Q1 gross profit of 6.4 million ” Director DirectorThe accompanying notes are an integral part of these condensed consolidated interim financial statements 4 MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss) For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) Notes Three months ended March 31, 2021 Three months ended March 31, 2020 $ $ Revenue 66,726,040 15,086,440 Cost of goods sold (58,492,630) (14,281,205) Gross profit 8,233,410 805,235 General and administrative expenses Amortization, depreciation and accretion 5, 6 76,288 102,045 Bad debt 147 - Interests and bank charges 44,249 453,173 Computer services & software 9,053 27,777 Consulting fees 7 101,062 145,270 Corporate governance costs 7 155,027 44,156 Insurance 31,320 6,730 Marketing and promotion 28,077 32,714 Office and miscellaneous 116,893 121,599 Professional fees 343,801 123,249 Rent and utilities 65,642 48,696 Research and development 3,675 - Stock-based compensation 7 268,824 1,149,752 Travel 521 19,997 Wages and benefits 7 837,806 754,517 Total expenses (2,082,385) (3,029,675) Other items Foreign exchange gain (loss) 3,802 (18,796) Gain on settlement of debts 8, 15 1,137,850 949,285 Gain on disposition of property and equipment 3,814 - Other income 607,807 1,422 Write-off of other payables 39,459 - Current income tax expenses (1,522,926) - Total other items 269,806 931,911 Net income (loss) 6,420,831 (1,292,529) Foreign currency translation adjustments 19,187 (701,990) Comprehensive income (loss) 6,440,018 (1,994,519) Basic and diluted earnings (loss) per common share 0.03 (0.01) Weighted average number of common shares outstanding Basic Diluted 191,871,844 201,865,876 188,043,898 188,043,898The accompanying notes are an integral part of these condensed consolidated interim financial statements 5 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 173,920,974 31,973,915 5,383,722 37,412 455,373 (31,902,672) 5,947,750 Shares issued for debt 14,604,387 1,241,373 - - - - 1,241,373 Stock-based compensation - - 112,252 - - - 112,252 Comprehensive loss - - - - (701,990) (1,292,529) (1,994,519) Balance, March 31, 2020 188,525,361 33,215,288 5,495,974 37,412 (246,617) (33,195,201) 5,306,856 Exercise of warrants 950,000 142,500 - - - - 142,500 Fair value of finder’s warrants expired - - - (37,412) - 37,412 - Stock-based compensation - - 341,440 - - - 341,440 Comprehensive loss - - - - 1,027,562 (48,244) 979,318 Balance, December 31, 2020 189,475,361 33,357,788 5,837,414 - 780,945 (33,206,033) 6,770,114 Exercise of options 1,600,000 630,654 (286,654) - - - 344,000 Exercise of warrants 2,323,645 348,547 - - - - 348,547 Stock-based compensation - - 268,824 - - - 268,824 Comprehensive income - - - - 19,187 6,420,831 6,440,018 Balance, March 31, 2021 193,399,006 34,336,989 5,819,584 - 800,132 (26,785,202) 14,171,503MISSION READY SOLUTIONS INC. Condensed Consolidated Interim Statements of Cash Flows For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) The accompanying notes are an integral part of these condensed consolidated interim financial statements 6 2021 2020 $ $ Operating activities Net income (loss) 6,420,831 (1,292,529) Adjustments for non-cash items: Amortization and depreciation 76,288 102,045 Bad debts 147 - Gain on settlement of debts (1,137,850) (949,285) Gain on disposition of property and equipment (3,814) - Stock-based compensation (338,676) 1,149,752 Write-off of other payables (39,459) - Change in non-cash working capital components: Trade and other receivables (16,628,347) (4,098,565) GST recoverable (3,969) (3,176) Inventories (34,671) 84,503 Prepaid expenses and deposits 1,773,112 (670,413) Trade and other payables 11,208,880 4,859,728 Lease liability - (18,156) Due to related parties (11,945) 241,827 Net cash provided by (used in) operating activities 1,280,527 (594,269) Investing activities Proceeds from disposal of property and equipment 5,064 - Net cash provided by investing activities 5,064 - Financing activities Bank overdraft - 59,238 Exercise of options 344,000 - Exercise of warrants 348,547 - Proceeds from notes payable - 345,901 Repayments on notes payable (154,452) - Repayments on loans payable - (3,418) Net cash provided by financing activities 538,095 401,721 Increase (decrease) in cash 1,823,686 (192,548) Effect of exchange rate changes on cash 19,902 (223,608) Cash, beginning 1,631,390 645,965 Cash, ending 3,474,978 229,809 Cash paid for interest expense - - Cash paid for income taxes - - Supplemental Information with Respect to Cash Flows (Note 10)MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 