Aluula Composites Inc.

BASTION SQUARE PARTNERS INC.

FILING STATEMENT

IN RESPECT OF THE QUALIFYING TRANSACTION OF BASTION SQUARE PARTNERS INC.

Dated as of April 12, 2023

Neither the TSX Venture Exchange Inc. (the “Exchange”) nor any securities regulatory authority has in any way passed upon the merits of the Qualifying Transaction described in this Filing Statement.

GLOSSARY................................................................................................................................................. 1 FORWARD-LOOKING STATEMENTS ................................................................................................ 8 SUMMARY OF FILING STATEMENT ................................................................................................. 9 Interest of Experts ............................................................................................................................. 15 Reports and Opinions ....................................................................................................................... 16 INFORMATION CONCERNING THE ISSUER ................................................................................. 17 CORPORATE STRUCTURE ................................................................................................................. 17 GENERAL DEVELOPMENT OF THE BUSINESS ............................................................................. 17 History .............................................................................................................................................. 17 Description of the Qualifying Transaction ....................................................................................... 17 BSP SubCo Subscription Receipt Financing .................................................................................... 20 BSP Financing .................................................................................................................................. 20 Management’s Discussion and Analysis .......................................................................................... 20 DESCRIPTION OF THE SECURITIES ................................................................................................ 21 STOCK OPTION PLAN ......................................................................................................................... 21 PRIOR SALES ........................................................................................................................................ 22 STOCK EXCHANGE PRICE ................................................................................................................. 23 ARM’S LENGTH TRANSACTIONS .................................................................................................... 23 LEGAL PROCEEDINGS ....................................................................................................................... 23 AUDITOR, TRANSFER AGENT AND REGISTRAR ......................................................................... 23 MATERIAL CONTRACTS.................................................................................................................... 24 INFORMATION CONCERNING THE TARGET COMPANY ......................................................... 25 CORPORATE STRUCTURE ................................................................................................................. 25 DESCRIPTION OF THE BUSINESS .................................................................................................... 25 Summary of the Business ................................................................................................................. 25 Development of the Business ........................................................................................................... 32 Significant Acquisitions ................................................................................................................... 34 MANAGEMENT’S DISCUSSION AND ANALYSIS .......................................................................... 34 DESCRIPTION OF THE SECURITIES ................................................................................................ 34 CONSOLIDATED CAPITALIZATION ................................................................................................ 37 PRIOR SALES ........................................................................................................................................ 37 EXECUTIVE COMPENSATION .......................................................................................................... 38 NON-ARM’S LENGTH PARTY TRANSACTIONS ............................................................................ 40 LEGAL PROCEEDINGS ....................................................................................................................... 40 MATERIAL CONTRACTS.................................................................................................................... 40 INFORMATION CONCERNING THE RESULTING ISSUER ......................................................... 42 CORPORATE STRUCTURE ................................................................................................................. 42 INTERCORPORATE RELATIONSHIPS .............................................................................................. 42 DESCRIPTION OF THE BUSINESS .................................................................................................... 42 DESCRIPTION OF THE SECURITIES ................................................................................................ 44 PRO FORMA CONSOLIDATED CAPITALIZATION ........................................................................ 45 AVAILABLE FUNDS AND PRINCIPAL PURPOSES ........................................................................ 46 Dividends or Distributions ............................................................................................................... 47 Principal Purposes of Funds ............................................................................................................. 47 PRINCIPAL SECURITYHOLDERS ..................................................................................................... 48 DIRECTORS, OFFICERS AND PROMOTERS.................................................................................... 48

Promoters .......................................................................................................................................... 52 Cease Trade Orders, Bankruptcies, Penalties or Sanctions .............................................................. 52 Interests of Management and Others in Material Transactions ........................................................ 53 Conflicts of Interest .......................................................................................................................... 54 Other Reporting Issuer Experience................................................................................................... 54 AUDIT COMMITTEE AND CORPORATE GOVERNANCE ............................................................. 54 EXECUTIVE COMPENSATION .......................................................................................................... 58 INDEBTEDNESS OF DIRECTORS AND OFFICERS ......................................................................... 59 INVESTOR RELATIONS ARRANGEMENTS .................................................................................... 59 SECURITY BASED COMPENSATION ............................................................................................... 59 ESCROW SECURITIES ......................................................................................................................... 62 OTHER ESCROW .................................................................................................................................. 65 AUDITOR, TRANSFER AGENT AND REGISTRAR ......................................................................... 65 RISK FACTORS ..................................................................................................................................... 65 GENERAL MATTERS ............................................................................................................................ 73 SPONSORSHIP AND AGENT RELATIONSHIP ................................................................................. 73 EXPERTS ................................................................................................................................................ 73 Interest of Experts ............................................................................................................................. 73 Reports and Opinions ....................................................................................................................... 73 OTHER MATERIAL FACTS ................................................................................................................. 74 BOARD APPROVAL ............................................................................................................................. 74

SCHEDULE “A” – ISSUER’S FINANCIAL STATEMENTS

SCHEDULE “B” – ISSUER’S MANAGEMENT’S DISCUSSION AND ANALYSIS

SCHEDULE “C” – TARGET COMPANY’S FINANCIAL STATEMENTS

SCHEDULE “D” – TARGET COMPANY’S MANAGEMENT’S DISCUSSION AND ANALYSIS

SCHEDULE “E” – OCEAN RODEO’S FINANCIAL STATEMENTS

SCHEDULE “F” – PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

SCHEDULE “G” – AUDIT COMMITTEE CHARTER

SCHEDULE “H” – COMPENSATION COMMITTEE CHARTER

SCHEDULE “I” – SUMMARY OF VALUATION REPORT

CERTIFICATE OF BASTION SQUARE PARTNERS INC.

CERTIFICATE OF ALUULA COMPOSITES INC.

ACKNOWLEDGEMENT OF PERSONAL INFORMATION

GLOSSARY

The following is a glossary of certain terms used in this Filing Statement, including the summary hereof. Terms and abbreviations used in the financial statements of the Issuer and the Target Company and the proforma consolidated financial statements of the Resulting Issuer and in the schedules to this Filing Statement are defined separately and the terms and abbreviations defined below are not used therein, except where otherwise indicated.

Words importing the singular, where the context requires, include the plural and vice versa and words importing any gender include all genders.

All references to “dollar” or the use of the symbol “$” herein are to Canadian dollars unless otherwise noted.

All defined terms not otherwise defined herein are as defined in the policies of the Exchange.

“ Advisory Committee ” means the advisory committee to the board of directors of the Resulting Issuer.

“ Affiliate ” means a company that is affiliated with another company as described below.

A company is an “Affiliate” of another company if:

(a) one of them is the subsidiary of the other, or
(b) each of them is controlled by the same Person.

A company is “controlled” by a Person if:

(a) voting securities of the company are held, other than by way of security only, by or for the benefit of that Person, and
(b) the voting securities, if voted, entitle the Person to elect a majority of the directors of the company.

A Person beneficially owns securities that are beneficially owned by:

(a) a company controlled by that Person, or
(b) an Affiliate of that Person or an Affiliate of any company controlled by that Person.

“ Aluula ” or “ Target Company ” means Aluula Composites Inc., a privately held company incorporated under the BCBCA.

“ Amalco ” means the corporation resulting from the amalgamation of Aluula and BSP SubCo pursuant to the terms of the Amalgamation Agreement.

“ Amalgamation Agreement ” means the amalgamation agreement dated December 20, 2022, and the amended and restated amalgamation agreement dated April 3, 2022 among the Issuer, the Target Company and BSP SubCo pursuant to which the Issuer has agreed to acquire all of the issued and outstanding shares of the Target Company and, in consideration of which, the Issuer will issue Issuer Shares to the Target Company Shareholders on completion of the Transaction.

“ Associate ” when used to indicate a relationship with a person or company, means

(a) an issuer of which the person or company beneficially owns or controls, directly or indirectly, voting securities entitling him to more than 10% of the voting rights attached to outstanding securities of the issuer,
(b) any partner of the person or company,
(c) any trust or estate in which the person or company has a substantial beneficial interest or in respect of which a person or company serves as trustee or in a similar capacity,
(d) in the case of a person, a relative of that person, including
(i) that person’s spouse or child, or
(ii) any relative of the person or of his spouse who has the same residence as that person; but
(e) where the Exchange determines that two persons shall, or shall not, be deemed to be associates with respect to a Member firm, Member corporation or holding company of a Member corporation, then such determination shall be determinative of their relationships in the application of Rule D.1.00 of the TSX Venture Exchange Rule Book and Policies with respect to that Member firm, Member corporation or holding company.

“ Audit Committee ” means the audit committee of the Resulting Issuer. See “ Information Concerning the Resulting Issuer – Audit Committee and Corporate Governance ”.

“ BCBCA ” means the Business Corporations Act (British Columbia), as amended from time to time.

“ Board ” means the board of directors of the Issuer prior to Completion of the Qualifying Transaction and the board of directors of the Resulting Issuer after Completion of the Qualifying Transaction, as applicable.

“ BSP ” or “ Issuer ” means Bastion Square Partners Inc., a company incorporated under the BCBCA.

“ BSP Financing ” means the non-brokered private placement of 6,776,670 Resulting Issuer Shares at price of $0.12 per Resulting Issuer Share to be completed concurrently with Closing.

“ BSP Shares ” means the common shares of BSP.

“ BSP SubCo .” means 1391093 B.C. Ltd., a wholly-owned subsidiary of BSP.

“ BSP SubCo Shares ” means the common shares of BSP SubCo.

“ CAGR ” means compounded annual growth rate.

“ CEO ” means Chief Executive Officer.

“ Cessation Date ” means the date on which the holder of a Resulting Issuer Option ceases to be eligible to hold the Resulting Issuer Option.

“ CFO ” means Chief Financial Officer.

“ Closing ” means the completion of the Transaction.

“ Closing Date ” means the date of closing of the Transaction, which is expected to be on the date the Final Exchange Bulletin is issued by the Exchange.

“ company ” unless specifically indicated otherwise, means a corporation, incorporated association or organization, body corporate, partnership, trust, association or other entity other than an individual.

“ Compensation Committee ” means the compensation committee of the Resulting Issuer. See “ Information Concerning the Resulting Issuer – Audit Committee and Corporate Governance ”.

“ Completion of the Qualifying Transaction ” means the date the Final Exchange Bulletin is issued by the Exchange.

“ Consultant ” means, in relation to the Resulting Issuer, a Person (other than an Insider, Employee or a Management Company Employee) that.

“ Control Person ” means any person or company that holds or is one of a combination of persons or companies that holds a sufficient number of any of the securities of an issuer so as to affect materially the control of that issuer, or that holds more than 20% of the outstanding voting securities of an issuer except where there is evidence showing that the holder of those securities does not materially affect the control of the issuer.

“ CPC ” means a corporation:

(a) that has been incorporated or organized in a jurisdiction in Canada;
(b) that has filed and obtained a receipt for a preliminary CPC prospectus from one or more of the securities regulatory authorities in compliance with the CPC Policy; and
(c) in regard to which the Completion of the Qualifying Transaction has not yet occurred.

“ CPC Escrow Agreement ” means the escrow agreement dated July 29, 2021 between the Issuer, Odyssey Trust Company and certain securityholders of the Issuer.

“ CPC Policy ” means Exchange Policy 2.4 – Capital Pool Companies .

“ Employee ” means:

(a) an individual who is considered an employee of the Resulting Issuer or its subsidiary under the Income Tax Act (Canada) (and for whom income tax, employment insurance and CPP deductions must be made at source);
(b) an individual who works full-time for the Resulting Issuer or its subsidiary providing services normally provided by an employee and who is subject to the same control and direction by the Resulting Issuer over the details and methods of work as an employee of the Resulting Issuer, but for whom income tax deductions are not made at source; or

(c) an individual who works for the Resulting Issuer or its subsidiary on a continuing and regular basis for a minimum amount of time per week providing services normally provided by an employee and who is subject to the same control and direction by the Resulting Issuer over the details and methods of work as an employee of the Resulting Issuer, but for whom income tax deductions are not made at source.

“ Escrow Agent ” means BSP SubCo.

“ Escrow Release Condition ” means that all of the documents required to complete the Transaction have been deposited irrevocably into escrow.

“ Escrow Release Deadline ” means 5:00 p.m. (Pacific time) on May 30, 2023, which date may be extended to June 30, 2023 by the Issuer.

“ Escrowed Funds ” means the gross proceeds of the Subscription Receipt Financing.

“ Evans ” means Evans & Evans, Inc.

“ Exchange ” means the TSX Venture Exchange.

“ Filing Statement ” means this filing statement of the Issuer dated April 12, 2023, together with the schedules hereto and including the summary hereof.

“ Final Exchange Bulletin ” means the exchange bulletin which is issued following closing of the Qualifying Transaction and the submission of all required documentation and that evidences the final Exchange acceptance of the Qualifying Transaction.

“ Financings ” means the BSP Financing and Subscription Receipt Financing together.

“ GCC ” means Gustavson Capital Corporation.

“ GCC Loan ” means a loan of $750,000 advanced from Gustavson Capital Corp. to the Target Company on December 21, 2022.

“ Insider ” if used in relation to the Issuer or the Resulting Issuer, means:

(a) a director or senior officer;
(b) a director or senior officer of the subsidiary;
(c) a Person that beneficially owns or controls, directly or indirectly, voting shares carrying more than 10% of the voting rights attached to all outstanding voting shares; or
(d) the Issuer or Resulting Issuer itself if it holds any of its own securities.

“ Investor Relations Activities ” means any activities, by or on behalf of the Resulting Issuer or a shareholder of the Resulting Issuer, that promote or reasonably could be expected to promote the purchase or sale of securities of the Resulting Issuer, but does not include:

(a) the dissemination of information provided, or records prepared, in the ordinary course of business of the Resulting Issuer:

(i) to promote the sale of products or services of the Resulting Issuer, or
(ii) to raise public awareness of the Resulting Issuer,

that cannot reasonably be considered to promote the purchase or sale of securities of the Resulting Issuer;

(b) activities or communications necessary to comply with the requirements of:
(i) applicable Securities Laws, or
(ii) Exchange requirements or the by-laws, rules or other regulatory instruments of any other self-regulatory body or stock exchange having jurisdiction over the Resulting Issuer;
(c) communications by a publisher of, or writer for, a newspaper, magazine or business or financial publication, that is of general and regular paid circulation, distributed only to subscribers to it for value or to purchasers of it, if:
(i) the communication is only through the newspaper, magazine or publication, and
(ii) the publisher or writer receives no commission or other consideration other than for acting in the capacity of publisher or writer; or
(d) activities or communications that may be otherwise specified by the Exchange.

“ Issuer ” or “ BSP ” means Bastion Square Partners Inc., a company incorporated under the BCBCA.

“ Issuer Common Shares ” and “ Issuer Shares ” means the common shares in the capital of the Issuer.

“ Issuer Options ” means the stock options to acquire Issuer Shares granted or existing under the Stock Option Plan.

“ Issuer Shareholders ” means the holders of Issuer Common Shares.

“ Issuer Warrants ” means the 375,000 share purchase warrants of the Issuer exercisable to purchase Issuer Shares.

“ KPMG ” means KPMG LLP, auditors of the Issuer and the Resulting Issuer.

“ KRP ” means Kingston Ross Pasnak LLP, auditors of the Target Company.

“ Management Company Employee ” means an individual, employed by a Person, providing management services to the Resulting Issuer, which are required for the ongoing successful operation of the business enterprise of the Resulting Issuer, but excluding a person engaged in Investor Relations Activities.

“ MI 61-101 ” means Multi-Lateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions .

“ NI 52-110 ” means National Instrument 52-110 Audit Committees .

“ Non-Arm’s Length Party ” means: (i) in relation to a company, a promoter, officer, director, other Insider or Control Person of that company (including an issuer) and any Associates or Affiliates of any of such Persons; and (ii) in relation to an individual, means any Associate of the individual or any company of which the individual is a promoter, officer, director, Insider or Control Person.

“ Non-Arm’s Length Qualifying Transaction ” means a proposed Qualifying Transaction where the same party or parties or their respective Associates or Affiliates are Control Persons in both the CPC and in relation to the Significant Assets which are to be the subject of the proposed Qualifying Transaction.

“ Ocean Rodeo ” or “ Target Company SubCo ” means Ocean Rodeo Sports Inc., a privately held company incorporated under the BCBCA.

“ Person ” means a company or individual.

“ QT Escrow Agreement ” means the escrow agreement to be entered into by and between the Issuer, Odyssey Trust Company and certain securityholders of the Resulting Issuer.

“ Qualifying Transaction ” means a transaction where a CPC acquires Significant Assets other than cash, by way of purchase, amalgamation, merger or arrangement with another company or by other means, and in the case of the Issuer means the Transaction.

“ Resulting Issuer ” means the Issuer following the Exchange’s issuance of the Final Exchange Bulletin.

“ Resulting Issuer Option ” means an option to acquire one Resulting Issuer Share.

“ Resulting Issuer Share Exchange Ratio ” means 26.05 Resulting Issuer Shares for each Target Company Share.

“ Resulting Issuer Shares ” means the common shares of the Resulting Issuer, after giving effect to the Transaction.

“ Resulting Issuer Warrants ” means the 375,000 share purchase warrants of the Resulting Issuer to be issued to the holders of the Issuer Warrants in replacement for the Issuer Warrants, exercisable into one Resulting Issuer Share at an exercise price of $0.10 per share, with an expiration date of October 12, 2024.

“ Securities Laws ” means securities legislation, securities regulation and securities rules, as amended, and the policies, notices, instruments and blanket orders in force from time to time that are applicable to the Issuer, the Target Company and the Resulting Issuer.

“ Significant Assets ” means one or more assets or businesses which, when purchased, optioned or otherwise acquired by the CPC, together with any other concurrent transactions, would result in the CPC meeting the initial listing requirements of the Exchange.

“ Stock Option Plan ” means the Issuer’s 10% rolling stock option plan prior to Completion of the Qualifying Transaction and the Resulting Issuer’s 10% rolling stock option plan after Completion of the Qualifying Transaction.

“ Subscription Receipt Financing ” means the non-brokered private placement of 18,223,330 Subscription Receipts of BSP SubCo at price of $0.12 per Subscription Receipt completed on April 6, 2023.

“ Subscription Receipts ” means the subscription receipts of BSP SubCo issued pursuant to the Subscription Receipt Financing. Each Subscription Receipt entitles the holder to receive, upon satisfaction or waiver of the Escrow Release Condition on or before the Escrow Release Deadline immediately prior to the Closing, one BSP SubCo Share, which will be automatically exchanged for one Resulting Issuer Share upon Closing.

“ Target Company ” or “ Aluula ” means Aluula Composites Inc., a privately held company incorporated under the BCBCA.

“ Target Company Shareholder Approval ” means the approval and adoption (in writing) of the Amalgamation Agreement and the Amalgamation, by the Target Company Shareholders holding (in aggregate) 100% of the outstanding Target Company Shares.

“ Target Company Shareholders ” means the holders of Target Company Shares.

“ Target Company Shares ” means the Class A common voting shares in the capital of the Target Company.

“ Target Company SubCo ” or “ Ocean Rodeo ” means Ocean Rodeo Sports Inc., a privately held company incorporated under the BCBCA.

“ Transaction ” means the acquisition of the Target Company Shares by the Issuer, the Financings and any other transactions contemplated by the Amalgamation Agreement, and which is intended to constitute the Issuer’s Qualifying Transaction.

“ Valuation Report ” means the comprehensive report regarding the fair market value of 100% of the equity of the Target Company dated February 8, 2023, prepared by Evans.

“ Zimmerman Loan ” means a loan of $133,800 advanced from John Zimmerman to Ocean Rodeo in 2011 and 2022.

FORWARD-LOOKING STATEMENTS

This Filing Statement, including information incorporated by reference, contains statements that, to the extent that they are not historical fact, may constitute “forward-looking statements” within the meaning of applicable securities legislation. Forward-looking statements may include financial and other projections, as well as statements regarding future plans, objectives or economic performance, or the assumption underlying any of the foregoing. This Filing Statement uses words such as “may”, “would”, “could”, “will”, “likely”, “anticipate”, “believe”, “intend”, “plan”, “project”, “estimate”, and other similar expressions to identify forward-looking statements. Forward looking statements and information involve significant risks, assumptions, uncertainties and other factors that may cause actual future results or anticipated events to differ materially from those expressed or implied in any forward looking statements or information and accordingly, should not be read as guarantees of future performance or results. These risks and factors are set out below under “ Risk Factors ”. Actual results, performance or achievement could differ materially from that expressed in, or implied by, any forward-looking statements or information in this Filing Statement, and, accordingly, investors should not place undue reliance on any such forward-looking statements or information. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Issuer, the Target Company and the Resulting Issuer undertake no obligation to update any forward-looking statement or information or statements to reflect information, events, results, circumstances or otherwise after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by law including securities laws. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such fact on the Issuer, the Target Company, or the Resulting Issuer’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements or information.

SUMMARY OF FILING STATEMENT

The following is a summary of information relating to the Issuer, the Target Company and the Resulting Issuer (assuming Completion of the Qualifying Transaction) and should be read together with the more detailed information and financial data and statements contained elsewhere, or incorporated by reference, in this Filing Statement.

General

This Filing Statement has been prepared in accordance with the CPC Policy and Exchange Form 3B2 – Information Required in a Filing Statement for a Qualifying Transaction .

Details Respecting the Issuer

The Issuer was incorporated under the laws of British Columbia on February 24, 2021. The Issuer is a reporting issuer in the jurisdictions of British Columbia, Alberta, Manitoba and Ontario. The Issuer Shares were listed and quoted for trading on the Exchange as a CPC on October 12, 2021 under the symbol “BASQ.P”.

As a CPC, the Issuer’s principal business is the identification and evaluation of assets or businesses with a view to completing a Qualifying Transaction. See “ Information Concerning the Issuer – General Development of the Business ”.

BSP SubCo is the only subsidiary of the Issuer.

Details Respecting the Target Company

The Target Company is a privately held company incorporated under the laws of British Columbia on July 18, 2019. The Target Company is a Canadian-based manufacturer of innovative soft composite materials that deliver durable, light and strong composites that are applicable across a broad range of industries. The Target Company currently has customers in wind sports, outdoor, sailing, and aerospace markets with plans to expand to other market sectors. See “ Information Concerning the Target Company ”.

Terms of the Qualifying Transaction

Amalgamation Agreement

On December 20, 2022, the Issuer and BSP SubCo entered into the Amalgamation Agreement with the Target Company whereby the parties agreed to complete the Qualifying Transaction on the terms set out therein. Pursuant to the Amalgamation Agreement, the Issuer will acquire all of the issued and outstanding Target Company Shares and, in consideration of which, the Target Company Shareholders will receive Resulting Issuer Shares, at the Resulting Issuer Share Exchange Ratio at a deemed price of $0.12 per Resulting Issuer Share, for every one Target Company Share so held by the Target Company Shareholders. The aggregate consideration to be issued to effect the Qualifying Transaction is $21,001,123 and the Resulting Issuer will issue 175,009,365 Resulting Issuer Shares. On April 3, 2023, the parties executed an amended and restated Amalgamation Agreement, which was amended to contemplate the BSP Financing. The Qualifying Transaction is structured as a three-cornered amalgamation whereby the Target Company and BSP SubCo will amalgamate to form Amalco and Amalco will be a wholly owned subsidiary of the Issuer on Closing.

There are currently 5,765,058 Target Company Shares issued and outstanding. An additional 601,152 Target Company Shares are to be issued as repayment of shareholder loans before the Qualifying Transaction. The Target Company has a total of 352,000 options outstanding, which will be cancelled or exercised into Target Company Shares before the Qualifying Transaction.

Financings

On April 6, 2023 BSP SubCo completed a non-brokered private placement of 18,223,330 Subscription Receipts at a price of $0.12 per Subscription Receipt for proceeds of $2,186,799.60. Each Subscription Receipt will automatically convert into one BSP SubCo Share immediately prior to completion of the Transaction, then each BSP SubCo Share issued upon conversion of each Subscription Receipt will automatically be exchanged for one Resulting Issuer Share, upon closing of the Transaction. If the closing conditions are not satisfied on or prior to June 30, 2023, the Subscription Receipts will be cancelled and the aggregate subscription price paid by each of the subscribers will be returned.

Concurrently with closing of the Transaction, the Resulting Issuer anticipates completing a non-brokered private placement of 6,776,670 Resulting Issuer Shares, at a price of $0.12 per Resulting Issuer Share, for proceeds of $813,200.40. The Resulting Issuer Shares issued pursuant to the BSP Financing will be subject to a four-month hold period.

It is intended that the proceeds from the Financings will be used for operating expenses, administrative costs and general working capital purposes following Completion of the Qualifying Transaction.

Based on the above, the Issuer will issue a total of 225,009,365 Resulting Issuer Shares (consisting of 25,000,000 BSP Shares issued and outstanding, 175,009,365 Target Company Shares, after applying the Resulting Issuer Share Exchange Ratio, 18,223,330 BSP SubCo Shares issuable on conversion of the Subscription Receipts, and 6,776,670 Resulting Issuer Shares issued pursuant to the BSP Financing). The Issuer will also have 375,000 Resulting Issuer Warrants outstanding exercisable at $0.10 per share expiring on October 12, 2024, and 2,500,000 Resulting Issuer Options exercisable at $0.10 per share expiring on October 12, 2026. On Closing, the Resulting Issuer expects to issue an aggregate of 9,766,905 Resulting Issuer Options exercisable at $0.12 per share expiring on the date that is five years from the Closing Date to certain directors, officers, and employees of the Resulting Issuer.

The Transaction is intended to constitute the Issuer’s Qualifying Transaction and upon its completion, the Resulting Issuer will be listed on the Exchange as a Tier 2 Industrial and Technology issuer.

See “ Information Concerning the Issuer – General Development of the Business – Amalgamation Agreement ” and “ Information Concerning the Issuer – General Development of the Business – BSP SubCo Subscription Receipt Financing ”.

Name Change

On Closing, it is anticipated that the Issuer will change its name to “Aluula Composites Inc.” or such other similar name as the Issuer and the Target Company may agree, subject to approval by the Exchange and applicable regulatory authorities.

The Resulting Issuer’s Board of Directors and Management Following Completion of the Transaction

and Jeremy South, provided that the Exchange does not object to such nominations and such persons are eligible to act as directors pursuant to applicable laws. It is anticipated that Peter Berrang, Peter Gustavson, Hannes Blum, Briony Bayer, and Jeremy South will serve as independent directors of the Resulting Issuer.

The Issuer and the Target Company agree that on Closing, the management of the Resulting Issuer will consist of: (i) Richard Myerscough as Chief Executive Officer; (ii) John Zimmerman as President and Chief Operations Officer; and (iii) Peter Dorrius as Chief Financial Officer and Corporate Secretary, provided that the Exchange does not object to such nominations and such persons are eligible to act as management pursuant to applicable laws.

See “ Information Concerning the Issuer – General Development of the Business – Amalgamation Agreement ”.

Shareholder Approval

The CPC Policy provides that the Issuer is not required to obtain shareholder approval for the Qualifying Transaction as the Qualifying Transaction is not a Non-Arm’s Length Qualifying Transaction within the meaning of the policies of the Exchange.

On April 11, 2023, the Target Company obtained the Target Company Shareholder Approval.

Pro Forma Fully Diluted Share Capital

The following table outlines the expected number and percentage of securities of the Resulting Issuer to be outstanding on a fully diluted basis after giving effect to the Transaction.

Description of Resulting Issuer Securities	Outstanding after giving effect to Transaction and Financings	Percentage
Resulting Issuer Shares
Held by current shareholders of the Issuer	25,000,000	10.51%
Issued to Target Company Shareholders pursuant to the Transaction	175,009,365(1)	73.58%
Issued on conversion of Subscription Receipts pursuant to the Subscription Receipt Financing	18,223,330	8.10%
Issued pursuant to the BSP Financing	6,776,670	3.01%
Resulting Issuer Options
Resulting Issuer Options held by current holders of Issuer Options	2,500,000(2)	1.05%
Resulting Issuer Options to be issued upon completion of the Transaction	9,766,905(3)	4.11%
Resulting Issuer Warrants
Resulting Issuer Warrants	375,000(4)	0.16%
TOTAL FULLY DILUTED	237,651,270	100%

Notes:

(1) After applying the Resulting Issuer Share Exchange Ratio, subject to rounding adjustments as fractional Resulting Issuer Shares will not be issued.
(2) Exercisable into Resulting Issuer Shares at a price of $0.10 per share, with an expiration date of October 12, 2026.
(3) Exercisable into Resulting Issuer Shares at an exercise price of $0.12 per share for a period of five years following closing of the Transaction.
(4) Exercisable into Resulting Issuer Shares at an exercise price of $0.10 per share, with an expiration date of October 12, 2024.

See “ Information Concerning the Resulting Issuer – Pro Forma Consolidated Capitalization ”.

An aggregate of 178,100,596 Resulting Issuer Shares will be subject to escrow or Exchange seed share resale restrictions, which includes: (i) 10,000,000 Resulting Issuer Shares escrowed pursuant to the CPC Escrow Agreement; and (ii) 168,100,596 Resulting Issuer Shares escrowed pursuant to the QT Escrow Agreement. See “ Information Concerning the Resulting Issuer – Escrow Securities ”.

Interest of Insiders, Promoters or Control Persons

Other than as disclosed herein, no Insider, promoter or Control Person of the Issuer and their respective Associates and Affiliates (before and after giving effect to the Transaction) has an interest in or will receive any consideration as a result of the Transaction, other than that which arises from the holding of Resulting Issuer Shares.

Gustavson Capital Corp., a company owned by Peter Gustavson, loaned $750,000 to the Target Company on December 21, 2022. The GCC Loan will accrue interest at the rate of 7% per annum, with repayment on the earlier of April 15, 2023 or Closing of the Transaction. Peter Berrang and Richard Myerscough have personally guaranteed the repayment of $375,000 each in connection with the GCC Loan. The GCC Loan is a connected transaction under Multi-Lateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“ MI 61-101 ”), but not a related party transaction and therefore does not trigger a valuation or disinterested shareholder approval for the Issuer.

Gustavson Capital Corp. participated in the Subscription Receipt Financing by purchasing 2,052,498 Subscription Receipts for a total investment of $246,299.76. This participation constitutes a “related party transaction” as defined under MI 61-101. The Issuer is relying on the exemptions from the formal valuation and minority shareholder approval requirements under section 5.5(b) as the Issuer is not listed on specified markets and section 5.7(1)(b) as the fair market value of the Subscription Receipts issued to the related party and the consideration paid by the related party under the Subscription Receipt Financing does not exceed $2,500,000. The Resulting Issuer Shares issued on conversion of the Subscription Receipts held by Gustavson Capital Corp. will be subject to value escrow under the QT Escrow Agreement. See “ Information Concerning the Resulting Issuer – Escrow Securities ”.

John Zimmerman, who will be an insider of the Resulting Issuer, loaned a total of $139,800 to Ocean Rodeo as a shareholder loan in 2011 and 2022, which amount will be repaid on the Closing of the Transaction.

Other than in connection with the GCC Loan, Gustavson Capital Corp.’s participation in the Subscription Receipt Financing, and the Zimmerman Loan, there are no other direct or indirect beneficial interests of any Non-Arm’s Length Parties to the Issuer or the Target Company.

The following table summarizes the shareholding of each current Insider, promoter or Control Person of the Issuer, before giving effect to the Transaction:

Name of Insider, Promoter or Control Person (including Associates and Affiliates) of the Issuer	Issuer Shares Owned Before the Transaction(1)(2)	Issuer Shares Owned Before the Transaction(1)(2)
	Number	Percentage
Peter Gustavson Director, CEO and Chairman	4,668,000	18.67%
Briony Bayer Director, CFO and Corporate Secretary	500,000	2.00%
Tim McElvaine Director	500,000	2.00%
Jeremy South Director	1,666,000	6.66%
Mark Longo Director	1,000,000	4.00%
Dr. Hannes Blum Director	1,666,000	6.66%

Notes:

(1) Calculated on an undiluted basis with 25,000,000 Issuer Shares being issued and outstanding as of the date of this Filing Statement.

(2) Does not include stock options or any other convertible securities of the Issuer.

The following table summarizes the shareholding of each current Insider, promoter or Control Person of the Issuer, after giving effect to the Transaction and completion of the Financings:

Name of Insider, Promoter or Control Person (including Associates and Affiliates) of the Issuer	Resulting Issuer Shares Owned After Giving Effect to the Transaction Following Completion of the Financings(1)	Resulting Issuer Shares Owned After Giving Effect to the Transaction Following Completion of the Financings(1)
	Number	Percentage
Peter Gustavson Director, CEO and Chairman	6,720,498	2.99%
Briony Bayer Director, CFO and Corporate Secretary	500,000	<1.00%
Tim McElvaine Former Director	500,000	<1.00%
Jeremy South Director	1,666,000	<1.00%
Mark Longo Former Director	1,000,000	<1.00%
Dr. Hannes Blum Director	1,666,000	<1.00%

Notes:

(1) Calculated on an undiluted basis and assuming there are 225,009,365 Resulting Issuer Shares issued and outstanding upon Closing. See “ Information Concerning the Resulting Issuer – Pro Forma Consolidated Capitalization ”.

Arm’s Length Transaction

The Transaction is not a Non-Arm’s Length Qualifying Transaction.

Available Funds and Principal Purposes

The following tables set out: (a) the funds which will be available to the Resulting Issuer at Closing; and (b)

how those funds will be utilized.

Net Proceeds Available on Completion of Transaction

Net Proceeds Available on Completion of Transaction
NetProceeds of Financings	$3,000,000
Issuer Estimated Working Capitalas atFebruary28,2023	$1,445,892
Target Company Estimated Working Capital as at February 28, 2023	$(1,519,228)1
TOTAL	$2,926,664

Use of Funds Available on Completion of Transaction

PaymentsRelated to the CompletionoftheTransaction(2)	$118,000
Repayment of Zimmerman Loan	$133,800
Sales andMarketing	$875,500
Increased and Improved Production Capability	$950,000
Innovation,ResearchandDevelopment	$745,000
General and Administrative Expenses and Payroll	$4,364
Unallocated Working Capital(3)	$100,000
TOTAL	$2,926,664

Notes:

(1) Includes GCC Loan ($750,000) and $32,000 of accrued legal fees.
(2) Includes legal fees, auditor review fees, Exchange filing fees, transfer agent fees and other expenses incurred or expected to be incurred in connection with the Transaction, not yet accrued and accounted for in the Issuer’s and Target Company’s working capital figures.
(3) Unallocated working capital may be allocated to corporate expenses, business development, potential future acquisitions, inventory, general administrative expenses, and other purposes.

See “ Information Concerning the Resulting Issuer – Available Funds and Principal Purposes ”.

Selected Pro Forma Consolidated Financial Information

The following table sets forth certain financial information for the Issuer and the Target Company, as well as unaudited pro forma consolidated balance sheet information for the Resulting Issuer after giving effect to the Transaction. This information should be read in conjunction with the pro forma financial statements (and the related notes) included elsewhere in this Filing Statement.

	Issuer as at January 31, 2023	Target Company as at January 31, 2023	Pro Forma Adjustments	Pro Forma Consolidation
Cash	$1,605,150	$411,986	$2,156,229	$4,173,365
Total Assets	$1,612,817	$14,278,413	$2,156,229	$18,047,459
Total Current Liabilities	$137,885	$5,374,637	$(756,051)	$4,756,471
Total Long Term Liabilities	$Nil	$4,813,018	$(2,122,802)	$2,690,216
Total Shareholders’Equity	$1,474,932	$4,090,758	$5,035,082	$10,600,772

See “ Information Concerning the Issuer – Selected Consolidated Financial Information and Management’s Discussion and Analysis ” and “ Information Concerning the Target Company – Selected Consolidated Financial Information and Management’s Discussion and Analysis ”.

Exchange Listing and Market Price of Issuer Shares

The Issuer Shares were listed for trading on the Exchange on October 12, 2021. Trading in the Issuer Shares was halted on December 21, 2022 pending announcement of the Transaction. The closing price of the Issuer Shares on December 20, 2022, the last day prior to the halt on which trades occurred, was $0.095 per Issuer Share. See “ Information Concerning the Issuer – Stock Exchange Price ”.

The Resulting Issuer Shares will continue to be listed on the Exchange and will trade under the new trading symbol “AUUA”.

No public market exists for the Target Company Shares.

Sponsorship and Agent Relationship

The Issuer will seek a waiver from the sponsorship requirement from the Exchange pursuant to Exchange Policy 2.2 – Sponsorship and Sponsorship Requirements.

Conflicts of Interest

Conflicts of interest may arise as a result of the proposed directors, officers or promoters of the Resulting Issuer also holding positions as directors or officers or being shareholders of other companies. Some of those individuals have been and will continue to be engaged in the identification and evaluation of assets, businesses and companies on their own behalf and on behalf of other companies, and situations may arise where the directors and officers of the Resulting Issuer will be in direct competition with the Resulting Issuer, notwithstanding that they will be bound by the provisions of the BCBCA, to act at all times in good faith in the interests of the Resulting Issuer and to disclose such conflicts to the Resulting Issuer if and when they arise. Conflicts, if any, will be subject to the procedures and remedies prescribed by the BCBCA, the Exchange and applicable Securities Laws.

As at the date of this Filing Statement, other than as disclosed above, to the knowledge of the directors and officers of the Issuer, there are no existing conflicts of interest between the Resulting Issuer and any of the individuals proposed for appointment as directors or officers upon the completion of the Transaction.

See “Information Concerning the Resulting Issuer – Directors, Officers and Promoters – Conflicts of Interest ”.

Interest of Experts

To the Issuer’s knowledge, no person or company whose profession or business gives authority to a statement made by the person or company and who is named as having prepared or certified a part of this Filing Statement or as having prepared or certified a report or valuation described or included in this Filing Statement holds any beneficial interest, direct or indirect, in any securities or property of the Issuer, the Target Company, the Resulting Issuer or an Associate or Affiliate of the foregoing.

See “ General Matters – Experts ”.

Reports and Opinions

In connection with the Qualifying Transaction, the Issuer engaged Evans & Evans, Inc. (“ Evans ”) to prepare a comprehensive report regarding the fair market value of 100% of the equity of the Target Company dated February 8, 2023 (the “ Valuation Report ”) in supporting the Target Company’s valuation used to determine pricing of the Target Company Shares for the Qualifying Transaction. Evans, the author of the Valuation Report, is independent to the Target Company, the Issuer and all interested parties to the Qualifying Transaction. A summary of the Valuation Report is attached to this Filing Statement as Schedule “I”.

KPMG, auditors of the Issuer, prepared an independent auditor’s report dated June 29, 2022 in respect of the Issuer’s financial statements for the year ended April 30, 2022, and for the period from incorporation on February 24, 2021 to the year ended April 30, 2021. In addition, KPMG has reviewed the interim financial statements of the Issuer for the nine months ended January 31, 2023.

KRP, auditors of the Target Company and Ocean Rodeo, prepared an independent auditor’s report dated January 31, 2023 in respect of the Target Company’s and Ocean Rodeo’s audited financial statements for the year ended October 31, 2022. KRP has reviewed the annual financial statements for the Target Company and Ocean Rodeo for the year ended October 31, 2021. In addition, KRP has reviewed the interim financial statements of the Target Company for the three months ended January 31, 2023.

See “ General Matters – Experts ”.

Summary of Risk Factors

Following completion of the Transaction, the Resulting Issuer will hold all of the Target Company’s assets and will carry on the business and activities of the Target Company. Due to the nature of the Resulting Issuer’s business and the present speculative stage of development of the business, the Resulting Issuer will be subject to certain risks. A purchase of any of the securities of the Resulting Issuer involves a degree of risk and should be undertaken only by purchasers whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. Risk factors include, but are not limited to: failure to satisfy conditions to completion of Transaction; non-completion of Transaction; Amalgamation Agreement may be terminated; volatility of share price; dilution; conflicts of interest; ongoing Exchange and securities law reporting requirements; principal purposes of funds; pro forma financial statements may not be indication of financial results; interests of directors, officers and principal shareholders; COVID-19, or other significant health emergencies, may cause delays; risks associated with business objectives; limited operating history and operating losses; risks associated with raising capital; competition; risks associated with intellectual property; risks associated with breaches of confidentiality; product liability claims; product warranty claims; supply-chain or raw materials issues; reliance on third-party contractors; royalty obligations; regulatory environment; reliance on key personnel; and management of growth.

See “ Risk Factors ”.

Conditional Listing Approval

The Exchange has conditionally accepted the Transaction subject to the Issuer fulfilling all of the requirements of the Exchange.

INFORMATION CONCERNING THE ISSUER

Corporate Structure

The Issuer was incorporated on February 24, 2021 pursuant to the provisions of the BCBCA under the name “Bastion Square Partners Inc.” The registered and records office of the Issuer is located at Suite 1200 – 750 West Pender Street, Vancouver, British Columbia, V6C 2T8. The head office of the Issuer is located at Suite 110 – 517 Fort Street, Victoria, British Columbia, V8W 1E7.

The Issuer currently has one wholly owned subsidiary, being BSP SubCo, a company incorporated under the BCBCA.

General Development of the Business

History

The Issuer is a CPC under the policies of the Exchange. As a CPC, the Issuer’s only business to date has been to identify and evaluate businesses or assets with a view to completing a Qualifying Transaction.

The Issuer became a reporting issuer in the jurisdictions of British Columbia, Alberta, Manitoba and Ontario by filing a prospectus in respect of which a receipt was issued by the British Columbia Securities Commission, the Alberta Securities Commission, the Manitoba Securities Commission and the Ontario Securities Commission on July 29, 2021.

On April 21, 2021, the Issuer completed a private placement of 10,000,000 Issuer Shares at a price of $0.05 per Issuer Share for total proceeds of $500,000.

