Solution Financial Inc. — Interim / Quarterly Report 2021

Apr 1, 2021

==> picture [270 x 100] intentionally omitted <==

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

SOLUTION FINANCIAL INC.

FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020 (UNAUDITED- PREPARED BY MANAGEMENT) (Expressed in Canadian dollars)

Unit 137 - 8680 Cambie Road Richmond, BC Canada V6X 4K1 Solution.Financial

These unaudited interim condensed consolidated financial statements of Solution Financial Inc. (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 interim financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

SOLUTION FINANCIAL INC.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Expressed in Canadian dollars)

TABLE OF CONTENTS	PAGE
Financial Statements
Condensed Consolidated Interim Statements of Financial Position	1
Condensed Consolidated Interim Statements of Comprehensive Income	2
Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity	3
Condensed Consolidated Interim Statements of Cash Flows	4
Notes to the Condensed Consolidated Interim Financial Statements	5 - 21

SOLUTION FINANCIAL INC. Condensed Consolidated Interim Statements of Financial Position (Expressed in Canadian Dollars – Unaudited)

		January 31,		October 31,
		2021		2020
ASSETS
Current
Cash and cash equivalents (Note 4)	$	2,380,190	$	2,526,379
Accounts receivable		23,781		393,041
Prepayment and deposits		171,578		78,042
Current portion of car loans receivable (Note 7)		4,185		6,598
Current portion of receivable under finance lease (Note 8)		318,036		328,484
Inventory (Note 6)		886,909		554,029
		3,784,679		3,886,573
Right-of-use assets		18,557		22,268
Receivable under finance lease (Note 8)		355,236		334,222
Property under operating leases (Note 9)		23,838,913		24,523,140
Property and equipment(Note 10)		302,198		304,838
	$	28,299,583	$	29,071,041
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (Note 12)	$	9,236,012	$	10,062,818
Accounts payable and accrued liabilities		184,973		221,265
Deferred revenue (Note 14)		22,866		2,581
Lease liability		19,979		17,584
Customers' deposits and advances (Note 13)		599,419		607,740
Convertible debentures (Note 15 & 23)		2,700,823		2,686,146
Deferred tax liability		942,940		864,940
		13,707,012		14,463,074
Lease Liabilities		-		8,144
Customers' deposits (Note 13)		1,474,825		1,510,775
Deferred revenue (Note 14)		2,605,049		2,654,482
		17,786,886		18,636,475
Shareholders' equity
Share capital (Note 16)		7,091,090		7,078,073
Contributed surplus		924,985		872,622
Equity portion of convertible debentures (Note 15)		93,693		93,693
Retained earnings		2,402,929		2,390,178
		10,512,697		10,434,566
	$	28,299,583	$	29,071,041

Nature of Business (Note 1) Subsequent Events (Note 23)

APPROVED ON BEHALF OF THE BOARD

“ Bryan Pang ” Director “ Sean Hodgins ” Director

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

1

SOLUTION FINANCIAL INC. Condensed Consolidated Interim Statements of Comprehensive Income (Expressed in Canadian Dollars – Unaudited)

For 3 months ended January 31, 2021 For 3 months ended January 31, 2020 Lease and brokerage sales Sales and lease income (Note 19) $ 3,748,574 $ 2,868,158 Brokerage commissions (Note 18) 134,218 118,287 Total Sales 3,882,792 2,986,445 Cost of Sales (Note 19) 2,889,481 2,164,986 Gross profit 993,311 821,459 Expenses Sales and marketing (Note 20) 396,133 242,122 General and administration (Note 20) 237,759 213,029 Interest 117,415 177,906 Amortization 8,130 7,456 Share based compensation (Note 16) 72,511 37,294 831,948 677,807 161,363 143,652 Other items Other income 10,770 1,247 Income before tax 172,133 144,899 Income taxes 78,000 68,500 Net income and comprehensive income for the year 94,133 76,399	For 3 months ended January 31, 2021 For 3 months ended January 31, 2020 Lease and brokerage sales Sales and lease income (Note 19) $ 3,748,574 $ 2,868,158 Brokerage commissions (Note 18) 134,218 118,287 Total Sales 3,882,792 2,986,445 Cost of Sales (Note 19) 2,889,481 2,164,986 Gross profit 993,311 821,459 Expenses Sales and marketing (Note 20) 396,133 242,122 General and administration (Note 20) 237,759 213,029 Interest 117,415 177,906 Amortization 8,130 7,456 Share based compensation (Note 16) 72,511 37,294 831,948 677,807 161,363 143,652 Other items Other income 10,770 1,247 Income before tax 172,133 144,899 Income taxes 78,000 68,500 Net income and comprehensive income for the year 94,133 76,399	For 3 months ended January 31, 2021 For 3 months ended January 31, 2020 Lease and brokerage sales Sales and lease income (Note 19) $ 3,748,574 $ 2,868,158 Brokerage commissions (Note 18) 134,218 118,287 Total Sales 3,882,792 2,986,445 Cost of Sales (Note 19) 2,889,481 2,164,986 Gross profit 993,311 821,459 Expenses Sales and marketing (Note 20) 396,133 242,122 General and administration (Note 20) 237,759 213,029 Interest 117,415 177,906 Amortization 8,130 7,456 Share based compensation (Note 16) 72,511 37,294 831,948 677,807 161,363 143,652 Other items Other income 10,770 1,247 Income before tax 172,133 144,899 Income taxes 78,000 68,500 Net income and comprehensive income for the year 94,133 76,399
		2,986,445 2,164,986
		821,459
		242,122 213,029 177,906 7,456 37,294
		677,807
		143,652
		1,247
		144,899
		68,500
		76,399
Basic and diluted earnings per common share Weighted average number of common shares outstanding	0.001 $ 81,379,503	0.001 $
		79,299,048

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

2

(Condensed Consolidated Interim Statements of Changes in Shareholder’s Equity (Expressed in Canadian Dollars – Unaudited)

SOLUTION FINANCIAL INC.