7 1. NATURE OF OPERATIONS Mission Ready Solutions Inc. (“Mission Ready” or the “Company”) is governed by the Business Corporations Act (British Columbia). The head office is located at Suite 400 – 1681 Chestnut Street, Vancouver, B.C., Canada, V6J 4M6. The Company’s common shares are traded on the TSX Venture Exchange (“TSXV”) under the symbol “MRS” and OTCQX Venture Market under the symbol “MSNVF”. Mission Ready specializes in providing comprehensive government contracting solutions – through its wholly-owned subsidiary, Unifire, Inc. (“Unifire”) Unifire is a designated Small Business and an industry-leading manufacturer and distributor of over 1.5 million fire, military, emergency, and law enforcement products. Unifire has extensive knowledge and experience in providing solutions to the US Federal Government, Unifire utilizes its highly efficient and scalable technology infrastructure to provide procurement solutions for program managers, military and federal contracting offices, base supply centers, and other governmental supply agencies. In March 2020, the World Health Organization declared a global pandemic related to the virus known as COVID-19. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company’s. This outbreak could decrease spending, adversely affect demand for the Company’s products and harm the Company’s business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 8 2. BASIS OF PRESENTATION These condensed consolidated interim financial statements are prepared in accordance with International Accounting Standards 34 - Interim Financial Reporting of the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretation Committee (“IFRIC”). The consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as of and for the year ended December 31, 2020. These condensed consolidated interim financial statements are prepared on a historical cost basis except for certain financial instruments as described at Note 11, which are stated at their fair value. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information. Basis of consolidation Consolidated financial statements include the assets, liabilities and results of operations of all entities controlled by the Company. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the Company’s the consolidated financial statements. Where control of an entity is obtained during a financial year, its results are included in the consolidated statements of comprehensive loss from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control exists. These consolidated financial statements include the accounts of the Company and its subsidiaries as follows: Name Country of incorporation Holding Functional currency Mission Ready Holdings Ltd. Canada 100.0% Canadian dollar Mission Ready Holdings USA Inc. United States 100.0% U.S. dollar Unifire, Inc.(1) United States 100.0% U.S. dollar Protect The Force Inc. United States 100.0% U.S. dollar PTF Manufacturing Inc. United States 100.0% U.S. dollar No Contact, LLC United States 100.0% U.S. dollar 10-20 Services Inc. United States 100.0% U.S. dollar (1) Unifire, Inc. (“Unifire”) was acquired effective April 22, 2019. These consolidated financial statements include the financial statements of Unifire from the date of acquisition. 3. SIGNIFICANT ACCOUNTING POLICIES The preparation of these condensed consolidated interim financial statements requires management to make judgements and estimates that affect the reported amounts of assets and liabilities at the date of the condensed consolidated interim financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these judgements and estimates. The condensed consolidated interim financial statements include judgements and estimates which, by their nature, are uncertain. The impacts of such judgements and estimates are pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods. MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 9 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 March 31, 2021 December 31, 2020 $ $ Raw materials 266,969 251,132 Finished goods 156,225 137,391 Total 423,194 388,523MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 10 5. PROPERTY AND EQUIPMENT Wash & Other Equipment Computer Equipment Leasehold Improvements Right-of-Use Asset TOTAL $ $ $ $ $ COSTS Balance, December 31, 2019 379,905 85,773 72,599 82,748 621,025 Additions 3,756 5,369 - - 9,125 Foreign currency adjustments (8,418) (1,826) (1,635) (1,631) (13,510) Balance, December 31, 2020 375,243 89,316 70,964 81,117 616,640 Disposition (17,978) - - - (17,978) Foreign