On October 12, 2021, the Issuer completed its initial public offering of 15,000,000 Issuer Shares at a price of $0.10 per Issuer Share for total proceeds of $1,500,000.

The Issuer’s Shares were listed for trading on the Exchange on October 12, 2021 under the symbol “BASQ.P”.

Description of the Qualifying Transaction

On December 20, 2022, the Issuer and BSP SubCo entered into the Amalgamation Agreement with the Target Company. Subject to the terms and conditions of the Amalgamation Agreement, the Issuer will, among other things, acquire all of the issued and outstanding Target Company Shares and, in consideration of which, the Target Company Shareholders will receive Resulting Issuer Shares, after applying the Resulting Issuer Share Exchange Ratio, for every Target Company Share so held by the Target Company Shareholder. The Qualifying Transaction is structured as a three-cornered amalgamation whereby the Target Company and BSP SubCo will amalgamate to form Amalco and Amalco will be a wholly owned subsidiary of the Issuer on Closing. On April 3, 2023, the Issuer, BSP SubCo, and the Target Company entered into an amended and restated Amalgamation Agreement to contemplate the addition of the BSP Financing. The consideration and terms of the Transaction remain the same under the amended and restated Amalgamation Agreement.

Consideration for the Target Company will be $21,001,123, paid by way of securities of the Issuer, at the Resulting Issuer Share Exchange Ratio, at a deemed price of $0.12 per share.

The Qualifying Transaction is not a Non-Arm’s Length Qualifying Transaction, as defined in the polices of the Exchange, and there are no Non-Arm’s Length Parties to the Issuer that are Insiders of the Target Company. As it is not a Non-Arm’s Length Qualifying Transaction, the Qualifying Transaction is not subject to the approval of the Issuer’s Shareholders.

Gustavson Capital Corp., a company owned by Peter Gustavson, loaned $750,000 to the Target Company on December 21, 2022. The GCC Loan will accrue interest at the rate of 7% per annum, with repayment on the earlier of April 15, 2023 or Closing of the Transaction. Peter Berrang and Richard Myerscough, directors and shareholders of the Target Company, have personally guaranteed the repayment of $375,000 each in connection with the GCC Loan. The GCC Loan is a connected transaction under Multi-Lateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions , but not a related party transaction and therefore does not trigger a valuation or disinterested shareholder approval for the Issuer.

Other than the GCC Loan, there are no other direct or indirect beneficial interests of any Non-Arm’s Length Parties to the Issuer in the Target Company.

There are no finder’s fee or commission paid or payable in relation to the Qualifying Transaction.

The following is a summary of the Amalgamation Agreement and is subject to and qualified in its entirety by the full text of the Amalgamation Agreement, a copy of which is available under the Issuer’s profile on SEDAR at www.sedar.com.

Conditions to the Completion of the Transaction

The Completion of the Qualifying Transaction is subject to a number of conditions, including the following:

(a) Target Company Shareholder Approval having been obtained in accordance with the requirements of all applicable laws;
(b) receipt of Exchange approval;
(c) no pending or threatened action, suit or proceeding by any governmental authority or other Person, in each case having a reasonable likelihood of success, and no applicable law or policy will be in effect, which:
(i) makes the consummation of the Amalgamation illegal or otherwise enjoins or prohibits the Amalgamation, or any transactions otherwise contemplated by the Amalgamation Agreement;

(ii) renders the Amalgamation Agreement or the Amalgamation unenforceable in any way or frustrates the purpose and intent of the Amalgamation Agreement or the Amalgamation; or
(iii) has had or would be reasonably expected to have a Material Adverse Effect on the Issuer, BSP SubCo or the Target Company;
(d) the regulatory approvals, and any applicable corporate and third party approvals, if any, will have been obtained on terms and conditions satisfactory to the Issuer, BSP SubCo and the Target Company, in each case acting reasonably.

The conditions precedent set forth above are for the exclusive benefit of the Issuer and the Target Company and may be waived, in whole or in part, by the mutual consent of the Issuer and the Target Company in writing on or before the Closing Date.

Termination of the Amalgamation Agreement

The Amalgamation Agreement may be terminated on or prior to the Closing Date:

(a) by either party if Closing has not occurred by April 30, 2023;
(b) by the Issuer if: (i) the Target Company breaches a representation, warranty or fails to perform any covenant or agreement that would cause any of its conditions precedent not to be satisfied and incapable of being satisfied; or (ii) the Target Company has breached or is in default of any material term of the Amalgamation Agreement and fails to cure or remedy such breach or default within ten (10) days after receiving written notice thereof from the Issuer of such default; or
(c) by the Target Company if: (i) the Issuer breaches a representation, warranty or fails to perform any covenant or agreement that would cause any of its conditions precedent not to be satisfied and incapable of being satisfied; or (ii) the Issuer and/or the BSP SubCo has breached or is in default of any material term of the Amalgamation Agreement and fails to cure or remedy such breach or default within ten (10) days after receiving written notice thereof from the Target Company of such default.

Name Change

The Resulting Issuer’s Board of Directors and Management Following Completion of the Transaction

The Issuer and the Target Company agree that on Closing, the directors of the Resulting Issuer will consist of: (i) two nominees selected by the Target Company, who will be Richard Myerscough and Peter Berrang; and (ii) four nominees selected by the Issuer, who will be Peter Gustavson, Hannes Blum, Briony Bayer, and Jeremy South, provided that the Exchange does not object to such nominations and such persons are eligible to act as directors pursuant to applicable laws. It is anticipated that Peter Berrang, Peter Gustavson, Hannes Blum, Briony Bayer, and Jeremy South will serve as independent directors of the Resulting Issuer.

BSP SubCo Subscription Receipt Financing

On April 5, 2023, BSP SubCo completed the Subscription Receipt Financing. BSP SubCo issued 18,223,330 Subscription Receipts at a price of $0.12 per Subscription Receipt, for aggregate gross proceeds of $2,186,799.60. Cash finders’ fees of up to 6% of the proceeds raised may be paid to arm’s length parties in connection with the Subscription Receipt Financing.

Pursuant to and in accordance with the Subscription Receipts, on the closing of the Subscription Receipt Financing, the gross proceeds were delivered to the Escrow Agent and held in escrow on behalf of the purchasers by the Escrow Agent. The Escrowed Funds will be released to the Issuer upon the satisfaction or waiver (to the extent such waiver is permitted) of the Escrow Release Condition at or before the Escrow Release Deadline, in accordance with the provisions of the Subscription Receipts.

Upon the satisfaction or waiver (to the extent such waiver is permitted) of the Escrow Release Condition, each Subscription Receipt will be automatically converted, without payment of any additional consideration and any further act or formality by the holder, for one BSP SubCo Share, which will then immediately be automatically exchanged for one Resulting Issuer Share pursuant to the Qualifying Transaction.

BSP Financing

BSP anticipates closing the BSP Financing concurrently with the completion of the Transaction. In connection with the BSP Financing, the Resulting Issuer will issue 6,776,670 Resulting Issuer Shares, at a price of $0.12 per Resulting Issuer Share, for aggregate gross proceeds of $813,200.40. Cash finders’ fees of up to 6% of the proceeds raised may be paid to arm’s length parties in connection with the BSP Financing.

Each Resulting Issuer Share issued in the BSP Financing will be subject to a four-month hold from the date of completion of the Transaction.

Management’s Discussion and Analysis

The Issuer’s annual management’s discussion and analysis (“ MD&A ”) for the year ended April 30, 2022 is attached to this Filing Statement as Schedule “B”.

Description of the Securities

The Issuer is authorized to issue an unlimited number of Issuer Shares without par value of which, as at the date hereof, 25,000,000 Issuer Shares are issued and outstanding as fully paid and non-assessable common shares. Each Issuer Share entitles the holder thereof to dividends, if, as and when declared by the Board, to exercise one vote per Issuer Share at meetings of the shareholders of the Issuer and, upon liquidation, dissolution, or winding-up of the Issuer, to share equally in such assets of the Issuer as are distributable to the holders of Issuer Shares. All Issuer Shares outstanding after completion of the Transaction will be fully paid and non-assessable common shares. See “ Information Concerning the Resulting Issuer – Description of the Securities ” for a description of the Resulting Issuer Shares.

Stock Option Plan

The Stock Option Plan allows the Issuer to grant incentive stock options (“ Issuer Options ”) to its directors, officers and employees, or any person or company engaged to provide ongoing management or consulting services to the Issuer. The purpose of granting such Issuer Options is to assist the Issuer in compensating, attracting, retaining and motivating the directors, officers, consultants and employees of the Issuer, and to closely align the personal interests of such persons to that of the shareholders.

The Issuer Common Shares issuable under the Stock Option Plan are subject to the following restrictions:

(a) Issuer Options may only be granted to a director or officer of the Issuer, and where permitted by applicable securities laws, to a technical consultant whose particular industry expertise in relation to the business of the vendors or the Target Company, as the case may be, is required to evaluate the proposed Qualifying Transaction;
(b) the number of Issuer Common Shares reserved for issuance under the Stock Option Plan to any individual director or officer may not exceed 5% of the Issuer Common Shares to be outstanding after closing of the Issuer’s initial public offering. The number of Issuer Common Shares reserved for issuance under the Stock Option Plan to all technical consultants may not exceed 2% of the Issuer Common Shares to be outstanding after closing of the Issuer’s initial public offering. The number of Issuer Common Shares reserved for issuance to all Eligible Charitable Organizations, as defined in Exchange Policy 4.4 – Incentive Stock Options , may not exceed 1% of the Issuer Common Shares as at the date of grant of any Option;
(c) no Issuer Options may be granted to persons providing Investor Relations Activities, promotional or market-making services;
(d) the exercise price per Issuer Common Share under any Issuer Option granted prior to the closing of the Issuer’s initial public offering cannot be less than the lowest price at which Seed Shares, as defined in Exchange Policy 1.1 – Interpretation , were issued by the Issuer while it is a CPC; and
(e) the term of an Issuer Option must expire not later than 12 months after the optionee ceases to be a director, senior officer or technical consultant of the Issuer, or of the Resulting Issuer, as the case may be, subject to any earlier expiry date of such Issuer Option.

No Issuer Option may be exercised before Completion of the Qualifying Transaction unless the director, officer, employee or consultant agrees in writing to deposit the Issuer Common Shares acquired into escrow until the issuance of the Final Exchange Bulletin.

The Stock Option Plan is administered by the Board, or a committee thereof, who have the authority to grant options to directors, officers, employees, and consultants. At the time an Issuer Option is granted, the Board will determine the exercise price, which will not be less than the closing price of the Issuer Common Shares traded on the Exchange on the day immediately preceding the date of the grant, and any vesting criteria or other restrictions with respect to the exercise of the Issuer Options. Subject to the restrictions contained in the Stock Option Plan, the Board or a committee thereof may also impose such other terms and conditions as it will deem necessary or advisable at the time of the grant. All securities under Issuer Option are Issuer Common Shares.

Subject to the Policies of the Exchange, a “rolling” stock option plan must be approved and ratified annually by the Issuer shareholders at the annual meeting of shareholders of the Issuer.

As at the date hereof, 2,500,000 options are issued and outstanding under the Stock Option Plan. The options of the Issuer are allocated on the following basis:

Optionee	Number of Issuer Shares Reserved Under the Issuer Option	Exercise Price	Expiry Date
Gustavson Capital Corporation(1)	416,670	$0.10	October 12, 2026
Briony Bayer	416,666	$0.10	October 12, 2026
Tim McElvaine	416,666	$0.10	October 12,2026
Jeremy South	416,666	$0.10	October 12, 2026
Mark Longo	416,666	$0.10	October 12, 2026
Hannes Blum	416,666	$0.10	October 12, 2026
TOTAL	2,500,000

Notes:

(1) Gustavson Capital Corporation is a company beneficially owned and controlled by Peter Gustavson, the Chairman, CEO and a director of the Issuer.

The Issuer’s existing Stock Option Plan will continue to apply to the Resulting Issuer on Closing. Pursuant to the Stock Option Plan, the directors are authorized to make changes as necessary to comply with Exchange policies. It is anticipated that certain changes will be made to the Stock Option Plan following Closing of the Transaction. See “ Information Concerning the Resulting Issuer – Security Based Compensation ” for additional details.

Prior Sales

Since the date of incorporation of the Issuer, 25,000,000 Issuer Shares have been issued as follows:

Date	Number of Issuer Shares	Issue Price Per Issuer Share
February 24, 2021	1(1)	$0.01
April 21, 2021	10,000,000(2)	$0.05
October 12, 2021	15,000,000	$0.10
TOTAL	25,000,000

Notes:

(1) Issued on incorporation. This Issuer Share was subsequently repurchased by the Issuer and cancelled.

(2) Issued to Non-Arm’s Length Parties of the Issuer.

BSP SubCo issued 18,223,330 Subscription Receipts at a price of $0.12 per Subscription Receipt pursuant to the Subscription Receipt Financing. A total of 2,052,498 Subscription Receipts were issued to NonArm’s Length Parties of the Issuer. See “ Information Concerning the Issuer – General Development of the Business – BSP SubCo Subscription Receipt Financing ” for additional details.

In addition, the Resulting Issuer will issue 6,776,670 Resulting Issuer Shares on the date of the closing of the Transaction, at a price of $0.12 per Resulting Issuer Share, pursuant to subscription agreements entered into as part of the BSP Financing. A total of 208,333 Resulting Issuer Shares were issued to Non-Arm’s Length Parties of the Issuer. See “ Information Concerning the Issuer – General Development of the Business – BSP Financing ” for additional details.

Stock Exchange Price

The Issuer’s Shares were listed and quoted for trading on the Exchange on October 12, 2021. The following table sets forth the price range and volume of trading of the Issuer Shares during the 12 months preceding the date of this Filing Statement:

Month	TSX-V (prices in Canadian dollars)
	High Low Volume
March 2023	Nil Nil Nil
February 2023	Nil Nil Nil
January 2023	Nil Nil Nil
December 1, 2022 to December 21, 2022(1)	$0.105 $0.095 427,000
November 2022	$0.11 $0.105 38,044
October 2022	$0.105 $0.105 140,000
September 2022	$0.125 $0.105 45,000
August 2022	$0.105 $0.105 1
July 2022	$0.105 $0.105 182,155
June 2022	$0.12 $0.105 20,020
May 2022	$0.12 $0.12 258,041
April 2022	$0.13 $0.11 104,507
March 2022	$0.145 $0.11 20,054

Notes:

(1) Trading in the Issuer Shares was halted on December 21, 2022 pending the announcement of the Transaction.

Arm’s Length Transactions

The Transaction is not a Non-Arm’s Length Qualifying Transaction.

Legal Proceedings

There are no legal proceedings to which the Issuer is or has been a party. To the knowledge of the management of the Issuer, there are no such proceedings contemplated.

Auditor, Transfer Agent and Registrar

The Issuer’s auditors are KPMG LLP of #800 – 730 View Street, Victoria, British Columbia, V8W 3Y7. The transfer agent and registrar for the Issuer Shares is Odyssey Trust Company of #323 – 409 Granville Street, Vancouver, British Columbia, V6C 1T2.

Material Contracts

The following is a list of material contracts (excluding contracts entered into in the ordinary course of business) entered into by the Issuer:

CPC Escrow Agreement dated July 29, 2021 between Odyssey Trust Company, as escrow agent, the Issuer, and certain principals of the Issuer. See “ Information Concerning the Resulting Issuer – Escrow Securities ”.
Transfer Agent and Registrar Agreement dated May 27, 2021 between Odyssey Trust Company and the Issuer.
Amalgamation Agreement dated December 20, 2022, and amended and restated April 3, 2023 among the Issuer, BSP SubCo and the Target Company. See “ Information Concerning the Issuer – General Development of the Business – Amalgamation Agreement ”.

Copies of these agreements may be inspected, without charge, at the registered and records office of the Issuer located at 1200 - 750 West Pender Street, Vancouver, British Columbia, Canada, V6C 2T8, at any time during normal business hours until the completion of the Transaction. Copies of these agreements are also available under the Issuer’s profile on SEDAR at www.sedar.com.

INFORMATION CONCERNING THE TARGET COMPANY

Corporate Structure

The Target Company is a privately held company incorporated pursuant to the BCBCA on July 18, 2019, under the name “Aluula Composites Inc.”. The head office and registered office of the Target Company is located at 1212 – 1175 Douglas Street, Victoria, British Columbia, V8W 2E1.

The Target Company has one wholly-owned subsidiary, Ocean Rodeo Sports Inc., which was incorporated pursuant to the BCBCA on January 12, 2001. The Target Company was initially formed in 2016 as a division of Ocean Rodeo. The Target Company was spun out of Ocean Rodeo in 2019 and was dedicated to composite materials development and manufacturing. On October 31, 2022, the Target Company entered into a share purchase agreement to acquire 100% of the issued and outstanding shares of Ocean Rodeo. Under the transaction, Ocean Rodeo became a wholly owned subsidiary of the Target Company.

Description of the Business

Summary of the Business

Aluula

Aluula is a manufacturer of composite materials. It specializes in the production of lightweight and highperformance composite materials for various applications, including the wind sports, outdoor, sailing, and aerospace markets. Aluula utilizes advanced manufacturing technologies, such as 3D printing, to produce its composite materials and components.

Aluula leverages a patented fusion process to fuse high tech fibers and technical films together, without the use of heavy glues. Aluula fuses high tech fibers and advanced space age films together without glue, no off gassing and no fumes. In particular, Aluula bonds materials at the molecular level which results in a lighter and stronger composite. The process used by Aluula also makes the fabrics recyclable at the end of life. Compared to conventional coated and laminated woven fabrics, Aluula’s composites textiles are more tear resistant, stretch resistant, and are easier to be fabricated into different products.

The below diagram outlines Aluula’s product specifications.

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Aluula’s main products are three proprietary composite textiles: ALUULA Durlyte™, ALUULA Graflyte™, and ALUULA Gold™.

ALUULA Durlyte™

The composites consist of a tough film, which is bonded to Aluula’s core material. The resulting lamination produces a family of high-performance composite fabrics with a low friction surface and a high strengthto-weight ratio. As shown in the chart below, the ALUULA Durlyte™ fabric shows a marked resistance to abrasion when compared to competing goods. The ALUULA Durlyte™ fabric is ideal for use in applications where high abrasion resistance and extreme toughness are critical.

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ALUULA Gold™

The composites consist of an ultraviolet-resistant outer film laminated to Aluula’s core material. ALUULA Gold™ fabric is lighter than nylon, polyester, and aramid and eight times stronger than steel. The highmodulus Aluula core material makes the inflatable structures even more rigid. The below chart outlines the tensile strength and strength-to-weight ratio of ALUULA Gold™ fabric compared to other goods. Additionally, ALUULA Gold™ fabric accepts screen printing, and is waterproof, antibacterial, and nonpermeable to air.

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ALUULA Graflyte™

ALUULA Graflyte™ fabric is made from a single polymer which is 100% recyclable. Its strength-to-weight ratio is eight times that of steel. ALUULA Graflyte™ fabric is waterproof, ultraviolet-resistant, antibacterial, and puncture-resistant. The fabric is also easy to clean and unaffected by most chemicals. ALUULA Graflyte™ fabric is ideal for ultralight packs and other applications where lightness and material strength are critical.

Ocean Rodeo

Ocean Rodeo specializes in the design and production of wind sports equipment, such as kites and boards, as well as a range of accessories and apparel for wind sports enthusiasts. Ocean Rodeo uses composite materials in the production of its products to ensure high performance and durability.

Ocean Rodeo holds multiple patents related to the design of wind sports equipment. Ocean Rodeo has created the world’s first kites and wings that feature a hybrid composite airframe; the world’s first flexible kiteboards; and the world’s first Dacron reinforced kites. Ocean Rodeo has also introduced the Go-Joe leashless board recovery device, a board recovery device officially endorsed and promoted by both the International Kiteboarding Organization and the Professional Air Sports Association. The Go-Joe leashless board is a new leash free tool to assist in the retrieval of the kiteboard without fear of being impacted or impeded by a leashed board. Ocean Rodeo’s Backline Trim Control Bar allows riders to make quick adjustments and maintain optimal control of their kite even in changing wind conditions.

The following table summarizes, for each of the two most recently completed financial years, the revenue for each category of product or services that accounted for 15% or more of total consolidated revenue of Aluula and Ocean Rodeo for the applicable financial year derived from.


December 31, 2021	October 31, 2022

Wind sport $6,591,606 (99%)	Wind sport $8,297,811 (96%)

Market Overview

Composite Materials

Composite materials are materials that are made by combining two or more different materials, each with its own unique properties, to create a new material that has improved properties compared to the individual components. The global composites market size was valued at US$94.34 billion in 2021 and is expected to reach US$163.14 billion by 2030, expanding at a compounded annual growth rate (“ CAGR ”) of 6.3%.[1] The key drivers of the global composites market are the increasing demand for lightweight, durable and sustainable materials from various sectors, rising government initiatives to support the composite materials industry, and ongoing research and development advancements in the composite materials.

North America is the second-largest market for composite materials globally, following the Asia Pacific region.[2] Governments in North America are actively promoting the use of composite materials. For example, the Federal Aviation Administration in the US has established guidelines for the use of composite materials in aircraft design and manufacturing.[3] The regulatory agency for transportation in Canada, Transport Canada has provided guidance and regulations for the use of composite materials in transportation equipment.[4] In 2022, the Government of Canada has made an investment of $800,000 in the Composites Development Centre in Quebec, with an aim to foster the advancement of composite materials and technologies.[5]

The use of composite materials has increased significantly in recent times due to the ample benefits and advantages they offer. Composite materials exhibit a greater strength-to-weight ratio. For instance, although carbon fiber weighs only about 25% as much as steel, and 70% as much as aluminum, it is much stronger and stiffer than both materials per weight.[6] Composite materials may require less maintenance and need to be replaced less often, as they are often more durable. Composite materials can also be more environmentally friendly. Many composite materials are made from recycled or renewable resources, which helps to reduce the amount of waste and consume less energy during the manufacturing process. Composite materials can indirectly reduce the carbon footprint of products by reducing the weight (eg, vehicles and airplanes) which in turn reduces fuel consumption. In North America, composite materials are used in a wide range of industries, including construction, transportation, aerospace, and sporting goods.

Aerospace Market

North America is dominating the global aerospace composites market, valued at US$22.6 billion in 2021, with a market share of over 36%. The global aerospace composites market is expected to expand at a CAGR of 8.8% to reach US$47.3 billion by 2030.[ 7] In the aerospace industry, composite materials are used to make both exterior aircraft components like fuselage, wing structures and empennage, and interior components like engine parts. The Boeing 787 Dreamliner aircraft, for example, is among the first commercial aircraft to incorporate composite materials extensively in its construction. By volume, more than 80% of its structure is made of composite materials.[8] The 787 Dreamliner’s use of composite materials showcased the

1 https://www.precedenceresearch.com/composites-market

2 https://www.precedenceresearch.com/composites-market

3 https://www.faa.gov/documentLibrary/media/Advisory_Circular/AC_20-107B_with_change_1.pdf

4 https://tc.canada.ca/en/aviation/reference-centre/aircraft-certification-guidance-advisory-materials-pre2007/advisory-circular-ac-no-500-009-issue-1

5 https://www.newswire.ca/news-releases/government-of-canada-invests-in-clean-technologies-by-supportingcomposites-development-centre-of-quebec-872993969.html

6 https://3dfortify.com/composites-replace-traditional-materials/

7 https://www.acumenresearchandconsulting.com/aerospace-composites-market

8 https://simpleflying.com/787-a350-composite/

potential of composites in aerospace, spurring interest and investment in composites development and facilitating the creation of other composite-intensive aircraft such as the A350 and 777X.

Wind Sport Market

Wind sports refers to any sport or activity that uses wind as a power source, such as sailing, windsurfing, kiteboarding, paragliding and hang gliding. North America is an ideal destination for wind sports due to the beautiful coastlines, as well as the steady and strong winds. The growing popularity of adventure tourism, as well as the proliferation of beach culture have fueled the growth of the wind sports equipment market. To illustrate, the global sales of windsurfing equipment are projected to reach US$450 million by 2022.[9] The global kiteboarding equipment market was valued at US$909 million in 2022. Sales of kiteboarding equipment are projected to surpass US$4109.23 million by 2033, registering a CAGR of 14.7%.[10] Notably, due to various considerations, more and more manufacturers are choosing composite materials to build their products, such as kites and wings. One major advantage of composite materials is their lightweight properties, which can greatly enhance the performance of kites or wings by allowing them to be more agile and fly faster. Additionally, composite materials are strong and durable enough to withstand harsh sun, wind forces applied to them during flight, and abrasive beach environments. They are also resistant to corrosion and UV damage, reducing the risk of tearing and wearing and extending the lifespan of the equipment. Composite materials can also be easily molded into customized shapes to meet the different needs of clients while improve the performance of products.

Outdoor Gear and Equipment

Composite materials are widely used in making outdoor gear and equipment such as camping and hiking gear, backpacks, and other outdoor equipment, due to their durability and resistance to extreme weather conditions. North Americans have the reputation for being enthusiastic about outdoor events. According to Statista, in 2021, 52% of Canadians engaged in outdoor recreational activities once a week or less, while 16% did it every day.[11] In the US, 58 million people participated in hiking, making it the second most popular outdoor activities.[12]

Sailing

The global sailboat market size was valued at US$5.84 billion in 2020. The market is expected to expand at a CAGR of 2.4% to reach US$7.28 billion by 2028, driven by the increase in consumer purchasing power and consumers’ rising demand for recreational boats. North America is dominating the global sailboats market. According to Statista, sailboats sales in the US increased 4.5%, from 6,700 units in 2020 to almost 7000 units in 2021.[13] The construction of sail boats utilizing composite materials continues to grow in popularity, as composites possess good architectural values including lightness, robustness, corrosion resistance, and ease of production. Sailboats made of composite materials are expected to have higher speed while be more fuel-efficient and environmentally friendly than those made of metals like aluminum or steel.

The composite material industry is constantly evolving. The research community has been working on creating new materials with improved characteristics, such as reduced weight, greater strength and durability, better thermal and electrical conductivity, and increased resistance to extreme environmental

9 https://www.transparencymarketresearch.com/windsurfing-equipment-market.html

10 https://www.factmr.com/report/420/kiteboarding-equipment-market

11 https://www.statista.com/statistics/1334779/share-canadians-engaging-outdoor-recreational-activities-byfrequency/

12 https://www.statista.com/statistics/190202/number-of-participants-in-outdoor-activities-in-the-us-2009/

13 https://www.statista.com/statistics/215508/total-sailboat-units-sold-in-the-us/

conditions. Novel manufacturing techniques, such as automated fiber placement, digital composite manufacturing and 3D printing, have also been developed to optimize the production process of composite materials.[14] The production costs and products made of them keep decreasing over the past decades and are now comparable to products made of steel.[15] Going forward, composites materials are expected to demonstrate better performance and become more cost-efficient, driving their adoption in a wider range of applications.

Production and Services

The Target Company owns multiple patents protecting its unique ability to recombine previously disparate input materials in a new and novel way. The process is one of assembly, recombining these previously incompatible materials into one newly fused composite and opening a world of design possibilities for its brand partners. Aluula’s input material supply chain is robust and that the production of the materials does not rely on chemicals or solvents.

Specialized Skill and Knowledge

While the Aluula patents are publicly available, the know-how to apply these patents to Aluula’s day-today assembly of finished composites is a closely guarded trade secret. Employees are carefully trained and each must sign a non-disclosure agreement with the Target Company. As with any skilled trade, production operators have become experts at their craft and incorporate years of experience into the resulting finished products. Labour and overhead costs represent a small percentage of Aluula’s overall cost of goods, allowing Aluula to ensure production workers are well paid, highly qualified and skilled labourers working normal hours, which helps to ensure the finished quality remains high and that attention to detail does not wane.

Competitive Conditions

Aluula sells a composite textile made with ultra-high-molecular-weight polyethylene (UHMWPE) woven core, stabilised by outer facing films which are selected based on customers’ needs and the prescribed application for the finished product.

While the Aluula core weave is unique to Aluula and is specifically modified to work with Aluula’s process, the input materials themselves are not unique and many market participants have access to similar raw materials. What makes Aluula unique is its ability to combine these materials in new and novel ways, opening design possibilities and applications of these materials.

To date, the market has been serviced by a host of incumbent manufacturers who break down into a silo of low-cost materials that have largely become commodified. There is one higher cost, higher performing material that has been on the market for 20+ years and relies on glues to laminate its materials. These glues may fail when exposed to ultraviolet light, making the finished products that contain this material unreliable over time, though still sought after for the performance benefits it offers.

Aluula has entered and started to disrupt the composite textile market at a time when manufacturers have expressed customer demand for high quality products made with composite materials. Aluula’s products also address concerns manufacturers have had in the past regarding durability.

14 https://revolutionized.com/composite-materials/

15https://www.researchgate.net/publication/271962546_Application_of_Composite_Materials_in_Modern_Construc tions

Raw Materials and Components

Aluula’s vendor relationships are a closely held trade secret. However, all of Aluula’s input materials are well known and readily available, including both overseas and domestic supply of all of the necessary components for assembly of the composite materials. Aluula’s key value proposition is its ability to uniquely combine these materials.

Intangible Property

Registered Intellectual Property of the Target Company

Aluula and Ocean Rodeo’s technology is protected by an extensive intellectual property portfolio which includes issued patents and pending patent applications in key jurisdictions covering both Aluula’s composite materials and Ocean Rodeo’s wind sports technologies. Those issued patents include:

Title	Patent Number	Issue Date	Jurisdiction
Composite Ultra-High Molecular Weight Polyethylene (Uhmwpe) Material and Method of Manufacture	11,590,729	02/08/2023	US16
Composite Ultra-High Molecular Weight Polyethylene (Uhmwpe) Material and Method of Manufacture	EP3649282	6/15/2022	EP
Multi-Layer Bladder Construct	11,084,560	8/10/2021	US
Dual Adjusting Waterproof Seal For Drysuits	10,364,005	7/30/2019	US
Friction-Sealed Water Immersion Suit	10,696,364	6/30/2020	US
Front Line Kite Depower System	10,427,766	10/1/2019	US
Inflatable Kite with Leading Edge Swept Forwards at Wingtip	8,684,313	4/1/2014	US
Kite Control Bar	11 2013 001 598.6	8/23/2018	DE
Kite Control Bar Stopper for a Sleeved Line	11,180,231	11/23/2021	US
Kite Control Bar with Integrated Back Trim Line TensioningMeans	11,059,578	7/13/2021	US
Kite Control Bar with Integrated Line Adjustment Means	10,336,413	7/12/2019	US
Kite Control Bar with Integrated Line Adjustment Means	9,567,072	2/14/2017	US
Lower Back Entry Body Suit	10,765,156	9/8/2020	US
Method for Monitoring Kite Air Press When Kite Boarding	9,957,043	5/1/2018	US
Method of Uprighting and Locating a Water Sports Board in the Water and a Directional Float	8,142,248	3/27/2012	US

16 Canadian equivalent patent remains pending.

Title	Patent Number	Issue Date	Jurisdiction
Method of Uprighting and Locating a Water Sports Board in the Water and a Directional Float	8,376,798	2/19/2013	US

Additionally, Aluula and Ocean Rodeo have received, or are in the process of receiving, registered trademark for the key brand names in Canada, the United States, and the European Union.

Sales Cycles

Many of the brand partners Aluula services have sales cycles that follow seasonality of their products. However, with Aluula’s growing exposure to a broad range of brand and industry partners, it has seen the seasonality of sales flatten. Aluula’s brand partners are also able to forecast their demand with long lead times, which allows Aluula to avoid peaks and troughs in the production cycle.

Key Contracts

While Aluula owns all of the necessary intellectual property needed to run its business, it does pay a quarterly royalty to the scientist who helped develop the Aluula process, Peter Berrang. This royalty represents approximately 3% of gross sales revenue, less warranty and returns.

Environmental Protection

Aluula’s patented process does not make use of any solvents or glues and does not produce any wastewater or off-gassing that would be subject to any environmental regulation. Outside of its legal requirements, Aluula does practice corporate responsibility, observing and exceeding all Occupational Health & Safety guidelines for its staff and managing a company-wide recycling policy wherever possible with regards to any waste produced in the manufacturing process.

Employees

Aluula had 15 employees as at the end of the most recent financial year and Ocean Rodeo had 10 employees as at the end of the most recent financial year.

Lending

Apart from offering some of customers sales terms on invoiced orders, Aluula confirms that it does not have any lending operations.

Reorganizations

On October 31, 2022, the Target Company entered into a share purchase agreement to acquire 100% of the issued and outstanding shares of Ocean Rodeo. Under the transaction, Ocean Rodeo became a wholly owned subsidiary of the Target Company.

Development of the Business

Based in British Columbia, Canada, Aluula was founded by a team of experienced chemists and engineers who share a common passion for exploring and enjoying the outdoors, which led them to develop composite materials that are used in a variety of outdoor applications.

Aluula has superseded conventional coated and laminated woven fabrics with new innovative, ultra-strong composite materials. Aluula has created composites that are highly tear resistant, stretch resistant and easy to fabricate into a multitude of products across a wide range of markets. These new dimensionally stabilized multilayer materials are the result of Aluula’s innovative bonding of co-polymer layers that create composites with significant weight reduction and resistance to tearing and stretching.

Three-Year History

Year Ended 2020

On January 13, 2020, the Target Company entered into a share swap agreement with Xlynx Materials Inc., a company controlled by Peter Berrang, pursuant to which the Target Company acquired 352,941 Class A Common shares of Xlynx Materials Inc., and Xlynx Materials Inc. acquired 608,831 Target Company Shares. Xlynx Materials Inc. is a developer of polymer materials and textiles.

In March 2020, Aluula was introduced into the market through its then brand partner, Ocean Rodeo Sports Inc. (now a wholly-owned subsidiary of the Target Company), and by May 2020 Aluula was a recognizable composite materials brand in the wind sport industry.

In September 2020 Aluula secured an agreement to supply Duotone (one of the world’s largest wind sport brands) with fabric for a new kiteboard concept called D/Lab, and in April 2021, Duotone entered the market with their D/Lab products made from Aluula composite materials.

Year Ended 2021

Throughout 2021 Aluula continued to grow within its core market of wind sport activities while also establishing multiple new prospective markets in other sectors. Aluula hired four employees in the 2021 fiscal year, and invested $786,258, primarily towards new office and warehouse space under lease ($646,453), and leased machinery and equipment ($130,060).

Year Ended 2022

On October 31, 2022, Aluula acquired 100% of the issued and outstanding securities of Ocean Rodeo.

Aluula invested $354,202 in new property and equipment during the 2022 fiscal year, in addition to the $202,361 assets acquired with its purchase of the securities of Ocean Rodeo. Additionally, Aluula onboarded four new hires in engineering, sales and support, marketing, production staff and management roles.

By the end of 2022, Aluula had eight commercialized brand partners, and late-stage pre-commercialization efforts underway with internationally recognized brand partners in outdoor, sporting goods, aerospace, sailing, and light industrial markets.

Prior Financings

The Target Company has completed a number of financings which are summarized as follows:

Date	Price per Target Company Share(1)	Total Target Company Shares Issued	Total Funds Raised
January 13, 2020	$0.001	608,831	$608.83
October 31, 2022	Exchanged for an aggregate of 3,450,045 Ocean Rodeo Shares	1,706,182	Exchanged for an aggregate of 3,450,045 Ocean Rodeo Shares
April 13, 2023	$0.29	352,000	$102,080
April 13, 2023	$3.2984	601,152(2)	$1,983,002(2)

Notes:

(1) See “ Information Concerning the Target Company – Prior Sales ” for additional information.

(2) An aggregate of 601,152 Target Company Shares were issued in settlement of loans in the amount of $1,983,002.

Amalgamation Agreement

On December 20, 2022, the Issuer, BSP SubCo and the Target Company entered into the Amalgamation Agreement, pursuant to which the Issuer proposed to acquire 100% of the issued and outstanding Target Company Shares from the Target Company Shareholders. See “ Information Concerning the Issuer – General Development of the Business – Amalgamation Agreement ” for a description of the terms of the Amalgamation Agreement.

Significant Acquisitions

On October 31, 2022, Aluula acquired 100% of the issued and outstanding securities of Ocean Rodeo. See the Target Company and Ocean Rodeo financial statements included as Schedule “C” and Schedule “E” to this Filing Statement.

Management’s Discussion and Analysis

The Target Company’s MD&A for the year ended October 31, 2022 are attached to this Filing Statement as Schedule “D”.

Description of the Securities

The Target Company is authorized to issue: (i) up to 10,000,000 Target Company Shares; (ii) up to 1,000,000 Class B Voting Shares; (iii) up to 1,000,000 Class C Non-Voting Shares; (iv) up to 1,000,000 Class AA Preferred Shares; and (v) up to 1,000,000 Class BB Preferred Shares.

As of the date of this Filing Statement there are 5,765,058 Target Company Shares issued and outstanding. The Target Company has no other issued and outstanding securities. See “ Information Concerning the Target Company – Prior Sales ” for additional information.

Target Company Shares

The Target Company is authorized to issue up to 10,000,000 Target Company Shares without par value. As of the date of this Filing Statement there are 5,765,058 Target Company Shares issued and outstanding.

Each holder of Target Company Shares is entitled to receive notice of and to attend all meetings of shareholders of the Target Company and at all such meetings are entitled to one vote in respect of each Target Company Share held by such holder.

The holders of Target Company Shares are entitled to receive dividends if and when declared by the board of directors of the Target Company.

In the event of any liquidation, dissolution or winding-up of the Target Company or other distribution of the assets of the Target Company among its shareholders for the purpose of winding-up its affairs, the holders of Target Company Shares are entitled to share pro rata the remaining property of the Target Company, along with the holders of the Class B Voting Shares and Class C Non-Voting Shares, after payment, if any, has been made to the holders of the Class A Preferred Shares and the Class B Preferred Shares.

Class B Voting Shares

The Target Company is authorized to issue up to 1,000,000 Class B Voting Shares with a par value of $0.01 per share. As of the date of this Filing Statement there are no Class B Voting Shares issued and outstanding.

Each holder of Class B Voting Shares is entitled to receive notice of and to attend all meetings of shareholders of the Target Company and at all such meetings are entitled to one vote in respect of each Class B Voting Share held by such holder.

The holders of Class B Voting Shares are entitled to receive dividends if and when declared by the board of directors of the Target Company.

In the event of any liquidation, dissolution or winding-up of the Target Company or other distribution of the assets of the Target Company among its shareholders for the purpose of winding-up its affairs, the holders of Class B Voting Shares are entitled to share pro rata the remaining property of the Target Company, along with the holders of the Target Company Shares and Class C Common Shares, after payment, if any, has been made to the holders of the Preferred Shares.

Class C Non-Voting Shares

The Target Company is authorized to issue up to 1,000,000 Class C Non-Voting Shares with a par value of $0.10 per share. As of the date of this Filing Statement there are no Class C Non-Voting Shares issued and outstanding.

The holders of the Class C Non-Voting Shares are not entitled to receive notice of and to attend all meetings of shareholders of the Target Company and at all such meetings are not entitled to vote on any matters presented at the meeting, other than as provided in the BCBCA.

The holders of Class C Non-Voting Shares are entitled to receive dividends if and when declared by the board of directors of the Target Company.

In the event of any liquidation, dissolution or winding-up of the Target Company or other distribution of the assets of the Target Company among its shareholders for the purpose of winding-up its affairs, the holders of Class C Non-Voting Shares are entitled to share pro rata the remaining property of the Target Company, along with the holders of the Target Company Shares and Class B Voting Shares, after payment, if any, has been made to the holders of the Preferred Shares.

Class AA Preferred Shares

The Target Company is authorized to issue up to 1,000,000 Class AA Preferred Shares with a par value of $0.01 per share. As of the date of this Filing Statement there are no Class AA Preferred Shares issued and outstanding.

The holders of the Class AA Preferred Shares not are entitled to receive notice of and to attend all meetings of shareholders of the Target Company and at all such meetings are not entitled to vote on any matters presented at the meeting, other than as provided in the BCBCA.

The holders of Class AA Preferred Shares are entitled to a fixed, preferential, non-cumulative cash divided at an amount fixed if and when declared by the board of directors of the Target Company.

The Target Company may redeem all or any number of the Class AA Preferred Shares at a redemption price set by the board of directors of the Target Company, after receiving the unanimous consent of the holders of the Class BB Preferred Shares.

In the event of any liquidation, dissolution or winding-up of the Target Company or other distribution of the assets of the Target Company among its shareholders for the purpose of winding-up its affairs, the holders of Class AA Preferred Shares are entitled to receive, firstly, a redemption price (as determined by board of directors of the Target Company) and, secondly, all declared and unpaid dividends on the Class AA Preferred Shares before any amount will be paid to subordinate classes of Target Company shares.

Pursuant to the Articles of the Target Company, no class of share ranking in priority or equally to the Class AA Preferred Shares will be created without a majority 75% consent of each of the holders of the Class AA Preferred Shares and the holders of the Class BB Preferred Shares, voting as a single class.

Class BB Preferred Shares

The Target Company is authorized to issue up to 1,000,000 Class BB Preferred Shares with a par value of $0.01 per share. As of the date of this Filing Statement there are no Class BB Preferred Shares issued and outstanding.

The holders of the Class BB Preferred Shares are not entitled to receive notice of and to attend all meetings of shareholders of the Target Company and at all such meetings are not entitled to vote on any matters presented at the meeting, other than as provided in the BCBCA.

The holders of Class BB Preferred Shares are entitled to a fixed, preferential, non-cumulative cash divided at an amount fixed if and when declared by the board of directors of the Target Company.

