, 2022, compared to the same period in 2021. This is mainly attributed to a decrease in consulting fees of $0.05 million and non-cash stock-based compensation of $1.37 million related to the vesting of stock options compared to the same period in 2021. In addition, the decrease in operating expenses was partially offset by an increase in interest and bank charges of $0.07 million mainly related to the loan from Northwest Bank of Coeur d'Alene during the period.
The net loss for the three months ended September 30, 2022, was $1.98 million, an increase of $0.66 million from the $1.32 million in the prior year, mainly due to the lower revenues and a write-down of prepaid expenses of $0.84 million for the quarter.
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MISSION READY SOLUTIONS INC. Management’s Discussion and Analysis For the Nine Months Ended September 30, 2022
SUMMARY OF QUARTERLY RESULTS
The following table provides a summary of the Company's eight most recently completed quarters:
| Fiscal | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Year | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||
| 2022 | Revenue | $ | 1,065,358 | $ | 1,939,736 | $ | 1,046,250 | ||
| Net comprehensive income (loss) | $ | 320,678 | $ | (1,732,615) | $ | (2,430,294) | |||
| Basic and diluted earnings (loss) per | 0.00 | (0.01) | (0.01) | ||||||
| share | |||||||||
| 2021 | Revenue | $ | 66,726,040 | $ | 12,008,561 | $ | 6,005,417 | $ | 7,246,297 |
| Net comprehensive income (loss) | $ | 6,440,018 | $ | (3,413,417) | $ | (1,458,279) | $ | (2,230,922) | |
| Basic and diluted earnings (loss) per | 0.03 | (0.02) | (0.01) | (0.01) | |||||
| share | |||||||||
| 2020 | Revenue | 42,627,964 | |||||||
| Net comprehensive income (loss) | 1,582,284 | ||||||||
| Basic and diluted earnings (loss) per | (0.01) | ||||||||
| share |
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, the Company had working capital deficiency of $1,117,743 (December 31, 2021 – working capital of $7,202,410) including cash and cash equivalents of $1,755,623 (December 31, 2021 - $7,897,110). The Company's working capital decreased mainly due to cash payments related to the debt settlement agreement with Product Sources Group, LLC and JD. United Manufacturing Co. Ltd. during the period. In addition, cash increased related to the exercise of 1,019,000 options for total gross proceeds of $233,180.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
Classification of financial instruments
| Classification of financial instruments | ||
|---|---|---|
| September 30, | December 31, | |
| 2022 | 2021 | |
| $ | $ | |
| FVTPL financial asset | 1,755,623 | 7,897,110 |
| Financial assets at amortized costs | 367,804 | 2,653,843 |
| Financial liabilities at amortized costs | 12,717,416 | 19,942,626 |
The fair value of the Company's financial assets and liabilities approximates the carrying amount.
Management of Industry and Financial Risk
The Company's financial instruments are exposed to certain financial risks, including credit risk, liquidity risk, foreign exchange risk, and interest rate risk, as discussed in the Company's financial statements for the nine months ended September 30, 2022.
Capital Management
The Company's policy is to retain a strong capital base to maintain investor and creditor confidence and to sustain future development of the business. The capital structure of the Company consists of equity, net of cash and cash equivalents. There were no changes in the Company's approach to capital management during the period. The Company is not subject to any externally imposed capital requirements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
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MISSION READY SOLUTIONS INC. Management’s Discussion and Analysis For the Nine Months Ended September 30, 2022
PROPOSED TRANSACTIONS
The Company has no proposed transactions.
TRANSACTIONS BETWEEN RELATED PARTIES
Related Party Balances
As of September 30, 2022, and December 31, 2021, the Company had the following amounts owed to related parties that are noninterest-bearing, unsecured, and have no specified terms of repayment.
| September 30, | December 31, | |
|---|---|---|
| 2022 | 2021 | |
| $ | $ | |
| Buck Marshall – Chief Executive Officer and a Director | 55,706 | 7,639 |
| Dong Shim – Chief Financial Officer | 31,500 | 643 |
| Terrace Nixon – Chief Compliance Officer and a Director | 218,095 | 70,137 |
| Daniel Raczykowski – Director | 35,593 | 23,459 |
| Paul Litchfield – Director | 24,673 | 11,459 |
| James Marks – Director | 41,121 | 25,097 |
| William Bratton – Director | 24,673 | 11,459 |
| Jeffery Schwartz – Former Chief Executive Officer | - | 103,813 |
| Anthony Walton–Former Director (estate of) | - | 14,000 |
| 431,361 | 267,706 |
Compensation of Key Management Personnel
Key management consists of the Company's directors and officers. 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 nine months ended September 30, 2022, and 2021 are as follows:
| 2022 | 2021 | |
|---|---|---|
| $ | $ | |
| Buck Marshall – Chief Executive Officer and a Director | ||
| Wages and benefits for CEO services | 230,904 | 225,234 |
| Director fees | 34,636 | 33,785 |
| Dong Shim – Chief Financial Officer | ||
| Consulting fees for accounting services | 45,000 | 45,000 |
| Terrace Nixon – Chief Compliance Officer and a Director | ||
| Wages and benefits for CCO services | 198,904 | 195,275 |
| Director fees | 34,636 | 33,785 |
| Daniel Raczykowski – Director | ||
| Wages and benefits for COO services | 192,420 | 187,695 |
| Director fees | 34,636 | 33,785 |
| Paul Litchfield – Director | ||
| Director fees | 34,636 | 33,785 |
| James Marks – Director | ||
| Director fees | 57,726 | 56,309 |
| William Bratton – Director | ||
| Director fees | 34,636 | 33,785 |
| Stock-based compensation to officers and directors | 282,685 | 1,343,434 |
| 1,180,819 | 2,221,872 |
All related party transactions were in the ordinary course of business and were measured at their exchange amount as agreed between the related parties.