Share capital

	Issued and outstanding	Issued and outstanding			Equity	Equity
		Common		Contributed	component of		Retained	shareholders'
	Number	shares	Warrants	surplus	convertible debt		earnings	equity
		$	$	$	$		$	$
Balance, October 31, 2019	79,324,031	5,519,562	634,492	675,880	339,759		2,306,831	9,476,524
Exercise of agents' warrants	104,100	38,141	-	(12,116)		-	-	26,025
Share based compensation on options	-	-	-	37,294		-	-	37,294
Purchase of common shares for cancellation	(199,500)	(13,938)		(48,573)		-	-	(62,511)
Warrants expired	-	-	(634,492)	634,492		-	-	-
Net and comprehensive income	-	-	-	-		-	76,399	76,399
Dividend	-	-	-	-		-	(79,323)	(79,323)
Balance, January 31, 2020	79,228,631	5,543,765	-	1,286,977	339,759		2,303,907	9,474,408
Exercise of employees' options	57,600	23,326	-	(8,926)		-	-	14,400
Share based compensation on options	-	-	-	14,057		-	-	14,057
Purchase of common shares for cancellation	(1,354,000)	(96,407)	-	(419,486)		-	-	(515,893)
Conversion of convertible debt	3,450,000	1,607,389	-	-	(246,066)		-	1,361,323
Net and comprehensive income	-	-	-	-		-	324,014	324,014
Dividend	-	-	-	-		-	(237,743)	(237,743)
Balance, October 31, 2020	81,382,231	7,078,073	-	872,622		93,693	2,390,178	10,434,566
Exercise of employees' options	40,000	16,198	-	(6,198)		-	-	10,000
Share based compensation on options	-	-	-	72,511		-	-	72,511
Purchase of common shares for cancellation	(37,500)	(3,181)	-	(13,950)		-	-	(17,131)
Net and comprehensive income	-	-	-	-		-	94,133	94,133
Dividend	-	-	-	-		-	(81,382)	(81,382)
Balance, January 31, 2021	81,384,731	7,091,090	-	924,985		93,693	2,402,929	10,512,697

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

3

SOLUTION FINANCIAL INC. Condensed Consolidated Interim Statements of Cash Flows (Expressed in Canadian Dollars – Unaudited)

	For 3 months	For 3 months	For 3 months	For 3 months
	ended January		ended January
		31, 2021		31, 2020
Operating activities
Net income	$	94,133	$	76,399
Items not affecting cash and cash equivalents:
Amortization of property and equipment		8,130		7,456
Share-based compensation		72,511		37,294
Accretion expense on convertible debentures		14,677		52,205
Depreciation of property under operating lease		1,306,900		1,194,833
Depreciation of right-of-use assets		3,711		3,962
Change in non-cash working capital
Trade receivables and due from related company		369,260		(70,819)
Prepayment and deposits		(93,536)		(12,057)
Inventory		(332,880)		(154,206)
Car loans receivables		2,413		12,251
Lease payment receivables		(10,566)		25,776
Trade and other payables		(36,292)		29,904
Income taxes payable		78,000		68,500
Customers' deposits		(44,271)		35,629
Deferred revenue		(29,148)		213,202
		1,403,042		1,520,329
Investing activities
Acquisition of property and equipment		(5,490)		(8,082)
Acquisition of property under operating lease (net)		(622,673)		(3,290,941)
Interestpayment on lease liabilities		(456)		(601)
		(628,619)		(3,299,624)
Financing activities
Proceeds (repayments) from bank indebtedness		(826,806)		1,809,430
Purchase of common shares for cancellation		(17,131)		(62,511)
Agents' compensation options exercises		-		26,025
Payment of lease liabilities		(5,293)		(2,475)
Stock options exercises		10,000		-
Payment of dividends		(81,382)		(79,323)
		(920,612)		1,691,146
Net increase (decrease) in cash and cash equivalents		(146,189)		(88,149)
Cash and cash equivalents,beginningofyear		2,526,379		583,192
Cash and cash equivalents,end ofyear	$	2,380,190	$	495,043

4

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

1. Nature of Business and Share Exchange Agreement

Solution Financial Inc. (the “Company” or “Solution”), formerly Shelby Ventures Inc. (“Shelby”) was incorporated on February 27, 2007 under the Company Act of British Columbia and commenced trading on the TSX Venture Exchange (“TSX-V”) on December 6, 2007.

The Company’s registered and records office is Unit 137, 8680 Cambie Road, Richmond, British Columbia, Canada, V6X 4K1.

On June 22, 2018, Shelby completed a qualifying transaction (the “Qualifying Transaction”) by acquiring Solution Financial (Canada) Inc. (“Solution Canada”), formerly Solution Auto Lease and Sales Ltd. a private company incorporated on August 8, 2003 under the Company Act of British Columbia. The Company’s primary business activity is leasing, and financing of high-end automotive vehicles, boats, commercial equipment and end of lease sales.