In the event of any liquidation, dissolution or winding-up of the Target Company or other distribution of the assets of the Target Company among its shareholders for the purpose of winding-up its affairs, the holders of Class BB Preferred Shares are entitled to receive, firstly, a redemption price (as determined by board of directors of the Target Company) and, secondly, all declared and unpaid dividends on the Class BB Preferred Shares before any amount will be paid to subordinate classes of Target Company shares.

Consolidated Capitalization

The following table sets forth the Target Company’s share capital for and as of the end of the periods indicated. The information as at January 31, 2023 is derived from the financial statements of the Target Company, which are included in this Filing Statement.

Designation of Security	Amount authorized or to be authorized	Amount outstanding as of October 31, 2022	Amount outstanding as of January 31, 2023 prior to giving effect to the Transaction
Target Company Shares	10,000,000	5,765,058	5,765,058
Class B Voting Shares	1,000,000	Nil	Nil
Class C Non-Voting Shares	1,000,000	Nil	Nil
Class AA Preferred Shares	1,000,000	Nil	Nil
Class BB Preferred Shares	1,000,000	Nil	Nil
Target Company Options	N/A	352,000	352,000(1)

Notes:

(1) The Resulting Issuer intends to issue 9,766,905 Resulting Issuer Options concurrently with closing of the Transaction.

Prior Sales

The following table summarizes the sales of securities of the Target Company that have been issued within the 12 months prior to the date of this Filing Statement.

Date of Issue	Type of Security	Number of Securities	Issue Price per Security	Aggregate Issue Price
October 31, 2022	Target Company Shares	1,706,182	Exchanged for an aggregate of 3,450,045 Ocean Rodeo Shares	Exchanged for an aggregate of 3,450,045 Ocean Rodeo Shares
April 13, 2023	Target Company Shares	352,000	$0.29	$102,080
April 13, 2023	Target Company Shares	601,152	$3.2984	$1,983,002(1)

Notes:

(1) An aggregate of 601,152 Target Company Shares were issued in settlement of loans in the amount of $1,983,002.

Trading Price and Volume

The Target Company does not currently have, and has never had, any of its securities listed on any stock exchange, quotation system or other securities market.

Executive Compensation

The following executive compensation disclosure is prepared in accordance with National Instrument 51102 Continuous Disclosure Obligations and Form 51-102F6 Statement of Executive Compensation. For the purposes of this section, the named executive officers (the “ Named Executive Officers ” or “ NEOs ”) of the Target Company are: (a) Richard Myerscough, Chief Executive Officer; and (b) John Zimmerman, Chief Operations Officer.

Compensation Discussion and Analysis

The compensation of the Target Company’s directors and NEOs is designed to provide market-competitive compensation to attract and retain executives with the management skills required to execute on the Target Company’s objectives and to reward the executive team members for their contribution to the overall success of the Target Company and for achievement of planned business objectives. The compensation of the Target Company’s executives includes three elements: (a) base salary; (b) cash bonuses; and (c) stock options. The Target Company does not currently have any other long-term incentive plan or pension in place.

The Target Company does not have any intention to make any material changes to its executive compensation until completion of the Transaction. See “ Information Concerning the Resulting Issuer – Executive Compensation ”.

Stock Option Plan

The Target Company adopted a stock option plan in order to provide the Target Company with a sharerelated mechanism to attract, retain and motivate qualified directors, officers, key employees and consultants, and to provide an incentive to such individuals to contribute towards the long-term goals of the Target Company. The number of Target Company Shares available for purchase pursuant to options granted under the plan will not exceed 10% of the total number of Target Company Shares issued and outstanding at the time of grant. The Target Company stock option plan is administered by the board of directors of the Target Company. It is anticipated that upon Completion of the Qualifying Transaction the Resulting Issuer will implement the Stock Option Plan of the Issuer and the Target Company stock option plan will no longer be in effect. There are currently no stock options issued and outstanding pursuant to the Target Company’s stock option plan.

Compensation and Governance

The Target Company does not have a compensation and governance committee. See “ Information Concerning the Resulting Issuer – Audit Committee and Corporate Governance ” for a description of the anticipated corporate governance policies of the Resulting Issuer upon Completion of the Qualifying Transaction.

Summary Compensation Tables

Named Executive Officer Compensation

The following compensation was paid to each NEO for their service as an officer:

Name and Principal Position	Year Ended Oct 31		Share- based Awards ($)		Non-			Total Compensa tion ($)
					Equity
					Incentiv		All
				Option-	e Plan		other
				based	Compen	Pension	Compen
		Salary		Awards	sation	Value	sation
		($)		($)	($)	($)	($)
Richard	2022	160,000.08	Nil	Nil	Nil	Nil	Nil	160,000.08
Myerscough(1)	2021(2)	153,333.40	Nil	Nil	Nil	Nil	Nil	153,333.40
Chief Executive Officer and Director	2020(2)	116,666.68	Nil	Nil	Nil	Nil	Nil	116,666.68

John Zimmerman(3)	2022	160,191.53	Nil	Nil	Nil	Nil	Nil	160,191.53
Chief Operations	2021(2)	157,824.25	Nil	Nil	Nil	Nil	Nil	157,824.25
Officer and Director	2020(2)	94,194.87	Nil	Nil	Nil	Nil	Nil	94,194.87

Notes:

(1) Mr. Myerscough was appointed as the Chief Executive Officer of the Target Company on July 18, 2019. (2) Year ended December 31.

(3) Mr. Zimmerman was appointed as the Chief Operations Officer of the Target Company on July 18, 2019.

Director Compensation

The following compensation was paid to directors of the Target Company who were not also officers of the Target Company for the year ended October 31, 2022:

Name	Fees earned ($)	Share- based awards ($)	Option- based awards ($)(1)	Non- equity incentive plan compens ation ($)	Pension value ($)	All other compens ation ($)	Total ($)
Peter Berrang(1)	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Laurie Clarke(2)	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Jeremy Wulff(3)	Nil	Nil	Nil	Nil	Nil	Nil	Nil

Notes:

(1) Mr. Berrang became a director of the Target Company on July 18, 2029.

(2) Ms. Clarke became a director of the Target Company on July 25, 2020.

(3) Mr. Wulff became a director of the Target Company on January 13, 2020. Mr. Wulff resigned as a director of the Target Company on February 2, 2023.

Share-based Awards and Option-based Awards

The Target Company does not have any share-based awards or option-based awards for directors or officers as at October 31, 2022, being the most recently completed financial year of the Target Company, or as at the date of this Filing Statement.

Incentive Plan Awards

The Target Company does not have any issued and outstanding incentive plan awards that vested during the year ended October 31, 2022.

Pension Plan Benefits and Deferred Compensation Plans

To date, the Target Company has not provided any pension benefits and has not adopted a deferred compensation plan.

Termination and Change of Control Benefits

The Target Company does not have any plan, contract or arrangement where a director or officer will be entitled to receive payments from the Target Company, including periodic payments or installments, in the event of the resignation, retirement or other termination of employment, a change of control of the Target Company or a change in the director or officer’s responsibilities following a change in control.

Management Contracts

Management functions of the Target Company or any subsidiary are not performed by a person other than the directors or senior officers of the Target Company or subsidiary. The Target Company is not a party to any management contracts.

Non-Arm’s Length Party Transactions

Except as set out in this Filing Statement and below, none of the directors, senior officers or principal shareholders of the Target Company, nor any Associate or Affiliate of the foregoing have acquired assets or services from the Target Company or provided assets or services to the Target Company in any transaction within the five year period prior to the date of this Filing Statement, or in any proposed transaction of the Target Company.

Legal Proceedings

There are no legal proceedings to which the Target Company is or has been a party. To the knowledge of the management of the Target Company, there are no such proceedings contemplated.

Material Contracts

The following is a list of material contracts (excluding contracts entered into in the ordinary course of business) entered into by the Target Company:

Partnership agreement dated January 3, 2020 with Air Cruisers Co LLC (dba Safran Aerosystems Evacuation). Pursuant to the agreement, the parties agreed to collaborate on a research program relating to developing components for use in Air Cruisers Co LLC’s products, including evacuation slides, life rafts, emergency floats, etc.

Distribution agreement with Ocean Rodeo Europe dated January 15, 2022, pursuant to which Ocean Rodeo granted to Ocean Rodeo Europe exclusive distribution rights to certain Ocean Rodeo products in Europe, Middle-east and Africa regions. The products included in this distribution agreement are Ocean Rodeo kiteboarding and wing boarding equipment (kites, wings, boards, harnesses, control sets and accessories.
Royalty agreement dated December 20, 2019 with Epic Ventures Inc., a company owned by Peter Berrang, pursuant to which Aluula agrees to pay Epic Ventures Inc. a $1.25 royalty on each square meter of certain patented materials, in exchange for Epic Venture Inc.’s assignment of the applicable patents to Aluula.
Amalgamation Agreement dated December 20, 2022, as amended and restated on April 3, 2023 between the Issuer, BSP SubCo and the Target Company.

INFORMATION CONCERNING THE RESULTING ISSUER

Corporate Structure

The Resulting Issuer will continue to exist under the BCBCA. It is anticipated that the registered and records office of the Resulting Issuer will be located at Suite 1200 – 750 West Pender Street, Vancouver, British Columbia, V6C 2T8 and the head office of the Resulting Issuer will be located at Suite 110 – 517 Fort Street, Victoria, British Columbia, V8W 1E7.

Intercorporate Relationships

Upon completion of the Transaction, the Resulting Issuer will directly own all of the issued and outstanding shares of the Target Company. As a result of the Transaction, the shareholders of the Target Company will become shareholders of the Resulting Issuer.

The chart below sets out the intended intercorporate relationship between the Resulting Issuer and the Target Company as they will exist immediately following the completion of the Transaction:

Aluula Composites Inc. “ Resulting Issuer ” (formerly Bastion Square Partners Inc.) (British Columbia) 100% Aluula Composites Canada Inc. (formerly Aluula Composites Inc.) (British Columbia) 100% Ocean Rodeo Sports Inc. (British Columbia)

Description of the Business

The Resulting Issuer will have the same stated objective and milestones as the Target Company and will carry on the business of the Target Company upon completion of the Transaction. See “ Information Concerning the Target Company – Description of the Business ”.

There is no assurance that the Resulting Issuer will be successful in meeting the objectives described in this Filing Statement. See “ Risk Factors ” for information relating to the risks associated with the business of the Resulting Issuer.

Business Objectives and Milestones

The Resulting Issuer expects to accomplish the following business objectives and milestones using the available funds (including the net proceeds of the Financing). See “ Information Concerning the Resulting Issuer – Available Funds and Principal Purposes – Funds Available ” for additional information of the funds expected to be available to the Resulting Issuer.

The following table sets out the Resulting Issuer’s short to medium targeted business milestones, as well as the expected timeframe for, and cost of, achieving same following the Closing:

Timeframe	Business Objectives	Estimated Costs(1)
0 to 12 months	Continued expansion of sales within Windsport and to emerging vertical markets.	$500,000
0 to 12 months	Scale output to meet growing demand and wider product offering.	$500,000- 950,000
0 to 12 months	Build out in-house expertise in marketing and co-branding efforts to align with our multinational partner's product launches.	$200,000- 250,000

(1) Excluding working capital and general corporate purposes.

In order to meet these business objectives, the Resulting Issuer will need to initiate or complete the following milestones in the same twelve-month period:

Business Objective #1 – Continued expansion of sales within windsport and to emerging vertical markets.
The $500,000 allocation for this expansion is for the continued investment in raw materials needed to meet the needs of the Resulting Issuer’s expanding customer base.
May – end of calendar year 2023: the Resulting Issuer’s objective is for 3-5 windsport brands to commercially introduce products to their consumers made from Aluula materials. Its objective is to receive approval for final prototype approval for pre-commercial investment by 2-3 new outdoor and athletics brands.
January – June 2024: the Resulting Issuer’s objective is for those outdoor and athletic brands to introduce the new products to their consumers (most likely through direct to consumer sales channels and later through their dealer and distributor networks).
Business Objective #2 – Scale output to meet growing demand and wider product offering.
Calendar year end 2023: Double existing production output. Commence construction of new production pod to facilitate 1.5m width output material (vs 0.925m currently).
May 2024: Completion of new 1.5m wide production pod in order to achieve 50% increase in output per pod.

Business Objective #3 – Build out in-house expertise in marketing and co-branding efforts to align with our multinational partner's product launches
January 2024: Add two more full time marketing staff to join existing in-house team.
Calendar year end 2023: Co-branding, shared social media launches and participation with brand partners at internationally recognized trade shows: Beginning March 2023 with Black Diamond climbing helmet launch and on-going throughout the year. Including planned participation at ISPO in November 2023.

While the Resulting Issuer believes that it has the skills and resources necessary to accomplish these business objectives, there is no guarantee that the Resulting Issuer will be able to do so within the timeframes indicated above, or at all. In particular, future worldwide and economic developments, which the Resulting Issuer cannot currently predict, may require the Resulting Issuer to adjust, delay or postpone, either temporarily or permanently, activities required to achieve its business objectives.

The Resulting Issuer intends to spend the funds available to it as stated above. However, there may be circumstances where, for sound business reasons, a reallocation of the net proceeds may be necessary. The actual amount that the Resulting Issuer spends in connection with each of the intended uses of proceeds will depend on several factors, including those referred to under “ Risk Factors ”.

While the Resulting Issuer intends to pursue these milestones, there may be circumstances where, for valid business reasons, a re-allocation of efforts may be necessary or advisable.

Description of the Securities

The authorized capital of the Resulting Issuer will consist of an unlimited number of Resulting Issuer Shares. See “ Information Concerning the Resulting Issuer – Pro Forma Consolidated Capitalization ” for the number of securities expected to be issued outstanding upon Completion of the Qualifying Transaction.

Resulting Issuer Shares

Each Resulting Issuer Share entitles the holder thereof to dividends, if, as and when declared by the Board, to exercise one vote per Resulting Issuer Share at meetings of the shareholders of the Resulting Issuer and, upon liquidation, dissolution, or winding-up of the Resulting Issuer, to share equally in such assets of the Resulting Issuer as are distributable to the holders of Resulting Issuer Shares. All Resulting Issuer Shares outstanding after completion of the Transaction will be fully paid and non-assessable common shares.

Resulting Issuer Options

Upon Completion of the Qualifying Transaction, there will be Resulting Issuer Options outstanding and issued pursuant to the Stock Option Plan, which entitle the holders to acquire Resulting Issuer Shares.

See “ Information Concerning the Resulting Issuer – Pro Forma Consolidated Capitalization ” for the number and terms of the Resulting Issuer Options expected to be issued and outstanding upon Completion of the Qualifying Transaction. See “ Information Concerning the Issuer – Stock Option Plan ” for the terms of the Stock Option Plan.

Resulting Issuer Warrants

Upon Completion of the Qualifying Transaction, outstanding Issuer Warrants will be exchanged for Resulting Issuer Warrants exercisable on the same terms as the Issuer Warrants so exchanged. See “ Information Concerning the Resulting Issuer – Pro Forma Consolidated Capitalization ” for the number and terms of the Resulting Issuer Warrants expected to be issued and outstanding upon Completion of the Qualifying Transaction.

Pro Forma Consolidated Capitalization

The following table sets out the shares of the Resulting Issuer which will be issued and outstanding upon the completion of the Financings and the Transaction:

Designation of Security	Amount Authorized to be Issued	Amount Outstanding after giving effect to the Qualifying Transaction and the Financings
Resulting Issuer Shares	Unlimited	225,009,365
Resulting Issuer Options	-	12,266,905
Resulting Issuer Warrants	-	375,000

Pro Forma Fully Diluted Share Capital

The following table outlines the expected number and percentage of securities of the Resulting Issuer to be outstanding on a fully diluted basis after giving effect to the Transaction.

Description of Resulting Issuer Securities	Outstanding after giving effect to Transaction and Financings	Percentage
Resulting Issuer Shares
Held by current shareholders of the Issuer	25,000,000	10.51%
Issued to Target Company Shareholders pursuant to the Transaction	175,009,365(1)	73.58%
Issued on conversion of Subscription Receipts pursuant to the Subscription Receipt Financing	18,223,330	8.10%
Issued pursuant to the BSP Financing	6,776,670	3.01%
Resulting Issuer Options
Resulting Issuer Options held by current holders of Issuer Options	2,500,000(2)	1.05%
Resulting Issuer Options to be issued upon completion of the Transaction	9,766,905(3)	4.11%
Resulting Issuer Warrants

Description of Resulting Issuer Securities	Outstanding after giving effect to Transaction and Financings	Percentage
Resulting Issuer Warrants	375,000(4)	0.16%
TOTAL FULLY DILUTED	237,651,270	100%

Notes:

(1) After applying the Resulting Issuer Share Exchange Ratio, subject to rounding adjustments as fractional Resulting Issuer Shares will not be issued.
(2) Exercisable into Resulting Issuer Shares at a price of $0.10 per share, with an expiration date of October 12, 2026.
(3) Exercisable into Resulting Issuer Shares at an exercise price of $0.12 per share for a period of five years following closing of the Transaction.
(4) Exercisable into Resulting Issuer Shares at an exercise price of $0.10 per share, with an expiration date of October 12, 2024.

All Resulting Issuer Shares to be issued pursuant to the Transaction are subject to the approval of the Exchange. If any of the Resulting Issuer Shares proposed to be issued are not approved by the Exchange, the number of Resulting Issuer Shares to be issued will be adjusted to such number as is approved by the Exchange.

The Resulting Issuer pro forma consolidated financial statements, are attached to this Filing Statement as Schedule “F”.

Available Funds and Principal Purposes

The following tables set out: (a) the funds which will be available to the Resulting Issuer (net proceeds of the Financings and the Resulting Issuer’s available working capital) at Closing; and (b) how those funds will be utilized.

Funds available

The following tables set out the total estimated funds available to the Resulting Issuer upon Completion of the Qualifying Transaction and the Financing.

Qualifying Transaction and the Financing.
Issuer Estimated Working Capitalas atFebruary28,2023	$1,445,892
Target Company Estimated Working Capital as at February 28, 2023	$(1,519,228)(1)
NetProceeds of Financings	$3,000,000
TOTAL	$2,926,664

Notes:

(1) Includes GCC Loan ($750,000) and $32,000 of accrued legal fees.

See “ Information Concerning the Resulting Issuer –Description of the Business ” for the stated business objectives and milestones.

Dividends or Distributions

There are no restrictions in the Resulting Issuer’s articles or elsewhere that would prevent the Resulting Issuer from paying dividends following the completion of the Transaction. However, it is anticipated that all available funds will be invested to finance the growth of the Resulting Issuer’s business and, accordingly, it is not contemplated that any dividends will be paid on the shares of the Resulting Issuer in the immediate or foreseeable future. The directors of the Resulting Issuer will determine if, and when, dividends will be paid in the future based on the Resulting Issuer’s strategy and financial position.

Principal Purposes of Funds

Following Completion of the Qualifying Transaction, after deducting the estimated expenses of the Qualifying Transaction, it is estimated that the Resulting Issuer will have available funds of approximately $2,926,664.

The following table sets out information regarding the Resulting Issuer’s intended principal uses of available funds over the next 12 months, after deducting the estimated expenses of the Qualifying Transaction. Actual uses of funds may vary based upon a number of factors, including operating cash flows during the period and changes in market conditions. The amounts disclosed in the table below are estimates only and are based upon the information available to the Issuer and the Target Company as of the date of this Filing Statement.

s Filing Statement.
Payments Related to the Completion of the Transaction(1)	$118,000
Repayment of Zimmerman Loan	$133,800
Sales and Marketing	$875,500
Current Employee Costs	$950,000
Innovation, Research and Development	$745,000
General and Administrative Expenses and Payroll	$4,364
Unallocated Working Capital(2)	$100,000
TOTAL	$2,926,664

Notes:

(1) Includes legal fees, auditor review fees, Exchange filing fees, transfer agent fees and other expenses incurred or expected to be incurred in connection with the Transaction, not yet accrued and accounted for in the Issuer’s and Target Company’s working capital figures.

(2) Unallocated working capital may be allocated to corporate expenses, business development, potential future acquisitions, inventory, general administrative expenses, and other purposes.

Principal Securityholders

After giving effect to the Transaction, to the knowledge of the prospective directors and officers of the Resulting Issuer, other than as disclosed in the below table, no Person or company will beneficially own, directly or indirectly, or exercise control or direction over, more than 10% of the issued and outstanding voting securities of the Resulting Issuer. See also “ Information Concerning the Resulting Issuer – Directors, Officers and Promoters ”.

Name	Number of Resulting Issuer Shares	Percentage of Resulting Issuer Shares held	Type of Ownership
Winston Ventures Inc.(1)	74,899,506	33.29%	Registered and Beneficial
Peter Berrang(2)	48,203,517(3)	21.42%	Registered andBeneficial
Laurie Clarke(4)	22,978,365(5)	10.21%	Registered andBeneficial

Notes:

(1) Winston Ventures Inc. is a company beneficially owned and controlled by Richard Myerscough, the current CEO and director of the Target Company, and the proposed CEO and director of the Resulting Issuer.
(2) Mr. Berrang is currently a director of the Target Company and it is expected that Mr. Berrang will be a director of the Resulting Issuer upon completion of the Transaction.
(3) 13,847,423 Resulting Issuer Shares registered to Epic Ventures Inc.,18,496,047 Resulting Issuer Shares registered to Neo Ventures Inc. and 15,860,047 Resulting Issuer Shares registered to Xlynx Materials Inc., each a company owned and controlled by Mr. Berrang.
(4) Ms. Clarke is currently a director of the Target Company and it is expected that Ms. Clarke will be will be appointed to the Advisory Committee of the Resulting Issuer upon completion of the Transaction.
(5) 16,247,098 Resulting Issuer Shares registered to 1218534 BC Ltd., a company owned and controlled by Ms. Clarke.

Directors, Officers and Promoters

The individuals listed in the table below will be the directors and officers of the Resulting Issuer upon completion of the Transaction, such term to expire at the next annual meeting of the shareholders of the Resulting Issuer, unless they are re-elected at such meeting. The principal occupations of these individuals over the past five years and relevant experience in a business similar to the Issuer’s is as follows:

Name, Municipality of Residence, Position	Principal Occupation in the last five years	Date Appointed as Director or Officer of the Issuer	Number and Percentage of Shares of Resulting Issuer Beneficially Owned, Directly or Indirectly, or Over Which Control or Discretion is Exercised(1)(2)
Richard Myerscough British Columbia, Canada Proposed CEO and Director	CEO and Director of Aluula	Proposed officer and director	74,899,506 Resulting Issuer Shares (33.29%)

Name, Municipality of Residence, Position	Principal Occupation in the last five years	Date Appointed as Director or Officer of the Issuer	Number and Percentage of Shares of Resulting Issuer Beneficially Owned, Directly or Indirectly, or Over Which Control or Discretion is Exercised(1)(2)
Peter Dorrius British Columbia, Canada Proposed CFO and Corporate Secretary	CFO of Blockcap, Inc.	Proposed officer	Nil Resulting Issuer Shares
John Zimmerman British Columbia, Canada Proposed Chief Operations Officer and President	COO and President of Aluula	Proposed officer	19,758,377 Resulting Issuer Shares (8.78%)
Peter Berrang British Columbia, Canada Proposed Director	Inventor	Proposed director	48,203,517 Resulting Issuer Shares (21.42%)
Peter Gustavson(3)(4) British Columbia, Canada Proposed Director	Director and CEO of Gustavson Capital Corporation.	Proposed director	6,720,498 Resulting Issuer Shares (2.99%)
Dr. Hannes Blum(4) British Columbia, Canada Proposed Director	Venture Partner at Acton Capital Partners. Owner at Blum Management Consulting Inc.	Proposed director	1,874,333 Resulting Issuer Shares (0.83%)
Briony Bayer(3)(4) British Columbia, Canada Proposed Director	CFO of Gustavson Capital Corporation.	Proposed director	500,000 Resulting Issuer Shares (0.22%)
Jeremy South(3)(4) British Columbia, Canada Proposed Director	Managing Partner at SouthPac Partners, CFO at Steppe Gold Ltd.	Proposed director	1,666,000 Resulting Issuer Shares (0.74%)

Notes:

(1) As a group, the directors and officers will beneficially own, directly or indirectly, or exercise control or discretion over an aggregate of 153,622,231 Resulting Issuer Shares on Closing, which equals approximately 68.27% of the issued and outstanding number of Resulting Issuer Shares. This aggregate amount does not include warrants or options to purchase shares of Resulting Issuer held by directors and officers.
(2) Percentages calculated assuming there are 225,009,365 Resulting Issuer Shares issued and outstanding upon Closing.
(3) Proposed member of the Audit Committee of the Resulting Issuer.
(4) Proposed member of the Compensation Committee of the Resulting Issuer.

Management

Richard Myerscough (Age: 58) – Proposed CEO and Director

As the founder of three businesses and named in over 20 patents, Mr. Myerscough has been a serial entrepreneur and inventor over the span of his 30-year business career. In 1992, Mr. Myerscough cofounded Whites Manufacturing Ltd., which became a world leading manufacturer of dry suits. Whites Manufacturing Ltd. was sold to the Aqualung Group / Aire Liquid in 2010. Ocean Rodeo kiteboarding was launched in 2001 as a sister company to Whites Manufacturing Ltd. and has become a leading innovator and global brand in kitesurfing. In an effort to further improve the performance of the Ocean Rodeo kites and wings, the opportunity to develop lighter and stronger materials was identified in 2017. From the pioneering efforts of the Ocean Rodeo design team, new technologies to manufacture a new class of ultralight and strong materials was discovered. With vast opportunities identified beyond just wind sports, ALUULA was created as a standalone business in 2019.

Peter Dorrius (Age: 50) – Proposed CFO and Corporate Secretary

Mr. Dorrius is a senior finance executive with experience spanning start-up manufacturers to multinational software companies. For 5 years from 2011 to 2016 he served as the Chief Financial Officer at Blackline Safety (TSX: BLN:TO), a leading North American provider of safety solutions to the oil and gas industry. Over his 26-year professional career focused on the technology industry, Mr. Dorrius held management roles at Oracle (Hyperion), and SMART Technologies, among others, before joining Blackline. In recent years, Mr. Dorrius has provided senior finance leadership to publicly traded companies with revenues ranging from $100 million to $600 million annually. Mr. Dorrius holds a Bachelor of Science degree from the University of British Columbia and is a member of the Chartered Professional Accountants of British Columbia.

John Zimmerman (Age: 47) – Proposed Chief Operations Officer and President

Mr. Zimmerman started in business while in university, starting his own computer consulting company which he sold five years later, prior to joining Ocean Rodeo. A vital part of Ocean Rodeo for the last 18 years, Mr. Zimmerman oversees and manages the daily operations of both Aluula and Ocean Rodeo. Additionally, Mr. Zimmerman is currently invested in and sits as a board member for Pretio Interactive, a private company.

Peter Berrang (Age: 76) – Proposed Director

Mr. Berrang is a scientist and serial entrepreneur who has founded and run multiple successful high technology companies. Mr. Berrang was a founding member and a shareholder in the Axys Group of companies which had business in chemical analysis, marine instrumentation, and the production of pure acids and inorganics. In 1995, as company President, Mr. Berrang sold the advanced laser company Seastar Optics Inc. to a public firm in the United States. Mr. Berrang holds an undergraduate degree in Chemistry, Physics and Mathematics, and a graduate degree in Chemistry. He holds over 30 patents in a broad array of disciplines including magnetics, fiber optics, semiconductor lasers, neural implants, chemical structures, and high strength fabrics. Mr. Berrang is a co-founder and President of Xlynx Materials and continues to be active in other business and high technology research activities.

Peter Gustavson (Age: 66) – Proposed Director

Mr. Gustavson, FCPA, FCA, is the founder, CEO and sole director of Gustavson Capital Corporation (“ GCC ”), a private equity firm with a head office in Victoria, BC. Peter is also the founder, former President and CEO of Custom House Ltd. one of the world’s largest non-bank foreign exchange companies with offices in seven countries, customers in 115 countries, more than $35 billion in transactions and more than 40,000 corporate customers worldwide. In September 2009, Custom House was purchased by Western Union for US$370 million. Under Peter’s leadership Custom House was named one of the 50 best-managed companies in Canada eight years in a row by Deloitte. Peter is a recipient of an Ernst & Young Distinguished Entrepreneur of the Year Award in 2002 and a Lifetime Achievement Award from the Vancouver Island Business Excellence Society in 2005. Peter is a commerce graduate with honours from the University of Manitoba in 1979 and obtained his Chartered Accountancy designation in 1982, and was awarded the title “Fellow Chartered Accountant” by the Institute of Chartered Accountants of BC in 2005.

Mr. Gustavson’s past board membership and community service include Member of the Board of the Canadian Chamber of Commerce, President of the Canadian Foreign Exchange Dealers’ Association, Member of the University of Victoria School of Business Advisory Board, Participant in the Prime Minister’s Federal Trade missions (Moscow /Berlin /Munich and China, respectively) in 2002 and 2005, consultant to the federal government on the creation of anti-money laundering and proceeds of crime legislation, Director and Chair Finance and audit committee member of the Royal BC Museum, Chair of the Gustavson School of Business Distinguished Entrepreneur of the Year Awards Committee and Governor of the University of Victoria Board of Governors. In 2010 the University of Victoria recognized Peter’s contributions to the University by renaming the Faculty of Business to the Peter B. Gustavson School of Business.

Dr. Hannes Blum (Age: 54) – Proposed Director

Dr. Hannes Blum, PhD, is a seasoned executive with a broad know-how in the digital world from start-ups to large scale operations. He started his career with The Boston Consulting Group working with multinationals in the Financial and Industrial Goods sector after finishing his Masters in Business and Engineering in Germany. In 1999, Hannes founded his first internet company in Europe and merged it with Canada based AbeBooks Inc. in 2001. Hannes then took over as CEO of AbeBooks in 2003, scaled the business and acquired five companies before selling AbeBooks to Amazon.com in 2008. Hannes continued to serve as a VP for Amazon.com for seven years before joining Munich based Growth Venture Fund Acton Capital Partners as a Venture Partner for North America in 2015. Hannes has served on the board of directors of a number of private companies, including Codename Entertainment, Maple Telehealth, Mobify, Chef’s Plate and Knix Wear.

Briony Bayer (Age: 48) – Proposed Director

Ms. Bayer has over 15 years’ experience in senior finance roles. Ms. Bayer is currently the Chief Financial Officer of Gustavson Capital Corporation where she has oversight responsibility for its assets, including securities portfolios, alternative investments, real estate assets, and subsidiaries. Ms. Bayer is also responsible for due diligence and investment recommendation on the various private equity opportunities presented to Gustavson Capital Corporation. Prior to joining Gustavson Capital Corporation, Briony held senior finance roles at Custom House Ltd. (2005 - 2010) and ACD Systems International Inc., a publicly traded company listed on the TSX (2003 - 2005). Ms. Bayer has also held board positions with privately held companies and not-for-profit organizations.

Jeremy South (Age: 58) – Proposed Director

Mr. South, CA, ICD.D, is a senior finance and M&A professional with over 35 years of experience with leading global organizations including Deutsche Bank and Deloitte. He has held senior positions with leading private equity and investment banking firms in North America, Europe, Asia and Australia. Mr. South is a qualified chartered accountant and was joint Managing Partner and Co-Founder at Second City Capital where he successfully invested in a number of private businesses across North America. From 2006 to 2016 Jeremy was an M&A partner at Deloitte where he founded the British Columbia mid-market M&A practice. While at Deloitte he spent four years in Beijing, where he built a global M&A practice and assembled a strong network of investors and corporate relationships across Asia. Mr. South has deep experience in the C suite across multiple sectors including technology, consumer business, financial services and mining. In 2017, Mr. South co-founded SouthPac Partners Inc., a private investment group focused on operating businesses and real estate assets. He is an experienced corporate director and board Chair, with both public and private companies, and he holds the ICD.D designation.

Promoters

Peter Gustavson may be considered a Promoter of the Issuer in that he took the initiative in founding and organizing the business of the Issuer. Mr. Gustavson is the sole shareholder of Gustavson Capital Corporation which owns 4,668,000 Issuer Shares, representing approximately 18.67% of the Issuer Shares issued and outstanding as at the date of this Filing Statement. Upon completion of the Transaction, Gustavson Capital Corporation will own 6,720,498 Resulting Issuer Shares representing approximately 2. 99% of the Common Shares issued and outstanding. See the table under the heading “ Directors, Officers and Promoters ” above for further information.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

Other than disclosed herein, no proposed director, officer or promoter of the Resulting Issuer and no securityholder anticipated to hold a sufficient number of securities of the Resulting Issuer to affect materially control of the Resulting Issuer is, or within ten years before the date of this Filing Statement, has been, a director, officer or promoter of any other issuer that, while that person was acting in that capacity, was the subject of a cease trade or similar order, or an order that denied such issuer access to any exemptions under applicable securities laws, for a period of more than 30 consecutive days or became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

No proposed director, officer or promoter of the Resulting Issuer, or a securityholder of the Resulting Issuer anticipated to hold a sufficient number of securities of the Resulting Issuer to affect materially the control of the Resulting Issuer, has been subject to any penalties or sanctions imposed by a court relating to

securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or has been subject to any other penalties or sanctions imposed by a court or regulatory body or self-regulatory authority that would likely be considered important to a reasonable investor in making an investment decision.

Mr. Gustavson was a director and officer of Marv Holland Apparel Ltd. (“ MHA ”) from June 2010 to June 2013 and Ms. Bayer was an officer of MHA from March 2013 to June 2013. On June 28, 2013, a Consent Receivership Order was granted to place MHA into receivership and appoint PricewaterhouseCoopers Inc. (“ PwC ”) as Receiver. On July 10, 2013, MHA was assigned into bankruptcy under the BIA and PwC was appointed as trustee.

Mr. Gustavson was a director and officer of EncoreFX Inc. (“ EFX ”) and a director of EFX’s subsidiaries from each entity’s respective date of incorporation to March 2020. Ms. Bayer was an officer of EFX and EFX’s subsidiaries from incorporation to March 2020. On March 30, 2020, EFX was assigned into bankruptcy under the Bankruptcy and Insolvency Act (Canada) (“ BIA ”) while its subsidiaries in Australia and New Zealand were placed into voluntary administration. Ernst & Young (“ EY ”) was appointed as EFX’s trustee under the BIA and EY was also appointed as liquidator to EFX’s subsidiaries in both Australia and New Zealand. On March 30, 2021, the Supreme Court of British Columbia pronounced an Order which converted EFX’s bankruptcy proceedings to proceedings under the Companies’ Creditors Arrangement Act (Canada) (“ CCAA ”) and appointed EY as Monitor of EFX. The CCAA proceedings were terminated on November 2, 2022, and the BIA was annulled on January 10, 2023.

Mr. South became a director of Ascent Industries Corp. (“ Ascent ”) on June 25, 2019. Prior to his appointment as director, on March 1, 2019 the Supreme Court of British Columbia issued an order granting Ascent’s application for creditor protection under the CCAA. The CCAA proceedings were completed in May 2020.

Interests of Management and Others in Material Transactions

On October 31, 2022, Aluula acquired all of the issued and outstanding securities of Ocean Rodeo pursuant to a series of share transfer agreements. Ocean Rodeo became a wholly-owned subsidiary of Aluula. Richard Myerscough, Peter Berrang, and John Zimmerman were directors of Ocean Rodeo and Aluula at the time of the Ocean Rodeo acquisition, and all three are expected to be directors or officers of the Resulting Issuer. In connection with Aluula’s acquisition of Ocean Rodeo, Richard Myerscough, Peter Berrang, and John Zimmerman were issued the following Aluula shares, in exchange for their Ocean Rodeo shares:

Name	Ocean Rodeo Shares Acquired by Aluula	Number of Aluula Shares Issued	Deemed Price per Aluula Share
Richard Myerscough	1,710,021 Class E Common Voting shares	845,672 Class A Common Voting shares	$3.6956
Peter Berrang	710,021 Class E Common Voting shares	351,133 Class A Common Voting shares	$3.6956
John Zimmerman	507,500 Class E Common Voting shares	250,979 Class A Common Voting shares	$3.6956

Conflicts of Interest

There are potential conflicts of interest to which the directors, officers, Insiders and promoters of the Resulting Issuer may be subject in connection with the operations of the Resulting Issuer. All of the directors, officers, Insiders and promoters are engaged in and will continue to be engaged in corporations or businesses which may be in competition with the Resulting Issuer for businesses opportunities. Accordingly, situations may arise where the directors, officers, Insiders and promoters will be in direct competition with the Resulting Issuer. Conflicts, if any, will be subject to the procedures and remedies as provided under the BCBCA.

Other Reporting Issuer Experience

The following table sets out the proposed directors, officers and promoters of the Resulting Issuer that are, or have been within the last five years, directors, officers or promoters of other reporting issuers:

Name	Name of Reporting Issuer	Exchange or Market	Position	From (mm/yy)	To (mm/yy)
Jeremy South	Aranjin Resources Ltd.	TSXV	Director	11/2019	Present
	Herbal Dispatch Inc.	CNSX	Director & Chairman	06/2019	Present
	Steppe Gold Ltd.	TSX	CFO	07/2018	Present
	Aranjin Resources Ltd	TSXV	CFO	03/2018	Present
	Aldridge Minerals Inc.	TSXV (ceased reporting Dec 2018)	Director & Chairman	01/2018	12/2018
	Empress Resources Corp. (formerly Cipher Resources Inc.)	TSXV	Director	07/2017	03/2018
	Steppe Gold Ltd.	TSX	Director	03/2017	07/2018

Audit Committee and Corporate Governance

Audit Committee

The Audit Committee’s Charter

Following Completion of the Qualifying Transaction, the Resulting Issuer intends to adopt an Audit Committee charter, a copy of which is attached hereto as Schedule “G”.

Composition of the Audit Committee

The Audit Committee is comprised of the following members: Peter Gustavson, Jeremy South and Briony Bayer. Each member of the Audit Committee is considered to be financially literate, as defined by NI 52110, in that they have the ability to read and understand a set of financial statements that present a breadth

and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can presumably be expected to be raised by the Resulting Issuer’s financial statements.

The members of the Audit Committee are elected by the Board at its first meeting following the annual shareholders’ meeting. Unless a chair is elected by the full Board, the members of the Audit Committee designate a chair by a majority vote of the full Audit Committee membership.

Relevant Education and Experience

All three Audit Committee members have the ability to read and understand financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Resulting Issuer’s financial statements and are therefore considered “financially literate”.

Peter Gustavson – Mr. Gustavson, FCPA, FCA, is the founder, CEO and sole director of GCC, a private equity firm with a head office in Victoria, BC. Peter is also the founder, former President and CEO of Custom House Ltd. one of the world’s largest non-bank foreign exchange companies. Peter is a commerce graduate with honours from the University of Manitoba in 1979 and obtained his Chartered Accountancy designation in 1982, and was awarded the title “Fellow Chartered Accountant” by the Institute of Chartered Accountants of BC in 2005. Mr. Gustavson was previously a Member of the Board of the Canadian Chamber of Commerce, President of the Canadian Foreign Exchange Dealers’ Association, Member of the University of Victoria School of Business Advisory Board, Participant in the Prime Minister’s Federal Trade missions (Moscow /Berlin /Munich and China), consultant to the federal government on the creation of anti-money laundering and proceeds of crime legislation, Director and Chair Finance and audit committee member of the Royal BC Museum, Chair of the Gustavson School of Business Distinguished Entrepreneur of the Year Awards Committee and Governor of the University of Victoria Board of Governors.

Jeremy South – Mr. South is a senior finance and M&A professional with over 35 years of experience with leading global organizations including Deutsche Bank and Deloitte. He is an experienced corporate director and board Chair, with public and private companies, and he holds the ICD.D designation. Mr. South has previous experience as an audit committee member of reporting issuers listed for trading on the TSXV.

Briony Bayer – Ms. Bayer is a CPA, CA with over 15 years’ experience in senior finance roles. Ms. Bayer’s previous experience includes analyzing and evaluating financial statements, and oversight of Gustavson Capital Corporation’s assets (including securities portfolios, alternative investments, real estate assets, and subsidiaries). Ms. Bayer has also held board positions with privately held companies and not-for-profit organizations.

Audit Committee Oversight

It is anticipated that the Board will not fail to adopt a recommendation of the Audit Committee to nominate or compensate an external auditor.

Reliance on Certain Exemptions

Since the commencement of the Issuer’s most recently completed financial year, the Issuer has not relied on the exemptions contained in sections 2.4, 6.1.1(4), 6.1.1(5), 6.1.1(6) or Part 8 of NI 52-110. Section 2.4 provides an exemption from the requirement that the Audit Committee must pre-approve all non-audit services to be provided by the auditor, where the total amount of fees related to the non-audit services are not expected to exceed 5% of the total fees payable to the auditor in the fiscal year in which the non-audit

services were provided. Section 6.1.1(4), (5) and (6) provide exemptions in certain circumstances from the requirement that a majority of the members of the Audit Committee must not be executive officers, employees or control persons of the venture issuer. Part 8 permits a company to apply to a securities regulatory authority for an exemption from the requirements of NI 52-110, in whole or in part.

Pre-Approval Policies and Procedures

The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services. Subject to the requirements of NI 52-110, the engagement of non-audit services is considered by the Board, and where applicable the Audit Committee, on a case-by-case basis.

External Auditor Service Fees

In the following table, “audit fees” are fees billed by KPMG for services provided in auditing the Issuer’s annual financial statements for the subject year. “Audit-related fees” are fees not included in audit fees that are billed by KPMG for assurance and related services that are reasonably related to the performance of the audit or review of the Issuer’s financial statements. “Tax fees” are fees billed by KPMG for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by KPMG for products and services not included in the foregoing categories.