currency adjustments (4,968) (1,015) (1,003) (1,000) (7,986) Balance, March 31, 2021 352,297 88,301 69,961 80,117 590,676 ACCUMULATED DEPRECIATION Balance, December 31, 2019 188,869 37,356 8,013 66,198 300,436 Depreciation 40,231 11,105 8,568 17,094 76,998 Foreign currency adjustments (6,471) (1,204) (798) (2,175) (10,648) Balance, December 31, 2020 222,629 47,257 15,783 81,117 366,786 Depreciation 7,687 2,216 2,021 - 11,924 Disposition (16,729) - - - (16,729) Foreign currency adjustments (3,120) (536) (336) (1,000) (4,992) Balance, March 31, 2021 210,467 48,937 17,468 80,117 356,989 NET BOOK VALUE Balance, December 31, 2020 152,614 42,059 55,181 - 249,854 Balance, March 31, 2021 141,830 39,364 52,493 - 233,687MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 11 6. INTANGIBLE ASSETS Product Development Costs Licenses & Certifications Patents Rights TOTAL $ $ $ $ $ COSTS Balance, December 31, 2019 1,152,356 229,228 429,313 1,164,492 2,975,389 Foreign currency adjustments (22,714) (2,835) (9,218) (32,000) (66,767) Balance, December 31, 2020 1,129,642 226,393 420,095 1,132,492 2,908,622 Foreign currency adjustments (13,930) (942) (5,653) (19,625) (40,150) Balance, March 31, 2021 1,115,712 225,451 414,442 1,112,867 2,868,472 ACCUMULATED AMORTIZATION Balance, December 31, 2019 201,662 178,810 230,781 149,803 761,056 Amortization 59,512 8,943 36,662 167,690 272,807 Foreign currency adjustments (7,005) (1,023) (7,171) (20,537) (35,736) Balance, December 31, 2020 254,169 186,730 260,272 296,956 998,127 Amortization 14,041 2,110 8,650 39,563 64,364 Foreign currency adjustments (3,228) (467) (3,740) (9,589) (17,024) Balance, March 31, 2021 264,982 188,373 265,182 326,930 1,045,467 NET BOOK VALUE Balance, December 31, 2020 875,473 39,663 159,823 835,536 1,910,495 Balance, March 31, 2021 850,730 37,078 149,260 785,937 1,823,005MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 12 6. INTANGIBLE ASSETS (continued) a) Product Developments Costs The Company has capitalized wages, materials, and direct costs related to the development of its proprietary protective services gear including the No Contact riot shield cover, Ballistic Combat Shirt, and Flex9Armor Tactical Police Shirt. Commencing in 2016, these capitalized costs are amortized on a straight-line basis over 20 years being the estimated useful life of the underlying patents pending. b) License and Certifications On September 19, 2016, the Company acquired certain certifications that comply with the U.S. National Institute of Justice standard for ballistic resistance of body armor. The certifications are amortized on a straight-line basis over the same period as the No Contact patent (Note 6(c)) until November 1, 2025. c) Patents In 2012, the Company acquired No Contact, LLC which carries on the business of research and development activities focused on wearable technologies synthesizing advanced textiles with electronics and computation for personal protection and safety. The Company holds a patent on the No-Contact Electro Muscular Disruption technology. The Company allocated the purchase price of US$275,000 to the patent acquired. The patent is amortized on a straight-line basis over its useful life until its expiry on November 1, 2025. d) Rights On March 25, 2016, the Company purchased various assets and rights from Source One Distributors, Inc. for US$1,253,600. These assets were purchased to expand access to military contracts and vendor relationships. A former shareholder of Unifire provided a loan of US$1,250,000 to the Company for this purchase (Notes 14 and 15). 7. RELATED PARTIES Details of transactions between the Company and other related parties, in addition to those transactions disclosed elsewhere in these consolidated financial statements, are described as follows. a) Compensation of Key Management Personnel The compensation paid or payable to directors and key management personnel, including consulting and professional fees for administrative, management, accounting, and legal services provided by these related parties, during the three months ended March 31, 2021 and 2020 are as follows: March 31, 2021 March 31, 2020 $ $ Salaries and other short-term employee benefits 220,083 242,838 Director fees 75,960 18,000 Stock-based compensation 188,151 - 484,194 260,838MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 13 7. RELATED PARTIES (continued) All related party transactions were in the ordinary course of business and were measured at their exchange amount as agreed between the related parties. b) Related Party