The Qualifying Transaction was accomplished through an exchange of shares which resulted in the former shareholders of Solution Canada, obtaining control of the Company. Accordingly, this transaction was recorded as a reverse acquisition for accounting purposes as Solution Canada was deemed to be the acquirer.

On June 27, 2018, its common shares resumed trading on the TSX Ventures Exchange (“TSX-V”) under the symbol “SFI”.

2. Basis of Presentation and Statement of Compliance

Statement of Compliance

These unaudited condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain disclosures included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the IASB have been condensed or omitted and these unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended October 31, 2020.

Functional and Presentation Currency

The functional currency of an entity is the currency of the primary economic environment in which the entity operates. From inception, the functional currency of the Company has been the Canadian dollar. This is also the presentation currency of the Company.

These financial statements were approved by the Company’s Board of Directors and authorized for issue on March 31, 2021.

5

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

3. Critical Accounting Estimates and Use of Judgement

The preparation of these condensed interim financial statements requires management to make estimates and judgments about the future. Estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Areas of financial reporting that require management's estimates and judgments are discussed below.

Significant estimates used in the preparation of these financial statements include the following:

Covid-19 estimation uncertainty

During the three months ended January 31, 2021, the global financial markets were negatively impacted by the novel Coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization on March 11, 2020. This has led to significant global economic uncertainty, and the current outbreak of COVID-19 could have a material adverse effect on the Company’s operations and the operations of the Company’s suppliers and customers. The Company has taken what it believes to be appropriate safety precautions at its operations to safeguard the health of its employees and there have been no outbreaks to date at any of the Company's locations. The extent to which COVID-19 impacts the Company’s operations will depend on future developments, which continue to be highly uncertain and cannot be predicted with confidence. In addition, it is possible that estimates in the Company’s financial statements will change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things, impairment of long-lived assets. The Company is closely monitoring the impact of the pandemic on all aspects of its business.

Determination of the Company’s allowance for credit losses

Judgment is required as to the timing of establishing an allowance for credit losses and the amount of the required allowance taking into consideration counterparty creditworthiness, current economic trends, the expected residual value of leased assets and past experience.

Valuation of inventory

Inventories are recorded at the lower of cost and net realizable value with cost determined on a specific item basis for new and used vehicles. In determining net realizable value for new vehicles, the Company primarily considers the age of the vehicles along with the timing of annual and model changeovers. For used vehicles, the Company considers recent market data and trends such as loss histories along with the current age of the inventory. The determination of net realizable value for inventories involves the use of estimates.

Valuation of underlying residual values of leased assets

The Company has significant investments in leased vehicles recorded as operating leases, which relate to vehicle leases. At the beginning of the lease contract a determination is made of the estimated realizable value of the vehicle at the end of the lease term, which is the critical assumption underlying the estimated carrying value of leased assets. The estimated realizable value is based on the lower of the contracted residual value or the current market estimate of residual value based on independent lease guides. Since the customer is not obligated to purchase the vehicle at the end of the contract, the Company is exposed to a risk of loss to the extent the value of the vehicle at the end of the lease term is below the residual value estimated at contract inception. Over the life of the lease

6

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

3. Critical Accounting Estimates and Use of Judgement (continued)

the Company evaluates the adequacy of the estimate of the residual value and may make adjustments to the extent the expected value of the vehicle at lease termination changes. Adjustments could result in a change in the depreciation rate of the leased asset or if an impairment exists, an impairment charge.

Useful lives of equipment

The Company’s capitalized property and equipment balances are determined in part through the use of estimates of the useful lives of the underlying assets. In developing their accounting policy for property and equipment, the Company makes estimates of these useful lives. Changes in useful lives of property and equipment may result in adjustments to these capitalized balances in future periods if there are signs that estimates may no longer be accurate.

Income taxes

The determination of current tax expense requires estimates and assumptions. Further the Company’s estimates of its deferred income tax assets and liabilities require subjective assumptions regarding future income tax rates and the likelihood of utilizing tax carry-forwards. Changes in these estimates and assumptions could materially affect the recorded amounts.

Significant judgements made as part of the preparation of these financial statements include the following:

Determination of lease type

On entering lease arrangements, the Company assesses whether the lease is a finance lease or an operating lease. As part of this determination, the Company makes a number of estimates associated with the lease, the customer, and the fair value of the underlying assets. The accounting for an operating lease is significantly different from that of a finance lease. As such, this determination has a significant impact on the way the leased assets are presented within Company’s

Share-based payments

The Company uses the Black-Scholes option pricing model to determine the fair value of options and warrants in order to calculate share-based compensation expense and the fair value of agent warrants. The Black-Scholes model involves six key inputs to determine fair value of an option: riskfree interest rate, exercise price, market price at date of issue, expected dividend yield, expected life, and expected volatility. Certain of the inputs are estimates that involve considerable judgment and are or could be affected by significant factors that are out of the Company’s control. The Company is also required to estimate the future forfeiture rate of options based on historical information in its calculation of share-based payments expense.

7

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

3. Critical Accounting Estimates and Use of Judgement (continued)

Share Capital

Common shares are classified as share capital. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.

Deferred financing costs incurred in connection with the issuance of common shares are capitalized until the financing is completed. In the event that the financing is not completed, these costs are expensed to profit or loss. Proceeds that are received in advance of the completion of an issuance of common shares are recorded within equity as subscriptions received in advance.