The fees paid by the Issuer to KPMG in respect of each of the last two fiscal years, by category, are as follows:

Financial Year Ending	Audit Fees	Audit Related Fees	Tax Fees	All Other Fees
April 30, 2022	$25,840	Nil	$6,629	Nil
April30,2021	$11,025	Nil	Nil	Nil

Exemption

The Issuer is relying on the exemption provided by section 6.1 of NI 52-110 which provides that the Issuer, as a venture issuer, is not required to comply with Part 3 ( Composition of the Audit Committee ) and Part 5 ( Reporting Obligations ) of NI 52-110.

Corporate Governance

Corporate governance relates to the activities of the Board of the Resulting Issuer, the members of which are elected by and are accountable to the shareholders of the Resulting Issuers, and takes into account the role of the individual members of management who are appointed by the Board and charged with the day to day management of the Resulting Issuer. The Canadian Securities Administrators have adopted National Policy 58-201 Corporate Governance Guidelines, which provides non-prescriptive guidelines on corporate governance practices for reporting issuers such as the Resulting Issuer. In addition, the Canadian Securities Administrators have implemented National Instrument 58-101 Disclosure of Corporate Governance Practices , which prescribes certain disclosure by the Resulting Issuer of its corporate governance practices. This disclosure is presented below.

Board of Directors

It is anticipated that the composition of the Board of the Resulting Issuer will consist of six members: Richard Myerscough, Peter Berrang, Peter Gustavson, Dr. Hannes Blum, Briony Bayer, and Jeremy South.

The Board consists of a majority of individuals who qualify as independent directors. For this purpose, a director is independent if he or she has no direct or indirect “material relationship” with the Resulting Issuer. A “material relationship” is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of the director’s independent judgment. Of the proposed directors of the Resulting Issuer, one director, Richard Myerscough, CEO, is considered not independent.

Other Directorships

The following table sets forth the directors of the Company who are directors of other reporting issuers as at of the date of this Filing Statement:

Name	Name of other reporting issuer
Jeremy South	Aranjin Resources Ltd. Herbal Dispatch Inc.

Orientation and Continuing Education

Orientation of new members of the Board will be conducted informally by management and members of the Board. The Resulting Issuer has not yet adopted formal policies respecting continuing education for Board members.

Ethical Business Conduct

The Board has not adopted a formal code of business conduct and ethics. The Board is of the view that the fiduciary duties placed on individual directors by the Resulting Issuer’s governing legislation and common law together with corporate statutory restrictions on an individual director’s participation in Board decisions in which the director has an interest are sufficient to ensure that the Board operates independently of management and in the best interests of the Resulting Issuer.

Nomination of Directors

The Board will considers its size each year when it considers the number of directors to recommend to the shareholders for election at the annual general meeting. The Board will take into account the number of directors required to carry out the Board’s duties effectively and to maintain diversity of views and experience.

The Board has not established a nominating committee and this function is currently performed by the Board as a whole.

Compensation

The Board expects to establish a formal compensation committee (the “ Compensation Committee ”). comprised of four directors of the Company: Briony Bayer, Jeremy South, Hannes Blum, and Peter Berrang. The Compensation Committee will receive recommendations from management of the Company and review and make recommendations to the Board regarding fees and granting of stock options to directors, officers, employees, and consultants of the Company. Following Completion of the Qualifying Transaction, the Resulting Issuer intends to adopt a Compensation Committee charter, a copy of which is attached hereto as Schedule “H”.

Board Committees

The Board has no committees other than the Audit Committee, the Compensation Committee, and the Advisory Committee.

It is expected that upon Completion of the Qualifying Transaction, the Advisory Committee will consist of the following members: John Zimmerman (Chief Operations Officer of the Resulting Issuer), Laurie Clarke (director of the Target Company), Tim McElvaine (director of the Issuer), and Mark Longo (director of the Issuer).

The Advisory Committee will advise the Resulting Issuer on capital markets, legal matters, product development, and general business advice.

Assessments

The Board annually, and at such other times as it deems appropriate, will review the performance and effectiveness of the Board, the directors and its committees to determine whether changes in size, personnel or responsibilities are warranted. To assist in its review, the Board will conduct informal surveys of its directors and receives reports from any committees respecting its own effectiveness. As part of the assessments, the Board or the individual committee may review their respective mandate or charter and conduct reviews of applicable corporate policies.

Executive Compensation

Following Completion of the Qualifying Transaction, it is expected that the executive compensation structure of the Resulting Issuer and the philosophy of directors of the Resulting Issuer in respect of executive compensation will be substantially similar to that of the Target Company. For information regarding the compensation structure of the Issuer, please see the discussion under the heading “ Information Concerning the Target Company – Executive Compensation ”.

Summary Compensation Table

The following table discloses the compensation, in cash, securities or otherwise, anticipated to be paid by the Resulting Issuer for the 12 month period after giving effect to the Qualifying Transaction to its CEO, CFO and the most highly compensated officer of the Resulting Issuer (other than its CEO and CFO) whose total compensation is anticipated to be more than $150,000 during that period.

Name and Principal Position	Salary ($)	Shar e- base d Awa rds ($)		Non-Equity Incentive Plan Compensation ($)	Non-Equity Incentive Plan Compensation ($)	Pension Value ($)	All Other Compens ation ($)	Total Compens ation ($)


			Option- based Awards ($)
				Annual Incentiv e Plans	Long- term Incentiv e Plans
Richard Myerscough CEO and Director	160,000	N/A	144,659	N/A	N/A	N/A	N/A	$304,659
Peter Dorrius CFO and Corporate Secretary	150,000	N/A	50,799	N/A	N/A	N/A	N/A	$200,799
John Zimmerman Chief Operations Officer and President	120,000	N/A	21,005	N/A	N/A	N/A	N/A	$141,005

Director Compensation

The Issuer and Target Company do not anticipate that the Resulting Issuer will enter into any standard arrangement pursuant to which directors are compensated by the Resulting Issuer for their services in their capacity as directors except for the granting from time to time of incentive stock options in accordance with the policies of the Exchange. See “ Security Based Compensation ” below for a description of the Stock Option Plan of the Resulting Issuer.

Indebtedness of Directors and Officers

As at the date of this Filing Statement, no director, officer or employee of the Issuer or the Target Company and no proposed director, officer or employee of the Resulting Issuer will be indebted to the Resulting Issuer or a subsidiary of the Resulting Issuer.

Investor Relations Arrangements

As at the date of this Filing Statement, no written or oral agreement or understanding has been reached with any persons or company to provide any promotional or investor relations services for the Resulting Issuer or its securities.

Security Based Compensation

The following summary of the material terms of the Stock Option Plan does not purport to be complete and is qualified in its entirety by reference to the Stock Option Plan. Shareholders may obtain a copy of the Stock Option Plan from the Issuer on written request.

Eligible Participants. Resulting Issuer Options may be granted under the Stock Option Plan to bona fide directors and senior officers of the Resulting Issuer or its subsidiaries, Management Company Employees, Employees or consultants of the Resulting Issuer or its subsidiaries. The Board, in its discretion, determines which eligible participants will be awarded Resulting Issuer Options under the Stock Option Plan.

Number of Shares Reserved. The number of Resulting Issuer Shares which may be issued pursuant to Resulting Issuer Options granted under the Stock Option Plan may not exceed 10% of the issued and outstanding Resulting Issuer Shares at the date of granting of Resulting Issuer Options. Resulting Issuer Options that are exercised, cancelled or expire prior to exercise continue to be issuable under the Stock Option Plan.

Limitations. Under the Stock Option Plan, the aggregate number of Resulting Issuer Options granted to any one person (including companies wholly-owned by that person) in a 12-month period must not exceed 5% of the issued and outstanding Resulting Issuer Shares, calculated on the date the Resulting Issuer Option is granted. The aggregate number of Resulting Issuer Options granted to any one Consultant in a 12-month period must not exceed 2% of the issued and outstanding Resulting Issuer Shares, calculated at the date the Resulting Issuer Option is granted. The aggregate number of Resulting Issuer Options granted to all persons retained to provide Investor Relations Activities to the Resulting Issuer (including Consultants and Employees or Management Company Employees whose role and duties primarily consist of providing Investor Relations Activities) must not exceed 2% of the issued and outstanding Resulting Issuer Shares in any 12-month period, calculated at the date the Resulting Issuer Option is granted to any such person. Disinterested shareholder approval will be required for any grant of Resulting Issuer Options which will result in the number of Resulting Issuer Options granted to Insiders as a group at any point in time or within a 12 month period exceeding 10% of the issued and outstanding Resulting Issuer Shares.

Exercise Price. The exercise price of Resulting Issuer Options granted under the Stock Option Plan is determined by the Board, provided that it is not less than the discounted market price, as that term is defined in the Exchange policy manual, or such other minimum price as is permitted by the Exchange in accordance with the policies in effect at the time of the grant, or, if the Resulting Issuer Shares are no longer listed on the Exchange, then such other exchange or quotation system on which the Resulting Issuer Shares are listed or quoted for trading. The exercise price of Resulting Issuer Options granted to Insiders may not be decreased without disinterested shareholder approval at the time of the proposed amendment.

Term of Options. Subject to the termination and change of control provisions noted below, the term of any Resulting Issuer Options granted under the Stock Option Plan is determined by the Board and may not exceed ten (10) years from the date of grant. Disinterested shareholder approval will be required for any extension to Resulting Issuer Options granted to individuals that are Insiders at the time of the proposed amendment.

Vesting. All Resulting Issuer Options granted pursuant to the Stock Option Plan will be subject to such vesting requirements as may be prescribed by the Exchange, if applicable, or as may be imposed by the Board. Resulting Issuer Options issued to persons retained to provide Investor Relations Activities must vest in stages over 12 months with no more than one-quarter of the Resulting Issuer Options vesting in any three month period. In the event of a Change of Control, as defined in the Stock Option Plan, all unvested Resulting Issuer Options will vest immediately. Even in the event of a Change of Control, the acceleration of Resulting Issuer Options granted to Persons providing Investor Relations Activities is subject to prior Exchange approval.

Dividend entitlement. The Stock Option Plan does not include any dividend entitlement to participants. If participants were entitled to receive Resulting Issuer Options in lieu of dividends declared by the Resulting Issuer, and if the Resulting Issuer did not have sufficient unallocated options available to satisfy the obligation, then the Resulting Issuer may settle those entitlements with cash.

Termination. Any Resulting Issuer Options granted pursuant to the Stock Option Plan will terminate upon the earliest of:

(a) the end of the term of the Resulting Issuer Option;
(b) on the date the holder ceases to be eligible to hold the Resulting Issuer Options (the “ Cessation Date ”), if the Cessation Date is as a result of dismissal for cause;
(c) one year from the date of death or disability, if the Cessation Date is as a result of death or disability;
(d) 90 days from the Cessation Date, if the Cessation Date is as a result of a reason other than death, disability or cause; or
(e) on such other date as fixed by the Board, provided that the date is no more than one year from the Cessation Date, if the Cessation Date is as a result of a reason other than death, disability or cause.

Exercise of Options. The exercise price of a Resulting Issuer Option must be paid in cash.

Adjustments. Any adjustment to Resulting Issuer Options granted or issued (except in relation to a consolidation or share split) will be subject to the prior acceptance of the Exchange.

Disinterested shareholder approval will be sought in respect of any material amendment to the Stock Option Plan. The Stock Option Plan is subject to annual Exchange acceptance and if the Exchange finds the disclosure to shareholders to be inadequate, shareholder approval may not be accepted by the Exchange

Options to Purchase Securities

Upon Completion of the Qualifying Transaction, an aggregate of 12,266,905 Resulting Issuer Shares are anticipated to be reserved for issuance pursuant to the following options:

Class of Optionee	Type of Security	Resulting Issuer Shares Issuable	Exercise Price Per Resulting Issuer Share	Expiration Date
Proposed officers	Resulting Issuer Options	4,172,817	$0.12	5 years from date of grant
Proposed directors (other than officers)	Resulting Issuer Options	1,480,896	$0.12	5 years from date ofgrant
		1,666,668	$0.10	October 12, 2026
Former directors and officers(1)	Resulting IssuerOptions	651,442	$0.12	5 years from date ofgrant

Class of Optionee	Type of Security	Resulting Issuer Shares Issuable	Exercise Price Per Resulting Issuer Share	Expiration Date
Other Employees		833,332	$0.10	October 12, 2026
	Resulting Issuer Options	3,461,750	$0.12	5 years from date of grant

Notes:

(1) These Resulting Issuer Options will be held by past directors of the Issuer and Target Company who will be appointed to the Advisory Board. See “ Information Concerning the Resulting Issuer –Audit Committee and Corporate Governance ” for a description of the Advisory Board.

Additionally, 375,000 Resulting Issuer Shares are anticipated to be reserved for issuance pursuant to the Issuer Warrants, which will convert to Resulting Issuer Warrants on closing, each exercisable into one Resulting Issuer Share at $0.10 per share and with an expiration date of October 12, 2024.

Escrow Securities

A total of 10,000,000 Issuer Shares (the “ Escrowed Shares ”) were deposited in escrow pursuant to the CPC Escrow Agreement dated July 29, 2021 between the Issuer, Odyssey Trust Company and certain shareholders of the Issuer. These Escrowed Shares will remain in escrow pursuant to the CPC Escrow Agreement after the Closing of the Transaction and prior to the initial release on the date of the Final Exchange Bulletin.

A total of 168,100,596 Resulting Issuer Shares and 6,305,155 Resulting Issuer Options will be deposited in escrow pursuant to the QT Escrow Agreement between the Resulting Issuer, Odyssey Trust Company and certain shareholders of the Resulting Issuer. These escrowed amounts are prior to the initial escrow release on the date of the Final Exchange Bulletin.

The following table sets out the securities of the Issuer, Target Company and Resulting Issuer which are or will be held in escrow on Closing pursuant to the CPC Escrow Agreement and QT Escrow Agreement, prior to the initial escrow release on the date of the Final Exchange Bulletin:

Name	Designation of class	Prior to giving Effect to the Qualifying Transaction	Prior to giving Effect to the Qualifying Transaction	After Giving Effect to the Qualifying Transaction	After Giving Effect to the Qualifying Transaction
		Number of securities held in escrow	Percentage of class	Number of securities to be held in escrow	Percentage of class(1)
Richard Myerscough	Issuer/Resulting Issuer Shares	Nil	Nil	74,899,506	33.29%
	Issuer/Resulting Issuer Options	Nil	Nil	1,897,317	15.47%
Peter Dorrius	Issuer/Resulting Issuer Shares	Nil	Nil	Nil	0%

Name	Designation of class	Prior to giving Effect to the Qualifying Transaction	Prior to giving Effect to the Qualifying Transaction	After Giving Effect to the Qualifying Transaction	After Giving Effect to the Qualifying Transaction
		Number of securities held in escrow	Percentage of class	Number of securities to be held in escrow	Percentage of class(1)
	Issuer/Resulting Issuer Options	Nil	Nil	2,000,000	16.30%
John Zimmerman	Issuer/Resulting Issuer Shares	Nil	Nil	19,758,377	8.78%
	Issuer/Resulting Issuer Options	Nil	Nil	275,500	2.25%
Peter Berrang	Issuer/Resulting Issuer Shares	Nil	Nil	48,203,517	21.42%
	Issuer/Resulting Issuer Options	Nil	Nil	1,480,896	12.07%
Peter Gustavson	Issuer/Resulting Issuer Shares	4,668,000	18.67%	6,720,498	2.99%
	Issuer/Resulting Issuer Options	416,670	16.67%	Nil	0%
Dr. Hannes Blum	Issuer/Resulting Issuer Shares	1,666,000	6.66%	1,666,000	0.74%
	Issuer/Resulting Issuer Options	416,666	16.67%	Nil	0%
Briony Bayer	Issuer/Resulting Issuer Shares	500,000	2.00%	500,000	0.22%
	Issuer/Resulting Issuer Options	416,666	16.67%	Nil	0%
Laurie Clarke	Issuer/Resulting Issuer Shares	Nil	Nil	22,978,365	10.21%
	Resulting Issuer Options	Nil	Nil	651,442	5.31%
Claudia Blum	Issuer/Resulting Issuer Shares	Nil	Nil	208,333	0.09%
	Resulting Issuer Options	Nil	Nil	Nil	0%
Tim McElvaine	Issuer/Resulting Issuer Shares	550,000	2.20%	550,000	0.24%
	Resulting Issuer Options	416,666	16.67%	Nil	0%

Name	Designation of class	Prior to giving Effect to the Qualifying Transaction	Prior to giving Effect to the Qualifying Transaction	After Giving Effect to the Qualifying Transaction	After Giving Effect to the Qualifying Transaction
		Number of securities held in escrow	Percentage of class	Number of securities to be held in escrow	Percentage of class(1)
Jeremy South	Issuer/Resulting Issuer Shares	1,666,000	6.66%	1,666,000	0.74%
	Resulting Issuer Options	416,666	16.67%	Nil	0%
Mark Longo	Issuer/Resulting Issuer Shares	1,000,000	4.00%	1,000,000	0.44%
	Resulting Issuer Options	416,666	16.67%	Nil	0%
Total	Issuer/Resulting Issuer Shares	10,000,000	27.33%	167,892,263	74.62%
Total	Issuer/Resulting Issuer Options	2,500,000	100%	6,305,155	51.40%

Notes:

(1) Calculated assuming there are 225,009,365 Resulting Issuer Shares and 12,266,905 Resulting Issuer Options issued and outstanding upon Closing. See “ Information Concerning the Resulting Issuer – Pro Forma Consolidated Capitalization ”.

Pursuant to the terms of the CPC Escrow Agreement the Resulting Issuer Shares and Resulting Issuer Options will be released in accordance with the Exchange Tier 2 value escrow schedule as follows:

Percentage	Release Date
25%	At the time of Final ExchangeBulletin
25%	6 months from Final Exchange Bulletin
25%	12 monthsfrom Final ExchangeBulletin
25%	18monthsfrom Final ExchangeBulletin

Pursuant to the terms of the QT Escrow Agreement, the Resulting Issuer Shares and Resulting Issuer Options will be released in accordance with the Exchange Tier 2 value escrow schedule as follows:

Percentage	Release Date
10%	At the time of Final ExchangeBulletin
15%	6monthsfrom Final ExchangeBulletin
15%	12 monthsfrom Final ExchangeBulletin
15%	18 months from Final Exchange Bulletin
15%	24 monthsfrom Final ExchangeBulletin
15%	30monthsfrom Final ExchangeBulletin
15%	36monthsfrom Final ExchangeBulletin

Other Escrow

An aggregate of 6,669,555 Resulting Issuer Shares held by non-principals of the Resulting Issuer will be subject to the Exchange seed share resale restrictions. The resale restrictions will be removed from these Resulting Issuer Shares in accordance with the Exchange Tier 2 value escrow schedule set out above. These numbers are prior to the initial release on the date of the Final Exchange Bulletin.

Auditor, Transfer Agent and Registrar

The Resulting Issuer’s auditor will be KPMG LLP of #800 – 730 View Street, Victoria, British Columbia, V8W 3Y7. The registrar and transfer agent for the Resulting Issuer will be Odyssey Trust Company of #323 – 409 Granville Street, Vancouver, British Columbia, V6C 1T2.

Risk Factors

An investment in the Resulting Issuer Shares should be considered highly speculative due to the nature of the Resulting Issuer’s proposed business and the current stage of development. Prospects for companies in the composite material industry generally may be regarded as uncertain given the nature of the industry. Research and development involves a significant degree of risk. In evaluating the Resulting Issuer and its prospective business, investors should carefully consider, in addition to other information contained in this Filing Statement, the following risk factors. It is possible that other risks and uncertainties that affect the Resulting Issuer’s business will arise or become material.

Risk Factors Related to the Transaction

Failure to satisfy conditions to completion of the Transaction

The Amalgamation Agreement contains certain conditions that must be satisfied or waived by the party for whose benefit such conditions are imposed in order for the Transaction to complete. Some of these conditions are outside of the control of the Issuer and Target Company, including, without limitation, the approval of the Transaction by the Exchange. The Issuer has applied to the Exchange for approval of the Transaction. As at the date of this Filing Statement, the Exchange has not granted final approval and there can be no assurances that the Exchange will grant such approval or grant such approval on terms and conditions that are satisfactory to the Issuer and the Target Company.

There can be no certainty, nor can the parties provide any assurance, that all conditions precedent to the completion of the Transaction will be satisfied or waived, nor can there be any certainty of the timing of their satisfaction or waiver. Failure to complete the Transaction could adversely impact the trading price of the Issuer Shares.

Non-completion of the Transaction

If the Transaction is not completed, the Issuer will continue to search for other opportunities, however, it will have incurred significant costs associated with the Transaction. The deadline for the Issuer to complete its Qualifying Transaction is October 12, 2023. If the Issuer does not complete a Qualifying Transaction prior to October 12, 2023, the Issuer would be required to seek shareholder approval to avoid a transfer of the Issuer Shares to NEX.

Amalgamation Agreement may be terminated

Each of the Issuer and Target Company has the right to terminate the Amalgamation Agreement and not complete the Transaction in certain circumstances. Accordingly, there is no certainty, nor can either of the parties provide any assurance, that the Amalgamation Agreement will not be terminated by the Issuer or Target Company, as the case may be, before the completion of the Transaction.

The Issuer and the Target Company expect to incur significant costs in connection with the Transaction

BSP and Aluula will collectively incur significant direct transaction costs in connection with the Transaction. Actual direct transaction costs incurred in connection with the Transaction may be higher than expected. Moreover, certain of the Issuer’s and the Target Company’s costs related to the Transaction, including legal and accounting services costs, must be paid even if the Transaction is not completed. There are also opportunity costs associated with the diversion of management attention away from the conduct of their respective businesses in the ordinary course.

The Issuer has not verified the reliability of the information regarding the Target Company included in, or which may have been omitted from, this Filing Statement

All historical information regarding Aluula contained in this Filing Statement, including all Aluula financial information and all pro forma financial information reflecting the pro forma effects of the Transaction, has been provided by Aluula. Although the Issuer has no reason to doubt the accuracy or completeness of such information, any inaccuracy or material omission in the information about or relating to Aluula contained in this Filing Statement could result in unanticipated liabilities or expenses, increase the cost of integrating the companies or adversely affect the operational plans of the Resulting Issuer and its results of operations and financial condition.

Risk Factors Relating to the Issuer (and Resulting Issuer)

The Issuer currently has no active business and will control the assets of the Target Company and pursue the business of the Target Company upon completion of the Transaction. The following risk factors therefore relate primarily to the Issuer’s status as a public company with securities currently listed for trading on the Exchange. Since many of the risk factors listed in this section relate to the business of the Issuer and the Target Company on a post-Transaction basis, some of the risk factors listed below will contain references to the Resulting Issuer.

Volatility of share price

Securities markets throughout the world are cyclical and, over time, tend to undergo high levels of price and volume volatility. A publicly traded company will not necessarily trade at values determined by reference to the underlying value of its business. The prices at which the Resulting Issuer Shares will trade cannot be predicted. The market price of the Resulting Issuer Shares could be subject to significant fluctuations in response to variations in quarterly and annual operating results, the results of any public announcements the Resulting Issuer makes, general economic conditions, and other factors. In addition, if Resulting Issuer Shareholders on completion of the Transaction sell substantial amounts of Resulting Issuer Shares in the public market, the market price of the Resulting Issuer’s Shares could fall. Increased levels of volatility and resulting market turmoil may adversely impact the price of the Resulting Issuer Shares. If the Resulting Issuer is required to access capital markets to carry out its development objectives (as is expected), the state of domestic and international capital markets and other financial systems could affect its respective access to, and cost of, capital. Such capital may not be available on terms acceptable to the Resulting Issuer or at all, and this could have a material adverse impact on its business, financial condition, results of operations or prospects.

Dilution

The Resulting Issuer is authorized to issue an unlimited number of Resulting Issuer Shares for such consideration and on such terms and conditions as may be established by the Resulting Issuer, without the approval of the shareholders of the Resulting Issuer. It is currently anticipated that the Resulting Issuer may conduct additional equity financings to develop the business of the Resulting Issuer as currently planned by the Target Company and envisioned by management of the Resulting Issuer. Any further issuance of Resulting Issuer Shares pursuant to such equity financings will dilute the interests of existing shareholders and such shareholders will have no pre-emptive rights in connection with such future issuances.

Conflicts of interest

Certain directors and officers of the Resulting Issuer will also serve as directors and/or officers of other companies. Consequently, there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by any of such directors and officers will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Resulting Issuer and its shareholders. In addition, each of the directors is required to declare and refrain from voting on any matter in which such directors may have a conflict of interest, in accordance with the procedures set forth in the BCBCA and other applicable laws.

Ongoing Exchange and Securities Law reporting requirements

The Resulting Issuer will continue to be subject to the reporting requirements of Securities Laws and the listing requirements of the Exchange. Compliance with these laws and regulations has increased and will continue to increase the Resulting Issuer’s legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on the Resulting Issuer’s systems and resources.

Principal purposes of funds

The Resulting Issuer currently intends to allocate its available funds as described under “ Information Concerning the Resulting Issuer – Available Funds and Principal Purposes ” in this Filing Statement. However, management will have discretion in the actual application of available funds, and may elect to allocate proceeds differently from that described in this Filing Statement if it is believed it would be in the best interests of the Resulting Issuer to do so as circumstances change. The failure by management to apply these funds effectively could have a material adverse effect on the business of the Resulting Issuer.

The unaudited pro forma consolidated financial statements may not be an indication of the Resulting Issuer’s financial conditions or results

The Resulting Issuer’s unaudited pro forma consolidated financial statements contained in this Filing Statement are presented for illustrative purposes only as of their respective dates and may not be an indication of the financial condition or results of operations of the Resulting Issuer following the Transaction. The unaudited pro forma consolidated financial statements have been derived from the respective historical financial statements of the Issuer and Target Company and certain adjustments and assumptions made as of the dates indicated therein have been made to give effect to the Transaction. The information upon which these adjustments and assumptions have been made is preliminary and these kinds of adjustments and assumptions are difficult to make with complete accuracy.

Interests of directors, officers and principal shareholders

The directors, officers and principal shareholders of the Resulting Issuer will have significant voting power and may take actions that may not be in the best interests of all holders of Resulting Issuer Shares.

Risk Factors Relating to the Target Company (and Resulting Issuer)

The following risk factors relate to the business of the Target Company. Since the Issuer currently has no active business, the business of the Target Company will be the Resulting Issuer’s sole enterprise after completion of the Transaction and the following risk factors will therefore apply to the Resulting Issuer’s business.

COVID-19 may cause delays

The Resulting Issuer’s business could be significantly adversely affected by the effects of a widespread global outbreak of contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Resulting Issuer cannot accurately predict the impact that COVID-19 will have on the Resulting Issuer’s business. Risks posed by COVID-19 include uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. A resurgence of COVID19 or a significant outbreak of another contagious diseases in the human population could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Resulting Issuer’s products and services and likely impact operating results.

Risks associated with business objectives

Over the coming twelve months, Aluula expects a number of brand partners to progress from prototyping with our materials to full scale production and commercialization. The Resulting Issuer may over invest in raw materials. The resulting Issuer will mitigate this risk through brand partners provide long ranging forecasts and should any one individual partner cancel their order, none of the material would be customized

for their purposes. There is a risk that the Resulting Issuer expands too rapidly and its quality control processes fail. As new products are commercially sold, there is a risk that consumers are dissatisfied with products made from our finished goods. The Resulting Issuer will work closely with each brand partner to ensure that the Aluula materials are sound and that the prototypes have been well tested. The Resulting Issuer may see delays with construction on the new 1.5m wide pod, and may have unforeseen challenges in production of the wider width materials. The Resulting Issuer can mitigate this risk by subsequently modifying production to the narrower 0.925m width, which would result in lost time and opportunities for greater yield based on the wider materials.

The Resulting Issuer may not require the human resources and expenses associated with the additional hiring of marketing staff. The Resulting Issuer will mitigate this risk by hiring new staff after expanded demand is confirmed.

Limited operating history and operating losses

Aluula does not have a significant operating history with which investors can evaluate the Resulting Issuer’s business. Aluula’s ability to successfully develop its products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For the Resulting Issuer to achieve success, Aluula’s products must receive broader market acceptance by consumers. If Aluula’s products are not widely accepted by the market, then the Resulting Issuer’s business may fail.

The Resulting Issuer’s ability to achieve and maintain profitability and positive cash flow is dependent upon the Resulting Issuer’s ability to generate revenues, manage development costs and expenses, and compete successfully with direct and indirect competitors.

Based upon current plans, the Resulting Issuer may incur operating losses in future periods. This may happen because there are expenses associated with the development, production, and sale of the materials and products. As a result, the Resulting Issuer may not generate sufficient revenues in the future. Failure to generate sufficient revenues by Aluula and Ocean Rodeo may cause the Resulting Issuer to suspend or cease activities.

Risks associated with raising capital

The Resulting Issuer may have to spend additional funds to produce, market and distribute the Resulting Issuer’s products. If the Resulting Issuer cannot raise sufficient capital in the future, the Resulting Issuer may have to cease operations and investors could lose their investment.

The Resulting Issuer may need additional funds to produce the Resulting Issuer’s products for distribution to the Resulting Issuer’s target market. Even after the Resulting Issuer completes the production of its product, it will have to spend substantial funds on distribution, marketing and sales efforts.

Competition

The materials industry in which the Target Company operates, and the Resulting Issuer will operate, is competitive. Some competitor companies can be expected to have longer operating histories and more financial resources and marketing experience than the Target Company. Increased competition by larger and better financed competitors could materially and adversely affect the business, financial condition and results of operations of the Resulting Issuer. Some of these competitors and new entrants may have brands that are or become more widely recognized by consumers than the Target Company’s brand, and they may also have substantially greater financial, marketing, technical or other resources. The Target Company’s competitors may also merge or form strategic partnerships. These factors could adversely impact the

Resulting Issuer’s competitive position. To remain competitive, the Resulting Issuer will require a continued high level of investment in research and development, marketing, and sales. The Resulting Issuer may not have sufficient resources to maintain marketing, sales and customer support efforts on a competitive basis which could materially and adversely affect the business, financial condition and results of operations of the Resulting Issuer.

Risks associated with intellectual property

The Resulting Issuer’s ability to compete effectively will depend, in part, on its ability to maintain the proprietary nature of its brand and its product creation processes. The Target Company has adopted procedures to protect its intellectual property and maintain secrecy of its confidential business information and trade secrets. However, there can be no assurance that such procedures will afford complete protection of such intellectual property, confidential business information and trade secrets. There can be no assurance that any steps Aluula has taken, or the Resulting Issuer intends to take, will be adequate to defend and prevent misappropriation of technology and designs, including the possibility of reverse engineering and the possibility that potential competitors will independently develop technologies that are designed around and are substantially equivalent or superior to the Target Company’s technology and designs. There can be no assurance that the Resulting Issuer’s competitors will not independently develop technologies that are substantially equivalent or superior to the Target Company’s technology.

While Aluula has registered trademarks of its name, the trademark rights and related registrations may be challenged in the future and could be cancelled or narrowed. Failure to protect its trademark rights could prevent the Resulting Issuer in the future from challenging third parties who use names and logos similar to the Aluula trademarks, which may in turn cause consumer confusion or negatively affect consumers’ perception of the Resulting Issuer’s brand and products. Moreover, there is a risk that if the Target Company’s intellectual property rights, including its patents, were not properly obtained or are otherwise deficient, which could give rise to litigation risk. Intellectual property disputes and proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liabilities, force the Resulting Issuer to cease use of certain patents or other intellectual property or force the Resulting Issuer to enter into licenses with others. Any one of these occurrences may have a material adverse effect on the Resulting Issuer’s business, results of operations and financial condition.

Confidentiality breaches

The Resulting Issuer may use a combination of trade secrets, patents, trademarks, nondisclosure agreements, passing-off laws, other common law intellectual property protections and technical measures to protect, among other things, its proprietary technology, designs, and related identifying marks and names. The Target Company has entered into agreements with its employees and contractors that contain confidentiality provisions, provisions dealing with the assignment of intellectual property and work products, as well as waivers of moral rights, and has worked to limit access to and distribution of its technology, designs, documentation and other proprietary information. However, the steps taken may not be adequate to deter breaches of these confidentiality agreements, misappropriation, or independent thirdparty development of the Target Company’s technology and designs. In addition, the laws of some foreign countries do not protect proprietary technology rights to the same extent as do the laws of Canada and the United States. If a breach of confidentiality occurs, and the Resulting Issuer resorts to legal proceedings to enforce its intellectual property rights, the proceedings could be burdensome and expensive and could involve a high degree of risk to the Resulting Issuer’s proprietary rights if it is unsuccessful in such proceedings. Moreover, the Resulting Issuer’s financial resources may not be adequate to enforce or defend its rights in its intellectual property.

Product liability claims

As a manufacturer and distributor of products and materials designed for human use, including for use in potentially dangerous activities, such as wind sports, the Resulting Issuer will face an inherent risk of exposure to product liability claims, regulatory action and litigation if the products it distributes are alleged to have caused significant loss or injury. Additionally, the Resulting Issuer will be exposed to many types of operational risk, including the risk of misconduct and errors by its employees and third-party service providers. The Resulting Issuer may be subject to various product liability claims. A product liability claim or regulatory action against the Resulting Issuer could result in increased costs, could adversely affect the Resulting Issuer’s reputation with its clients and consumers generally, and could have a material adverse effect on the results of operations and financial condition of the Resulting Issuer. There can be no assurances that the Resulting Issuer will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all.

Increase in the cost, disruption of supply or shortage of raw materials could harm the Resulting Issuer’s business

The Resulting Issuer will use raw materials comprising various polymer films and weaves . The prices for these raw materials fluctuate depending on market conditions. Substantial increases in the prices of the raw materials would increase the Resulting Issuer’s operating costs and could reduce its profitability. Increases in the prices of the Resulting Issuer’s finished products resulting from a higher cost of raw materials could affect the affordability of its products and reduce sales. An increase in the cost, a sustained interruption in the supply, or a shortage of some of the raw materials, may be caused by a deterioration of the Resulting Issuer’s relationships with suppliers; by supplier quality and reliability issues; or by events such as natural disasters, power outages, labor strikes, political uncertainties or governmental instability, or the like, could negatively impact the Resulting Issuer’s net revenues and profits.

Reliance on third-party contractors

The Target Company and Resulting Issuer’s distribution network and its success depend on the performance of third parties, such as third-party contractors and brand partners that use the Target Company’s materials in their products. Any non-performance or deficient performance by such parties may undermine the Resulting Issuer’s operations and profitability. To manufacture products, the Resulting Issuer will rely on third-party producers. These third-party producers may not be able to fulfill the Resulting Issuer’s demand, or such third-parties could begin to charge rates that make using their services cost inefficient. In such a case, the Resulting Issuer’s business, financial condition, and results of operation would be adversely affected. Further, third-party brand partners may abruptly cancel or alter their partnership with the Resulting Issuer, and such change or cancellation by a major brand partner could dramatically impact the Resulting Issuer’s revenue and profitability. Any adverse consequences resulting from the performance of thirdparties or the Resulting Issuer’s relationship with them could undermine the Resulting Issuer’s operations, profitability, and financial outlook.

Loss of key persons

The Target Company has a small management team and the loss of any key individual could affect the Resulting Issuer’s business. Specifically, due to the specialized nature of the Target Company, the Resulting Issuer will rely on the knowledge of a few key individuals who have developed and patented much of the Target Company’s proprietary products and processes. The loss of the services of one or more of them could adversely affect the Resulting Issuer. Further, the Resulting Issuer’s ability to maintain its competitive position is dependent upon its ability to attract and retain highly qualified managerial, specialized technical,

manufacturing, sales and marketing personnel. There can be no assurance that the Resulting Issuer will be able to continue to recruit and retain such personnel. The inability of the Resulting Issuer to recruit and retain such personnel would adversely affect the Resulting Issuer’s operations and product development.

Royalty obligations

The Resulting Issuer will have fixed royalty payment obligations associated with some of the patented technology it uses, based on a percentage of revenues of those technologies, by way of payments that will, in turn, reduce the funds available to the Resulting Issuer for its ongoing development. Such royalty obligations may be subject to change.

Regulatory environment

Aluula is subject to, and the resulting Issuer will be subject to, the general business requirements of operating within Canada, particularly within British Columbia. This includes following applicable Employment Standards guidelines, employment tax rules, Workers Compensation regulations, Goods and Services Tax and Provincial Sales Tax requirements, and business licensing requirements. Outside of Canada, the Resulting Issuer may be subject to import duties, tariffs, value-added taxes and applicable Consumer Guarantee Law. Aluula has no employees outside of Canada.

Management of growth

The Resulting Issuer may be subject to growth-related risks including capacity constraints and pressure on its internal systems and controls. The ability of the Resulting Issuer to manage growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of the Resulting Issuer to deal with this growth may have a material adverse effect on the Resulting Issuer’s business, financial condition, results of operations and prospects.

The requirements of being a public company

As a reporting issuer, the Resulting Issuer is subject to the reporting requirements of applicable Securities Laws of the jurisdiction in which it is a reporting issuer, the listing requirements of the Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations will increase the Resulting Issuer’s legal and financial compliance costs, make some activities more difficult, time consuming or costly and increased demand on its systems and resources. Applicable Securities Laws require the Resulting Issuer to, among other things, file certain annual and quarterly reports with respect to their businesses and results of operations. In addition, applicable Securities Laws require the Resulting Issuer to, among other things, maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve its disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. The Resulting Issuer may be required to improve its disclosure controls and procedures and internal control over financial reporting primarily through the continued development and implementation of formal policies, improved processes and documentation procedures, as well as the continued sourcing of additional finance resources. As a result, management’s attention may be diverted from other business concerns, which could harm the Resulting Issuer’s business and results of operations. To comply with these requirements, the Resulting Issuer may need to hire more employees in the future or engage outside consultants, which will increase its costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. The Resulting Issuer intends to continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue generating activities to compliance activities. If its efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against the Resulting Issuer and its business may be adversely affected.

As a public company subject to these rules and regulations, the Resulting Issuer may find it more expensive for them to obtain director and officer liability insurance, and it may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for the Resulting Issuer to attract and retain qualified members to its board of directors, particularly to serve on its audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in filings required of a public company, the Resulting Issuer’s businesses and financial condition have become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, the Resulting Issuer’s business and results of operations could be harmed, and even if the claims do not result in litigation or are resolved in its favor, these claims, and the time and resources necessary to resolve them, could divert the resources of the Resulting Issuer’s management and harm its business and results of operations.

GENERAL MATTERS

Sponsorship and Agent Relationship

The Issuer will seek a waiver from the sponsorship requirement from the Exchange pursuant to Exchange Policy 2.2 – Sponsorship and Sponsorship Requirements.

Experts

Interest of Experts

Reports and Opinions

In connection with the Qualifying Transaction, the Issuer engaged Evans to prepare the Valuation Report in supporting the Target Company’s valuation used to determine pricing of the Target Company Shares for the Qualifying Transaction. Evans, the author of the Valuation Report, is independent to the Target Company, the Issuer and all interested parties to the Qualifying Transaction. A summary of the Valuation Report is attached to this Filing Statement as Schedule “I”.

KPMG, auditors of the Issuer, prepared an independent auditor’s report dated June 29, 2022 in respect of the Issuer’s financial statements for the year ended April 30, 2022, and for the period from incorporation on February 24, 2021 to the year ended April 30, 2021. In addition, KPMG has reviewed the financial statements of the Issuer for the nine months ended January 31, 2023.

Other Material Facts

There are no material facts about the Issuer, the Target Company, the Resulting Issuer or the Transaction that have not been disclosed in this Filing Statement.

Board Approval

The contents and sending of this Filing Statement have been approved by the Board. Where information contained in this Filing Statement rests particularly within the knowledge of a person other than the Issuer, the Issuer has relied upon information furnished by such person.

SCHEDULE “A”

ISSUER FINANCIAL STATEMENTS

Attached hereto are the following financial statements of the Issuer:

The Issuer’s interim financial statements for the nine months ended January 31, 2023.
The Issuer’s audited annual financial statements for the year ended April 30, 2022.
The Issuer’s audited annual financial statements for the period from incorporation on February 24, 2021 to April 30, 2021.

Interim Condensed Financial Statements (Expressed in Canadian dollars)

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Interim Condensed Statement of Financial Position (Unaudited)

January 31, April 30, 2023 2022	January 31, April 30, 2023 2022
Assets Cash $ 1,605,150 $ 1,764,590 Prepaid expenses 7,667 7,807
$ 1,612,817 $ 1,772,397
Liabilities and Shareholders’ Equity Accounts payable and accrued liabilities $ 137,885 $ 35,350 Shareholders’ equity: Share capital (note 4) 1,845,219 1,845,219 Contributed surplus 174,393 174,393 Deficit (544,680) (282,565) 1,474,932 1,737,047
	1,474,932 1,737,047
	$ 1,612,817 $ 1,772,397

See accompanying notes to financial statements.