Balances As of March 31, 2021 and December 31, 2020, the Company has the following amounts owed to related parties that are noninterest bearing, unsecured, and have no specified terms of repayment. The option pricing differential payable has been included in trade and other payables. March 31, 2021 December 31, 2020 $ $ Option pricing differential payable 115,000 707,500 Director fees payable 89,450 100,753 Due to officers and former officers 62,498 166,953 266,948 975,206 8. SHARE CAPITAL a) Authorized Share Capital The Company is authorized to issue an unlimited number of common shares without par value. b) Issued and Outstanding Common Shares On January 3, 2020, the Company issued 14,604,387 common shares of the Company valued at $1,241,373 to settle certain outstanding creditors of the Company for an aggregate amount of $2,190,658 in which $1,983,750 was included in notes payable and $206,908 was included in trade and other payables (Note 15). The issuance of common shares resulted in a gain on settlement of debts of $949,285. On September 28, 2020, the Company issued 800,000 common shares on the exercise of warrants at $0.15 per share for total proceeds of $120,000. On December 7, 2020, the Company issued 150,000 common shares on the exercise of warrants at $0.15 per share for total proceeds of $22,500. During the three months ended March 31, 2021, the Company issued 1,600,000 common shares on the exercise of options for total proceeds of $344,000. During the three months ended March 31, 2021, the Company issued 2,323,645 common shares on the exercise of warrants for total proceeds of $348,547. c) Stock Options Under the Company’s stock option plan, the maximum number of shares that may be reserved for issuance is limited to 20% of the issued and outstanding common shares of the Company at any time. Under the plan, the exercise price of an option may not be less than the discounted market price. The options may have a maximum term of 10 years and be vested at the discretion of the board of directors. MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 14 8. SHARE CAPITAL (continued) c) Stock Options (continued) As of March 31, 2021, 19,541,667 options, with an average exercise price of $0.32 per share and an average remaining life of 4.70 years, have been vested. Three months ended March 31, 2021 Year ended December 31, 2020 Number of options Weighted average exercise price Number of options Weighted average exercise price Opening 21,275,000 $0.24 25,175,000 $0.24 Granted 4,400,000 0.70 2,250,000 0.17 Exercised (1,600,000) 0.22 - - Cancelled - - (6,150,000) 0.24 Ending 24,075,000 $0.32 21,275,000 $0.24 As of March 31, 2021, the following options remain outstanding: Number of options Exercisable Exercise price Expiry date 625,000 625,000 $0.25 May 1, 2023 200,000 200,000 $0.25 June 11, 2023 25,000 25,000 $0.35 May 8, 2024 1,800,000 1,800,000 $0.22 August 15, 2024 775,000 775,000 $0.25 September 2, 2024 7,000,000 7,000,000 $0.24 September 23, 2024 150,000 150,000 $0.35 November 21, 2024 7,350,000 7,350,000 $0.25 September 25, 2027 1,000,000 500,000 $0.20 October 9, 2025 750,000 750,000 $0.15 December 14, 2025 4,400,000 366,667 $0.70 March 18, 2026 24,075,000 19,541,667MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 15 8. SHARE CAPITAL (continued) d) Share Purchase Warrants Three months ended March 31, 2021 Year ended December 31, 2020 Number of warrants Weighted average exercise price Number of warrants Weighted average exercise price Opening 2,323,645 $0.15 15,775,488 $0.25 Exercised (2,323,645) $0.15 (550,000) $0.15 Expired - $ - (12,901,843) $0.27 Ending - $ - 2,323,645 $0.15 On February 10, 2020, the Company received approval from TSX Venture Exchange to amend 10,889,500 warrants issued on April 2, 2019 from the original exercise price of $0.40 to $0.27 and the original expiry date of April 2, 2020 to December 31, 2020. In addition, 1,055,000 warrants issued on August 15, 2019 were amended from the original exercise price of $0.40 to $0.25 and original expiry date of August 15, 2020 to December 31, 2020. As of March 31, 2021, these warrants expired unexercised. e) Finders’ Warrants Three months ended March 31, 2021 Year ended December 31, 2020 Number of warrants Weighted average exercise price Number of warrants Weighted average exercise price Opening - $ - 371,880 $0.40 Expired - $ - (371,880) $0.40 Ending - $ - - $ - f) Finders’ Unit Warrants Three months ended March 31, 2021 Year ended December 31, 2020 Number of warrants Weighted average exercise price Number of warrants