Earnings (Loss) per Share

Basic earnings (loss) per share (“EPS”) is calculated using the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated by adjusting the loss attributable to equity shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive instruments. The calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the year. In years where a loss is reported, diluted loss per share is the same as basic loss per share because the effects of potentially dilutive common shares would be anti-dilutive.

4. Financial Instruments and Risk Management

Fair value

The Company’s financial instruments recognized on the statements of financial position consist of cash, term deposits, accounts receivable, due from related company, car loans receivable, receivable under finance lease, bank indebtedness, accounts payable and accrued liabilities, customers’ advances, customers’ deposits, due to shareholder, convertible debentures and short-term loans payable. The fair values of the Company’s short term financial instruments approximate their carrying values due to their short-term maturity. The fair values of the Company’s long term financial assets and liabilities approximate their carrying values based on market interest rates. The Company has classified financial instruments as follows:

	Classification	Measurement
Financial assets:
Cash and cash equivalents	FVTPL	Fair Value
Accounts receivable	Loans and receivables	Amortized cost
Due from related company	Loans and receivables	Amortized cost
Car loan receivable	Loans and receivables	Amortized cost
Lease receivables	Loans and receivables	Amortized cost
Financial liabilities:
Bank indebtedness	Financial liabilities	Amortized cost
Accounts payable accrued liabilities	Financial liabilities	Amortized cost
Customers' advances	Financial liabilities	Amortized cost
Customers' deposits	Financial liabilities	Amortized cost
Convertible debentures	Financial liabilities	Amortized cost

8

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

4. Financial Instruments and Risk Management (continued)

The following is an analysis of the Company’s financial instruments measured using the fair value hierarchy as at January 31, 2021 and October 31, 2020:

	January 31, 2021	January 31, 2021
Level 1 Cash 2,367,815 $ $ Cash equivalents 12,375 $ $		Level 2 - $ - $	Level 3
			- -
Total 2,380,190 $ $		- $	-
	October31,2020
Level 1 Cash 2,514,011 $ $ Cashequivalents 12,368 $ $		Level 2 - $ - $	Level 3
			- -
Total 2,526,379 $ $		- $	-

(Level 1) – Based on quoted market prices in active markets.

(Level 2) – Inputs, other than quoted prices in active markets, that are observable, either directly or indirectly.

(Level 3) – Unobservable inputs that are not corroborated by market data.

The Company’s cash equivalents consist of term deposits maturing within the next year.

The Company has exposure to the following risks from its use of financial instruments: credit, interest rate, liquidity, and price risk. The Company reviews its risk management framework on a quarterly basis and makes adjustments as necessary. The fair values of the Company’s financial assets and liabilities held at amortized cost approximates their book values.

Covid-19 risk

The spread of COVID-19 is expected to have a material adverse effect on global and regional economies and continues to negatively impact stock markets. The adverse effects on the economy and the stock market could adversely impact the Company’s ability to raise capital, or its ability to pursue other strategic initiatives.

Credit risk

Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash, term deposits, accounts receivable, due from related company, car loans receivable, and lease receivables. The Company attempts to mitigate the risks associated with cash and term deposits by dealing only with major Canadian financial institutions with good credit ratings and performs credit assessments of all customers making material orders. The Company attempts to mitigate the risks associated with car loans receivable and lease receivables through its credit check process performed before entering into any sales arrangement.

Interest rate risk

Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The Company’s financial instruments that are exposed to concentrations of interest rate risk consist of bank indebtedness and short-term loans. A change in the prime rate of interest of 1% would result in additional interest expense for the Company of $92,360 per year.

9

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

4. Financial Instruments and Risk Management (continued)

Liquidity risk

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities as they come due. The Company currently settles all of its financial obligations out of cash generated from operations. The ability to do so relies on the Company maintaining sufficient cash in excess of anticipated needs. To help manage its liquidity the Company has obtained an operating loan agreement through a major schedule 1 Canadian Financial Institution (Note 12).

Price risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from currency risk or interest rate risk). The Company is at risk to changes in commodity prices, which may affect financing options available to the Company.

5. New Accounting Standards and Interpretations Adopted

There have been no new accounting standards or interpretations adopted during the three months ended January 31, 2021.

6. Inventory

Inventory at January 31, 2021 and October 31, 2020 consist of vehicles held for sale. The inventory is carried at the lower of cost or net realizable value and as at January 31, 2021 and October 31, 2020, the Company has not recorded any reserves for inventory write downs.

7. Car loans receivable

Car loans consist of loan agreements at interest rates ranging from 11% to 18% made to vehicle owners. In these agreements, the borrower has acquired the vehicle outright and the Company is providing financing to the purchaser that is secured by a lien against the underlying vehicle. As a result of the adoption of IFRS9 Financial Instruments, the Company records a provision for expected credit losses. Using the expected credit loss model these car loans receivable were classified as Stage 1 ‘performing’ at both January 31, 2021 and October 31, 2020.

Maturity Within 1 year In 1 to 3 years After 3 years	Gross receivable Unearned income Net receivable $ $ $ 4,264 (79) 4,185 - - - - - - 4,264 (79) 4,185 31-Jan-21	31-Oct-20
		Gross receivable Unearned income Net receivable $ $ $
		6,822 (224) 6,598 - - - - - -
		6,822 (224) 6,598

The unearned income in the above table represents the unearned portion of interest receivable over the remaining term of the loan.