Approved on behalf of the Board:

“Peter Gustavson” Director “ Briony Bayer”

Director

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Interim Condensed Statement of Loss and Comprehensive Loss (Unaudited)

	Three months	Three months	Three months	Nine months	Nine months	Nine months
	ended		ended	ended		ended
	Jan 31, 2023	Jan 31, 2022		Jan 31, 2023	Jan	31, 2022
Expenses:
Professional fees	$ 158,748	$	14,722	$ 245,201	$	35,165
General and administrative	3,814		3,543	12,972		6,338
Filing fees	1,212		-	3,942		28,933
Share-based compensation (note	5) -		-	-		154,748
Loss and comprehensive loss	$ 163,774	$	18,265	$ 262,115	$	225,184
Basic and diluted net loss per share	$ (0.01)	$	(0.00)	$ (0.01)	$	(0.01)
Weighted average number
of common shares:
Basic and diluted	25,000,000	25,000,000		25,000,000	16,054,545

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Interim Condensed Statement of Changes in Shareholders’ Equity (Unaudited)

		Share	Contributed	Contributed
		capital		surplus		Deficit		Total
Balance, April 30, 2021	$	500,000	$	-	$	(32,893)	$	467,107
Issuance of common shares
pursuant to initial public offering		1,500,000		-		-		1,500,000
Share issuance costs(note 4)		(150,493)		19,645		-		(130,848)
Share-based compensation(note	5)	-		154,748		-		154,748
Loss for the period		-		-		(225,184)		(225,184)
Balance, January31, 2022	$	1,849,507	$	174,393	$	(258,077)	$	1,765,823
Balance, April 30, 2022	$	1,845,219	$	174,393	$	(282,565)	$	1,737,047
Loss for the period		-		-		(262,115)		(262,115)
Balance, January31, 2023	$	1,845,219	$	174,393	$	(544,680)	$	1,474,932

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Interim Condensed Statement of Cash Flows (Unaudited)

	Nine months	Nine months	Nine months	Nine months
		ended		ended
		January 31,		January 31,
		2023		2022
Cash provided by (used in):
Operations:
Loss for the period	$	(262,115)	$	(225,184)
Items not affecting cash: share-based compensation		-		154,748
Change in non-cash operating accounts:
Prepaid expenses		140		(6,667)
Accountspayable and accrued liabilities		102,535		(12,974)
		(159,440)		(90,077)
Financing:
Common shares issued		-		1,500,000
Share issuance costs		-		(130,848)
		-		1,369,152
Increase (decrease) in cash		(159,440)		1,279,075
Cash, beginning of period		1,764,590		494,825
Cash, end ofperiod	$	1,605,150	$	1,773,900

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Interim Condensed Financial Statements (Unaudited)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

1. Incorporation and nature of operations:

Bastion Square Partners Inc. (the “Corporation”) was incorporated under the British Columbia Business Corporations Act on February 24, 2021 and is a Capital Pool Corporation, as defined in the Policy 2.4 of the Corporate Finance Manual of the TSX Venture Exchange (the “Exchange”). The principal business of the Corporation is the identification and evaluation of assets or businesses with a view to completing a Qualifying Transaction (“QT”). The Corporation has not commenced operations and has no significant assets other than cash. The Corporation’s continuing operations as intended are dependent upon its ability to identify, evaluate and negotiate an acquisition, or business, or an interest therein. Such an acquisition or business will be subject to the approval of the Exchange and in case of a non-arm’s length transaction, of the majority of the Corporation’s minority shareholders.

Once a QT has been identified, the Corporation’s ability to complete the transaction may be dependent on additional funding. There is no assurance that the Corporation will be successful in obtaining any additional funding.

Pursuant to an initial public offering (“IPO”) on October 12, 2021, the Corporation’s shares became publicly traded on the Exchange under the symbol “BASQ.P”.

The registered office of the Corporation is located at Suite 1200, 750 West Pender Street, Vancouver, BC and its principal place of business is 2233 Theatre Lane, Victoria, BC.

On March 14, 2023, the Board of Directors of the Corporation approved the unaudited condensed interim financial statements for the three and nine-month periods ended January 31, 2023 and January 31, 2022.

2. Basis of presentation:

(a) Statement of compliance:

These unaudited interim condensed financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 ‘Interim Financial Reporting (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Company’s audited financial statements for the year ended April 30, 2022.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Interim Condensed Financial Statements (Unaudited)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

2. Basis of presentation (continued):

(b) Basis of preparation:

The financial statements are presented in Canadian dollars, which is the Corporation's functional and reporting currency.

The financial statements are prepared on a historical cost basis. The accounting policies have been applied consistently throughout the entire period presented in these financial statements.

The preparation of these financial statements in conformity with IFRS requires management to make certain estimates, judgements and assumptions that affect the application of accounting methods and the amounts recognized in the financial statements. These estimates and the underlying assumptions are established and reviewed continuously on the basis of past experience and other factors considered reasonable in the circumstances. Actual results may differ from the estimates.

Significant judgements and estimates relate to:

( i ) Share-based compensation:

Share-based compensation is measured at fair value using the Black-Scholes option pricing model and management uses judgement to determine the inputs to the model including expected lives, underlying share price volatility and forfeiture rates. Volatility is estimated using a comparable peer group until such time as sufficient trading history is available for the Corporation’s own shares.

3. Significant accounting policies:

The significant accounting policies applied in the preparation of these interim financial statements are consistent with the accounting policies disclosed in Note 3 of the audited financial statements for the year ended April 30, 2022 and for the period from incorporation on February 24, 2021 to April 31, 2021.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Interim Condensed Financial Statements (Unaudited)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

4. Share capital:

Authorized: Unlimited voting common shares Unlimited preferred shares

Issued: 25,000,000 common shares $ 2,000,000 Share issuance costs (154,781) Balance, January 31, 2023 and April 30, 2022 $ 1,845,219

(a) Share capital:

( i ) Escrowed shares:

On April 21, 2021, the Corporation issued 10,000,000 common shares at $0.05 per share for total proceeds of $500,000.

The issued and outstanding common shares will be held in escrow pursuant to the requirements of the Exchange.

All common shares of the Corporation acquired in the secondary market prior to the completion of a QT by non-arm’s length parties, as defined in the policies of the Exchange are required to be deposited in escrow. Subject to certain permitted exemptions, all securities of the Corporation held by principals of the resulting issuer will also be subject to escrow.

( ii ) Initial Public Offering:

On October 12, 2021, the Corporation completed its IPO of 15,000,000 shares at $0.10 per share for gross proceeds of $1,500,000. Haywood Securities Inc. (“Haywood”) acted as the agent for the offering. Pursuant to the completion of the IPO, the Corporation issued 375,000 agents’ warrants, each warrant is exercisable into one common share at an exercise price of $0.10 per share, and will expire on October 12, 2024. The value attributed to agent warrants issued to Haywood was $19,645. In addition to the $19,645 non-cash share issue costs associated with the agents’ warrants, the Corporation incurred cash issuance costs of $135,136.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Interim Condensed Financial Statements (Unaudited)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

5. Share-based compensation:

(a) Stock options:

The Corporation adopted a common share stock option plan in accordance with the policies of the Exchange. Stock options may be granted for common shares for a maximum term of ten years from the date of the grant and are non-transferable.

Unless otherwise stated, stock options fully vest when granted. The common share exercise price of stock options must be in compliance with the policies of the Exchange at the date of grant.

On October 12, 2021, the Corporation granted 2,500,000 stock options to directors and officers with an exercise price of $0.10 per share and an expiry date of October 12, 2026.

The following table summarizes information about the stock options as at January 31, 2023:

Exercise price per	Number of	Weighted average	Number of
share of options	options	remaining life	options
outstanding	outstanding	(years)	exercisable
$0.10	2,500,000	3.70	2,500,000

The Corporation recorded share-based compensation expense of $nil during the three and nine months ended January 31, 2023 ($nil during the three months ended January 31, 2022 and $154,109 during the nine-months ended January 31, 2022). The fair value of options recognized in the nine-months ended January 31, 2022 has been estimated using the BlackScholes Pricing Model with the following assumptions on the grant date of the options:

Risk free rate	0.95%
Expected life of options (years)	3 years
Annualized volatility	100%
Grant date fair value per option	$ 0.062

(b) Warrants:

On October 12, 2021, the Corporation granted 375,000 warrants to Haywood with an exercise price of $0.10 per share and an expiry date of October 12, 2024.

The following table summarizes information about the warrants as at January 31, 2023:

Exercise price per	Number of	Weighted average	Number of
share of warrants	warrants	remaining life	warrants
outstanding	outstanding	(years)	exercisable
$0.10	375,000	1.70	375,000

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Interim Condensed Financial Statements (Unaudited)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

5. Share-based compensation (continued):

(b) Warrants (continued):

The Corporation recorded non-cash share issuance costs related to the warrants of $nil during the three and nine months ended January 31, 2023 ($nil during the three months ended January 31, 2022 and $19,645 during the nine months ended January 31, 2022). The fair value of warrants recognized in the nine months ended January 31, 2022 has been estimated using the Black-Scholes Pricing Model with the following assumptions on the grant date of the warrants:

Risk free rate	0.70%
Expected life of options (years)	2 years
Annualized volatility	100%
Grant date fair value per option	$ 0.052

6. Financial risk management objectives and policies:

(a) Capital management:

The Corporation includes equity, comprised of issued common shares, in the definition of capital.

The Corporation’s primary objective, with respect to its capital management, is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to pursue this objective, the Corporation may attempt to raise additional funds through the issuance of equity and by securing strategic partners.

The Corporation’s current capital was received from the issuance of common shares. The net proceeds raised to date will only be sufficient to identify and evaluate a limited number of assets and businesses for the purpose of identifying and completing a QT.

The Corporation is not subject to any externally imposed capital requirements other than the expenditure restrictions applicable under the Exchange’s Policy 2.4. Expenditures may include expenses relating to the IPO, reasonable expenses relating to a proposed QT, assurance and audit fees, escrow agent and transfer agent fees, regulatory filing fees, and a maximum of $3,000 per month for other general and administrative costs.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Interim Condensed Financial Statements (Unaudited)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

6. Financial risk management objectives and policies (continued):

(b) Fair values and risk disclosures:
( i ) Fair value:

Fair value represents the price at which a financial instrument could be exchanged in an orderly market, in an arm's length transaction between knowledgeable and willing parties who are under no compulsion to act. Certain of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. The Corporation’s fair value measurements are classified as one of the following levels of the fair value hierarchy:

Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in the active market for identical assets or liabilities.
Level 2: Fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (derived from prices).
Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

The carrying value of cash and accounts payable and accrued liabilities approximates its fair value.

( ii ) Credit risk:

Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Corporation’s cash. To reduce credit risk, the Corporation’s cash is held with a highly rated financial institution. The carrying amount of cash represents the maximum credit exposure to the Corporation.

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Corporation has accounts payable and accrued liabilities of $137,885 at January 31, 2023 (2022 - $14,744) and does not have significant exposure to liquidity risk.

(d) Market risk:

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices. The Corporation does not have significant exposure to these risks.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Interim Condensed Financial Statements (Unaudited)

For the three and nine-month periods ended January 31, 2023 and January 31, 2022

7. Related party transactions:

The Corporation’s related parties consist of the Corporation’s directors and officers, and any companies associated with them. There were no related party transactions during the three and nine-month periods ended January 31, 2023 or January 31, 2022.

Key management includes directors and executive officers of the Corporation. During the three and nine-month periods ended January 31, 2023 and January 31, 2023, no compensation was paid or payable for key management services.

During the nine-month period ended January 31, 2022, the Corporation recognized $154,748 in share-based compensation vested to directors and officers of the Corporation. No share-based compensation was recognized during the three or nine months ended January 31, 2023 or during the three months ended January 31, 2022.

8. Amalgamation Agreement:

On December 20, 2022, the Corporation’s entered into an amalgamation agreement with Aluula Composites Inc. (“Aluula”), which outlines the terms and conditions pursuant to which the Corporation and Aluula will complete a transaction that will result in a reverse take-over of the Corporation by Aluula (the “Proposed Transaction”). The Proposed Transaction will be an arm’s length transaction, and if completed, will constitute the Corporation’s “Qualifying Transaction” (as such term is defined in Exchange’s Policy 2.4 – Capital Pool Companies ).

The Proposed Transaction is subject to a number of conditions, including obtaining Exchange approval. Upon completion of the Proposed Transaction, the Corporation will carry on the business of Aluula.

Financial Statements (Expressed in Canadian dollars)

BASTION SQUARE PARTNERS INC. (A Capital Pool Corporation)

Year ended April 30, 2022

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KPMG LLP St. Andrew’s Square II 800-730 View Street Victoria BC V8W 3Y7 Canada Telephone (250) 480-3500 Fax (250) 480-3539

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of Bastion Square Partners Inc.

Opinion

We have audited the financial statements of Bastion Square Partners Inc. (the Entity), which comprise:

the statement of financial position as at April 30, 2022 and April 30, 2021
the statement of loss and comprehensive loss for the year ended April 30, 2022 and for the period from the date of incorporation on February 24, 2021 to April 30, 2021
the statement of changes in shareholders’ equity for the year ended April 30, 2022 and for the period from the date of incorporation on February 24, 2021 to April 30, 2021
the statement of cash flows for the year ended April 30, 2022 and for the period from the date of incorporation on February 24, 2021 to April 30, 2021
and notes to the financial statements, including a summary of significant accounting policies

(hereinafter referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at April 30, 2022 and April 30, 2021, and its financial performance and its cash flows for the year ended April 30, 2022 and for the period from the date of incorporation on February 24, 2021 to April 30, 2021 in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “ Auditors’ Responsibilities for the Audit of the Financial Statements ” section of our auditors’ report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.

Bastion Square Partners Inc. Page 2

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Other Information

Management is responsible for the other information. Other information comprises the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Bastion Square Partners Inc. Page 3

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As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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Chartered Professional Accountants

The engagement partner on the audit resulting in this auditor’s report is Morgan Clark

Victoria, Canada June 29, 2022

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statements of Financial Position

April 30, April 30, 2022 2021	April 30, April 30, 2022 2021
Assets Cash $ 1,764,590 $ 494,825 Prepaid expenses 7,807 -
$ 1,772,397 $ 494,825
Liabilities and Shareholders’ Equity Accounts payable and accrued liabilities $ 35,350 $ 27,718 Shareholders’ equity: Share capital (note 4) 1,845,219 500,000 Contributed surplus (note 5) 174,393 - Deficit (282,565) (32,893) 1,737,047 467,107
	1,737,047 467,107
	$ 1,772,397 $ 494,825

See accompanying notes to financial statements.

Approved on behalf of the Board:

“Peter Gustavson” “Briony Bayer” Director

Director

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statements of Loss and Comprehensive Loss

			Period from	Period from
			incorporation on
			February 24,
		Year ended		2021
		April 30,		to April 30,
		2022		2021
Expenses
Filing fees	$	30,752	$	-
Professional fees		54,074		32,893
General and administrative		10,098		-
Share-based compensation (note 5)		154,748		-
Loss and comprehensive loss	$	249,672	$	32,893
Basic and diluted net loss per share	$	(0.01)	$	(0.01)
Weighted average number of common shares:
Basic and diluted		18,241,758		3,692,308

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statements of Changes in Shareholders’ Equity

For the year ended April 30, 2022 with comparative information for the period from incorporation on February 24, 2021 to April 30, 2021

		Share	Contributed	Contributed
		capital		surplus		Deficit		Total
Balance at the date of
incorporation	$	-	$	-	$	-	$	-
Issuance of common shares		500,000		-		-		500,000
Loss for theperiod		-		-		(32,893)		(32,893)
Balance, April 30, 2021		500,000		-		(32,893)		467,107
Issuance of common shares
pursuant to initial public offering		1,500,000		-		-		1,500,000
Share issuance costs (note 4)		(154,781)		19,645		-		(135,136)
Share-based compensation (note 5)		-		154,748		-		154,748
Loss for the year		-		-		(249,672)		(249,672)
Balance, April 30, 2022	$	1,845,219	$	174,393	$	(282,565)	$	1,737,047

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statements of Cash Flows

			Period from	Period from
			incorporation on
			February 24,
		Year ended		2021
		April 30,		to April 30,
		2022		2021
Cash provided by (used in):
Operations:
Loss for the period	$	(249,672)	$	(32,893)
Items not affecting cash: share-based compensation		154,748		-
Change in non-cash operating accounts:
Prepaid expenses		(7,807)		-
Accountspayable and accrued liabilities		7,632		27,718
		(95,099)		(5,175)
Financing:
Proceeds from issuance of common shares(note 4)		1,364,864		500,000
Increase in cash		1,269,765		494,825
Cash, beginning of the period		494,825		-
Cash,end of theperiod	$	1,764,590	$	494,825

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

1. Incorporation and nature of operations:

Pursuant to an initial public offering (“IPO”) on October 12, 2021, the Corporation’s shares became publicly traded on the Exchange under the symbol “BASQ.P”.

The registered office of the Corporation is located at Suite 1200, 750 West Pender Street, Vancouver, BC and its principal place of business is Suite 110, 517 Fort Street, Victoria, BC.

2. Basis of presentation:

(a) Statement of compliance:

These financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

On June 29, 2022, the Board of Directors of the Corporation approved the financial statements for the year ended April 30, 2022.

(b) Basis of preparation:

The financial statements are presented in Canadian dollars, which is the Corporation's functional and reporting currency.

The financial statements are prepared on a historical cost basis. The accounting policies have been applied consistently throughout the entire period presented in these financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

2. Basis of presentation (continued):

Significant judgements and estimates relate to:

(i) Share-based compensation

3. Significant accounting policies:

(a) Share capital:

Common shares are classified as equity. Incremental costs directly attributable to the issuance of common shares and stock options are recognized as a deduction from equity, net of any tax effects.

(b) Impairment:

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is considered impaired if objective evidence indicate that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Losses are recognized in net profit or loss. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through net profit and loss.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

3. Significant accounting policies (continued):

(c) Financial instruments:
(i) Recognition:

The Corporation recognizes financial assets and financial liabilities on the date the Corporation becomes a party to the contractual provisions of the instruments.

(ii) Classification:

The Corporation classifies its financial assets and financial liabilities in the following measurement categories: i) those to be measured subsequently at fair value (either through other comprehensive income or through profit or loss, and ii) those to be measured at amortized cost. The classification of financial assets depends on the business model for managing the financial assets and the contractual terms of the cash flows. Financial liabilities are classified as those to be measured at amortized cost unless they are designated as those to be measured subsequently at fair value through profit or loss (irrevocable election at the time of recognition). For assets and liabilities measured at fair value, gains and losses are either recorded in profit or loss or other comprehensive income.

The Corporation reclassifies financial assets when and only when its business model for managing those assets changes. Financial liabilities are not reclassified.

The Corporation has implemented the following classifications: Cash is measured at amortized cost and accounts payable and accrued liabilities are classified as other financial liabilities and measured at amortized cost.

(iii) Measurement:

All financial instruments are required to be measured at fair value on initial recognition, plus, in case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs of financial assets and financial liabilities with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Financial assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments or principal and interest on the principal outstanding are generally measured at amortized cost at the end of the subsequent accounting periods. All other financial assets including equity investments are measured at their fair values at the end of subsequent accounting periods, with any changes taken through profit and loss or other comprehensive income (irrevocable election at the time of recognition).

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

3. Significant accounting policies (continued):

(d) Income taxes:

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. As at April 30, 2022 and April 30, 2021, tax losses have not been recognized as a deferred tax asset.

(e) Share-based compensation:

The Corporation has a share-based compensation plan, which is described in Note 5. The Corporation accounts for share-based payments and awards to employees, directors and officers at fair value using the Black-Sholes option pricing model. Under the fair value-based method, compensation cost attributable to awards intended to settle in equity is based on the fair value of the award on the grant date and recognized as an expense, with a corresponding increase in equity over the vesting period using the graded vesting method (unless the awards are considered to be share issuance costs in which case they are recorded as a reduction to share capital). At the end of each reporting period, the Corporation reassesses its estimates of the number of awards that are expected to vest and recognizes the impact of the revisions in profit or loss.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

3. Significant accounting policies (continued):

(f) Basic and diluted loss per share:

Basic loss per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted loss per share, whereby all “in the money” stock options and share purchase warrants are assumed to have been exercised at the beginning of the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during the period. When a loss is incurred during the period, basic and diluted loss per share are the same as the exercise of stock options and share purchase warrants is considered to be anti-dilutive.

4. Share capital:

Authorized:
Unlimited voting common shares
Unlimited preferred shares
Issued:
25,000,000 common shares	$ 2,000,000
Share issuance costs	(154,781)
Balance,April 30,2022	$ 1,845,219

(a) Share capital:

(i) Escrowed shares:

On April 21, 2021, the Corporation issued 10,000,000 common shares at $0.05 per share for total proceeds of $500,000.

The issued and outstanding common shares will be held in escrow pursuant to the requirements of the Exchange.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

4. Share capital (continued):

(a) Share capital (continued):
(ii) Initial Public Offering:

5. Share-based compensation:

(a) Stock options:

Unless otherwise stated, stock options fully vest when granted. The common share exercise price of stock options must be in compliance with the policies of the Exchange at the date of grant.

On October 12, 2021, the Corporation granted 2,500,000 stock options to directors and officers with an exercise price of $0.10 per share and an expiry date of October 12, 2026.

The following table summarizes information about the stock options as at April 30, 2022:

Exercise price per	Number of	Weighted average	Number of
share of options	options	remaining life	options
outstanding	outstanding	(years)	exercisable
$ 0.10	2,500,000	4.45	2,500,000

The Corporation recorded share-based compensation expense of $154,748 during the year ended April 30, 2022. The fair value of options recognized in the period has been estimated using the Black-Scholes Pricing Model with the following assumptions on the grant date of the options:

Risk free rate	0.95%
Expected life of options (years)	3 years
Annualized volatility	100%
Grant date fair value per option	$ 0.062

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

5. Share-based compensation (continued):

(b) Warrants:

In connection with the IPO on October 12, 2021, the Corporation issued 375,000 warrants to Haywood with an exercise price of $0.10 per share and an expiry date of October 12, 2024.

The following table summarizes information about the warrants as at April 30, 2022:

Exercise price per	Number of	Weighted average	Number of
share of warrants	warrants	remaining life	warrants
outstanding	outstanding	(years)	exercisable
$ 0.10	375,000	2.45	375,000

The Corporation recorded non-cash share issuance costs of $19,645 related to the warrants. The fair value of warrants recognized in the year ended April 30, 2022 has been estimated using the Black-Scholes Pricing Model with the following assumptions on the grant date of the warrants:

Risk free rate	0.70%
Expected life of options (years)	2 years
Annualized volatility	100%
Grant date fair value per option	$ 0.052

6. Financial risk management objectives and policies:

(a) Capital management:

The Corporation includes equity, comprised of issued common shares, in the definition of capital.

The Corporation’s primary objective, with respect to its capital management, is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to purse this objective, the Corporation may attempt to raise additional funds through the issuance of equity and by securing strategic partners.

The Corporation’s current capital was received from the issuance of common shares. The net proceeds raised to date and those anticipated following the close of the IPO will only be sufficient to identify and evaluate a limited number of assets and businesses for the purpose of identifying and completing a QT.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

6. Financial risk management objectives and policies (continued):

(a) Capital management (continued):

The Corporation is not subject to any externally imposed capital requirements other than the expenditure restrictions applicable under the Exchange’s Policy 2.4, which will apply following the completion of the IPO. Expenditures may include expenses relating to the IPO, reasonable expenses relating to a proposed QT, assurance and audit fees, escrow agent and transfer agent fees, regulatory filing fees, and a maximum of $3,000 per month for other general and administrative costs.

(b) Fair values and risk disclosures:
( i ) Fair value:

Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in the active market for identical assets or liabilities.
Level 2: Fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (derived from prices).
Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

The carrying value of cash and accounts payable and accrued liabilities approximates its fair value.

( ii ) Credit risk:

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

6. Financial risk management objectives and policies (continued):

(c) Liquidity risk:

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Corporation has accounts payable and accrued liabilities of $35,350 at April 30, 2022 (2021 - $27,718) and does not have significant exposure to liquidity risk.

(d) Market risk:

7. Income taxes:

A reconciliation of income taxes at statutory rates is as follows:

			Period from	Period from
			incorporation on
			February 24,
		Year ended		2021
		April 30,		to April 30,
		2022		2021
Loss for theperiod before income taxes	$	249,672	$	32,893
Expected income tax recovery at the tax rate of 27%	$	(67,411)	$	(8,881)
Increase (decrease) in income tax expense resulting from:
Share-based compensation		41,782		-
Share issuance costs recorded directly to equity		(5,304)		-
Change in unrecognized deferred tax assets		30,933		8,881

Deferred tax assets have not been recognized with respect to deductible temporary differences related to share issuance costs or operating loss carryforwards because it is not probable that future taxable profit will be available against which the Corporation can utilize the benefits.

At April 30, 2022, the Corporation has an estimated non-capital loss for income tax purposes of $127,817 that may be carried forward to reduce taxable income earned in future years.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to the Financial Statements

Year ended April 30, 2022

8. Related party transactions:

The Corporation’s related parties consist of the Corporation’s directors and officers, and any companies associated with them. The Corporation entered into the following transactions with related parties:

During the year ended April 30, 2022, one of the Corporation’s shareholders, Gustavson Capital Corporation (”GCC”), paid for certain operating expenses on behalf of the Corporation. As of April 30, 2022, the Corporation recognized nil (2021 - $2,621) in accounts payable and accrued liabilities for amounts owing to GCC.

During the year ended April 30, 2022, the Corporation recognized $154,748 (2021 – nil) in sharebased compensation vested to directors and officers of the Corporation.

Key management includes directors and executive officers of the Corporation. During the year ended April 30, 2022 no other compensation was paid or payable for key management services.

Financial Statements (Expressed in Canadian dollars)

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

And Independent Auditors’ Report thereon

Period from date of incorporation on February 24, 2021 to April 30, 2021

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KPMG LLP St. Andrew’s Square II 800-730 View Street Victoria BC V8W 3Y7 Canada Telephone 250-480-3500 Fax 250-480-3539

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of Bastion Square Partners Inc.

Opinion

We have audited the financial statements of Bastion Square Partners Inc. (the Entity), which comprise:

the statement of financial position as at April 30, 2021
the statement of operations and other comprehensive loss for the period from the date of incorporation on February 24, 2021 to April 30, 2021
the statement of changes in equity for the period from the date of incorporation on February 24, 2021 to April 30, 2021
the statement of cash flows for the period from the date of incorporation on February 24, 2021 to April 30, 2021
and notes to the financial statements, including a summary of significant accounting policies

(Hereinafter referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at April 30, 2021, and its financial performance and its cash flows for the period from the date of incorporation on February 24, 2021 to April 30, 2021 in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We believe that the audit evidence we have obtained is sufficient and appropriate to provide

a basis for our opinion.

Bastion Square Partners Inc. Page 2

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Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.

Bastion Square Partners Inc. Page 3

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Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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Chartered Professional Accountants

Victoria, Canada July 29, 2021

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statement of Financial Position

April 30, 2021

Assets

Assets	Assets
Cash $ 494,825
Liabilities and Shareholders’ Equity Accounts payable and accrued liabilities $ 27,718 Shareholders’ equity: Share capital (note 4) 500,000 Deficit (32,893) 467,107
	467,107
	$ 494,825

Subsequent events (note 8)

See accompanying notes to financial statements.

Approved on behalf of the Board:

"Peter Gustavson" "Tim McElvaine" Director Director

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statement of Operations and Comprehensive Loss

Period from date of incorporation on February 24, 2021 to April 30, 2021

Expenses:
Professional, incorporation and application fees	$	21,868
Audit and assurance fees		11,025
Loss and comprehensive loss for theperiod	$	32,893
Loss per share:
Basic and fullydiluted	$	(0.01)
Weighted average number of common shares:
Basic and fullydiluted	3,692,308

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statement of Changes in Shareholders’ Equity

Period from date of incorporation on February 24, 2021 to April 30, 2021

		Share
		capital		Deficit		Total
Balance at the date of incorporation	$	-	$	-	$	-
Issuance of common shares		500,000		-		500,000
Loss for the period		-		(32,893)		(32,893)
Balance at end ofperiod	$	500,000	$	(32,893)	$	467,107

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Statement of Cash Flows

Period from date of incorporation on February 24, 2021 to April 30, 2021

Cash provided by (used in):

Cash provided by (used in):
Operations:
Loss for the period	$	(32,893)
Change in non-cash operating accounts:
Accountspayable		27,718
		(5,175)
Financing:
Common shares issued		500,000
Increase in cash		494,825
Cash, at the date of incorporation		-
Cash,end ofperiod	$	494,825

See accompanying notes to financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

1. Incorporation and nature of operations:

Bastion Square Partners Inc. (the “Corporation”), was incorporated under the British Columbia Business Corporations Act on February 24, 2021 (the “Date of Incorporation”) and is in the process of applying for status as a Capital Pool Corporation, as defined in the Policy 2.4 of the Corporate Finance Manual of the TSX Venture Exchange (the “Exchange”). The principal business of the Corporation will be the identification and evaluation of assets or businesses with a view to completing a Qualifying Transaction (“QT”). The Corporation has not commenced operations and has no assets other than cash. The Corporation’s continuing operations as intended are dependent upon its ability to identify, evaluate and negotiate an acquisition, or business, or an interest therein. Such an acquisition or business will be subject to the approval of the Exchange and in case of a non-arm’s length transaction, of the majority of the Corporation’s minority shareholders.

The registered office of the Corporation is located at Suite 1200, 750 West Pender Street, Vancouver, BC and its principal place of business is Suite 110, 517 Fort Street, Victoria, BC.

On July 29, 2021, the Board of Directors of the Corporation approved the financial statements for the period from the Date of Incorporation on February 24, 2021 to April 30, 2021.

2. Basis of presentation:

(a) Statement of compliance:

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

(b) Basis of preparation:

The financial statements are presented in Canadian dollars, which is the Corporation's functional and reporting currency.

The financial statements are prepared on a historical cost basis. The accounting policies have been applied consistently throughout the entire period presented in these financial statements.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

2. Basis of presentation (continued):

The preparation of these financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

There have been no significant estimates or judgments made by management in the application of IFRS that have a significant effect on these financial statements.

3. Significant accounting policies:

(a) Share capital:

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

(b) Financial instruments:
( i ) Recognition:

The Corporation recognizes financial assets and financial liabilities on the date the Corporation becomes a party to the contractual provisions of the instruments.

( ii ) Classification:

The Corporation reclassifies financial assets when and only when its business model for managing those assets changes. Financial liabilities are not reclassified.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

3. Significant accounting policies (continued):

(b) Financial instruments (continued):

( ii ) Classification (continued):

( iii ) Measurement:

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

3. Significant accounting policies (continued):

(c) Income taxes (continued):

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. As at April 30, 2021, tax losses have not been recognized as a deferred tax asset.

(d) Basic and diluted loss per share:

Basic loss per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding for the relevant period.

Diluted loss per share is computed by dividing the net loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and all additional common shares that would have been outstanding if potentially dilutive instruments were converted.

4. Share capital:

Authorized: Unlimited voting common shares Issued: 10,000,000 common shares

$ 500,000

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

4. Share capital (continued):

(a) Escrowed shares:

During the period, the Corporation issued 10,000,000 common shares at $0.05 per share for total proceeds of $500,000.

The issued and outstanding common shares will be held in escrow pursuant to the requirements of the Exchange.

All common shares of the Corporation acquired in the secondary market prior to the completion of a QT by non-arm’s length parties, as defined in the policies of the Exchange, are required to be deposited in escrow. Subject to certain permitted exemptions, all securities of the Corporation held by principals of the resulting issuer will also be subject to escrow.

5. Financial risk management objectives and policies:

(a) Capital management:

The Corporation includes equity, comprised of issued common shares, in the definition of capital.

The Corporation’s primary objective, with respect to its capital management, is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to purse this objective, the Corporation may attempt to raise additional funds through the issuance of equity and by securing strategic partners.

The Corporation’s current capital was received from the issuance of common shares. The net proceeds raised to date and those anticipated following the close of the initial public offering (“IPO”) (note 8) will only be sufficient to identify and evaluate a limited number of assets and businesses for the purpose of identifying and completing a QT.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

5. Financial risk management objectives and policies (continued):

(b) Fair values and risk disclosures:
( i ) Fair value:

Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in the active market for identical assets or liabilities.
Level 2: Fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (derived from prices).
Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

The carrying value of cash and accounts payable and accrued liabilities approximates its fair value.

( ii ) Credit risk:

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Corporation has accounts payable and accrued liabilities of $27,718 at April 30, 2021 and does not have significant exposure to liquidity risk.

(d) Market risk:

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

6. Income taxes:

A reconciliation of income taxes at statutory rates is as follows:

	April	30,2021
Loss for theyear before income taxes	$	(32,893)
Expected income tax recovery at the tax rate of 27%		8,881
Increase (decrease) in income tax expense resulting from:
Change in unrecognized deferred tax assets		(8,881)
	$	-

At April 30, 2021, the Company has an estimated non-capital loss for income tax purposes of $32,893 that may be carried forward to reduce taxable income earned in future years.

7. Related party transactions:

During the period from incorporation on February 24, 2021 to April 30, 2021, one of the Corporation’s shareholders, Gustavson Capital Corporation (”GCC”), paid for certain professional and application fees on behalf of the Corporation. As of April 30, 2021, $2,675 owing to GCC is included in accounts payable and accrued liabilities. There were no other transactions with related parties and no remuneration paid to key management personnel.

BASTION SQUARE PARTNERS INC.

(A Capital Pool Corporation)

Notes to Financial Statements

Period from date of incorporation on February 24, 2021 to April 30, 2021

8. Subsequent events:

(a) Initial public offering:

On April 29, 2021, the Corporation engaged Haywood Securities Inc. (“Haywood”) to act as its agent for an initial public offering (“IPO”). The Corporation will offer up to 15,000,000 of its common shares at a price of $0.10 per share for up to $1,500,000 in gross proceeds.

As compensation for agency services, Haywood will receive a cash commission (“Agent’s Commission”) equal to 7.5% of the gross proceeds of the offering, excluding proceeds raised from President’s List Investors (which are estimated at $1,000,000), for which the Agent will receive 2.0%. Haywood will receive agent’s warrants (“Agent’s Warrants”) to purchase that number of common shares in the capital of the Corporation equal to 7.5% of the aggregate number of common shares sold under the offering excluding shares sold to President’s List Investors. No Agent’s Warrants will be issued for gross proceeds raised from President’s List Investors. On this basis, it is estimated that Haywood will receive approximately $57,500 as Agent’s Commission and between 375,000 and 1,125,000 Agent’s Warrants. Each Agent’s Warrant will be exercisable to purchase an additional common share in the Corporation at a price of $0.10 for a 36-month period following the completion of the IPO.

Upon completion of the IPO and reclassification of the Corporation as a CPC, the common shares will be transferred to escrow and will be released over a period up to 18 months following the completion of a QT.

(b) Stock options:

On May 20, 2021, the Corporation has adopted a common share stock option plan (“Option Plan”) in accordance with the policies of the TSX. Stock options may be granted for common shares for a maximum term of ten years from the date of the grant and are non-transferable.

Unless otherwise stated, stock options fully vest when granted. The common share exercise price of stock options must be in compliance with the policies of the Exchange at the date of grant.

Any shares issued upon exercise of the options prior to the Corporation entering into a QT will be subject to escrow restrictions.

No stock options have been granted or are outstanding as at the date of these financial statements.

SCHEDULE “B”

ISSUER MANAGEMENT’S DISCUSSION AND ANALYSIS

Attached hereto are the following management’s discussion and analysis of the Issuer:

The Issuer’s management’s discussion and analysis for the year ended April 30, 2022.

BASTION SQUARE PARTNERS INC. Management Discussion & Analysis Year ended April 30, 2022

The following management’s discussion and analysis (“MD&A”) should be read in conjunction with the Bastion Square Partners Inc. (the “Corporation”) audited financial statements as at and for year ended April 30, 2022 and for the period from incorporation on February 24, 2021 to April 30, 2021 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

This MD&A was prepared by the Corporation’s management and was approved by the board of directors on June 29, 2022. All amounts are in Canadian dollars unless otherwise stated.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document constitute “forward-looking statements”. When used in this document, the words “may”, “would”, “could”, “will”, “intend”, “plan”, “propose”, “anticipate”, “believe”, used by any of the Corporation’s management, are intended to identify forward-looking statements. Such statements reflect the Corporation’s forecasts, estimates and expectations, as they relate to the Corporation’s current views based on their experience and expertise with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the Corporation’s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. There can be no assurance that it will be completed as proposed or at all. The Corporation does not intend, and does not assume any obligation, to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments unless required by law.

DESCRIPTION OF BUSINESS

Bastion Square Partners Inc. was incorporated under the British Columbia Business Corporations Act on February 24, 2021 and is a Capital Pool Corporation, as defined in the Policy 2.4 of the Corporate Finance Manual of the TSX Venture Exchange (the “Exchange”). The principal business of the Corporation is the identification and evaluation of assets or businesses with a view to completing a Qualifying Transaction (“QT”). The Corporation has not commenced operations and has no significant assets other than cash. The Corporation’s continuing operations as intended are dependent upon its ability to identify, evaluate and negotiate an acquisition, or business, or an interest therein. Such an acquisition or business will be subject to the approval of the Exchange and in case of a non-arm’s length transaction, of the majority of the Corporation’s minority shareholders. Once a QT has been identified, the Corporation’s ability to complete the transaction may be dependent on additional funding. There is no assurance that the Corporation will be successful in obtaining any additional funding.

Pursuant to an initial public offering (“IPO”) on October 12, 2021, the Corporation’s shares became publicly traded on the Exchange under the symbol “BASQ.P”.

The registered office of the Corporation is located at Suite 1200, 750 West Pender Street, Vancouver, BC and its principal place of business is Suite 110, 517 Fort Street, Victoria, BC.

BASTION SQUARE PARTNERS INC. Management Discussion & Analysis Year ended April 30, 2022

OPERATIONAL HIGHLIGHTS AND SIGNIFICANT DEVELOPMENTS

On October 12, 2021, the Corporation granted 2,500,000 stock options to directors and officers with an exercise price of $0.10 per share. The options vested immediately upon issuance and will expire five years from the date of grant. The Corporation recorded share-based compensation expense of $154,748 during the year ended April 30, 2022.

SELECTED FINANCIAL INFORMATION

The following table summarizes the Corporation’s key financial results as at and for the year ending April 30, 2022 and for the period from incorporation on February 24, 2021 to April 30, 2021 (the “ Period ended April 30, 2021 ”):

	Year ended	Period ended
	April 30, 2022	April 30, 2021
Net working capital	$ 1,737,047	$ 467,107
Total assets	1,772,397	494,825
Total shareholders’ equity	1,737,047	467,107
Total revenues	Nil	Nil
Total expenses	(249,672)	(32,893)
Net loss and comprehensive loss	(249,672)	(32,893)
Loss per share – basic and diluted	$ (0.01)	$ (0.01)

The Corporation does not have any operations and will not conduct any business other than the identification and evaluation of business assets for potential acquisition.

The Corporation recorded a net loss and comprehensive loss for year ended April 30, 2022 of $249,672 which is due to filing fees of $30,752 (Period ended April 30, 2021 – nil), professional fees of $54,074 (Period ended April 30, 2021 - $32,893), general and administrative expenses of $10,098 (Period ended April 30, 2021 – nil) and stock-based compensation of $154,748 (Period ended April 30, 2021 – nil).

BASTION SQUARE PARTNERS INC. Management Discussion & Analysis Year ended April 30, 2022

SELECTED FINANCIAL INFORMATION (continued)

The following table summarizes the Corporation’s key financial results as at and for the three months ending:

ending:
						Period
						ended
	April 30,	January 31,	October 31,	July 31,		April 30,
	2022	2022	2021	2021		2021
Net working capital	$ 1,737,047	$ 1,765,823	$ 1,784,088	$ 435,629	$	467,107
Total assets	1,772,397	1,780,567	1,812,262	466,197		494,825
Total shareholders’	1,737,047	1,765,823	1,784,088	435,629		467,107
equity
Total revenues	Nil	Nil	Nil	Nil		Nil
Total expenses	(24,488)	(18,265)	(175,441)	(31,478)		(32,893)
Net loss and
comprehensive loss	(24,488)	(18,265)	(175,441)	(31,478)		(32,893)

FINANCIAL CONDITON INCLUDING CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES

As of April 30, 2022, the Corporation had net working capital of $1,737,047 (Period ended April 30, 2021 - $467,107) and a cash balance of $1,764,590 (Period ended April 30, 2021 - $494,825). Based on current information, the Corporation anticipates that its working capital is sufficient to meet it expected ongoing obligations. However, there is no assurance the Corporation will be able to obtain adequate financing in the future. Further debt and equity financing may be required.

OUTSTANDING SHARE DATA

As of the date of this MD&A, the Corporation has 25,000,000 common shares issued and outstanding, 2,500,000 stock options outstanding and 375,000 warrants outstanding.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements as at April 30, 2022.

RELATED PARTY TRANSACTIONS

During the year ended April 30, 2022, one of the Corporation’s shareholders, Gustavson Capital Corporation (”GCC”), paid for certain operating expenses on behalf of the Corporation. As of April 30, 2022, the Corporation recognized nil (Period ended April 30, 2021 - $2,621) in accounts payable and accrued liabilities for amounts owing to GCC.

During the year ended April 30, 2022, the Corporation recognized $154,748 (Period ended April 30, 2021 – nil) in share-based compensation vested to directors and officers of the Corporation.

Key management includes directors and executive officers of the Corporation. During the year ended April 30, 2022 no other compensation was paid or payable for key management services.

Management Discussion & Analysis Year ended April 30, 2022

BASTION SQUARE PARTNERS INC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Corporation’s significant accounting policies are disclosed in the audited financial statements as at and for year ended April 30, 2022 and for the period from incorporation on February 24, 2021 to April 30, 2021 which have been prepared in accordance with IFRS.

The preparation of financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions that affect the application of accounting methods and the amounts recognized in the financial statements. These estimates and the underlying assumptions are established and reviewed continuously on the basis of past experience and other factors considered reasonable in the circumstances. Actual results may differ from the estimates.

Share-based compensation:

Share-based compensation is measured at fair value using the Black-Scholes option pricing model and management uses judgment to determine the inputs to the model including expected lives, underlying share price volatility and forfeiture rates. Volatility is estimated using a comparable peer group until such time as sufficient trading history is available for the Company’s own shares.