Weighted average exercise price Opening - $ - 400,000 $0.15 Exercised - $ - (400,000) $0.15 Ending - $ - - $ -MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 16 8. SHARE CAPITAL (continued) g) Fair Value of Stock Options and Finders Warrants The fair value of stock options, finders’ warrants and finders’ unit warrants granted are estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions made during the three months ended March 31, 2021 and 2020: Three months ended March 31, 2021 Three months ended March 31, 2020 Risk-Free Annual Interest 0.98% - Expected Volatility 136% - Expected Life of Option 5 years - Expected Annual Dividend 0% - The weighted average fair value of stock options issued during the three months ended March 31, 2021 were $0.54 per option (2020 - $Nil per option). Black-Scholes option pricing model require the input of highly subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models may not necessarily provide a single reliable measure of the fair value of the Company’s stock options, finders’ warrants, and finders’ unit warrants. 9. SEGMENTED INFORMATION The assets and operations of the Company are located in Canada and the United States. The Company has two reportable business segments in the global defense, security, and first-responder markets: consulting and manufacturer representation; and inspection, cleaning, and repair services of protective services gear. Manufacturing, Research & Development (TN, USA) Inspection, Cleaning & Repair Services (NC, USA) Unifire (WA, USA) Corporate Head Office (BC, Canada) TOTAL $ $ $ $ $ Three months ended March 31, 2021 Revenues 423,058 - 66,302,982 - 66,726,040 Total (expenses) recovery (625,133) - (60,573,881) 893,805 (60,305,209) Net income (loss) (202,075) - 5,729,101 893,805 6,420,831 Three months ended March 31, 2020 Revenues 272,024 - 14,814,416 - 15,086,440 Total expenses (185,729) - (14,696,141) (1,497,099) (16,378,969) Net income (loss) 86,295 - 118,275 (1,497,099) (1,292,529) As of March 31, 2021 Current assets 461,430 - 28,092,030 436,459 28,989,919 Total assets 1,640,492 - 48,331,840 436,459 50,408,791 Total liabilities 1,064,258 160,967 30,606,559 4,405,504 36,237,288 As of December 31, 2020 Current assets 492,392 - 11,597,632 162,579 12,252,603 Total assets 1,718,169 - 31,920,387 162,579 33,801,135 Total liabilities 1,020,302 162,977 19,216,731 6,631,011 27,031,021MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 17 10. SUPPLEMENTAL INFORMATION IN RESPECT TO CASH FLOWS Non-cash investing and financing activities for the three months ended March 31, 2021 and 2020 are as follows: March 31, 2021 March 31, 2020 $ $ Shares issued for debt - 1,241,373 11. FINANCIAL INSTRUMENTS Classification of financial instruments As of March 31, 2021 Financial assets - FVTPL Financial assets – amortized costs Financial liabilities – amortized costs $ $ $ Cash 3,474,978 - - Trade and other receivables - 23,142,154 - Trade and other payables - - 32,556,513 Due to related parties - - 151,948 Notes payable - - 3,528,827 As of December 31, 2020 Financial assets - FVTPL Financial assets – amortized costs Financial liabilities – amortized 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 Notes payable - - 4,872,536 The fair value of the Company’s financial assets and liabilities approximates the carrying amount. Management of industry and financial risk The Company is exposed to various risks in relation to financial instruments. The Company’s risk management is coordinated at its head office in Canada in close cooperation with the board of directors and focuses on actively securing the Company’s short to medium-term cash flows and raising finances for the Company’s capital expenditure program. The Company does not actively engage in the trading of financial assets for speculative purposes. The most significant financial risks to which the Company is exposed are described below. Credit risk Credit risk is the risk of loss associated with a counterparty’s inability to fulfil its payment obligations. The Company limits its exposure to credit loss for cash by placing its cash with high quality financial institutions and for trade receivables by performing standard credit checks. The credit risk for cash and trade receivables is considered negligible since the counterparties are reputable banks with high quality external credit ratings and customers with no history of default.MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 18 11. FINANCIAL INSTRUMENTS (continued) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company