10

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

8. Receivable under finance lease

Finance lease receivables consist of conditional sales contracts, which have terms of 12 to 60 months with fixed rates of interest. All lease receivables are secured by the corresponding vehicle. As a result of the adoption of IFRS9 Financial Instruments, the Company records a provision for expected credit losses for receivables under finance lease. Using the expected credit loss model these receivables under finance lease were classified as Stage 1 ‘performing’ at both January 31, 2021 and October 31, 2020.

The contractual maturity of the portfolio outstanding of continuing operations as at January 31, 2021 and October 31, 2020, assuming no prepayments, is as follows:

Maturity	Gross receivable Unearned income Net receivable $ $ $ 31-Jan-21	31-Oct-20
		Gross receivable Unearned income Net receivable $ $ $
Within 1 year	393,940 (75,904) 318,036	403,921 (75,437) 328,484
In 1 to 3 years After 3 years	336,702 (51,778) 284,924 78,633 (8,321) 70,312 809,275 (136,003) 673,272	341,142 (43,238) 297,904 39,037 (2,719) 36,318
		784,100 (121,394) 662,706

Included in the above table, the residual interest of assets as at January 31, 2021 are $113,450 (October 31, 2020 - $98,450). As of January 31, 2021, the Company has recognized $85,341 (October 31, 2020 - $75,099). This recognized portion is included in the net investments column in the above table of the amounts receivable under finance lease.

The Company has a history with limited payment defaults or credit losses. The lease agreements include security deposits and the Company has a history of releasing or selling vehicles repossessed without taking any losses. As such, the Company has no provisions for credit losses.

11

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

9. Property under operating leases

The Company acts as a lessor in connection with operating leases and recognizes the leased assets in its statements of financial position. The lease payments received, are recognized in net income as rental revenue

COST At the beginning of the year Additions Disposals At the the end of the year ACCUMULATED DEPRECIATION At the beginning of the year Depreciation charge for the year Disposals At the the end of the year Net carrying amount	For the Three Month End
	31-Jan-21 31-Oct-20 $ $
	30,597,439 30,375,753 2,778,491 3,206,813 (3,551,007) (2,985,127)
	29,824,923 30,597,439
	6,074,299 5,681,368 1,306,900 1,366,905 (1,395,189) (973,974)
	5,986,010 6,074,299
	23,838,913 24,523,140

The above depreciation charge for the period is included within the Company’s cost of sales in the statements of comprehensive income (Note 19).

Below are the future minimum lease payments arising from non-cancellable operating leases of continuing operations:

Within 1 year In 1 to 3 years After 3 years	31-Jan-21 31-Oct-20
	4,832,633 5,003,596 3,639,907 3,914,321 194,613 138,304
	8,667,153 $ 9,056,221 $

12

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

10. Property and equipment

		Land		Buildings		Furniture and Equipment		Computer Equipment		Software		Total
Cost
Balance, October 31, 2019	$	161,883	$	94,025	$	118,915	$	8,229	$	59,062	$	442,114
Additions		-		-		6,883		1,199		-		8,082
Balance, January31, 2020	$	161,883	$	94,025	$	125,798	$	9,428	$	59,062	$	450,196
Accumulated Amortization
Balance, October 31, 2019		-	$	39,470	$	67,682	$	5,298	$	14,766		112,450
Additions		-		546		2,734		485		3,691		7,456
Balance, January31, 2020	$	-	$	40,016	$	70,416	$	5,783	$	18,457	$	134,672
Net Book Value
Balance,January31,2020	$	161,883	$	54,009	$	55,382	$	3,645	$	40,605	$	315,524
		Land		Buildings		Furniture and Equipment		Computer Equipment		Software		Total
Cost
Balance, October 31, 2020	$	161,883	$	94,025	$	126,465	$	10,744	$	77,347	$	470,464
Additions		-		-		4,300		-		1,190		5,490
Balance, January31, 2021	$	161,883	$	94,025	$	130,765	$	10,744	$	78,537	$	475,954
Accumulated Amortization
Balance, October 31, 2020		-	$	41,652	$	81,703	$	8,167	$	34,104		165,626
Additions		-		524		2,346		353		4,907		8,130
Balance, January31, 2021	$	-	$	42,176	$	84,049	$	8,520	$	39,011	$	173,756
Net Book Value
Balance,January31,2021	$	161,883	$	51,849	$	46,716	$	2,224	$	39,526	$	302,198

11. Related party transactions

The Company uses an office leased by Solution Lease Club, a Company controlled by the CEO of the Company for administration and promotional purposes. Solution Lease Club’s office is at Unit 6, 11220 Voyageur Way, Richmond. The Company pays Solution Lease Club a $125 fee for each sales and lease transaction for property usage. During the three months ended January 31, 2021, the Company paid $12,500 to Solution Lease Club (2020- $8,400).

During the three months ended January 31, 2021, remuneration of directors and other members of key management personnel are $72,972 (2020 – $70,143).

During the three months ended January 31, 2021, the Company paid a total of $5,858 to law firm where a partner is a director of the Company (2020 – $10,914).

13

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

12. Bank indebtedness

On September 21, 2020, the Company amended its Credit Loan Facility with an $2,500,000 increase to $12,500,000. The Credit Loan Facility bears interest at prime plus 1.20% per annum.

The loan agreement allows the Company to draw on funds as needed and is secured by a personal guarantee of the Company’s CEO and certain assets of the Company.