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Capital Management

The Corporation includes equity, comprised of issued common shares, in the definition of capital.

The Corporation’s primary objective, with respect to its capital management, is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to purse this objective, the Corporation may attempt to raise additional funds through the issuance of equity and by securing strategic partners

Risks and Uncertainties

The following describes certain risks, events and uncertainties that could affect the Corporation and that each reader should carefully consider. Please refer to the Corporation’s final prospectus dated July 29, 2021 for additional risks, events and uncertainties that could affect the Corporation.

External financing may be required to fund the Corporation’s activities primarily through the issuance of common shares. There can be no assurance that the Corporation will be able to obtain adequate financing. The securities of the Corporation should be considered a highly speculative investment.

The Corporation has not generated revenues and does not expect to generate revenues in the near future. In the event the Corporation generates revenues in the future, the Corporation intends to retain its earnings in order to finance further growth. The Corporation has not paid any dividends in the past and does not expect to pay any dividends in the foreseeable future.

BASTION SQUARE PARTNERS INC.

Management Discussion & Analysis Year ended April 30, 2022

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Risk Disclosures

Credit Risk

Liquidity Risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Corporation has accounts payable and accrued liabilities of $35,350 at April 30, 2022 (Period ended April 30, 2021 - $27,718) and does not have significant exposure to liquidity risk.

Market Risk

OTHER INFORMATION

Additional information about the Corporation is available on SEDAR at www.sedar.com.

SCHEDULE “C”

TARGET COMPANY FINANCIAL STATEMENTS

Attached hereto are the following financial statements of the Target Company:

The Target Company’s interim financial statements for the three months ended January 31, 2023.
The Target Company’s annual financial statements for the year ended October 31, 2022, and the Target Company’s reviewed annual financial statements for the year ended October 31, 2021 with comparative information for the ten months ended October 31, 2020.

Interim Condensed Consolidated Financial Statements of

For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

ALUULA COMPOSITES INC.

Interim Condensed Consolidated Statements of Financial Position

(Unaudited)

			January 31		October 31
	Note		2023		2022
Assets
Current assets:
Cash and cash equivalents		$	411,986	$	295,377
Trade and other receivables	4		931,964		1,137,872
Inventory	5		1,980,034		2,166,825
Deferred tax asset			-		1,014,258
Prepaid expenses and other current assets			749,781		541,475
			4,073,765		5,155,807
Property and equipment	6		1,052,099		1,206,169
Intangible assets	7		4,291,128		4,334,833
Other long-term assets			30,796		30,796
Investments			43,126		45,091
Deferred tax asset			880,713		-
Goodwill			3,906,786		3,906,786
		$	14,278,413	$	14,679,482
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness	9	$	2,646,634	$	2,744,697
Trade and other payables	8		1,078,567		894,496
Customer deposits			262,256		192,883
Current portion of long-term debt	10		1,037,677		292,284
Current portion of lease obligations			203,106		233,430
Income tax payable			12,234		12,234
Deferred tax liability			134,163		1,223,065
			5,374,637		5,593,089
Long-term debt	10		1,028,079		967,121
Lease obligations			627,125		745,498
Due to related parties	11		2,122,802		2,122,802
Deferred tax liability			1,035,012		-
			10,187,655		9,428,510
Shareholders' equity:
Share capital			6,305,977		6,305,977
Contributed surplus	15		57,591		52,654
Deficit			(2,272,810)		(1,107,659)
			4,090,758		5,250,972
Subsequent events	19
		$	14,278,413	$	14,679,482
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Board:
_______	_______
Richard Myerscough, CEO	John Zimmerman,		COO

The accompanying notes are an integral part of these consolidated financial statements. Approved on behalf of the Board: _______ Richard Myerscough, CEO John Zimmerman, COO

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ALUULA COMPOSITES INC.

Interim Condensed Consolidated Statements of Loss and Comprehensive Loss (Unaudited)

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----- Start of picture text -----

January 31 January 31
For the three months ended Note 2023 2022
Sales $ 1,448,515 $ 664,532
Cost of sales 1,251,468 446,792
Gross profit 197,047 217,740
Operating expenses:
Salaries and benefits 11 500,851 274,697
General and administrative 433,309 87,361
Research and development 17,244 112,612
Marketing 182,504 16,980
Share-based compensation 15 4,937 4,937
1,138,845 496,587
Loss before interest, tax and amortization (941,798) (278,847)
Other income 12 75,616 -
Interest expense (91,994) (16,377)
Depreciation of capital assets 6 (59,190) (31,742)
Amortization of intangible assets 7 (68,131) (18)
Loss before tax (1,085,497) (326,984)
Deferred tax expense (79,654) (226,732)
Net loss and comprehensive loss $ (1,165,151) $ (553,716)
Loss per share: 16
Basic loss per share $ (0.20) $ (0.14)
Diluted loss per share $ (0.20) $ (0.14)
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The accompanying notes are an integral part of these consolidated financial statements.

ALUULA COMPOSITES INC.

Interim Condensed Consolidated Statements of Changes in Equity (Unaudited)

							Retained		Total
	Shares		Share		Contributed		earnings	shareholders'
	outstanding		capital		Surplus		(deficit)		equity
Balance, October 31, 2021	4,058,876	$	611	$	32,904	$	(626,089)	$	(592,574)
Share-based compensation
(Note 15)	-		-		4,937		-		4,937
Net loss	-		-		-		(553,716)		(553,716)
Balance, January 31, 2022	4,058,876	$	611	$	37,841	$	(1,179,805)	$	(1,141,353)
Balance, October 31, 2022	5,765,058	$	6,305,977	$	52,654	$	(1,107,659)	$	5,250,972
Share-based compensation
(Note 15)	-		-		4,937		-		4,937
Net loss	-		-		-		(1,165,151)		(1,165,151)
Balance, January 31, 2023	5,765,058	$	6,305,977	$	57,591	$	(2,272,810)	$	4,090,758

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

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ALUULA COMPOSITES INC.

Interim Condensed Consolidated Statements of Cash Flows (Unaudited)

ALUULA COMPOSITES INC. Interim Condensed Consolidated Statements of Cash Flows (Unaudited)	ALUULA COMPOSITES INC. Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three months ended Note		January 31 2023 January 31 2022
Cash flows from operating activities: Net income (loss) Items not involving cash: Depreciation of capital assets 6 Amortization of intangible assets 7 Share-based compensation 15 Government grants and fair value adjustments 12 Accretion of and accrued interest on loans and leases 10 Foreign exchange movement on leases Foreign exchange movement on investments Loss on disposal of property and equipment 6 Loss on disposal of intangible assets 7 Other gains and losses 12 Changes in non-cash working capital items: Decrease in trade and other receivables 4 Decrease (increase) in inventory 5 Decrease in deferred taxes Increase in prepaid expenses and other assets Decrease in other assets Increase in trade and other payables 8 Increase (decrease) in customer deposits Cash flows from investing activities: Acquisition of property and equipment 6 Acquisition of intangible assets 7 Cash flows from financing activities: Net payments to related parties 11 Payments for principal portion of lease obligations Proceeds from long-term debt 10 Repayment of long-term debt 10
		(1,165,151) $ (553,716) $

		75,715 39,690 68,131 18 4,937 4,937 (33,993) - 28,095 12,187 (2,471) (215)
		1,965 -
		91,559 - - 4,096 (91,174) -
		205,908 353,487
		186,791 (335,979) 79,655 226,732
		(208,306) (181,040)
		- 12,307
		184,071 245,609
		69,373 (123,039)
		(504,895) (294,926)

		(13,204) (141,363) (24,426) -
		(37,630) (141,363)

		- (555,412) (64,326) (51,737) 861,525 - (40,002) -
		757,197 (607,149)
Decrease in cash and cash equivalents Net cash and cash equivalents, beginning of period		214,672 (1,043,438)
		(2,449,320) (103,870)

Net cash and cash equivalents, end of period1		(2,234,648) $ (1,147,308) $
1 Cash and cash equivalents Bank indebtedness
		411,986 $ 19,886 $ (2,646,634) (1,167,194)
Net cash and cash equivalents		(2,234,648) $ (1,147,308) $

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

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

1. Nature of operations:

Aluula Composites Inc. (the “Company”) was incorporated under the British Columbia Business Corporations Act on July 18, 2019. The Company is domiciled in Victoria, BC Canada, with a registered office at 300-4240 Glanford Avenue. The Company has developed and patented an innovative process for manufacturing ultra-strong, lightweight and recyclable soft composite materials for use across numerous industries. Its subsidiary, Ocean Rodeo Sports Inc. (“Ocean Rodeo”), purchases finished products containing these Aluula composite materials from its manufacturer and sells them within the windsport sector.

2. Basis of preparation:

(a) Statement of compliance:

These interim condensed consolidated financial statements (“interim financial statements”) have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) applicable to the preparation of interim financial statements, including International Accounting Standards (“IAS”) 34, Interim Financial Reporting. These interim financial statements were approved by the Board of Directors for issue on March 15, 2023.

These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended October 31, 2022.

(b) Basis of measurement:

These interim financial statements have been prepared on a going concern basis, under the historical cost basis except for certain financial instruments that are measured at fair value as detailed in the Company’s significant accounting policies disclosed in Note 3 of the audited consolidated financial statements for the year ended October 31, 2022.

These interim financial statements include the accounts of the Company and its wholly owned subsidiary Ocean Rodeo. A subsidiary is an entity over which the Company has control. The Company controls an entity when the Company is exposed to or has the rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and deconsolidated from the date that control ceases. All significant intercompany transactions are eliminated on consolidation. Ocean Rodeo was acquired on October 31, 2022, and as a result the current period-end figures presented in the statements of loss and comprehensive loss are consolidated while the prior period-end is not.

(d) Functional and presentation currency:

These interim financial statements are presented in Canadian Dollars, which is the Company’s functional currency. Each entity in the Company maintains its accounting records in its functional currency. An entity’s functional currency is the currency of the principal economic environment in which it operates.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(d) Functional and presentation currency (continued):

Transactions in currencies other than the functional currency are recorded at the rates of exchange at the date of the transaction. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the period end date. Nonmonetary items that are measured in terms of historical cost are translated using historical rates. All gains and losses on translation of those foreign currency transactions are recorded in the consolidated statement of comprehensive income (loss).

(e) Estimates and judgments:

The preparation of these interim financial statements in conformity with IFRS requires management to make certain estimates, judgements and assumptions that affect the application of accounting methods and the amounts recognized in the interim financial statements. These estimates and the underlying assumptions are established and reviewed continuously on the basis of past experience and other factors considered reasonable in the circumstances. Actual results may differ from the estimates.

Significant judgements and estimates relate to:

(i) Allowance for credit losses:

Credit losses are measured using the Expected Credit Loss (“ECL”) methodology which requires the recognition of credit losses based on up to 12 months of expected losses for financial assets and the recognition of lifetime losses for those financial assets that have experienced a significant increase in credit risk since origination.

The determination of a significant increase in credit risk takes into account many different factors including relative changes in probability of default since origination. In determining whether there has been a significant increase in credit risk and in calculating the amount of ECL, the Company must rely on estimates and exercise judgment regarding matters for which the ultimate outcome is unknown. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or decrease in the allowance for credit losses.

To calculate ECL, the Company analyzes receivable balances by age, geography and customer-type and applies a historical default percentage. Amounts that are known to be uncollectible are written off when identified.

(ii) Valuation of inventory:

Valuing inventory requires the Company to estimate future retail sales prices and reductions, future customer product demand, inventory losses or shrinkage, vendor rebates based on volume purchases and the probability that funds will be collected from vendors. If actual losses on inventory differ from those estimated, inventory and consolidated comprehensive income (loss) will be affected in future periods.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(e) Estimates and judgments (continued):

(iii) Internally generated assets:

The Company undertakes many research and development projects as part of its regular operations. Significant judgement is required to distinguish between the research and development phases of these projects. Development costs are only recognized as an asset when the relevant capitalization criteria under IAS 16 or IAS 38 are met.

(iv) Long-lived assets valuation:

Management determines the estimated useful lives and residual values of long-lived assets to calculate amortization and depreciation. This estimate is determined by considering a typical life cycle for the asset, expected usage levels, and expected maintenance levels. Useful lives and residual values are reviewed annually, and future depreciation charges are adjusted where management believes the outcomes differ from previous estimates.

Goodwill and indefinite life intangible assets are tested for impairment annually. Goodwill, indefinite life intangibles, property and equipment, and definite life intangibles are also tested for impairment when circumstances indicate that impairment may exist. Management judgement is involved in determining if there are circumstances indicating that testing for impairment is required, and in identifying Cash Generating Units (“CGUs”) for the purpose of impairment testing.

The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of:

(i) value in use; or
(ii) fair value less selling costs.

Determination of the recoverable amount involves significant assumptions, including those with respect to future cash inflows and outflows, discount rates, terminal growth rates, royalty rates, and useful lives of assets. These assumptions could affect the Company’s future results if the current estimates of future performance and fair values change. These determinations will affect the amount of amortization expense on definite life assets recognized in future periods.

(v) Provision for sales returns and warranties:

The Company provides Ocean Rodeo’s customers with a 60-day satisfaction guarantee in addition to a one-year warranty on current season goods or a 90-day warranty on discontinued products. Products sold for professional applications such as schools or rentals are eligible for a 30-day warranty. The Company has made certain assumptions to estimate both the quantity of future expected merchandise returns as well as the warranty provision. The cumulative warranty expense as a percentage of relevant sales over the past 10 years has been used as a basis to estimate the warranty provision for the reporting period. Sales returns are calculated using the cumulative sales returns as a percentage of relevant sales over the past 10 years, multiplied by relevant sales for the reporting year.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(e) Estimates and judgments (continued):

(vi) Share-based compensation:

Share-based compensation is measured at fair value using the Black-Scholes option pricing model. Management uses judgement when determining inputs for the model, including expected lives, underlying share price volatility and forfeiture rates. Changes to the assumptions used in determining inputs will impact the calculation of fair value and the amount of compensation expense recognized in earnings. Any impact due to a change in estimate is recognized in earnings in the year that it occurs.

(vii) Leases:

The Company applies judgment in assessing whether a contract is or contains a lease. Such judgements include the determination of whether an asset is specifically or implicitly identified in the contract, whether the Company has the right to obtain substantially all the economic benefits from use of the asset and whether the Company has the right to direct the use of the asset. These judgments are made at the inception of a contract and may change if there are material changes to the agreement.

Estimates are used to determine the incremental borrowing rate of a lease when the interest rate implicit to the lease is not readily available. The Company’s incremental borrowing rate is determined using a model which incorporates the Company’s creditworthiness, the nature and quality of the underlying asset, and the duration of the lease. The inputs used in determining the incremental borrowing rate are reviewed and updated periodically. Changes to these estimates may affect the value of assets, liabilities and net earnings in the future.

The Company also applies judgement in determining whether it is reasonably certain to exercise lease extensions options or purchase options in a contract by considering all relevant factors and circumstances that may create an economic incentive for the Company to exercise the option considering such factors as past experience, contract terms and conditions and the importance of the underlying assets to the Company’s operations.

(viii) Deferred income tax assets and liabilities:

Deferred income tax assets and liabilities result from timing differences between the financial reporting and tax bases of assets and liabilities. Loss carryforwards also comprise a portion of the temporary differences and result in a deferred income tax asset. Deferred income tax assets are only recognized to the extent that management considers it probable that a deferred income tax asset will be realized. The assessment for the recognition of a deferred tax asset requires significant judgement. The factors used to assess the likelihood of realization are the Company’s forecasts of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Unknown future events and circumstances, such as changes in tax rates and laws, may materially affect the assumptions and estimates made from one period to the next.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(e) Estimates and judgments (continued):

(ix) Measurement of fair values:

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company uses observable market data to the extent possible. Where fair values cannot be determined based on quoted prices in active markets, fair value is measured using valuation techniques and models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are required to establish fair values. Changes in assumptions about the inputs of these models could affect the reported fair value of the Company’s financial and non-financial assets and liabilities.

(x) Revenue recognition:

Revenue is recognized when the criteria in IFRS 15 are met, the timing of which requires judgement by management. This judgement includes whether collection of receivables is reasonably assured, and whether control has passed from the Company to the customer. The timing of change of control is estimated based on historical results using assumptions for the time of delivery based on shipping terms, date, and destination. Actual timing of the change of control could vary from the estimates made.

(xi) Valuation of assets and liabilities acquired in a business combination:

In a business combination, the Company may acquire the assets and assume certain liabilities of an acquired entity. Estimates of fair values of these assets and liabilities involves judgement and a variety of assumptions to be made, including analysis of relevant market expectations, estimates surrounding the costs to acquire or create a similar asset, expected net future cash flows, and appropriate discount rates. Intangible assets acquired in a business combination are measured using a discounted cash flow approach. The discounted cash flow approach is a valuation technique that calculates the fair value of an intangible asset based on the present value of future cash flows that the asset can be expected to generate in the future.

3. Significant accounting policies:

The significant accounting policies applied in the preparation of these interim financial statements are consistent with the accounting policies disclosed in Note 3 of the audited consolidated financial statements for the year ended October 31, 2022.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

4. Trade and other receivables:

Trade and other receivables are comprised of the following:

		January 31		October 31
		2023		2022
Trade receivables	$	1,228,259	$	1,293,820
Government receivables		14,335		11,480
Sales return allowance		(104,586)		(125,991)
Expected credit losses		(206,044)		(41,437)
	$	931,964	$	1,137,872

Trade receivables net of expected credit losses outstanding at January 31, 2023 and October 31, 2022 were aged as follows:

2022 were aged as follows:
		January 31		October 31
		2023		2022
Current	$	250,224	$	773,879
30 - 60 days		550,552		225,921
60 - 90 days		38,371		135,111
Over 90 days		183,068		117,472
	$	1,022,215	$	1,252,383

The following table summarizes the change in sales return allowances for the period:

		January 31		October 31
		2023		2022
Opening balance	$	125,991	$	-
Additional provisions during the period		21,405		-
Sales return allowances acquired in business combination		-		125,991
Amounts used during the period		(9,354)		-
Unused amounts reversed		(33,456)		-
	$	104,586	$	125,991

The following table summarizes the change in expected credit losses for the period:

		January 31		October 31
		2023		2022
Opening balance	$	41,437	$	-
Additional provisions during the period		164,607		-
Expected credit losses acquired in business combination		-		41,437
	$	206,044	$	41,437

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

5. Inventory:

Inventory is comprised of the following:

Inventory is comprised of the following:
		January 31		October 31
		2023		2022
Raw materials	$	721,906	$	304,474
Finished goods - composite materials		29,453		230,043
Finished goods - products for resale		1,228,675		1,632,308
	$	1,980,034	$	2,166,825

During the quarter ended January 31, 2023, inventories totalling $1,166,924 (January 31, 2022 - $405,047) were included in cost of sales. There were no reversals of write-downs from previous periods.

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ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

7. Intangible assets:

		Patents
		and
		Licenses		Trademarks		Total
Cost
Balance, October 31, 2021	$	12,704	$	740	$	13,444
Additions		16,619		8,457		25,076
Acquired in business combination		4,296,834		-		4,296,834
Disposals		-		-		-
Balance, October 31, 2022		4,326,157		9,197		4,335,354
Additions		24,426		-		24,426
Disposals		-		-		-
Balance, January 31, 2023	$	4,350,583	$	9,197	$	4,359,780
Accumulated amortization
Balance, October 31, 2021	$	8	$	73	$	81
Amortization		402		38		440
Disposals		-		-		-
Balance, October 31, 2022		410		111		521
Amortization		68,122		9		68,131
Disposals		-		-		-
Balance, January 31, 2023	$	68,532	$	120	$	68,652
Carrying amounts: Balance, October 31, 2022 Balance, January 31, 2023	$ $	4,325,747 4,282,051	$ $	9,086 9,077	$ $	4,334,833 4,291,128

As at January 31, 2023, intangible assets with a cost of $105,555 (October 31, 2022 - $81,032) were recorded for patents, licenses or trademarks management expects to be granted but were still pending approval.

8. Trade and other payables:

Trade and other payables are comprised of the following:

		January 31		October 31
		2023		2022
Trade payables	$	853,554	$	604,085
Accrued liabilities		79,870		89,600
Credit cards payable		64,856		88,685
Warranty provision		50,967		57,965
Payroll liabilities		27,365		36,166
Government payables		1,943		9,480
Royalties payable		13		8,515
	$	1,078,568	$	894,496

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

8. Trade and other payables (continued):

The following table summarizes the change in warranty provisions for the period:

		January 31		October 31
		2023		2022
Opening balance	$	57,965	$	-
Additional provisions during the period		7,200		-
Warranty provisions acquired in business combination		-		57,965
Amounts used during the period		(8,623)		-
Unused amounts reversed		(5,575)		-
	$	50,967	$	57,965

9. Bank indebtedness:

(a) Operating line of credit - Scotia Bank:

The Company has a credit facility with Scotia Bank (the “LOC”) to fund general operations. The LOC bears interest at 1% above Scotia’s prime lending rate and is repayable on demand. At January 31, 2023, the Company’s borrowing capacity was $2,000,000 and the balance outstanding was $1,646,634 (October 31, 2022 - $1,744,697).

(b) Operating line of credit – Royal Bank:

The Company held a credit facility with Royal Bank (the “RBC LOC”) to fund general operations until June 2022. The RBC LOC bore interest at 3% above Royal Bank’s prime lending rate and was repayable on demand. Under the terms of the RBC LOC, Aluula shareholders have postponed their right to repayment of shareholder loans under certain circumstances and guaranteed the facility. At January 31, 2023, the Company’s borrowing capacity was nil and the balance outstanding was nil (October 31, 2022 - nil).

(c) Callable debt – Scotia Bank:

The Company has access to a revolving pre-shipment financing facility (the “EGP Program”) with Scotia Bank. This facility bears interest at 1.00% per annum above Scotia Bank’s Prime interest rate, is payable on demand, and is capped at 90% of eligible contract costs. 75% of this facility is guaranteed by Export Development Canada under its Export Guarantee Program. As at January 31, 2023 the Company’s borrowing capacity under the EGP Program was $1,000,000 and the balance utilized was $1,000,000 (October 31, 2022 - $1,000,000).

(d) Scotia Bank Guarantees:

Aluula and Ocean Rodeo each have guarantees against the bank loans of the other. Aluula shareholders have also guaranteed the bank loans and waived the right to repayment of shareholder loans where such repayment would put the covenants offside.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

10. Long-term debt:

(a) Western Economic Diversification Canada:

On March 23, 2022, the Company signed an agreement to receive funding up to $737,500 through the Western Economic Diversification Canada (“WD Canada”) Business Scale-up and Productivity program to offset costs of business expansion as prescribed in the funding agreement. This funding is in the form of an interest free loan, repayable in monthly instalments of $12,459 beginning on April 1, 2024. As of January 31, 2023, $601,795 (October 31, 2022 - $490,270) of the available funding had been received, and the loan had a discounted balance of $500,658 (October 31, 2022 – $417,714)

(b) Western Economic Diversification Canada:

On August 24, 2020, the Company signed an agreement to receive up to $190,000 through WD Canada’s Regional Relief and Recovery Fund (“RRRF”) to offset costs of business expansion as prescribed in the funding agreement. This funding is in the form of an interest free loan, repayable in monthly instalments of $5,275 beginning January 31, 2023. As of January 31, 2023, $190,000 of funding had been received and the loan had a discounted balance of $180,439 (October 31, 2022 - $178,823).

On June 11, 2020, WD Canada also provided the Company with a $60,000 interest free loan as part of its Regional Relief and Recovery Fund. If this loan is repaid in full on or by December 31, 2023, $20,000 is forgiven. At January 31, 2023 the loan had a balance of $40,000 (October 31, 2022 - $39,765).

(d) Scotia Bank:

On August 10, 2021, the Company entered into a banking agreement with Scotia Bank that provided the Company with an $800,000 non-revolving term loan to fund general business needs. The loan is repayable in monthly instalments of $13,334 plus interest at Scotia Bank prime plus 1.25%. At January 31, 2023 the loan had a discounted balance of $548,608 (October 31, 2022 - $583,342).

(e) Government of Canada:

On April 23, 2020, the Company received a $40,000 interest free loan as part of its Canada Emergency Benefit Account. This loan was expanded to $60,000 on January 11, 2021. If this loan is repaid in full on or by December 31, 2023, $20,000 is forgiven. At January 31, 2023 the loan had a balance of $40,000 (October 31, 2022 - $39,761).

(f) Gustavson Capital Corporation:

On December 21, 2021, the Company received $750,000 from Gustavson Capital Corporation (“GCC”) in the form of a promissory note with an interest rate of 7% per annum, compounding monthly and accruing until settlement. This note is repayable on the 30[th] of the month following the effective date of the Amalgamation Agreement discussed in the subsequent event note as disclosed in the October 31, 2022 consolidated financial statements of the Company. At January 31, 2023 the loan had a balance of $756,051 (October 31, 2022 - nil). The full balance of the loan has been presented as current, as the Amalgamation Agreement is expected to be finalized within 12 months.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

10. Long-term debt (continued):

The following table summarizes the changes in financing activities due to long-term debt:

==> picture [451 x 197] intentionally omitted <==

----- Start of picture text -----

January 31 October 31
2023 2022
Long term debt balance November 1 $ 1,259,405 $ 38,370
Cash movement:
-
Debt repayments (40,002)
Debt advances 861,525 490,268
Non-cash movement:
Amortization of non-cash interest 18,821 8,395
-
Loans acquired in business combination 801,925
Fair value adjustments (33,993) (79,553)
2,065,756 1,259,405
Less: current portion 1,037,677 292,284
$ 1,028,079 $ 967,121
----- End of picture text -----

11. Related parties:

(a) Shareholders and ultimate controlling parties:

The Company’s shares are owned by four ultimate shareholders, two of whom are actively involved in the day-to-day operations of the business. In addition, one family member of a shareholder is employed by the Company,

The Company leased office and warehouse space from an immediate family member of a shareholder until the lease was cancelled in December 2022. Payments for this lease totaled $12,377 during the three months ended January 31, 2023 (January 31, 2022 - $12,377). No amounts were owing at the end of the period (October 31, 2022 – nil). Additional payments of $16,000 were made to this related party during the three months ended January 31, 2023 for the collateralization of the building against the term loan with Scotia Bank (January 31, 2022 - $20,000).

At January 31, 2023, loans to shareholders existed in the amount of $2,122,802 (October 31, 2022 – $2,122,802). These loans bear no interest and are not repayable on demand. In addition, at January 31, 2023 there were net payables of $229,109 (October 31,2022 - $191,236) owing to shareholders for transactions in the normal course of business.

(b) Affiliates:

The Company shares leased office and warehouse space with Ocean Rodeo, a related company under common management that was acquired by Aluula on October 31, 2022. Aluula and Ocean Rodeo also share staffing resources and are part of one overall cash management group.

During the quarter ended January 31, 2023, Aluula sold $1,011 of sample materials to Ocean Rodeo (January 31, 2022 - $18,888).

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

11. Related parties (continued):

The Company’s key management personnel includes the Executive Leadership Team, which is comprised of the Chief Executive Officer, Chief Operating Officer, and Strategic Advisor. The Executive Leadership Team has the authority and responsibility for overseeing, planning, directing and controlling the Company’s activities.

Total compensation expense paid to the Executive Leadership Team for the quarter ended January 31, 2023 was $103,504 (January 31, 2022 - $127,064), which includes $3,623 (January 31, 2022 - $3,623) in share-based payments. Employment agreements with the members of the Executive Leadership Team provide for severance payments if the executive is terminated without cause totaling $328,000 (October 31, 2022 - $328,000).

12. Other income:

Other income is comprised of the following:

		January 31		January 31
		2023		2022
Licenses	$	40,977	$	-
Fair value adjustment on interest free government loan		33,993		-
Other		1,031		-
Loss on disposal of property and equipment		(385)		-
	$	75,616	$	-

There were no government grants offset against expenses during the quarter ended January 31, 2023 (January 31, 2022 – nil).

13. Financial instruments:

(a) Fair value:

The following fair value measurement hierarchy is used for financial instruments that are measured in the consolidated statement of financial position at fair value using:

Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: techniques (other than quoted prices included in Level 1) that are observable for the asset or liability either directly (as prices) or indirectly (as derived from prices); and
Level 3: techniques which use inputs that are both significant to the overall fair value measurement of the asset or liability and are not based on observable market data (unobservable inputs).

The carrying value of cash and cash equivalents, trade and other receivables, trade and other payables and bank indebtedness approximate their fair value due to the relatively short-term maturity of these financial instruments. The carrying value of long-term debt and lease obligations are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

13. Financial instruments (continued):

(a) Fair value (continued):

There were no transfers between levels of the fair value hierarchy during the period ended January 31, 2023 or year ended October 31, 2022.

The following table summarizes the fair value hierarchy of assets and liabilities recorded at FVTPL:

January	31,	2023	October	31,	2022
Level 2		Level 3	Level 2		Level 3
Investments - $	$	43,126	- $	$	45,091

14. Financial risk and capital management:

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk, foreign exchange risk.

(a) Credit risk:

Credit risk is the risk that a counterparty will not meet its obligations under a customer contract or financial instrument, leading to a financial loss. The Company transacts only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, the Company holds credit insurance on trade receivables exceeding a specified value and all receivable balances are managed and monitored on an ongoing basis. The Company’s top two customers account for 63.4% (October 31, 2022 – 64.0%) of trade receivables at January 31, 2023, with the largest customer accounting for 42.3% (October 31, 2022 – 37.3%).

(b) Liquidity risk:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages liquidity risk by monitoring forecasted and actual cash flows, minimizing reliance on any single source of credit, maintaining sufficient undrawn committed credit facilities and managing the maturity profiles of financial assets and liabilities.

The table below details the maturities of the contractual undiscounted cash flows of the Company’s financial liabilities and as such these balances may not agree with the amounts disclosed on the interim financial statements.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

14. Financial risk and capital management (continued):

(b) Liquidity risk (continued):

As at January 31, 2023 and October 31, 2022, the contractual maturities of financial liabilities were as follows:

January31,2023
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Bank indebtedness	$	2,646,634	$	2,646,634	$	-
Trade and other payables		1,078,567		1,078,567		-
Due to related parties		2,122,802		-		2,122,802
Lease obligations		910,072		234,624		675,448
Long-term debt		1,604,156		1,059,359		544,797
Total financial liabilities	$	8,362,231	$	5,019,184	$	3,343,047

October 31,2022
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Bank indebtedness	$	2,744,697	$	2,744,697	$	-
Trade and other payables		894,496		894,496		-
Due to related parties		2,122,802		-		2,122,802
Lease obligations		1,075,642		267,126		808,516
Long-term debt		1,644,158		292,758		1,351,400
Total financial liabilities	$	8,481,795	$	4,199,077	$	4,282,718

(c) Interest rate risk:

Interest rate risk is the risk the fair value of future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company continuously monitors interest rates and economic conditions. At January 31, 2023 the Company had credit facilities with outstanding principal of $2,646,634. A 1% change in the interest rate on the credit facilities would have an aftertax impact of $19,320 on the interim statement comprehensive income (loss).

(d) Foreign exchange risk:

Foreign exchange risk is the risk that the value of financial instruments or cash flows will fluctuate due to changes in foreign exchange rates. While the Company has a significant amount of foreign currency revenues and associated receivables, natural hedges are in place through the purchase of input materials in foreign currencies.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

14. Financial risk and capital management (continued):

(e) Capital management:

The Company’s objective when managing its capital structure is to support its financial obligations and execute its operating and strategic plans. The Company’s capital is defined as the aggregate of its share capital, bank indebtedness, and long-term debt.

		January 31		October 31
		2023		2022
Share capital	$	6,305,977	$	6,305,977
Bank indebtedness		2,646,634		2,744,697
Long-term debt		2,065,756		1,259,405
	$	11,018,367	$	10,310,079

The Company’s debt obligations are subject to certain financial covenants. The Company’s capital management strategy includes ensuring it remains in compliance with covenants to maintain continuous access to its borrowing facilities to fund growth. Management reviews results and forecasts on a monthly basis to ensure compliance and Scotia Bank reviews certain results monthly to ensure compliance with the banking agreement. There were no changes to the Company’s approach to capital management during the period.

15. Share-based compensation:

On October 15, 2020, the Company established a share-based compensation plan (the “Plan”). The Plan allows up to a maximum of 400,000 shares to be issued as share-based compensation. Options granted under the Plan must be exercised within a period of 5 years from the grant date and generally vest at a rate of 1/12 per calendar quarter after issuance.

The fair value of employee share options has been measured using the Black-Scholes model. The inputs used in the measurement of the fair values of options granted under the Plan are as follows:

Risk free interest rate	0.32 - 0.95%
Expected dividend yield	0.00%
Forfeiture rate	0.00%
Stock price volatility	100%
Expected life of option	4.75 - 5 years

Expected volatility was based on an evaluation of the historical volatility of publicly traded companies operating in a similar industry.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

15. Share-based compensation (continued):

The number and weighted average exercise price of share options issued under the Plan are as follows:

			Weighted
		average exercise
	Number		price
Balance, October 31, 2021	352,000	$	0.29
Granted during the period	-		-
Balance, January 31, 2022	352,000	$	0.29
Balance, October 31, 2022	352,000	$	0.29
Granted during the period	-		-

Balance, January 31, 2023	352,000	$	0.29
Exercisable, January 31, 2023	266,875	$	0.29

The options outstanding at January 31, 2023 had a weighted average contractual life of 4.87 years (October 31, 2022 – 4.87 years).

For the quarter ended January 31, 2023, compensation expense related to share options was $4,937 (January 31, 2022 – $4,937).

16. Earnings (loss) per share:

The following table shows the computation of basic and diluted earnings (loss) per share:

==> picture [452 x 173] intentionally omitted <==

----- Start of picture text -----

January 31 January 31
2023 2022
Net income (loss) $ (1,165,151) $ (553,716)
Weighted average number of shares outstanding - basic 5,765,058 4,058,876
Effect of dilutive securities:
- -
Stock options converted to common shares
Stock options outstanding 352,000 352,000
Weighted average number of shares outstanding - diluted $ 6,117,058 $ 4,410,876
Basic loss per share $ (0.20) $ (0.14)
Effect of dilutive securities - -
Diluted loss per share $ (0.20) $ (0.14)
----- End of picture text -----

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

17. Segment information:

(a) Reportable segments:

The Company has aggregated certain operating segments on the basis of the product they sell and the fact that they share similar economic characteristics and are influenced by similar market factors. Each segment has regularly reviewed internal reports and a separate brand.

The Company has two reportable segments:

The Aluula segment relates to assembly and sale of soft composite materials for use in various applications and industries. Aluula sells its materials to manufacturers and brand partners.
The Ocean Rodeo segment relates to the purchase and resale of inventory in the windsport market, and the associated research and development projects that keep the company at the cutting edge of the windsport market. Ocean Rodeo sells its products to dealers, distributors, and end users. Ocean Rodeo was acquired on October 31, 2022 and as a result does not contribute to the consolidated statement of comprehensive income for the year ended October 31, 2022, and balance sheet items were initially recorded at fair value as of October 31, 2022.

Management evaluates the performance of each segment based on its individual profitability. All expenditures are allocated to segments.

Total assets and liabilities for each segment are as follows:

==> picture [433 x 148] intentionally omitted <==

----- Start of picture text -----

Ocean
January 31, 2023 Aluula Rodeo Total
Total assets $ 3,661,813 $ 10,616,600 $ 14,278,413
Total liabilities 5,204,504 4,983,151 10,187,655
Ocean
October 31, 2022 Aluula Rodeo Total
Total assets $ 3,291,678 $ 11,387,804 $ 14,679,482
Total liabilities 4,346,072 5,082,438 9,428,510
----- End of picture text -----

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

17. Segment information (continued):

(a) Reportable segments (continued):

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----- Start of picture text -----

Ocean
January 31, 2023 Aluula Rodeo Total
Sales $ 716,644 $ 731,871 $ 1,448,515
Cost of sales 567,270 684,198 1,251,468
Gross profit 149,374 47,673 197,047
Salaries and benefits 277,817 223,034 500,851
General and administrative 146,597 286,712 433,309
Research and development 5,421 11,823 17,244
Marketing 29,810 152,694 182,504
-
Share-based compensation 4,937 4,937
Other income (71,883) (3,733) (75,616)
Interest expense 62,216 29,778 91,994
Depreciation of capital assets 42,924 16,266 59,190
Amortization of intangible assets 191 67,940 68,131
Deferred income tax expense (recovery) 144,579 (64,925) 79,654
Segment loss $ (493,235) $ (671,916) $ (1,165,151)
Ocean
January 31, 2022 Aluula Rodeo Total
Sales $ 664,532 $ - $ 664,532
Cost of sales 446,792 - 446,792
-
Gross profit 217,740 217,740
Salaries and benefits 274,697 - 274,697
General and administrative 87,361 - 87,361
-
Research and development 112,612 112,612
-
Marketing 16,980 16,980
-
Share-based compensation 4,937 4,937
-
Interest expense 16,377 16,377
-
Depreciation of capital assets 31,742 31,742
Amortization of intangible assets 18 - 18
-
Deferred income tax expense 226,732 226,732
Segment loss $ (553,716) $ - $ (553,716)
----- End of picture text -----

During the three month period ended January 31, 2023, Ocean Rodeo primarily sold inventories that were on hand at the date of its acquisition by Aluula. These inventories acquired in the business combination were recorded at estimated net realizable value in accordance with the Company’s accounting policies, and therefore only contribute nominally to gross profit.

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

17. Segment information (continued):

(b) Geographic information:

For geographic reporting, sales are attributed to the geographic location in which the customer is located. The following table summarizes sales by region, excluding sales return allowances:

==> picture [433 x 134] intentionally omitted <==

----- Start of picture text -----

January 31 January 31
2023 2022
Sri Lanka $ 675,505 $ 308,590
Canada 262,000 4,909
United States 236,487 -
Europe 205,700 2,581
Rest of World 35,068 99,581
Hong Kong 12,350 248,871
Sales $ 1,427,110 $ 664,532
----- End of picture text -----

All of the Company’s non-current assets are located in Canada.

18. Supplementary cash flow information:

Supplementary cash flow information relating to non-cash investing and financing activities for the quarters ended January 31, 2023 and January 31, 2022 is as follows:

January 31	January 31
2023	2022
Non-cash movement in balance sheet items: Acquired balance sheet in purchase of Ocean Rodeo Sports Inc Property and equipment acquired through lease financing - $ Lease financing -	99,026 $ (99,026)

ALUULA COMPOSITES INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three month periods ended January 31, 2023 and January 31, 2022 (Unaudited)

19. Subsequent events:

(a) Reverse acquisition of Bastion Square Partners Inc.:

On December 20, 2022, the Company entered an Amalgamation Agreement with Bastion Square Partners Inc. (“BSP”), a company listed on the TSX Venture Exchange, in which BSP will acquire 100% of the outstanding shares of Aluula in exchange for shares of BSP (the “Proposed Transaction”).

The Proposed Transaction will be structured as a three-cornered amalgamation pursuant to the provisions of the Business Corporations Act (British Columbia) (the “BCABC”), whereby BSP incorporates a wholly owned subsidiary under the BCABC which amalgamates with the Company to form a newly amalgamated company that will continue as a wholly owned subsidiary of BSP (the “Resulting Issuer”). To effect the Proposed Transaction, BSP acquires all of the outstanding shares of the Company, and in exchange the Company’s shareholders receive common shares in BSP. The aggregate consideration to be issued is $21,001,123 and the Resulting Issuer will issue 175,009,365 Resulting Issuer Shares.

In connection with the Proposed Transaction, BSP will conduct a concurrent private placement offering of subscription receipts to raise proceeds of at least $1,500,000, at a price per subscription receipt to be determined in context of the market.

Consolidated Financial Statements of

ALUULA COMPOSITES INC.

Years ended October 31, 2022 and 2021

January 31, 2023 Edmonton, Alberta

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INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Aluula Composites Inc.

Opinion

We have audited the consolidated financial statements of Aluula Composites Inc. (the Company), which comprise the consolidated statement of financial position as at October 31, 2022, and the consolidated statements of income (loss) and comprehensive income (loss), changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at October 31, 2022, and the consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Matter

The financial statements for the year ended October 31, 2021 are unaudited.

Other Information

Management is responsible for the other information. The other information comprises the information, other than the consolidated financial statements and our auditor's report thereon, which includes Management's Discussion and Analysis.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.

(continues)

Independent Auditor's Report to the Shareholders of Aluula Composites Inc. (continued)

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

l Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
l Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
l Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
l Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
l Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

(continues)

Independent Auditor's Report to the Shareholders of Aluula Composites Inc. (continued)

l Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor's report is Justin Rousseau.

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Kingston Ross Pasnak LLP Chartered Professional Accountants

ALUULA COMPOSITES INC.

Consolidated Statements of Financial Position

October 31, 2022 with comparative information for 2021

					2021
	Note		2022		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	295,377	$	2,608
Trade and other receivables	4		1,137,872		614,523
Inventory	5		2,166,825		375,220
Deferred tax asset	20		1,014,258		585,566
Prepaid expenses and other current assets			541,475		61,642
			5,155,807		1,639,559
Property and equipment	6		1,206,169		839,265
Intangible assets	7		4,334,833		13,363
Other long-term assets			30,796		35,000
Investments	8,21		45,091		609
Goodwill	21		3,906,786		-
		$	14,679,482	$	2,527,796
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness	10	$	2,744,697	$	106,478
Trade and other payables	9		894,496		199,143
Customer deposits			192,883		126,378
Current portion of long-term debt	11		292,284		-
Current portion of lease obligations	12		233,430		276,963
Income tax payable	20		12,234		-
Deferred tax liability	20		1,223,065		-
			5,593,089		708,962
Long-term debt	11		967,121		38,370
Lease obligations	12		745,498		903,215
Due to related parties	13		2,122,802		1,469,823
			9,428,510		3,120,370
Shareholders' equity:
Share capital	17		6,305,977		611
Contributed surplus	18		52,654		32,904
Deficit			(1,107,659)		(626,089)
			5,250,972		(592,574)
Commitments	22
Subsequent events	25
		$	14,679,482	$	2,527,796

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

Approved on behalf of the Board:

_______ Richard Myerscough, CEO

John Zimmerman, COO

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ALUULA COMPOSITES INC.