ensures, as far as reasonably possible, that it will have sufficient capital to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash. The Company had a working capital deficit of $4,565,116 as of March 31, 2021, which is a significant improvement from the Company’s working capital deficit of $13,789,221 at December 31, 2020. Foreign exchange risk The Company operates internationally and is exposed to foreign currency risk arising from currency exposures to Canadian dollars. The main currency to which the Company has an exposure is the U.S. dollar. The Company is exposed to currency risk to the extent of its cash, trade and other payables, purchase agreements payable, and loans payable that are denominated in U.S. dollars. The Company does not hedge its exposure to fluctuations in the related foreign exchange rates. The Company’s exposure to currency risk is currently considered insignificant. Interest rate risk Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Interests on the Company’s promissory notes payable and loan payable are based on fixed rates, and as such, the Company is not exposed to significant interest rate risk. 12. CAPITAL DISCLOSURES The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development and expansion of its business and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk level. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may attempt to issue new shares or debt, dispose of assets, or adjust the amount of cash and cash equivalents. There can be no assurance that the Company will be able to obtain debt or equity capital in the case of operating cash deficits. In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The Company does not pay out dividends in order to conserve cash reserves and to maximize ongoing development efforts. The Company’s share capital is not subject to external restrictions. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 19 13. CONTINGENCIES During the year ended December 31, 2018, Company settled a whistleblower reprisal complaint filed under Title 10, United States Code, Section 2409, “Contractor employees: protection from reprisal for disclosure of certain information,” implemented by Defense Federal Acquisition Regulation Supplement, Subpart 203.9, “Whistleblower Protections for Contractor Employees” (the “Whistleblower Matter”). As of March 31, 2021, the Company accrued $56,588 (USD $45,000) related to this settlement and is included in trade and other payables. Subsequent to March 31, 2021, this amount has been fully repaid (Note 16). The Company is party to litigation filed by a former 10-20 Services employee who worked at the Company’s Barstow, California location until the facility was closed due to the lease expiry and finalization of a service contract (the “10-20 Claim”). During the year ended December 31, 2018, the Company settled the 10-20 Claim for US$75,000. During the three months ended March 31, 2021, the Company and former 10-20 Services employee entered into a general release and settlement agreement to settle and fully release all claims against the Company in the amount of US$88,620. As of March 31, 2021, the Company had a remaining balance outstanding of $55,720 (US$44,310) related to the 10-20 Claim, included in trade and other payables, to be paid in equal monthly installments during the year ended December 31, 2021. Subsequent to March 31, 2021, this amount has been fully satisfied (Note 16). As of March 31, 2021, the Company accrued $8,928,250 (US$7,100,000) as accounts payable pending the outcome of a claim currently in dispute. Product Source Group, LLC and J.D. United Manufacturing Co. Ltd. filed a lawsuit against Unifire in New York Supreme Court, Monroe County, Index No. E2020010244 alleging failure to pay for the purchase of isolation gowns. Unifire removed the case to the U.S. District Court for the Western District of New York, Case No. 6:21-cv-06272, and moved to dismiss for lack of personal jurisdiction. The motion to dismiss is pending. The parties have exchanged settlement offers. On May 14, 2021, the plaintiffs filed an amended complaint adding Mission Ready and three current or former officers of Unifire or Mission Ready as defendants. The Company plans to vigorously contest this matter. 