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MISSION READY SOLUTIONS INC. Management’s Discussion and Analysis For the Nine Months Ended September 30, 2022
OUTSTANDING SHARE DATA
The following share capital data is current as of the date of this MD&A:
| Balance | |
|---|---|
| Shares issued and outstanding | 203,019,000 |
| Stock options | 20,650,000 |
| FullyDiluted | 223,669,000 |
Incentive Stock Option Grants
On March 18, 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, and consultants of the Company.
On May 18, 2021, the Company granted 400,000 stock options at an exercise price of $0.50 per share for a period of five years to an employee of the Company.
On June 22, 2021, the Company granted 500,000 stock options at an exercise price of $0.50 per share for a period of five years to certain consultants of the Company.
On October 20, 2021, the Company granted 4,800,000 stock options at an exercise price of $0.25 per share for a period of five years to certain directors, officers, employees, and consultants of the Company.
On January 4, 2022, the Company granted 200,000 stock options at an exercise price of $0.25 per share for a period of five years.
Critical Accounting Estimates
Critical accounting estimates remain unchanged from the Company's fiscal year ended December 31, 2021.
CONTINGENCY
During the year ended December 31, 2020, the Company accrued 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-cv06272, 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 Unifire or Mission Ready officers as defendants. On November 5, 2021, the Company entered into a debt settlement (the "Settlement Agreement") with Product Sources Group, LLC and JD. United Manufacturing Co. Ltd. (the "Creditor") for the payment of the principal amount outstanding of US$7,100,000 (the "Debt"). Pursuant to the Settlement Agreement, the principal balance payable to the Creditor was reduced from US$7.5 million (including accrued interest) to US$6 million. The Company secured a loan from Northwest Bank of Coeur d'Alene to facilitate its payment of US$6 million on or before March 30, 2022 pursuant to the terms of the discount provision of the Settlement Agreement. The Company remitted an initial payment of US$1 million and subsequently the Creditor agreed to accept 3,595,856 common shares of the Company in satisfaction of US$1 million (issued on February 3, 2022). The remaining balance of US$4 million was paid in cash by the Company to fully extinguish the outstanding balance to the Creditor.
CRITICAL RISKS AND UNCERTAINTIES
Operating History
Historically, the Company has incurred both profits and losses from operations. The Company cannot be certain that its investment strategy or development of the Company's business will be successful and the likelihood of the Company's success must be considered in light of the expenses, difficulties, complications and delays frequently encountered by businesses in similar industries and in connection with the establishment of any business. If the Company fails to adequately address any of those risks or difficulties, operations will likely suffer.
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MISSION READY SOLUTIONS INC. Management’s Discussion and Analysis For the Nine Months Ended September 30, 2022
Competition
The earnings of the Company depend upon the Company's ability to locate suitable opportunities and to bring to market the proprietary products being developed by its research and development division. Competition may restrict the Company's share of the market, reduce rates of return and/or may reduce profit margins.
Coronavirus Global Pandemic Risk
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 results of the outbreak and its effects on the Company's business or results of operations at this time.
With employees, partners and customers across multiple geographies, the Company's management continues to closely monitor developments surrounding the COVID-19 pandemic. The Company's focus is on the safety and well-being of its employees, customers, and partners, and is taking precautions to minimize the spread of COVID-19 in alignment with local government policies and national and international agency recommendations. To help combat the pandemic, the Company has formed an independent COVID-19 response team consisting of 15 select inside and outside Company representatives working in cooperation to source and supply mission-critical product and service solutions including PPE, shelters, and third-party logistics services.
ADDITIONAL INFORMATION
Additional disclosure of the Company's, material change reports, new releases, and other information can be obtained on SEDAR at www.sedar.com, or by requesting further information from the Company's head office in Vancouver, BC, Canada.
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