As at January 31, 2021, the total outstanding balance on the loan agreement is $9,236,021 (October 31, 2020 - $10,062,818). As part of the bank covenants, the Company is required to maintain a cash flow coverage ratio of not less than 1.25:1 and a debt to tangible net worth ratio not greater than 2.25:1.

13. Customers’ deposits

Customers’ deposits are refundable security deposits received by the Company at lease inception. They are applied to the residual balance if a buyout option is exercised or will be refunded at the maturity of the lease upon return of the vehicle. As at January 31, 2021, the Company has deposits of $587,100 on leases coming due in the next year (October 31, 2020 - $600,100) and $1,474,825 deposits coming due in more than a year (October 31, 2020 - $1,510,755).

14. Deferred revenue

Deferred revenue are lease down payments received by the Company at lease inception. They are recognized as rental income on a straight-line basis over the terms of the lease. In case of pre-mature termination, any balance of the unrealized down payment will be recognized at the same time.

15. Convertible Debenture

On October 3, 2018, the Company closed the first tranche of its previously announced nonbrokered financing of unsecured convertible debentures (“October 3, 2018 Debentures”) in the principal amount of $1,380,000. The Debentures will mature on October 3, 2020 (“Maturity Date”) and bear interest at a rate of 3.99% per annum, calculated and paid semi-annually. The principal amount and any accrued and unpaid interest on the Debenture may be converted into common share in the capital of the Company (“Shares”), in whole or in part, at any time following the Issue Date but on or before the Maturity Date at a conversion price of $0.40 per Share.

On issuance, the Company recognized the fair value of the liability component of $1,133,934 based on the terms of the Debentures and a discount rate of 15.22%. The residual amount of $246,066 was allocated to the equity portion. Transaction costs of $5,257 were recognized.

During the year ended October 31, 2020, all of the October 3, 2018 Debentures were converted at $0.40 per share for a total of 3,450,000 shares.

14

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

15. Convertible Debenture (continued)

On January 7, 2019, the Company closed the first tranche of its previously announced nonbrokered financing of unsecured convertible debentures (“January 7, 2019 Debentures”) in the principal amount of $2,000,000.

The Debentures will mature on January 4, 2021 (“Maturity Date”) and bear interest at a rate of 5.0% per annum, calculated and paid semi-annually. The principal amount and any accrued and unpaid interest on the Debenture may be convertible into common shares in the capital of the Company (“Shares”), in whole or in part, at any time following the Issue Date but on or before the Maturity Date at a conversion price of $0.50 per Share..

On issuance, the Company recognized the fair value of the liability component of $1,895,506 based on the terms of the Debentures and a discount rate of 7.93%. The residual amount of $94,494 was allocated to the equity portion.

On March 8, 2021, the Company closed its previously announced non-brokered financing of unsecured convertible debentures (“March 8, 2021 Debentures”) in the principal amount of $3,225,400. The convertible debenture financing consisted of a reinvestment of $2,000,000 of matured January 7, 2019 Debentures and $615,400 of maturing April 15, 2019 Debentures and interest.

For the three months ended January 31, 2021, accretion expense of $9,609 and interest expense of $17,808 were recognized.

For the three months ended January 31, 2020, accretion expense of $12,962 and interest expense of $25,205 were recognized.

On April 15, 2019, the Company closed a non-brokered private placement of unsecured convertible debentures (“April 15, 2019 Debentures”) in the principal amount of $705,000. The Debentures will mature on April 15, 2021 (“Maturity Date”) and bear interest at a rate of 5.0% per annum, calculated and paid semi-annually. The principal amount and any accrued and unpaid interest on the Debenture may be convertible into common shares in the capital of the Company (“Shares”), in whole or in part, at any time following the Issue Date but on or before the Maturity Date at a conversion price of $0.50 per Share.

On issuance, the Company recognized the fair value of the liability component of $665,963 based on the terms of the Debentures and a discount rate of 8.11%. The residual amount of $33,199 was allocated to the equity portion.

For the three months ended January 31, 2021, accretion expense of $5,068 and interest expense of $8,788 were recognized.

For the three months ended January 31, 2020, accretion expense of $4,728 and interest expense of $8,885 were recognized.

15

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

16. Share Capital

Authorized share capital

Unlimited number of common shares without par value.

Issued share capital

During the three months ended January 31, 2021 the Company completed the following transactions:

• (i) The Company issued 40,000 common shares for cash proceeds of $10,000 pursuant to the exercise of employees’ options.

• (ii) The Company purchased and cancelled 37,500 of its common shares on the open market at an average price of $0.45 for total cost of $16,855, pursuant to a normal course issuer bid (the “NCIB”). Under the renewed NCIB, a total of up to 4,068,111 common shares may be purchased through the facilities of the TSXV, and any such purchases will be at market prices. The NCIB will commence on or after December 18, 2020 and will end on December 17, 2021 or on such earlier date as the Company may complete its purchase pursuant to the NCIB or as it may otherwise determine.

• (iii) The Company paid dividends of $81,382 or $0.001 per share.

During the three months ended January 31, 2020 the Company completed the following transactions:

• (i) The Company issued 104,100 common shares for cash proceeds of $26,025 pursuant to the exercise of agents’ compensation options.