14. BUSINESS ACQUISITION On July 31, 2018, the Company announced that it had entered into a non-binding letter of intent to acquire (the “Acquisition”) Unifire, a company based in Spokane, Washington. On April 22, 2019, the Company received approval from the TSXV for its Acquisition of Unifire. The Acquisition has been structured as a merger between Unifire and a wholly-owned subsidiary of the Company which was incorporated for purposes of the Acquisition. The consideration for the acquisition includes: 1. The issuance of an aggregate of 26,315,790 common shares of the Company (issued). 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. 2. Deferred cash payments totaling US$4,000,000. 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. 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.MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 20 14. BUSINESS ACQUISITION (continued) The acquisition of Unifire was accounted for as a business combination, in which the assets acquired and the liabilities assumed are recorded at their estimated fair value. The allocation of the purchase consideration is as follows: Purchase consideration Share considerations $ 7,631,579 Cash considerations (Note 15) 5,341,200 TOTAL $ 12,972,779 Assets acquired: Cash $ 65,276 Trade and other receivables 307,828 Inventories 1,726,594 Prepaid expenses and deposits 462,264 Property and equipment 135,464 Other intangible assets 1,219,747 Liabilities assumed: Trade and other payables (4,186,855) Notes payables (Note 15) (1,575,570) Due to related parties (Notes 6 and 15) (2,461,368) Net liabilities assumed (4,306,620) Goodwill acquired 17,279,399 TOTAL $ 12,972,779 Goodwill recognized comprises the assembled workforce and their knowledge, regulatory affairs and expected revenue growth and future market development. 15. NOTES PAYABLE During the year ended December 31, 2019, the Company issued two promissory notes to former shareholders of Unifire in relation to the Acquisition of Unifire totalling US$4,000,000 (CAD$5,341,200), of which $3,424,109 is due within 1 year (Note 14). On December 12, 2019, the Company entered into a debt settlement agreement with one of the former shareholders of Unifire in the amount of US$250,000 (CAD$330,625) by issuing 2,204,167 common shares of the Company. The Company received approval from the TSX Venture Exchange on December 23, 2019 and issued the common shares on January 3, 2020. The Company entered into an agreement to defer payments with one of the former shareholders of Unifire to monthly payments of US$25,000 from June 1, 2021 to June 1, 2026 with the last payment consisting of a balloon payment for the remaining balance. A late payment fee has been accrued in the amount of US$109,091 consisting of 5% of each quarterly payment that was not paid within 30 days after the date the quarterly payment becomes due pursuant to the original promissory note agreement. The agreement to defer payments is initially measured at the present value of the payments in the amount of US$2,093,315 on the debt settlement date, using a discount rate of 10%. This resulted in the Company recognizing a gain on settlement of debt of $1,137,850 (US$898,776) during the three months ended March 31, 2021. MISSION READY SOLUTIONS INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020 (Expressed in Canadian dollars) 21 As of March 31, 2021, the Company had a note payable to the two former shareholders of Unifire in the amount of US$2,619,224 (CAD$3,293,675) (December 31, 2020 – US$3,640,000 (CAD$4,634,448)), of which $636,174 is due within 1 year. During the year ended December 31, 2020, the Company applied for the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act (the “PPP Loans”), administered by the US Small Business Administration. Under the PPP Loans, the Company received US$301,400 and US$187,000 on April 8, 2020 and May 4, 2020, respectively, which bears interest at a rate of 1.00% per annum and matures in 2 years. The PPP Loans are payable monthly with the first six monthly payments deferred and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Company can obtain limited loan forgiveness on eligible expenses, including amounts incurred for US payroll costs and US utility expenses. During the year ended December 31, 2020, the Company received loan forgiveness from US Small Business Administration on $404,328 (US$301,400) under this program. As of March 31, 2021, the Company had an outstanding balance for the PPP Loans in the amount of $235,152 (US$187,000), of which $210,400 (US$167,316) is due within 1 year. 16. SUBSEQUENT EVENTS Subsequent to the three months ended March 31, 2021: 1. The Company issued 1,975,000 common shares on the exercise of options for total proceeds of $476,250. 2. The Company fully satisfied the amounts accrued for the Whistleblower Matter and the 1