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Year ended October 31, 2022 with comparative information for 2021

Year ended October 31, 2022 with comparative information for 2021	Year ended October 31, 2022 with comparative information for 2021
Note		2022 2021 (Unaudited)
Sales Cost of sales
		2,784,082 $ 2,032,562 $ 2,136,385 982,472
Gross profit Operating expenses: Salaries and benefits 13 General and administrative Research and development Marketing Share-based compensation 18		647,697 1,050,090 952,306 768,430 415,621 221,695 171,627 122,546 86,997 43,380 19,750 31,696
		1,646,301 1,187,747
Loss before interest, tax and amortization Other income 14 Interest expense Depreciation of capital assets 6 Amortization of intangible assets 7		(998,604) (137,657)
		644,616 222,192 (134,360) (29,413) (94,281) (44,767) (439) (46)
Income (loss) before tax Deferred tax recovery 20		(583,068) 10,309
		101,498 501,054
Net income (loss) and comprehensive income (loss)		(481,570) $ 511,363 $
Earnings (loss) per share: 19 Basic earnings (loss) per share: Diluted earnings (loss) per share:		(0.08) $ 0.13 $ (0.08) $ 0.12 $

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

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ALUULA COMPOSITES INC.

Consolidated Statements of Changes in Equity

Year ended October 31, 2022 with comparative information for 2021

							Retained		Total
	Shares		Share		Contributed		earnings	shareholders'
	outstanding		capital		Surplus		(deficit)		equity
Balance, October 31, 2020	4,058,876	$	611	$	1,208	$	(1,137,452)	$	(1,135,633)
Share-based compensation
(Note 18)	-		-		31,696		-		31,696
Net income	-		-		-		511,363		511,363
Balance,October 31,2021	4,058,876	$	611	$	32,904	$	(626,089)	$	(592,574)
Issuance of share capital
(Note 17)	1,706,182		6,305,366		-		-		6,305,366
Share-based compensation
(Note 18)	-		-		19,750		-		19,750
Net loss	-		-		-		(481,570)		(481,570)
Balance,October 31,2022	5,765,058	$	6,305,977	$	52,654	$	(1,107,659)	$	5,250,972

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

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ALUULA COMPOSITES INC.

Consolidated Statements of Cash Flows

Year ended October 31, 2022 with comparative information for 2021

ALUULA COMPOSITES INC. Consolidated Statements of Cash Flows Year ended October 31, 2022 with comparative information for 2021	ALUULA COMPOSITES INC. Consolidated Statements of Cash Flows Year ended October 31, 2022 with comparative information for 2021
Note		2022 2021 (Unaudited)
Cash flows from operating activities: Net income (loss) Items not involving cash: Depreciation of capital assets 6 Amortization of intangible assets 7 Share-based compensation 18 Government grants and fair value adjustments 14 Accretion of loans and leases 11,12 Foreign exchange movement on leases 12 Other gains and losses 14 Inventory write-downs 5 Changes in non-cash working capital items: Increase in trade and other receivables 4 Increase in inventory 5 Increase in deferred taxes 20 Decrease in prepaid expenses and other assets Decrease (increase) in other assets Increase in trade and other payables 9 Decrease in deferred revenue Increase (decrease) in customer deposits Cash flows from investing activities: Acquisition of property and equipment 6 Operating line of credit acquired in business combination 21 Acquisition of intangible assets 7 Cash flows from financing activities: Net proceeds from related parties 13 Payments for principal portion of lease obligations 12 Proceeds from lease obligations 12 Proceeds from long-term debt 11
		(481,570) $ 511,363 $

		189,659 44,767 439 46 19,750 31,696 (79,553) - 18,392 30,463 49,693 (1,546) (341,823) - 2,886 -
		(171,266) (368,374)
		(85,498) (308,534) (101,498) (501,054)
		1,605 (2,113)
		12,306 (35,000)
		144,038 184,865
		- (43,279) (123,038) 122,272
		(945,478) (334,428)

		(214,745) (95,629) (579,206) - (25,075) (4,999)
		(819,026) (100,628)

		(916,682) 119,695 (344,462) (12,517) 189,930 - 490,268 -
		(580,946) 107,178
Decrease in cash and cash equivalents Net cash and cash equivalents, beginning of the year1		(2,345,450) (327,878) (103,870) 224,008
Net cash and cash equivalents, end of year		(2,449,320) $ (103,870) $
1 Cash and cash equivalents Bank indebtedness
		295,377 $ 2,608 $ (2,744,697) (106,478)
Net cash and cash equivalents		(2,449,320) $ (103,870) $

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

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

1. Nature of operations:

2. Basis of preparation:

(a) Statement of compliance:

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements were approved by the Board of Directors for issue on January 31, 2023.

(b) Basis of measurement:

These consolidated financial statements have been prepared on a going concern basis, under the historical cost basis except for certain financial instruments that are measured at fair value as detailed in the Company’s significant accounting policies.

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Ocean Rodeo. A subsidiary is an entity over which the Company has control. The Company controls an entity when the Company is exposed to or has the rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and deconsolidated from the date that control ceases. All significant intercompany transactions are eliminated on consolidation. Ocean Rodeo was acquired on October 31, 2022, and as a result the current year-end figures are consolidated while the prior year-end is not. Refer to Note 21 for details of this acquisition.

(d) Functional and presentation currency:

These consolidated financial statements are presented in Canadian Dollars, which is the Company’s functional currency. Each entity in the Company maintains its accounting records in its functional currency. An entity’s functional currency is the currency of the principal economic environment in which it operates.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(e) Estimates and judgments:

The preparation of these consolidated financial statements in conformity with IFRS requires management to make certain estimates, judgements and assumptions that affect the application of accounting methods and the amounts recognized in the consolidated financial statements. These estimates and the underlying assumptions are established and reviewed continuously on the basis of past experience and other factors considered reasonable in the circumstances. Actual results may differ from the estimates.

Significant judgements and estimates relate to:

(i) Allowance for credit losses:

(ii) Valuation of inventory:

(iii) Internally generated assets:

(iv) Long-lived assets valuation:

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(e) Estimates and judgments (continued):

(iv) Long-lived assets valuation (continued):

The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of:

(i) value in use; or
(ii) fair value less selling costs.

(v) Provision for sales returns and warranties:

(vi) Share-based compensation:

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(e) Estimates and judgments (continued):

(vii) Leases:

(viii) Deferred income tax assets and liabilities:

(ix) Measurement of fair values:

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities is disclosed in the associated notes to the consolidated financial statements.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

2. Basis of preparation (continued):

(e) Estimates and judgments (continued):

(x) Revenue recognition:

(xi) Valuation of assets and liabilities acquired in a business combination:

3. Summary of significant accounting policies:

(a) Financial assets and liabilities:

Financial assets include cash and cash equivalents, trade and other receivables, and investments. Financial liabilities include trade and other payables, due to related parties, bank indebtedness, lease obligations, and long-term debt.

(i) Recognition and measurement of financial instruments:

Financial instruments are initially recognized at fair value. If the financial instrument is not classified at fair value through profit and loss (“FVTPL”), then the initial measurement includes directly attributable transaction costs. Subsequent to initial recognition, financial assets are measured at either amortized cost, fair value through OCI or FVTPL. Financial liabilities are measured at either amortized cost or FVTPL. Classification depends on the nature and objective of each financial instrument and is determined when first recognized.

(ii) Provision for impairment:

Financial assets carried at amortized cost include cash and cash equivalents and trade and other receivables. The Company assesses the lifetime expected credit losses (“ECL”) associated with its assets carried at amortized cost. ECL represents the expected credit loss that will result from all possible default events over the expected life of the financial instrument. The amount of ECL is updated at each reporting date to reflect changes in credit risk. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring as at the reporting date with the risk of default as at the date of initial recognition based on all information available, including reasonable and supportive forward-looking information. When a financial instrument is uncollectible, it is written off against the provision for impairment.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

3. Summary of significant accounting policies (continued):

(a) Financial assets and liabilities (continued):

(iii) Cash and cash equivalents:

Cash and cash equivalents include bank deposits and cash on hand. Due to the nature of these financial instruments, carrying value approximates fair value. Cash and cash equivalents are held at amortized cost. Cash and cash equivalents and bank indebtedness are combined by management when assessing the Company’s cash position, and have been presented on a net basis in the consolidated statement of cash flows.

(iv) Trade and other receivables:

Trade and other receivables are initially recognized at fair value less provision for impairment. Subsequently, trade and other receivables are measured at amortized cost. As receivables are due in less than one year, they are not discounted. The provision established against trade and other receivables represents lifetime ECL and is updated at each reporting date. Any increase in the provision is recognized in the consolidated statement of comprehensive income (loss). When a trade receivable is uncollectible, it is written off against the provision for impairment. Subsequent recoveries of amounts previously written off are recognized in the consolidated statement of comprehensive income (loss).

(v) Investments:

IFRS 9 prescribes a single approach to determine whether an investment in an equity instrument is classified and measured at amortized cost or at fair value, with each instrument measured separately. The classification and measurement of investments is based on the Company’s business models for managing its financial assets and whether the contractual cash flows represent solely payments of principal and interest. The Company’s investments are measured at fair value and are classified as Fair Value through Profit or Loss (“FVTPL”). Subsequent changes in fair value are recognized as gains or losses in the consolidated statement of comprehensive income. Transaction costs relating to investments classified as FVTPL are recognized in profit or loss as they are incurred.

(vi) Borrowings and other financial liabilities:

Trade and other payables, due to related parties and bank indebtedness are initially recognized at fair value, net of transaction costs, plus or minus any premiums or discounts. Bank loans and other financial liabilities are subsequently measured at amortized cost calculated using the effective interest method. Interest accrued on borrowings is included in trade and other payables on the consolidated statement of financial position. Cash flows linked to short-term payable amounts are not discounted. Long-term cash flows are discounted when the impact is significant. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

3. Summary of significant accounting policies (continued):

(b) Inventory:

Inventory is valued at the lower of cost and net realizable value, with cost being determined using the specific identification cost method. The cost of raw materials and finished goods for resale includes direct product costs. The cost of finished and in-progress composite materials includes direct product costs, direct labour and an allocation of variable and fixed manufacturing overhead, including interest and depreciation. When circumstances that previously caused inventory writedowns below cost no longer exist, or when there is clear evidence of an increase in the net realizable value, the amount of a write-down previously recorded is reversed through cost of goods sold.

(c) Property and equipment including right of use assets:

Items of property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes any expenditure that is directly attributable to the acquisition of the asset. Property and equipment assets are evaluated at each reporting date to determine whether there is an indication of impairment. Where evidence of impairment exists, the asset’s recoverable amount, being the greater of its value in use and its fair value less costs to sell, is estimated. An impairment loss is recognized in net income if the carrying amount of the asset is greater than its estimated recoverable amount. Impairment losses recognized in prior periods may be reversed if there has been a change in the estimates used to determine the recoverable amount. Gains and losses on the disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment.

Depreciation is recognized in profit or loss on a basis that most closely reflects the expected pattern of consumption of future economic benefits embodied in the assets. Depreciation is calculated using the straight-line method over the estimated useful life of the asset as follows:

Furniture and computer equipment	3 - 10 years
Molds	3 - 7 years
Machinery and equipment	5 - 10 years
Leased office and warehouse space	Term of the lease
Leasehold improvements	Term of the lease

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

(d) Intangible assets:

Intangible assets include patents, licenses and trademarks. Upon recognition of an intangible asset, the Company determines if the asset has a definite or indefinite life. In making this determination, the Company considers the expected use, expiry of agreements, the nature of the asset and whether the value of the asset decreases over time. Definite life intangible assets are measured at cost less accumulated amortization net of accumulated impairment losses. Amortization is recognized in the consolidated statements of comprehensive income (loss) on a straight-line basis over the estimated useful life as follows:

Trademarks	Up to 20 years
Patents and licenses	Up to 20 years

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

3. Summary of significant accounting policies (continued):

(e) Business combinations and goodwill:

Business combinations are accounted for using the acquisition method at the acquisition date, which is the date that control is transferred to the Company. In assessing control, the Company takes into consideration potential voting rights that are currently exercisable.

Goodwill is measured as the excess of the sum of the fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of any previously held equity interest in the acquiree over the net of the acquisition date fair value of the identifiable assets acquired and the liabilities assumed. If the excess is negative, a bargain purchase gain is recognized immediately in earnings. Transaction costs, other than those associated with the issue of debt or equity, are recognized in earnings as incurred.

Goodwill is not amortized, and is tested for impairment annually and as required when circumstances indicate that its carrying amount may not be recoverable. Goodwill is measured at cost less any accumulated impairment losses.

(f) Leases:

At the inception of a contract, the Company assesses whether a contract is or contains a lease. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

The supplier has a substantive substitution right;
The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period; and
The Company has the right to direct the use of the asset.

The Company has the right to control when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. For contracts that contain a lease the Company recognizes a right-of-use asset, presented under property and equipment or intangible assets in the consolidated statement of financial position, and a lease obligation at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those within the equivalent category of property and equipment or intangible assets.

ALUULA COMPOSITES INC. Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

3. Summary of significant accounting policies (continued):

(f) Leases (continued):

The lease obligation is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The lease obligation is subsequently measured at amortized cost using the effective interest rate method. It is remeasured when there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, when there is a change to the future lease payments arising from a change in a rate used to determine those payments or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.

The Company does not recognize right-of-use assets and lease obligations for short-term leases that have a lease term of 12 months or less or for leases of low value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the term of the lease.

(g) Impairment of non-financial assets:

On each reporting date, the Company reviews the carrying amounts of property and equipment, intangible assets and right-of-use assets for any indication of impairment. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the assets recoverable amount.

The recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs of disposal and value in use. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows form other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.

An impairment loss is recognized when the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are recognized in the consolidated statement of comprehensive income (loss).

An impairment loss is reversed if there is an indication that an impairment loss recognized in the prior periods may no longer exist. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized previously. Such a reversal is recognized in the consolidated statement of comprehensive income (loss).

(h) Provisions:

Provisions are liabilities of the Company for which the amount and/or timing of settlement is uncertain. A provision is recognized in the consolidated financial statements when the Company has a present legal or constructive obligation because of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and when appropriate the risks specific to the liability.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

3. Summary of significant accounting policies (continued):

(i) Revenue recognition:

The Company follows the following steps when accounting for revenue from contracts with customers:

(i) Identify the contract with a customer
(ii) Identify the performance obligations
(iii) Determine the transaction prices
(iv) Allocate the transaction price to the performance obligations
(v) Recognize revenue when/as performance obligations(s) are satisfied

The Company generates revenue through the sale of its composite materials and Ocean Rodeo windsport products. All revenue is recognized net of any tax collected from customers, which is subsequently remitted to the relevant government authorities. Customer payment terms vary, but are short-term in nature. Customer contracts do not contain significant financing components or variable consideration.

Composite materials

The Company’s principal business activity is the assembly and sale of composite materials for use in a broad range of commercial applications. Revenue is recognized when control of the materials transfers to the customer, which is the point at which it has been shipped from the Company’s warehouse. At this time, invoices are sent and the accounts receivable timeline begins.

Windsport products

The Company’s subsidiary, Ocean Rodeo, generates revenue through the sale of finished windsport products. Revenue is recognized at the time the customer takes control of the product, which is estimated based on historical experience of shipping terms, shipping date and shipping destination. When a right to return exists, a sales return allowance is recognized based on historical return rates. A sales return allowance is measured at the amount of consideration received, or receivable, for which the Company does not expect to be entitled. When a return occurs, the Company has the right to recover the goods sold, and so recognizes a corresponding adjustment to cost of sales and right to returned goods. The Company’s standard warranty period is not considered to create a separate performance obligation. Warranty obligations are accounted for as provisions, and the estimated cost of satisfying the warranty obligation is recognized when the necessity of the provision is evident. The sales return allowance and warranty provision are updated at the end of each reporting period for changes in circumstances.

(j) Government grants:

Government grants are recognized where there is a reasonable assurance that the grant will be received and the Company will comply with all conditions. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs for which it is intended to compensate are expensed. When the grant relates to an asset, the cost of the asset is reduced by the amount of the grant.

(k) Research and development expenses:

The company undertakes research and development activities to develop or improve new and existing products and to tailor them to suit specific applications, as required. These activities result in costs that are expensed as incurred.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

3. Summary of significant accounting policies (continued):

(l) Share-based compensation:

The Company has a share-based compensation plan, which is described in Note 18. The Company accounts for share-based payments and awards to employees, directors and officers at fair value using the Black-Sholes option pricing model. Under the fair value-based method, compensation cost attributable to awards intended to settle in equity is based on the fair value of the award on the grant date and recognized as an expense, with a corresponding increase in equity over the vesting period using the graded vesting method. At the end of each reporting period management reassesses its estimates of the number of awards that are expected to vest and recognizes the impact of the revisions in the consolidated statement of comprehensive income (loss).

(m) Income tax:

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and where they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities that intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

(n) Basic and diluted earnings (loss) per share:

Basic earnings (loss) per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted income (loss) per share, whereby all “in the money” stock options are assumed to have been exercised at the beginning of the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during the period. When a loss is incurred during the period, basic and diluted loss per share are equivalent as the exercise of stock options is considered to be anti-dilutive.

ALUULA COMPOSITES INC. Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

3. Summary of significant accounting policies (continued):

(o) Future accounting pronouncements:

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended October 31, 2022 and therefore have not been applied in the preparation of these consolidated financial statements.

(i) IAS 1 - Presentation of Financial Statements:

In February 2021, the IASB issued an amendment to IAS 1 to defer the effective date of the January 2020 Classification of Liabilities as Current or Non-current by one year. In June 2021, the IASB issued a further amendment to IAS 1 to help preparers in deciding which accounting policies to disclose in their financial statements. The amendments are to be applied prospectively and are effective for annual periods beginning on or after January 1, 2023, with earlier application permitted.

(ii) IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors:

In February 2021, the IASB issued an amendment to IAS 8 to introduce the definition of an accounting estimate and included other amendments to IAS 8 to help entities distinguish changes in accounting estimates from changes in accounting policies. These amendments are effective for annual periods beginning on or after January 1, 2023, with earlier application permitted.

(iii) IAS 12 - Income Taxes:

In May 2021, the IASB issued an amendment to IAS 12 to narrow the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 so that it no longer applies to transaction that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendment is effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted.

4. Trade and other receivables:

Trade and other receivables are comprised of the following:

				2021
		2022		(Unaudited)
Trade receivables	$	1,293,820	$	583,330
Government receivables		11,480		31,193
Sales return allowance		(125,991)		-
Expected credit losses		(41,437)		-
	$	1,137,872	$	614,523

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

4. Trade and other receivables (continued):

Trade receivables net of expected credit losses outstanding at October 31 were aged as follows:

				2021
		2022		(Unaudited)
Current	$	773,879	$	578,006
30 - 60 days		225,921		158
60 - 90 days		135,111		5,166
Over 90 days		117,471		-
	$	1,252,383	$	583,330

The following table summarizes the change in sales return allowances for the period:

				2021
		2022		(Unaudited)
Opening balance	$	-	$	-
Sales return allowances acquired in business combination		125,991		-
	$	125,991	$	-

The following table summarizes the change in expected credit losses for the period:

				2021
		2022		(Unaudited)
Opening balance	$	-	$	-
Expected credit losses acquired in business combination		41,437		-
	$	41,437	$	-

5. Inventory:

Inventory is comprised of the following:

Inventory is comprised of the following:
				2021
		2022		(Unaudited)
Raw materials	$	304,474	$	318,206
Finished goods - composite materials		230,043		57,014
Finished goods - products for resale		1,632,308		-
	$	2,166,825	$	375,220

During the year ended October 31, 2022, inventories totalling $2,020,413 (2021 - $912,834) and inventory write-downs totalling $2,886 (2021 - nil) were included in cost of sales. There were no reversals of write-downs from previous periods.

Furniture and equipment Computer equipment Leasehold improvements Machinery and equipment Molds Right-of-use buildings Right-of-use machinery and equipment Total	Cost Balance, October 31, 2020 - $ - $ 4,059 $ 100,764 $ - $ - $ - $ 104,823 $ Additions 3,665 4,347 1,733 11,138 - 646,453 118,922 786,258 Disposals - - - - - - - - Balance, October 31, 2021 3,665 4,347 5,792 111,902 - 646,453 118,922 891,081 Additions 12,978 13,257 4,605 68,721 - - 254,641 354,202 Acquired in business combination (Note 21) 28,246 7,492 1,122 - 72,558 92,943 - 202,361 Disposals - - - - - - - -	Balance, October 31, 2021 3,665 4,347 5,792 111,902 - 646,453 118,922 891,081 Additions 12,978 13,257 4,605 68,721 - - 254,641 354,202 Acquired in business combination (Note 21) 28,246 7,492 1,122 - 72,558 92,943 - 202,361 Disposals - - - - - - - -	Balance, October 31, 2022 44,889 $ 25,096 $ 11,519 $ 180,623 $ 72,558 $ 739,396 $ 373,563 $ 1,447,644 $	Accumulated depreciation Balance, October 31, 2020 - $ - $ 474 $ 6,575 $ - $ - $ - $ 7,049 $ Depreciation - 462 880 22,230 - 21,195 - 44,767 Disposals - - - - - - - -

Notes to the Consolidated Financial Statements Year ended October 31, 2022

ALUULA COMPOSITES INC.

7. Intangible assets:

		Patents
		and
		Licenses		Trademarks		Total
Cost
Balance, October 31, 2020	$	7,705	$	740	$	8,445
Additions		4,999		-		4,999
Disposals		-		-		-
Balance, October 31, 2021		12,704		740		13,444
Additions		16,619		8,457		25,076
Acquired in business combination (Note 21)		4,296,834		-		4,296,834
Disposals		-		-		-
Balance,October 31,2022	$	4,326,157	$	9,197	$	4,335,354
Accumulated amortization
Balance, October 31, 2020	$	-	$	35	$	35
Amortization		8		38		46
Disposals		-		-		-
Balance, October 31, 2021		8		73		81
Amortization		402		38		440
Disposals		-		-		-
Balance,October 31,2022	$	410	$	111	$	521
Carrying amounts:
Balance, October 31, 2021	$	12,696	$	667	$	13,363
Balance,October 31,2022	$	4,325,747	$	9,086	$	4,334,833

As at October 31, 2022, intangible assets with a cost of $81,032 (2021 - $11,920) were recorded for patents, licenses or trademarks management expects to be granted but were still pending approval.

8. Investments:

The Company holds strategic long-term investments in private companies that are not quoted in an active market. Fair value for these investments is determined using available financial and market information which can include financial statements and company projections.

				2021
		2022		(Unaudited)
XlynX Materials Inc.	$	609	$	609
GKA Event GmbH		44,482		-
	$	45,091	$	609

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

8. Investments (continued):

(a) XlynX Materials Inc. (“XlynX”)

The Company owns 352,941 Class A common voting shares (2021 – 352,941) in XlynX, representing 15% (2021 – 15%) of its issued and outstanding common shares. Based in British Columbia, Canada, XlynX is an emerging specialty chemical company with a focus on the development of novel diazirine-based crosslinking molecules and carbon nanomaterials. The combination of these crosslinking technologies is attempting to improve the strength to weight ratio of various input materials currently used by Aluula to make its ultralight composites.

(b) GKA Event GMBH (“GKA”)

The Company owns 4,167 shares (2021 – nil) in GKA, representing 16.67% (2021 – nil) of its issued and outstanding share capital. Based in Hamburg, Germany, GKA was established as an event company for the purpose of organizing events in connection with or relating to kitesurfing.

9. Trade and other payables:

Trade and other payables are comprised of the following:

				2021
		2022		(Unaudited)
Trade payables	$	604,085	$	173,724
Accrued liabilities		89,600		6,500
Credit cards payable		88,685		9,984
Warranty provision		57,965		-
Payroll liabilities		36,166		8,935
Government payables		9,480		-
Royalties payable		8,515		-
	$	894,496	$	199,143

The following table summarizes the change in warranty provisions for the period:

				2021
		2022		(Unaudited)
Opening balance	$	-	$	-
Warranty provisions acquired in business combination		57,965		-
	$	57,965	$	-

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

10. Bank indebtedness:

(a) Operating line of credit - Scotia Bank:

The Company has a credit facility with Scotia Bank (the “LOC”) to fund general operations. The LOC bears interest at 1% above Scotia’s prime lending rate and is repayable on demand. At October 31, 2022, the Company’s borrowing capacity was $2,000,000 and the balance outstanding was $1,744,697 (2021 - $80,163).

(b) Operating line of credit – Royal Bank:

The Company held a credit facility with Royal Bank (the “RBC LOC”) to fund general operations until June 2022. The RBC LOC bore interest at 3% above Royal Bank’s prime lending rate and was repayable on demand. Under the terms of the RBC LOC, Aluula shareholders have postponed their right to repayment of shareholder loans under certain circumstances and guaranteed the facility. At October 31, 2022, the Company’s borrowing capacity was nil and the balance outstanding was nil (2021 - $26,315).

The Company has access to a revolving pre-shipment financing facility (the “EGP Program”) with Scotia Bank. This facility bears interest at 1.00% per annum above Scotia Bank’s Prime interest rate, is payable on demand, and is capped at 90% of eligible contract costs. 75% of this facility is guaranteed by Export Development Canada under its Export Guarantee Program. As at October 31, 2022, the Company’s borrowing capacity under the EGP Program was $1,000,000 and the balance utilized was $1,000,000 (2021 - nil).

(d) Scotia Bank Guarantees:

11. Long-term debt:

(a) Western Economic Diversification Canada:

On March 23, 2022, the Company signed an agreement to receive funding up to $737,500 through the Western Economic Diversification Canada (“WD Canada”) Business Scale-up and Productivity program to offset costs of business expansion as prescribed in the funding agreement. This funding is in the form of an interest free loan, repayable in monthly instalments of $12,459 beginning on April 1, 2024. As of October 31, 2022, $490,270 (2021 - nil) of the available funding had been received, and the loan had a discounted balance of $417,714 (2021 – nil)

(b) Western Economic Diversification Canada:

On August 24, 2020, the Company signed an agreement to receive up to $190,000 through WD Canada’s Regional Relief and Recovery Fund (“RRRF”) to offset costs of business expansion as prescribed in the funding agreement. This funding is in the form of an interest free loan, repayable in monthly instalments of $5,275 beginning January 31, 2023. As at October 31, 2022, $190,000 of funding had been received and was acquired as part of the business combination at a discounted balance of $178,823.

ALUULA COMPOSITES INC. Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

11. Long-term debt (continued):

On June 11, 2020, WD Canada also provided the Company with a $60,000 interest free loan as part of its Regional Relief and Recovery Fund. If this loan is repaid in full on or by December 31, 2022, $20,000 is forgiven. Subsequent to year-end the repayment date was extended to December 31, 2023. At October 31, 2022 the loan had a discounted balance of $39,765 (2021 - $38,370).

(d) Scotia Bank:

On August 10, 2021, the Company entered into a banking agreement with Scotia Bank that provided the Company with an $800,000 non-revolving term loan to fund general business needs. The loan is repayable in monthly instalments of $13,334 plus interest at Scotia Bank prime plus 1.25%. As at the acquisition date of October 31, 2022, the loan had a discounted balance of $583,342.

(e) Government of Canada:

On April 23, 2020, the Company received a $40,000 interest free loan as part of its Canada Emergency Benefit Account. This loan was expanded to $60,000 on January 11, 2021. If this loan is repaid in full on or by December 31, 2022, $20,000 is forgiven. Subsequent to year-end the repayment date was extended to December 31, 2023. This loan was acquired as part of the business combination at October 31, 2022, and had a discounted balance of $39,761.

The following table summarizes the changes in financing activities due to long-term debt:

				2021
		2022		(Unaudited)
Long term debt balance November 1	$	38,370	$	37,025
Cash movement:
Debt repayments		-		-
Debt advances		490,268		-
Non-cash movement:
Amortization of non-cash interest		8,395		1,345
Loans acquired in business combination		801,925
Fair value adjustments		(79,553)		-
		1,259,405		38,370
Less: current portion		292,284		-
	$	967,121	$	38,370

12. Lease obligations:

The Company has leases and lease obligations for office and warehouse space, machinery, equipment, and a licensing agreement. The machinery and equipment leases have been discounted using the interest rate implicit in the leases. The interest rate implicit in the office and warehouse space was not readily determinable, so the Company used the incremental borrowing rate (“IBR”) of 3.58% for new lease obligations during the year ended October 31, 2021. The office lease acquired in the business combination was recorded at fair value as at October 31, 2022.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

12. Lease obligations (continued):

				2021
		2022		(Unaudited)
Beginning of year	$	1,180,178	$	462,773
Additions		329,387		702,350
Payments		(344,462)		(12,517)
Terminations		(341,823)		-
Accretion of lease liabilities		9,997		29,118
Leases acquired in business combination		95,958		-
Foreign currency translation adjustment		49,693		(1,546)
End ofyear	$	978,928	$	1,180,178
Lease liabilities due within one year	$	233,430	$	276,963
Lease liabiltiies due beyond one year		745,498		903,215
	$	978,928	$	1,180,178

Future minimum lease payments at October 31, 2022 are as follows:

		Within		One to five
		oneyear		years		Total
Lease payments	$	273,057	$	768,878	$	1,041,935
Finance charges		39,627		23,380		63,007
Netpresent value	$	233,430	$	745,498	$	978,928

13. Related parties:

(a) Shareholders and ultimate controlling parties:

At October 31, 2022, loans to shareholders existed in the amount of $2,122,802 (2021 – $18,172). These loans bear no interest and are not repayable on demand.

(b) Affiliates:

During the year ended October 31, 2022, Aluula sold $22,940 of sample materials to Ocean Rodeo (2021 - $15,569).

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

13. Related parties (continued):

Total compensation expense paid to the Executive Leadership Team for the year ended October 31, 2022 was $281,270 (2021 - $350,252), which includes $14,492 (2021 - $14,492) in sharebased payments. Employment agreements with the members of the Executive Leadership Team provide for severance payments if the executive is terminated without cause totaling $328,000 (2021 - $168,000).

14. Other income:

Other income is comprised of the following:

				2021
		2022		(Unaudited)
Cancellation of lease liability attached to licensing agreement	$	363,682	$	-
Licenses		128,608		43,280
Fair value adjustment on interest free government loan		79,553		-
Scientific research and experimental development refund		70,866		158,912
Other		1,907		-
Forgivable portion of government loan		-		20,000
	$	644,616	$	222,192

There were no government grants offset against expenses during the year ended October 31, 2022 (2021 – nil).

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

15. Financial instruments:

(a) Fair Value:

The following fair value measurement hierarchy is used for financial instruments that are measured in the consolidated statement of financial position at fair value using:

Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: techniques (other than quoted prices included in Level 1) that are observable for the asset or liability either directly (as prices) or indirectly (as derived from prices); and
Level 3: techniques which use inputs that are both significant to the overall fair value measurement of the asset or liability and are not based on observable market data (unobservable inputs).

There were no transfers between levels of the fair value hierarchy during the years ended October 31, 2022 or October 31, 2021.

The following table summarizes the fair value hierarchy of assets and liabilities recorded at FVTPL:

			2022			2021 (Unaudited)	2021 (Unaudited)	2021 (Unaudited)
		Level	2	Level 3		Level	2	Level 3
Investments	$	-	$	45,091	$	-	$	609

16. Financial risk and capital management:

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk, foreign exchange risk.

(a) Credit risk:

Credit risk is the risk that a counterparty will not meet its obligations under a customer contract or financial instrument, leading to a financial loss. The Company transacts only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, the Company holds credit insurance on trade receivables exceeding a specified value and all receivable balances are managed and monitored on an ongoing basis. The Company’s top two customers account for 64.0% (2021 – 98.5%) of trade receivables at October 31, 2022, with the largest customer accounting for 37.3% (2021 – 54.2%).

ALUULA COMPOSITES INC. Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

16. Financial risk and capital management (continued):

(b) Liquidity risk:

As at October 31, 2022 and 2021, the contractual maturities of financial liabilities were as follows:

2022
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Bank indebtedness	$	2,744,697	$	2,744,697	$	-
Trade and other payables		894,496		894,496		-
Due to related parties		2,122,802		-		2,122,802
Lease obligations		1,075,642		267,126		808,516
Long-term debt		1,644,158		292,758		1,351,400
Total financial liabilities	$	8,481,795	$	4,199,077	$	4,282,718

2021(Unaudited)
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Bank indebtedness	$	106,478	$	106,478	$	-
Trade and other payables		199,143		199,143		-
Due to related parties		1,469,823		-		1,469,823
Lease obligations		1,856,550		372,933		1,483,617
Long-term debt		787,500		-		787,500
Total financial liabilities	$	4,419,494	$	678,554	$	3,740,940

(c) Interest rate risk:

Interest rate risk is the risk the fair value of future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company continuously monitors interest rates and economic conditions. At October 31, 2022, the Company had credit facilities with outstanding principal of $2,744,697. A 1% change in the interest rate on the credit facilities would have an aftertax impact of $20,036 on the consolidated statement comprehensive income (loss).

(d) Foreign exchange risk:

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

16. Financial risk and capital management (continued):

(e) Capital management:

				2021
		2022		(Unaudited)
Share capital	$	6,305,977	$	611
Bank indebtedness		2,744,697		106,478
Long-term debt		1,259,405		38,370
	$	10,310,079	$	145,459

17. Share capital:

Issuance of common shares:

			2021
	2022		(Unaudited)
Authorized:
10,000,000 Class A common voting shares without par value
1,000,000 Class B common voting shares with a par value of $0.01 per	share
1,000,000 Class C common non-voting shares with a par value of $0.10	per share
1,000,000 Class AA preferred non-voting shares with a par value of $0.01 per share
1,000,000 Class BB preferred non-voting shares with a par value of $0.01 per share
Issued and fully paid:
5,765,058 Class A common voting shares (2021 - 3,450,045) $	6,305,977	$	611
$	6,305,977	$	611
Common shares	Number		Amount
Balance, October 31, 2020 and October 31, 2021	4,058,876	$	611
October 31, 2022 issuance	1,706,182		6,305,366
Balance,October 31,2022	5,765,058	$	6,305,977

ALUULA COMPOSITES INC. Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

17. Share capital (continued):

During the year ended October 31, 2022, 1,706,182 Class A common voting shares were issued in exchange for 100% of the shares of Ocean Rodeo (Note 21). There were no shares issued during 2021.

18. Share-based compensation:

The fair value of employee share options has been measured using the Black-Scholes model. The inputs used in the measurement of the fair values of options granted under the Plan are as follows:

Risk free interest rate	0.32 - 0.95%
Expected dividend yield	0.00%
Forfeiture rate	0.00%
Stock price volatility	100%
Expected life of option	4.75 - 5 years

Expected volatility was based on an evaluation of the historical volatility of publicly traded companies operating in a similar industry.

The number and weighed average exercise price of share options issued under the Plan are as follows:

			Weighted
		average exercise
	Number		price
Balance, October 31, 2020	203,000	$	0.29
Granted during the year	149,000		0.29
Balance,October 31,2021	352,000	$	0.29
Granted during the year	-		-
Balance,October 31,2022	352,000	$	0.29
Exercisable,October 31,2022	243,750	$	0.29

The options outstanding at October 31, 2022 had a weighted average contractual life of 4.87 years.

For the year ended October 31, 2022, compensation expense related to share options was $19,750 (2021 – $31,696).

ALUULA COMPOSITES INC. Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

19. Earnings (loss) per share:

The following table shows the computation of basic and diluted earnings (loss) per share:

				2021
		2022		(Unaudited)
Net income(loss)	$	(481,570)	$	511,363
Weighted average number of shares outstanding - basic		5,765,058		4,058,876
Effect of dilutive securities:
Stock options converted to common shares		-		-
Stock options outstanding		352,000		203,000
Weighted average number of shares outstanding- diluted	$	6,117,058	$	4,261,876
Basic earnings (loss) per share	$	(0.08)	$	0.13
Effect of dilutive securities		-		(0.01)
Diluted earnings(loss) per share	$	(0.08)	$	0.12
Income taxes:
Income tax expense differs from the amounts that would be obtained by		applying the Canadian statutory
income tax rate to net loss before income taxes as follows:
				2021
		2022		(Unaudited)
Net loss before income taxes	$	(583,068)	$	10,309
Tax rate		27%		27%
Expected income tax expense (recovery)		(157,428)		2,783
Increase (decrease) in income tax expense (recovery) resulting from:
Non-deductible expenses		5,503		8,573
Loss carry-forwards		151,925		(11,356)
	$	-	$	-

20. Income taxes:

Income tax expense differs from the amounts that would be obtained by applying the Canadian statutory income tax rate to net loss before income taxes as follows:

The Company has net operating losses carried forward for income tax purposes of approximately $2,832,444 (2021 - $916,578).

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

20. Income taxes (continued):

The components of deferred income taxes are as follows:

The components of deferred income taxes are as follows:
				2021
		2022		(Unaudited)
Deferred income taxes:
Canadian tax loss carry forwards	$	764,760	$	247,476
Other temporary differences arising from:
Intangible assets		(1,138,667)		(1,880)
Right-of-use assets		(57,204)		-
Inventory acquired in business combination		(117,485)		-
Property and equipment		(22,328)		(21,584)
Scientific research and development refunded		72,054		42,906
Depreciation included in inventory		25,752		-
Lease obligations		264,311		318,648
Total deferred income tax assets(liabilities)	$	(208,807)	$	585,566

21. Business combinations:

On October 31, 2022, the Company entered into a share purchase agreement to acquire 100% of the issued and outstanding shares of Ocean Rodeo, a previously related company under common control. Under the terms of the share purchase agreement, the Company issued 1,706,182 Class A common voting shares in exchange for the purchase, with a value of $3.6956 per share and totaling $6,305,366. Ocean Rodeo is a Victoria based company that internally develops intellectual property and sells cutting-edge finished goods to customers in the windsport market. This was a strategic acquisition relating to management’s plan to list Aluula on the public market, as discussed in subsequent events. Ocean Rodeo became a consolidated subsidiary of the Company on October 31, 2022. Had Ocean Rodeo been acquired on November 1, 2021, consolidated sales would have been $8,556,737, and consolidated net loss would have been $1,335,418. This acquisition has been accounted for as a business combination.

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

21. Business combinations (continued):

The following table summarizes the consideration paid and components of the acquired business:

Share consideration paid: 6,305,366 $ Cash acquired (41,004) Total debt assumed 1,422,136	Share consideration paid: 6,305,366 $ Cash acquired (41,004) Total debt assumed 1,422,136
Total enterprise value 7,686,498 $ Assets to be allocated: Current assets 2,896,337 Property and equipment 202,361 Investments 44,482 Trade and other payables (569,841) Income tax payable (12,234) Customer deposits (189,543) Lease obligations assumed (95,958) Amounts due to related parties (1,569,661) Deferred tax liability (1,223,065) Total tangible assets (517,122) Patents and trademarks 4,296,834 Goodwill 3,906,786 Total intangible assets 8,203,620
	Total tangible assets (517,122) Patents and trademarks 4,296,834 Goodwill 3,906,786
	Total intangible assets 8,203,620
	7,686,498 $

Goodwill on the acquisition relates to existing operating names, relationships in place, and customer lists that cannot be quantified.

22. Commitments:

Commitments include leases recognized as lease obligations, as well as short-term and low value leases which don’t meet the capitalization requirements of IFRS 16.

2023		$	267,126
2024			271,657
2025			271,657
2026			231,855
2027	and thereafter		33,347
		$	1,075,642

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

23. Segment information:

(a) Reportable segments:

The Company has two reportable segments:

The Aluula segment relates to the assembly and sale of soft composite materials for use in various applications and industries. Aluula sells its materials to manufacturers and brand partners.
The Ocean Rodeo segment relates to the purchase and resale of inventory in the windsport market, and the associated research and development projects that keep the company at the cutting edge of the windsport market. Ocean Rodeo sells its products to dealers, distributors, and end users. Ocean Rodeo was acquired on October 31, 2022 and as a result does not contribute to the consolidated statement of comprehensive income for the year ended October 31, 2021 or October 31, 2022, and no balance sheet figures are included for the year-ended October 31, 2021.

Management evaluates the performance of each segment based on its individual profitability. All expenditures are allocated to segments.