• (ii) The Company purchased and cancelled 199,500 of its common shares on the open market at an average price of $0.31 for total cost of $61,835, pursuant to a normal course issuer bid (the “NCIB”). Under the NCIB, a total of up to 3,966,202 common shares may be purchased through the facilities of the TSXV, and any such purchases will be at market prices. The NCIB will commence on or after December 16, 2019 and will end on December 16, 2020 or on such earlier date as the Company may complete its purchase pursuant to the NCIB or as it may otherwise determine.

• (iii) The Company paid dividends of $79,323 or $0.001 per share.

16

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

16. Share Capital (continued)

Escrow shares

At January 31, 2021, 73,429 (October 31, 2020- 220,310) common shares were held in escrow and deposited with a trustee under a CPC escrow agreement. Under the escrow agreement, 10% of the escrowed shares will be released on completion of a qualifying transaction (“QT”), 15% of the escrowed shares will be released every 6 months following the initial release on completion of a QT over a period of 36 months.

At January 31, 2021, 21,632,640 (October 31, 2020- 37,857,119) common shares were held in escrow and deposited with a trustee under the Surplus escrow agreement. Under the surplus escrow agreement, 5% of escrowed shares will be released on completion of a QT and 6 months from the release date, 10% release 12 and 18 months from QT completion date and 15% release 24 and 30 from QT completion date, and 40% release 36 months from QT completion date.

Stock options and warrants

The Company follows the policies of the TSX-V under which it is authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. Under the policies, the exercise price of each option equals the market price, or a discounted price of the Company’s stock as calculated on the date of grant. The options can be granted for a maximum term of three years and vest at the discretion of the Board of Directors.

Stock option transactions are summarized as follows:

	Stock Options
	Number Weighted Average Exercise Price
Outstanding, October 31, 2019 Exercised-Agent's options Expired- Agent's options Granted-Employees' options	4,537,700 0.25 $ (104,100) 0.25 $ (30,000) 0.25 $ 250,000 0.37 $
Outstanding,January31,2020	4,653,600 0.26 $
Exercised-Employees' options Outstanding, October 31, 2020 Exercised-Employees' options Granted-Employees' options	(57,600) 0.25 $ 4,596,000 0.26 (40,000) 0.25 350,000 0.40
Outstanding,January31,2021	4,906,000 0.27 $
Exercisable,January31,2021	4,781,000 0.27 $

Stock option activities during the three months ended January 31, 2021:

• (i) The Company issued 40,000 common shares for cash proceeds of $10,000 pursuant to the exercise of employees’ stock options.

• (ii) The Company granted an aggregate of 350,000 fully vested stock options to a member of the Board of Directors, each option being exercisable into one common share at a price of $0.40 per share.

17

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

16. Share Capital (continued)

Stock option activities during the three months ended January 31, 2020:

• (i) The Company issued 104,100 common shares for cash proceeds of $26,025 pursuant to the exercise of agents’ compensation options.

• (ii) 30,000 agents’ compensation options expired on December 22, 2019.

• (iii) The Company granted an aggregate of 250,000 fully vested stock options to a member of the Board of Directors, each such option being exercisable into one common share at a price of $0.37 per share.

Warrant transactions are summarized as follows:

Warrant transactions are summarized as follows:
	Warrants
	Number Average
Outstanding, October 31, 2019 Warrants issued on exercise of Agents' options Warrants expired	9,618,800 0.40 $ 52,050 0.40 $ (9,670,850) 0.40 $
Outstanding,January31,2020	- - $
Outstanding,October 31,2020	- - $
Outstanding,January31,2021	- - $
Exercisable,January31,2021	- - $

There were no warrant activities during the three months ended January 31, 2021.

Warrant activity during the three months ended January 31, 2020:

(i) 52,050 warrants were issued from the exercise of 104,100 agents’ compensation options. (ii) 9,670,850 warrants expired on December 22, 2019.

As at January 31, 2021, the following were outstanding:

	ExpiryDate	Number of Shares		Exercise Price	Weighted average
Options	June 25, 2021	4,306,000	$	0.25	0.4 years
	November 6, 2022	250,000	$	0.37	1.8 years
	November 16,2022	350,000	$	0.40	1.8years
		4,906,000	$	0.25	0.6 years

Share-based compensation

During the three months period ended January 31, 2021, the company recognized $72,511 as sharebased compensation for options granted to directors, officers, and employees.

The Company applies the fair value method in accounting for its stock options at the time of grant using the Black-Scholes option pricing model using the following estimates: expected dividend yield of 0%; risk-free interest rate of 0.60-1.10%; expected life of 2-3 years; common share price of $0.25$0.40; and expected volatility of 50%-100%. Volatility is based on a range of comparable companies operating in the same industry, adjusted for the Company’s limited history.

18

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

17. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

For the three months ended Jan 31,		2021		2020
Net income available to common shareholders for basic and
diluted earningsper share	$	94,131	$	76,399
Weighted average number of common share outstanding -
basic		81,379,503		79,299,048
Effect of dilutive securities - share-basedpayments		2,286,622		1,378,558
Weighted average number of common shares outstanding-
diluted		83,666,124		80,677,606
Earnings per share - reported:
Basic	$	0.001	$	0.001
Diluted	$	0.001	$	0.001

18. Brokerage Commissions

The gross sales through third-party dealerships were:

	for 3 months ended January 31, 2021 for 3 months ended January 31, 2020
Brokerage lease $ Cost of brokerage lease Brokerage sale Cost of brokerage sale Total brokerage commissions $	2,294 $ 4,668 - - 2,294 4,668 3,032,130 2,025,416 (2,900,205) (1,911,797) 131,924 113,619 134,218 $ 118,287

19. Sales and Cost of Sales by Nature

Sales include the following major sales by nature:

	for 3 months ended January 31, 2021 for 3 months ended January 31, 2020
Vehicle sales $ Finance lease vehicle sales Interest and administrative income Rental revenue Registration fees Total $	1,626,107 $ 1,037,145 133,923 26,988 596,105 509,973 1,351,488 1,247,983 41,041 46,069 3,748,664 $ 2,868,158

Included within cost of sales for the three months period ended January 31, 2021 is amortization of property under operating lease of $1,306,900 (2020 - $1,194,833)

19

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

20. Expense by Nature

Sales and marketing expenses include the following major expenses by nature:

		for 3 months		for 3 months
		ended January		ended January
		31, 2021		31, 2020
Advertising and promotion	$	37,683	$	21,676
Commissions		333,825		154,474
Marketing		16,516		20,855
Meals and entertainment		4,011		4,057
Demo vehicle rental		4,098		41,060
Total	$	396,133	$	242,122

General and administrative expenses include the following major expenses by nature:

	for 3 months ended January 31, 2021 for 3 months ended January 31, 2020
Accounting and legal $ Consulting fees	57,267 $ 40,840 31,081 20,725
Regulatory and transfer agent	15,095 8,459
Insurance License and permit	10,623 13,764 2,819 1,339
Office and miscellaneous	24,713 26,955
Repairs and maintenance Salaries and wages Total $	650 650 95,511 100,297 237,759 $ 213,029

21. Capital Management

The Company’s objectives, when managing capital, are to safeguard cash as well as maintain financial liquidity and flexibility in order to preserve its ability to meet financial obligations and deploy capital to grow its businesses.

The Company’s financial strategy is designed to maintain a flexible capital structure consistent with the objectives stated above and to respond to business growth opportunities and changes in economic conditions. In order to maintain or adjust its capital structure, the Company may issue shares or issue debt (secured, unsecured, convertible and/or other types of available debt instruments). The Company is subject to certain externally imposed capital requirements as described in Note 12. The Company did not change its capital management strategy in the three ended January 31, 2021 and 2020.

20

SOLUTION FINANCIAL INC. Notes to Condensed Consolidated Interim Financial Statements For the three months ended January 31, 2021 and 2020 (Expressed in Canadian dollars- Unaudited)

22. Segmented Information

The Company operates in one business segment being retail sales, leases, and financing for highend automotive vehicles, boats, and commercial equipment and out of two locations being Richmond, BC and Calgary AB.

23. Subsequent Events

On March 5, 2021, the Company submitted its application to the Toronto Stock Exchange (the “TSX”) seeking a listing on the TSX (the “Proposed TSX Graduation”). The Company’s intention to seek a listing on the TSX is subject to conditions, including satisfaction of the TSX’s listing criteria and other TSX approvals.

On March 8, 2021, the Company closed its previously announced non-brokered financing of unsecured convertible debentures in the principal amount of $3,225,400. The Convertible debenture financing consisted of a reinvestment of $2,615,400 of maturing debentures and accrued interest and $610,000 of new investments. The Debentures will mature on March 8, 2023 and bear interest at a rate of 5.00% per annum, calculated and paid semi-annually. The principal amount on the Debenture may be convertible into common shares in the capital of the Company, in whole or in part, at any time following the Issue Date but on or before the Maturity Date at a conversion price of $0.50 per Share. The Debentures and Shares issuable upon the conversion of the principal amount on the Debentures is subject to a statutory resale restriction expiring on July 9, 2021.

On March 11, 2021, the Company announced it filed a preliminary short form prospectus in connection with an offering of a minimum of 7,500,000 units of the Company (each a “Unit”) and a maximum of 25,000,000 Units at a price of $0.40 per Unit for minimum gross proceeds of $3,000,000 and maximum gross proceeds of $10,000,000. The Company engaged iA Private Wealth Inc. (the “Agent”) to sell the Units on a commercially reasonable best efforts agency basis. Each Unit will be comprised of one common share of the Company and one-half of one Share purchase warrant (each whole Share purchase warrant, a “Warrant”). Each Warrant will entitle the holder to acquire one Share at an exercise price of $0.50 per Share. The Warrants will be exercisable for a period of twelve months following the closing of the Offering. In addition, the Company has agreed to grant to the Agent an over-allotment option, exercisable, in whole or in part, in the sole discretion of the Agent to arrange for purchase of up to an additional 3,750,000 Units at the Offering Price for a period of up to 30 days after the Closing for potential additional gross proceeds to the Company of up to approximately $1,500,000.

The Agent shall receive, upon Closing, (i) a cash commission equal to 8.0% of the aggregate gross proceeds received from the sale of the Units, subject to a reduced cash commission equal to 1% in respect of any sales of Units to purchasers on a President’s list provided by the Company to the Agent and (ii) warrants equal to 6% of the Units sold in the Offering (including the Over-Allotment Option). Each Agent’s Warrant will entitle the holder thereof to acquire one Share for an exercise price of $0.40 per Share for a period of twelve months following Closing. The Company has also agreed to pay the Agent a cash work fee of $40,000.

On March 29, 2021, the Company filed the final short form prospectus related to the March 11, 2021 announced financing. The closing of the offering is anticipated to be on or about April 20, 2021.

21