Total assets and liabilities for each segment are as follows:

2022	Aluula Ocean Rodeo Total
Total assets Total liabilities
	3,291,678 $ 11,387,804 $ 14,679,482 $ 4,346,072 5,082,438 9,428,510

2021 (Unaudited)	Aluula Ocean Rodeo Total
Total assets Total liabilities
	2,527,796 $ - $ 2,527,796 $ 9,428,510 - 9,428,510

ALUULA COMPOSITES INC. Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

23. Segment information (continued):

(a) Reportable segments (continued):

2022	Aluula Ocean Rodeo Total
Revenue Cost of sales
	2,784,082 $ - $ 2,784,082 $ 2,136,385 - 2,136,385
Gross profit Salaries and benefits General and administrative Research and development Marketing Share based compensation Other income Interest expense Depreciation of capital assets Amortization of intangible assets Deferred income tax recovery	647,697 - 647,697 952,306 - 952,306 415,621 - 415,621 171,627 - 171,627 86,997 - 86,997 19,750 - 19,750 (644,616) - (644,616) 134,360 - 134,360 94,281 - 94,281 439 - 439 (101,498) - (101,498)
Segment loss	(481,570) $ - $ (481,570) $

2021 (Unaudited)	Aluula Ocean Rodeo Total
Sales Cost of sales
	2,032,562 $ - $ 2,032,562 $ 982,472 - 982,472
Gross profit Salaries and benefits General and administrative Research and development Marketing Share based compensation Other income Interest expense Depreciation of capital assets Amortization of intangible assets Deferred tax recovery	1,050,090 - 1,050,090 768,430 - 768,430 221,695 - 221,695 122,546 - 122,546 43,380 - 43,380 31,696 - 31,696 (222,192) - (222,192) 29,413 - 29,413 44,767 - 44,767 46 - 46 (501,054) - (501,054)
Segmentprofit	511,363 $ - $ 511,363 $

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

23. Segment information (continued):

(b) Geographic information:

For geographic reporting, sales are attributed to the geographic location in which the customer is located. The following table summarizes sales by region, excluding sales return allowances:

For geographic reporting, sales are attributed located. The following table summarizes sales	to the geographic location in which the customer is by region, excluding sales return allowances:
	2022 2021 (Unaudited)
Hong Kong Sri Lanka United States Asia Europe Canada
	1,391,247 $ 830,341 $ 1,020,367 1,140,776 213,877 15,143 120,637 158 30,038 31,755 7,916 14,389
Sales	2,784,082 $ 2,032,562 $

All of the Company’s non-current assets are located in Canada.

24. Supplementary cash flow information:

Supplementary cash flow information relating to non-cash investing and financing activities for the years ended October 31, 2022 and October 31, 2021 is as follows:

				2021
		2022		(Unaudited)
Shares issued for purchase of Ocean Rodeo Sports Inc	$	6,305,366	$	-
Acquired balance sheet in purchase of Ocean Rodeo Sports Inc
Trade and other receivables		352,083		-
Inventory		1,708,993		-
Prepaid expenses and other current assets		481,439		-
Deferred tax asset		327,194		-
Property and equipment		202,361		-
Intangible assets		4,296,834		-
Other long-term assets		8,102		-
Investments		44,481		-
Goodwill		3,906,786		-
Trade and other payables		(551,315)		-
Income tax payable		(12,234)		-
Customer deposits		(189,543)		-
Long-term debt		(801,926)		-
Lease obligations		(95,958)		-
Deferred tax liability		(1,223,065)		-
Amounts payable to related parties		(1,569,661)		-

Notes to the Consolidated Financial Statements Years ended October 31, 2022 and 2021

ALUULA COMPOSITES INC.

25. Subsequent events:

(a) Reverse acquisition of Bastion Square Partners Inc.:

The Proposed Transaction will be structured as a three-cornered amalgamation pursuant to the provisions of the Business Corporations Act (British Columbia) (the “BCABC”), whereby BSP incorporates a wholly owned subsidiary under the BCABC which amalgamates with the Company to form a newly amalgamated company that will continue as a wholly owned subsidiary of BSP. To effect the Proposed Transaction, BSP acquire all of the outstanding shares of the Company, and in exchange the Company’s shareholders receive common shares in BSP. The quantity of common shares to be received by the Company’s shareholders has not been determined at the time of signing of these financial statements.

In connection with the Proposed Transaction, BSP plans to conduct a concurrent private placement offering of subscription receipts to raise proceeds of at least $1,500,000, at a price per subscription receipt to be determined in context of the market.

(b) Promissory note:

On December 21, 2022, Gustavson Capital Corporation, a shareholder in BSP, loaned $750,000 (the “Loan”) to the Company. The Loan bears interest at 7% per annum, compounded monthly, and is repayable the earlier of a) 30 days following the closing of the Amalgamation Agreement provided this occurs on or before March 31, 2023 or b) April 15, 2023. Two of the Company’s shareholders have provided personal guarantees for the Loan.

On December 6, 2022, Scotia Bank committed to a new banking agreement with the Company. This agreement is effective as of October 31, 2022 but does not take full force and effect until general conditions are met, including confirmation of the capital injection and review of the executed Amalgamation Agreement, as discussed in Note 23 (a) above. As a result of the new agreement, changes to the covenants and reporting frequency have occurred. The Company is onside with all amended covenants as at October 31, 2022.

A general security agreement gives first charge over all present and future personal property of the Company. The existing shareholder postponement agreements remain in effect, and all existing shareholders at October 31, 2022 have guaranteed the loans.

(d) Lease cancellation:

Subsequent to year-end, management cancelled the building lease at 41 Cadillac Avenue between Ocean Rodeo and Laurie Anne Myerscough with an effective date of December 31, 2022. No penalties were incurred on the cancellation of this lease agreement.

(e) Extension of CEBA and RRRF loans:

Subsequent to year-end, the Government of Canada and Western Economic Development Canada extended the repayment with debt forgiveness deadline from December 31, 2022 to December 31, 2023. If the Company does not take advantage of the debt forgiveness, repayments will occur over 24 months rather than 36 months.

SCHEDULE “D”

TARGET COMPANY MANAGEMENT’S DISCUSSION AND ANALYSIS

Attached hereto are the following management’s discussion and analysis of the Target Company:

The Target Company’s management’s discussion and analysis for the three months ended January 31, 2023.
The Target Company’s management’s discussion and analysis for the year ended October 31, 2022.

Management’s Discussion and Analysis of

ALUULA COMPOSITES INC.

For the three months ended January 31, 2023 and January 31, 2022

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

1.0	PREFACE............................................................................................................................................ 3
2.0	COMPANY AND INDUSTRY OVERVIEW........................................................................................... 5
2.1	COMPANY STRUCTURE ................................................................................................................. 5
2.2	CORE BUSINESS ............................................................................................................................. 5
2.3	LEGAL AND REGULATORY ENVIRONMENT ................................................................................... 6
3.0	FINANCIAL PERFORMANCE.............................................................................................................. 6
4.0	BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES................................................ 9
4.1	ANALYSIS OF STATEMENT OF FINANCIAL POSITION ..................................................................... 9
4.2	CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES ............................... 11
4.3	WORKING CAPITAL AND DEBT MANAGEMENT .......................................................................... 11
4.4	CONTRACTUAL OBLIGATIONS ..................................................................................................... 12
4.5	PRODUCTION CAPACITY AND CAPITAL EXPENDITURES .............................................................. 12
4.6	RESEARCH AND DEVELOPMENT.................................................................................................. 13
5.0	EQUITY............................................................................................................................................ 13
6.0	TAX MATTERS................................................................................................................................. 14
7.0	ACCOUNTING POLICIES AND ESTIMATES...................................................................................... 14
7.1	CRITICAL ACCOUNTING ESTIMATES ............................................................................................ 14
7.2	FUTURE ACCOUNTING PRONOUNCEMENTS .............................................................................. 14
7.3	FAIR VALUE MEASUREMENTS ..................................................................................................... 14
8.0	KEY RISKS AND RISK MANAGEMENT............................................................................................. 14
8.1	STRATEGIC RISKS ......................................................................................................................... 14
8.2	OPERATIONAL RISKS ................................................................................................................... 15
8.3	FINANCIAL RISKS ......................................................................................................................... 17
9.0	INTERNAL CONTROLS AND PROCEDURES..................................................................................... 17
9.1	QUALITY CONTROL ...................................................................................................................... 17
9.2	FINANCIAL CONTROLS ................................................................................................................. 18
10.0	ENVIRONMENTAL SUSTAINABILITY............................................................................................... 19
11.0	FUTURE OUTLOOK.......................................................................................................................... 19
12.0	RELATED PARTIES........................................................................................................................... 19
13.0	SUBSEQUENT EVENTS.................................................................................................................... 20
13.1	REVERSE ACQUISITION OF BASTION SQUARE PARTNERS INC. ................................................... 20

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

1.0 PREFACE

The following document provides information concerning the financial condition and results of operations of the Company (as defined below) for the three months ended January 31, 2023 (“Q1 2023”) and January 31, 2022 (“Q1 2022”), and should be read in conjunction with the Company’s audited financial statements and notes thereto related to the year ended October 31, 2022.

1.1 DEFINITIONS

In this document, the terms “we”, “us”, “our”, and “Company” refer to ALUULA Composites Inc. on a consolidated basis. “ALUULA” refers to the standalone entity ALUULA Composites Inc., and “Ocean Rodeo” refers to the standalone entity Ocean Rodeo Sports Inc. As Ocean Rodeo was acquired by ALUULA on October 31, 2022, consolidated figures from the statement of comprehensive income exclude the results of Ocean Rodeo for the three months ended January 31, 2022 by necessity.

“2021”, “2022” and future years refer to our fiscal years, which run from November 1 to October 31. Any references to a calendar year or other period will be noted as such.

The term “Consolidated Financial Statements” refers to the Consolidated Financial Statements of ALUULA Composites Inc. dated October 31, 2022, unless indicated otherwise.

The term “Interim Financial Statements” refers to the Interim Condensed Consolidated Financial Statements of ALUULA Composites Inc. dated January 31, 2023, unless indicated otherwise.

Other capitalized terms in this document are defined at the time of their first use.

This document contains trademarks and trade names associated with the Company, and are referred to without the TM symbol. However, these trademarks and trade names are the property of their respective owners.

1.2 FORWARD-LOOKING INFORMATION

Certain statements contained in this Management’s Discussion and Analysis (“MD&A”) are forwardlooking and may constitute “forward-looking information” within the meaning of applicable securities legislation. When used in this document, the words “may”, “would”, “could”, “will”, “intend”, “plan”, “propose”, “anticipate”, “expect” or “believe” used by any of the Company’s management are intended to identify forward-looking statements. Such statements reflect the Company’s forecasts, estimates and expectations as they relate to the management’s current views based on their experience and expertise with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. There can be no assurance that it will be completed as proposed, or completed at all. The Company does not intend, and does not assume any obligation, to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments unless required by law.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

1.3 BOARD OF DIRECTORS RESPONSIBILITY AND APPROVAL

The Board of Directors is responsible for the review and approval of the MD&A, and as approved the contents of this MD&A on March 27, 2023.

1.4 MANAGEMENT RESPONSBILITY

Management is responsible for creating and implementing effective systems, controls, and processes over both operations and financial reporting. Sections 8 and 9 of this MD&A discuss key risk areas and controls implemented in detail.

1.5 COMPARATIVE INFORMATION

Unless indicated otherwise, all comparative figures for the three month period ended January 31, 2023 are referring to the results for the three month period ended January 31, 2022.

1.6 ACCOUNTING FRAMEWORK

The Company’s Interim Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) using the accounting policies described in note 3 of those Interim Financial Statements.

This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use the non-IFRS measure “Operating Income” within this MD&A. Management uses this non-IFRS measure to measure operating performance from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. As required by Canadian securities laws, we reconcile these non-IFRS measures to the most comparable IFRS measures in this MD&A.

We define “Operating Income” as net income (loss) before other income, share-based compensation, foreign exchange gains and losses, and income taxes. This removes unusual or non-operating items from Operating Income. We are presenting this measure because it is used by management in managing the Company and making business decisions. Operating Income is not intended as a substitute for IFRS measures.

1.7 ACCOUNTING ESTIMATES AND ASSUMPTIONS

Management is required to make estimates, judgements and assumptions in preparation of the Consolidated Financial Statements in accordance with IFRS. These estimates affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements, and the amounts of reported revenue and expenses during the reporting period. Accounting estimates and assumptions are discussed in section 7.1 of this MD&A.

1.8 ROUNDING AND PERCENTAGES

Rounded numbers are used throughout this MD&A, with all year-over-year percentage changes calculated on whole dollar amounts.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

2.0 COMPANY AND INDUSTRY OVERVIEW

2.1 COMPANY STRUCTURE

ALUULA was incorporated on July 18, 2019, and Ocean Rodeo was incorporated on January 12, 2001, both under the British Columbia Business Corporations Act. Both legal entities are domiciled in Victoria, BC Canada with registered offices at 300 - 4240 Glanford Avenue. The Company’s management and the majority of staff are also located in Victoria.

ALUULA operates within the composite materials industry selling to customers within a variety of markets, having originally launched in the windsport market. The Company services this market through ALUULA as an ingredient brand and directly by its subsidiary, Ocean Rodeo, as a designer and seller of high-end windsport products.

2.2 CORE BUSINESS

ALUULA

Our core business is the development, assembly and sale of a broad range of composite materials to globally recognized industry partner brands within a variety of commercial markets. The ALUULA team works directly with brand partners to develop and approve prototype products made from our composite materials, shipping materials directly to globally dispersed design teams for each brand partner until commercialization when we work directly with the brand partner’s factory or manufacturing partner.

The team at ALUULA is working with customers in a number of vertical markets, with windsport driving the majority of the Company’s revenues. Outside of windsport our market share continues to be earlystage and involves providing sample materials and working through development with potential brand partners. Management monitors activities within these markets based on current sales volumes and potential opportunity. The major trends within the vertical markets are discussed in the Company’s year-end MD&A dated October 31, 2022, with significant changes discussed below.

Windsport industry update

While windsport is experiencing a post-COVID-19 recovery in consumer demand, we are seeing this recovery take longer to impact customer appetite for the purchase of new products. Ocean Rodeo as orders have been delayed and longer credit terms have been issued as a result. ALUULA continues to onboard new customers as expected, but order volumes within the windsport vertical have been conservative as these customers navigate the market conditions.

OCEAN RODEO

Ocean Rodeo was established in 2001 to develop best-in-class windsport products. It was this business that inspired its founders to establish a soft composite product for the windsport market and that, in turn, has allowed ALUULA to develop composites for other vertical markets. It is a well-established design hub for ALUULA and for windsport products, which it both sells and patents the design of. Ocean Rodeo sells to distributors, dealers and individuals worldwide, and sponsors team riders competing in windsport events at the highest level. Ocean Rodeo holds a number of key patents that can be bundled with ALUULA to enhance products and entice windsport brands to use ALUULA materials, demonstrates the capabilities of ALUULA composites and is an innovation hub for these materials. By focusing its strategy on disruptive innovation using ALUULA materials we are

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

accelerating the market acceptance of ALUULA and are able to offer ALUULA composite materials to Ocean Rodeo’s competitors without creating a conflict.

2.3 LEGAL AND REGULATORY ENVIRONMENT

The Company is subject to the general business requirements of operating within Canada, particularly within British Columbia. This includes following applicable Employment Standards guidelines, employment tax rules, Workers Compensation regulations, Goods and Services Tax and Provincial Sales Tax requirements, and business licensing requirements.

Outside of Canada, the Company may be subject to import duties, tariffs, value-added taxes and applicable Consumer Guarantee Law. The Company has no employees outside of Canada.

3.0 FINANCIAL PERFORMANCE

The following table is a management level summary of the financial results of the Company for the three month period of Q1 2023 compared to Q1 2022, with relevant variance analysis below:

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January 31 January 31
2023 2022
Sales $ 1,448,515 $ 664,532
Cost of sales 1,251,468 446,792
Gross profit 197,047 217,740
Operating expenses
Employee costs 501,451 274,697
General and administrative 236,707 19,634
Marketing 184,478 17,268
Depreciation and amortization 127,321 31,760
Interest and bank charges 108,665 20,551
Professional fees 60,801 12,544
Insurance 53,568 19,228
Research and development 17,244 112,612
Freight 13,112 36,481
License fee income (40,977) -
1,262,370 544,775
Operating income (1,065,323) (327,035)
Other income and expenses (20,174) 51
Income tax (79,654) (226,732)
Net loss $ (1,165,151) $ (553,716)
Loss per share:
Basic loss per share $ (0.20) $ (0.14)
Diluted loss per share $ (0.20) $ (0.14)
A non-IFRS measure
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Due to the timing of the acquisition of Ocean Rodeo by ALUULA on October 31, 2022, 2023 profit and loss figures contain the results of Ocean Rodeo while the comparative results do not.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

While the ALUULA business is generating significant revenues, it is still early in its growth stage and general increases to balances year-over-year is expected. The acquisition of Ocean Rodeo also contributed to increases in balances. Specifics are discussed below.

Sales

Sales increased by $783,983 or 118% compared to Q1 2022. ALUULA sales increased by $52,112 and continue to represent early stage validation of the use of our materials within the windsport industry. Sales to the Company’s largest customer increased from Q1 2022, and the number of customers purchasing small quantities of composite materials for internal testing and design in other markets also increased. These newer customers are in the earlier stages of the development timeline, with commercialization expected over the coming years. Sales growth was positive year-over-year despite the working capital shortage discussed in the cost of sales and gross profit note below.

Ocean Rodeo sales were $731,871 in Q1 2023, and are fully sourced from the windsport market. Sales tend to be lower in the winter months, with volumes picking up in the spring and early summer.

Cost of sales and gross profit

Cost of sales increased by $804,676 and 180% compared to Q1 2022, which reduced gross profit by 19%.

$120,478 of this increase was in ALUULA, where we had a production slowdown during Q1 2023 that resulted from a shortage of working capital. Production fell well below capacity, but the Company still incurred $76,834 of direct labour and production overhead costs that were recorded in cost of sales and resulted in 10% lower gross margins than if capacity had been utilized. The working capital shortage was addressed mid-way through Q1, 2023 when the Company received a $750,000 promissory note from Gustavson Capital Corporation, a shareholder of Bastion Square Partners, and production resumed to meet existing and incoming purchase orders. There were no order cancellations as a result of this delay.

Ocean Rodeo’s cost of sales was $684,198 for Q1 2023, resulting in a gross margin of 7% for the segment. The low gross margin is primarily due to the required accounting treatment of inventory acquired in the Company’s October 31, 2022 acquisition of Ocean Rodeo. Under IFRS, inventory acquired in a business combination is valued at net realizable value. When the Company acquired Ocean Rodeo, it recorded the purchase of inventory with a net realizable value of $1,708,993 (the “Opening Inventory”). During Q1 2023, approximately $532,809 of Opening Inventory was sold at a price that approximated its October 31, 2022 net realizable value and as a result, gross margins reported were nominal. Had landed cost been used rather than net realizable value, the related cost of sales would have decreased by $134,363 and resulted in a 25% gross margin. Margins are expected to be impacted by this accounting treatment until all Opening Inventory is sold.

Employee costs

Employee costs include salaries and associated payroll tax expenses, employee benefits costs, and contractor costs. The balance increased by $226,754 compared to Q1 2022, which was primarily due to the acquisition of Ocean Rodeo which came with 10 employees across sales and logistics, R&D, and administrative functions.

General and administrative

General and administrative expenses increased by $217,073 compared to Q1 2022, with $203,272 of the increase as a result of the acquisition of Ocean Rodeo. $151,642 of the increase was recorded due to the

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

age of Ocean Rodeo’s trade receivables outstanding at January 31, 2023. The balance of the increase was primarily made up of office and warehouse rent.

Marketing

Marketing increased by $167,210 compared to Q1 2022, with the acquisition of Ocean Rodeo causing $154,317 of the increase. Ocean Rodeo undertakes extensive marketing activities within windsport, promoting both its kites and wings and also its use of ALUULA composite materials. Its marketing spend in Q1 2023 includes a number of legacy contracts that were reduced or cancelled during mid-quarter as part of a strategic shift by management to move away from external contractors and print advertising towards a new in-house strategy.

Depreciation and amortization

Depreciation and amortization increased by $95,561 or 301% compared to Q1 2022. $84,206 of this increase was due to the acquisition of Ocean Rodeo, which holds significant value in the form of limited life patents that are amortized over the shorter of their legal or expected useful lives. $11,355 of the increase was in ALUULA, where production machinery and R&D testing equipment was purchased and put into use during the previous fiscal year but was not yet in use in Q1 2022. The production machinery purchased was to build a new manufacturing pod to increase production capacity and consistency of output materials. The R&D testing equipment was purchased to enhance our ability to test the long-term durability of our materials and improve our ability to work with customers on how to work with our materials.

Interest and bank charges

Interest and bank charges increased by $88,114 or 429% compared to Q1 2022. This increase was driven by interest accruing on fixed rate leases for the new production machinery and R&D equipment that were entered into between December 2021 and June 2022 in addition to variable rate interest charged on bank indebtedness that had both increased significantly from prior year and also experienced the increase in Bank of Canada prime rates from 2.45% during Q1 2022 to 5.45% during Q1 2023.

Professional fees

Professional fees increased by $48,257 or 385% compared to Q1 2022. This increase was driven by the additional audit and legal costs associated with the Company’s signing of a definitive agreement for the reverse acquisition discussed in section 13.1 of this MD&A and the associated reporting requirements.

Insurance

Insurance costs increased by $34,340 or 179% compared to Q1 2022. $25,067 of this increase is primarily due to the acquisition of Ocean Rodeo, with the balance due to business growth and the increase of costs across the insurance industry.

Research and development

Research and development costs decreased by $95,368 or 85% compared to Q1 2022. In Q1 2022 there were significant purchases of materials such as weaves and films for ALUULA’s R&D purposes. These purchases did not recur during Q1 2023 as we were able to utilize stock on hand. These purchases are expensed as incurred, as they relate to research activities and there is no expectation of direct realizable value. Ocean Rodeo undertakes extensive research and development activities to continue showcasing the capabilities of ALUULA materials and pushing the windsport industry forward. A large portion of our

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

research and development activities is labour based and included in employee costs rather than being reflected in the R&D line within our reporting.

A portion of R&D expenditures are eligible for Scientific Research and Experimental Development (“SR&ED”) credits and are submitted annually with the corporate tax return. No amount has been recorded for SR&ED income during Q1 2023.

Freight

Freight costs decreased by $23,369 or 64% compared to Q1 2022. This decrease was due to the majority of ALUULA’s customers arranging and paying their own freight in Q1 2023 in accordance with the terms of their agreements compared to Q1 2022 when we were managing the shipments directly.

License fee income

License fees generated within Q1 2023 were $40,977 (Q1 2022 – nil) are generated by one customer within the ALUULA segment. The agreement that generated the prior year license fees was not signed until April 2022, and there was therefore no associated income in the comparative quarter.

Loss per share

Basic and diluted loss per share decreased $0.06 or 48% as a result of the ALUULA sales delay discussed above under cost of sales, the acquisition of Ocean Rodeo, and the costs associated with rapid business growth. There was no change to the number of shares issued and outstanding from Q1 2022 to Q1 2023.

4.0 BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES

4.1 ANALYSIS OF STATEMENT OF FINANCIAL POSITION

The following table presents selected information from the Interim Financial Statements, followed by a variance analysis below:

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January 31 October 31
2023 2022
Selected assets
Trade and other receivables $ 931,964 $ 1,137,872
Inventory 1,980,034 2,166,825
Prepaid expenses and other assets 780,577 572,271
Property and equipment 1,052,099 1,206,169
Selected liabilities
Bank indebtedness, net of cash and cash equivalents $ 2,234,648 $ 2,449,320
Long-term debt 2,065,756 1,259,405
Lease obligations 830,231 978,928
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**Current and long-term portions combined for this analysis

Trade and other receivables

Trade and other receivables decreased by $205,908, $151,642 of which was due to a large increase to the expected credit loss provision in Ocean Rodeo in Q1 2023. This increase was recorded as a result of the age of existing receivables caused by the delayed post-COVID recovery of the windsport market. We continue to work with affected customers to collect trade receivables, but have recorded

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

a sizeable increase in the allowance to reflect the uncertainty. The balance of the change is primarily the result of regular turnover of receivables.

Inventory

Inventory decreased by $186,971 overall. $417,602 of this is due to the sale of Ocean Rodeo inventories that were on-hand at October 31, 2022, with minimal inventory purchases to support those sales. A large percentage of these inventories were recorded at net realizable value as required under IFRS when a company is acquired, and therefore associated inventory levels decreased more rapidly from sales generated in Q1 2023.

The decrease above offset an ALUULA increase of $230,811 caused by low levels of ALUULA raw materials at year-end combined with the receipt of a number of raw materials during Q1 2023 in preparation for Q2 2023 production. Finished composite materials on hand at January 31, 2023 were $29,453, which was an 87% decrease from October 31, 2022 due to the timing of completion and shipment of those finished goods.

Prepaid expenses and other assets

Prepaid expenses and other assets increased by $208,306 from October 31, 2022, primarily due to deposits paid to suppliers for raw materials.

Property and equipment (including tangible right-of-use assets)

Property and equipment decreased by $154,070 compared to the prior year due to the cancellation of Ocean Rodeo’s related party lease at the previous office and warehouse space, which is no longer required to support operations, and the small impact of the write-off of associated leasehold improvements.

Bank indebtedness, net of cash and cash equivalents

Bank indebtedness, net of cash and cash equivalents, decreased by $214,672 compared to October 31, 2022. This decrease is primarily due to the short-term promissory note received from Gustavson Capital Corporation in advance of the finalizing of the Amalgamation Agreement, which freed up working capital for current liabilities including reducing the line of credit.

Long-term debt

Long-term debt increased by $806,351 compared to the prior year, made up of the following additions net of scheduled monthly repayments:

$750,000 short-term promissory note with an interest rate of 7% received from Gustavson Capital Corporation to improve working capital until the RTO finalizes (Q1 2022 – nil).
$111,525 received from Western Economic Development Canada as part of the interest-free contribution agreement signed in Q2 2022 (Q1 2022 - nil).

Lease obligations

Lease obligations decreased by $148,697 compared to October 31, 2022. $95,958 of this is due to the paydown and cancellation of Ocean Rodeo’s related party lease at the previous warehouse space and the balance is due to scheduled payments against existing lease obligations. No new leases were entered into during Q1 2023. Additional details on lease obligations can be found in Note 12 of the Consolidated Financial Statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

Off-balance sheet arrangements

As of the date of this MD&A, the Company has not entered any off-balance sheet arrangements.

4.2 CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES

Analysis of cash flows:

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January 31 January 31
2023 2022
Cash used in operating activities $ (504,895) $ (294,926)
Cash used in investing activities (37,630) (141,363)
Cash provided by (used in) financing activities 757,197 (607,149)
Increase (decrease) in cash and cash equivalents $ 214,672 $ (1,043,438)
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Operating activities

Cash used in operating activities increased by $209,969 due to the operating losses incurred during the quarter, offset by raw materials purchased and not converted to cash by quarter-end due to the production schedule and standard payment terms attached to invoiced materials. ALUULA’s cash from operations was flat from Q1 2022 to Q1 2023, with inventory of approximately $494,000 acquired during the quarter. The acquisition of Ocean Rodeo contributed $200,449 of the change.

Investing activities

The majority of the $103,733 decrease to cash used in investing activities occurred in ALUULA, and was caused by a decrease in property and equipment purchases in Q1 2023 compared to Q1 2022 when significant investment was made in production machinery and R&D equipment.

Financing activities

Cash provided by financing activities increased by $1,364,346, which was made up of the following significant movements:

$750,000 short-term promissory note received from Gustavson Capital Corporation.
$111,525 received from Western Economic Development Canada as part of the interest-free contribution agreement signed in Q2 2022 (Q1 2022 - nil).
$555,412 of accounting impact due to the acquisition of Ocean Rodeo by ALUULA. At January 31, 2022 the loans between Ocean Rodeo and ALUULA were recorded as intercompany loans, but at January 31, 2023 they were eliminated on consolidation as required under IFRS.

4.3 WORKING CAPITAL AND DEBT MANAGEMENT

The Company funds its operations, including capital expenditures, debt repayments, and other financing needs, through a combination of sources. These sources include revolving lines of credit, a revolving pre-shipment financing facility, bank and government loans, a revolving lease facility, and loans from shareholders.

The various facilities are utilized based on cost of financing, availability of cash flows, and compliance with debt covenants. Where government grants for interest free or forgivable loans are available to the Company, management applies for funding and has had success obtaining such funding historically. Interest free and partially forgivable loans have been received from WD Canada and the Government of Canada.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

The primary credit facilities held by the company are with Scotia Bank, with whom management has a strong working relationship. In addition to the debt facilities, the Company also holds a revolving Scotia Bank lease facility with a limit of $500,000 which is currently financing the existing machinery and equipment leases.

Refer to note 9 and note 10 of the Interim Financial Statements for a detailed description of the terms and repayment details of the bank indebtedness and debt facilities, respectively.

Certain covenants are in place, which the Company reports on periodically. These covenants are monitored by management on an ongoing basis, and calculations are submitted to Scotia Bank monthly, quarterly, or annually depending on the covenant. Non-compliance with covenants could result in loans being called in full and the Company losing access to its bank financing.

Loans to shareholders also exist, totaling $2,122,802 at January 31, 2023 (October 31, 2022 - $2,122,802). These loans are not considered part of the Company’s capital. They are non-interest bearing and are not repayable on demand. On completion of the reverse acquisition of BSP the majority of these shareholder loans will be converted to equity.

4.4 CONTRACTUAL OBLIGATIONS

The Company is subject to a number of contractual obligations, including office and warehouse leases, machinery and equipment leases, and long-term debt repayments.

During Q1 2023, the Company received $750,000 in the form of a promissory note from Gustavson Capital Corporation.

Management cancelled a related party lease of office and warehouse space during Q1 2023 as the space was no longer required to support operations. This cancellation results in a reduction of contractual obligations of $8,001 per quarter and a total of $93,333 through December 2025.

Management believes the Company will have sufficient liquidity available to meet its contractual obligations in the coming years.

4.5 PRODUCTION CAPACITY AND CAPITAL EXPENDITURES

Fusion Pods

An ALUULA fusion pod is a standalone unit that converts input materials into finished composites. Each pod requires two to three production staff to operate. Management closely monitors production scheduling and capacity. Production staff perform machine maintenance and cleaning during existing downtime where possible.

A new fusion pod was constructed during the first half of fiscal 2022 to increase automation and consistency and add a new level of quality control to our process. This new fusion pod was put into use in Q3 2022.

Other Equipment

The Company invests in R&D equipment to test new composite materials, new input materials, and existing input materials from new sources. The materials are subject to tests including strength, abrasion resistance, UV resistance, permeability, and accelerated life cycle testing. Equipment is also

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

purchased to assist with new assembly methods, such as heat welding and other alternatives to sewing.

Patents & Molds

Where management feels it’s warranted, patents are sought out to protect both designs and processes in certain global jurisdictions. The legal costs of acquiring these patents are capitalized as intangible assets where appropriate. In addition, some Ocean Rodeo products require the creation of molds for the external manufacturing of certain products. These molds are purchased from a supplier and capitalized as property and equipment.

Other Capital Expenditures

The Company also invests in standard office improvements, furniture equipment and computer equipment as required, and management expects these purchases to continue on an as-needed basis.

4.6 RESEARCH AND DEVELOPMENT

ALUULA has a patented, highly customizable process for assembling composite materials. R&D activities are key to the Company’s success and are separated into three main areas:

Customization of ALUULA

The R&D team works closely with our partners to customize our materials and processes to meet their needs. We determine the specifications required and apply our internal knowledge of the ALUULA process and the chemical and physical properties of potential input materials to develop new composites or methodologies to meet their needs. Once finalized we work with the brand’s manufacturing partner to ensure smooth implementation of our materials into their processes.

Where we feel there is an opportunity to use existing ALUULA materials to replace existing alternatives R&D may also proactively create a sample finished product to demonstrate the use case to a prospective brand partner. Once they see the benefit of using ALUULA we then work with them to tailor our composites to meet their exact specifications.

Quality control and improvements to the ALUULA process

Our fusion pods are custom designed, proprietary equipment. As such, the R&D team continues to work with the production team to investigate process improvements and machine enhancements to improve efficiency, quality, and production capacity. Where risks are identified they investigate whether an improvement could occur or whether to implement a compensating control.

Windsport product development

The Ocean Rodeo R&D and design team has decades of experience designing and working with products in the windsport industry. This experience allows them to create unique products within windsport, but also to apply new techniques and technologies to all areas of ALUULA R&D.

5.0 EQUITY

The Company had no changes to its equity structure during Q1 2023 or up until the date of this MD&A. In addition to the shares issued and fully paid, the Company has issued 352,000 share options under its share-based compensation plan. 266,875 were vested and exercisable as at October 31, 2022 (October 31, 2022 – 243,750). More detail on these share options can be found in note 15 of the Interim Financial Statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

6.0 TAX MATTERS

The Company is considered operating in Canada for tax purposes and falls under the jurisdiction of the Canadian Income Tax Act. In the ordinary course of business, the Company may be subject to tax audits, and certain matters may be reviewed and challenged by tax authorities.

As discussed in section 13.1 of this MD&A, the Company has signed a definitive agreement to perform a reverse acquisition of Bastion Square Partners Inc. This acquisition is expected to trigger a change in control and deemed tax year-end, but not to materially impact the Company’s ability to utilize net operating losses available to be carried forward for tax purposes. Scientific Research and Experimental Development (“SR&ED”) tax credits will be treated similarly to loss-carryforwards, reducing taxable income rather than generating a cash refund.

7.0 ACCOUNTING POLICIES AND ESTIMATES

7.1 CRITICAL ACCOUNTING ESTIMATES

The Company’s significant judgement and estimates made in preparation of the Interim Financial Statements are described in note 2 of those financial statements, with the associated accounting policies described in note 3.

7.2 FUTURE ACCOUNTING PRONOUNCEMENTS

No new significant accounting standards were adopted during the three month period ended January 31, 2023. Future accounting pronouncements are discussed in the year-end MD&A dated October 31, 2022

7.3 FAIR VALUE MEASUREMENTS

A number of the Company’s financial instruments are recognized at fair value. Fair value is discussed in detail in note 3 and note 18 to the Consolidated Financial Statements dated October 31, 2022 and note 13 of the Interim Financial Statements. There have been no changes to the fair value policies during the three month period ended January 31, 2023.

8.0 KEY RISKS AND RISK MANAGEMENT

Management defines risk as the probability of a future event that could negatively affect the financial condition and/or results of operations of the Company. The following section describes specific and general risks that could affect the Company. As it is difficult to predict whether any risk will be realized or its related consequences will occur, the actual effect of any risk on the business could be materially different from that anticipated. The following descriptions of risk do not include all possible risks as there may be other risks of which Management is currently unaware or currently believe to be immaterial.

Effective risk management is vital to the ongoing growth and success of the Company. As the Company is still in its growth stage, management’s focus began with mitigating the key risks as they were identified, with additional risk management being added over time.

8.1 STRATEGIC RISKS

Reputation

As an early-stage innovative company earning its market share with multiple customers in multiple vertical markets, we must meet expectations on deliverability and quality while we also scale up

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

rapidly. There is risk of reputational damage and liability if composite materials experience quality control issues or do not hold up in the long-term.

Management has mitigated the risk of quality control issues through the implementation processes discussed in section 9.1 of this MD&A.

New Markets

We are actively working to expose its composite materials markets outside of windsport with an expectation of future commercialization within these other markets. There is risk that this may not be successful, or that it will take longer than expected, delaying expected scaling of the Company’s production levels and associated revenues.

Management mitigates the risk of delayed entry by building forecasts conservatively, with the understanding that not all opportunities will materialize within the expected timelines. The best case scenario is built out, with the actual revenue forecasts prepared based on probabilities of success within the forecast period.

8.2 OPERATIONAL RISKS

Confidentiality of trade secrets

We are a very innovative company, with many closely held trade secrets in addition to the intellectual property that has been obtained over the years. There is a risk that an individual could gain access to trade secrets and share this information publicly, limiting or eliminating our competitive advantage.

Management mitigates the risk of exposed trade secrets through limiting the number of individuals with access to key process information, by limiting access to both the office and production facilities, and by obtaining signed NDA’s from any individuals who will be exposed to any level of the trade secrets.

Supply chain and associated cash flows

Supply chain management includes maintaining the ability to source input materials in a timely manner, verifying the quality of those input materials, and managing the cost of those input materials. The majority of the raw materials purchased by the Company for use in production are non-specialized in nature, and readily available from various suppliers. In specific instances the Company relies on one supplier to meet our raw material needs. We require access to sufficient working capital to purchase these raw materials in advance of production, including allowing time for shipment from international suppliers to our warehouse in Victoria. There is risk that these materials may be delayed, resulting in production slow-downs and delayed collection of receivables from customers.

Management mitigates supply chain risk in the following ways:

We invest in research and quality control up front to determine the best sources of raw materials, both for cost and flexibility to meet our specifications.
We prepare a detailed production planning schedule including lag times for receipt of raw materials.
We purchase only enough materials to meet confirmed purchase orders or production schedules, except where the cost savings of purchasing larger quantities is warranted.
We have invested in shipping insurance to cover losses that may occur on incoming materials.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

We store our raw materials and finished goods in our own warehouse with limited access to the facility by outsiders.
We remain in constant communication with key suppliers and occasionally make site visits to both strengthen the relationship and monitor quality control.

Management mitigates cash flow risk by holding a credit facility and purchase order financing to support the raw materials requirements of the business, and through the procedures listed above surrounding order quantities.

Excess production

As ALUULA is early in the growth stage and has been forced to manage available working capital very tightly, there is risk attached to producing finished composites in advance of purchase order demand.

Management mitigates the risk of overproduction by only purchasing raw materials to meet upcoming purchase orders from customers, and by only producing to meet the demand of those confirmed purchase orders.

Cyber security

The Company relies on a number of electronic systems to store and process data. There is risk of data loss if one of our providers experiences a data breach or loss of backups. Management has implemented contracts with and uses the services of well-established or off-the-shelf service providers to meet these needs, such as Google, Microsoft, Dropbox, and NetSuite, to minimize both our exposure to risk of data loss and the requirements of maintaining physical server space.

Employees and management are often subject to phishing attempts, primarily through email. The risk of data loss or wire fraud associated with these attempts is mitigated through employees being centralized in one office, secondary approvals for bank payments, and having open discussions with other staff when attacks occur ensuring the office is aware of the attempt.

Data and information

The Company retains certain customer data, as required to operate the business. When customer credit card information is stored, we follow the customer data retention policies set out by the Payment Card Industry Security Standards Council.

Employee retention and dependence on key personnel

The Company employs skilled employees with industry and company specific knowledge across many facets of its operations. The retention and satisfaction of these employees is important to the ongoing success of the business, particularly where they oversee many aspects of the business or where little redundancy is built in. Failure to retain key employees and directors or to attract and retain new employees with the required skills could have an adverse impact on the Company’s growth and profitability.

Management looks to retain employees by offering fair and equitable compensation packages which include competitive salaries with performance-based upside, an optional benefits package, and ensuring a strong work-life balance with minimal overtime. The Executive Leadership Team is actively involved in day-to-day operations, working closely with staff in various departments while also allowing them to own their roles and allowing all staff to feel invested in the success of the Company.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

8.3 FINANCIAL RISKS

The Company’s is exposed to a number of financial risks during the normal course of business. These risks are discussed in more detail in note 14 to the Interim Financial Statements.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations, typically under a customer contract or of a financial instrument, leading to a financial loss. Management has a number of mitigating policies in place, including the following:

We transact with Scotia Bank, a reputable Canadian bank.
Customers who wish to trade on credit terms are subject to a credit verification process.
We have obtained accounts receivable insurance through Export Development Canada (“EDC”) for significant customers based in foreign countries.
We obtain customer deposits where the Company is incurring out-of-pocket costs that cannot be recovered through retention and sale of the product being manufactured.
We obtain payment prior to shipping for customers who are not subject to credit terms.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. Management mitigates liquidity risk by monitoring forecasted and actual cash flows, minimizing reliance on any single source of credit, maintaining sufficient undrawn committed credit facilities and managing the maturity profiles of financial assets and liabilities.

Foreign currency risk

Foreign exchange risk is the risk that the value of financial instruments or cash flows will fluctuate due to changes in foreign exchange rates. A significant portion of the Company’s revenues and associated receivables are generated and held in foreign currencies. This risk is naturally mitigated by the purchase of input materials in foreign currencies. In future, management plans to investigate whether more complex hedging strategies are in the best interest of the Company, and what the most efficient makeup of those hedging structures could be.

Interest rate risk

Interest rate risk is the risk the fair value of future cash flows of a financial instrument will fluctuate because of changes in market rates. A significant portion of the Company’s current working capital is available in the form of revolving credit facilities with variable interest rates attached. Management mitigates this risk by seeking out alternate sources of financing and securing fixed-rate financing where rates are favourable. The upcoming reverse acquisition, as discussed in section 13.1 of this MD&A, is expected to provide sufficient available working capital to remove the ongoing reliance on the variable rate credit facilities.

9.0 INTERNAL CONTROLS AND PROCEDURES

9.1 QUALITY CONTROL

Quality control procedures are vital to the Company’s success to reduce the risk of warranties, returns, and damaged customer relationships.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

ALUULA composite materials

Quality control measures are undertaken at many steps throughout the ALUULA process.

To select raw materials, our research and development team tests each input material to ensure we are purchasing from reliable sources that meet our quality control specifications. Where raw materials require modification prior to use in our assembly process we contract a reputable factory and remain in constant communication as to the specifications that must be met. As required, ALUULA staff visit the facility to ensure compliance with specifications. Raw materials are visually inspected once received, and continuously during the assembly process.

Once composite materials are assembled we perform a two-step quality control check. A final visual inspection during the re-rolling and packaging stage to check for imperfections and contaminates, and material sample is taken each day to be tested for thickness, weight, tensile strength, and water absorption. A Quality Control Report is prepared for inclusion with each shipment.

Any changes to the production process are carefully tested and verified using our standard quality control procedures prior to implementation in full-scale production to ensure the minimum specifications are still being met.

Ocean Rodeo windsport products

Ocean Rodeo’s finished products are purchased from established overseas manufacturers. Each delivery of finished goods for resale is subject to the manufacturer’s quality control process, and in the case of kites and wings we also contract a third party to conduct secondary quality control review.

9.2 FINANCIAL CONTROLS

The Company has been operating with a small business mindset for a number of years and has some financial controls in place to mitigate financial risks:

Segregation of cash

There is an inherent risk of loss due to fraud and error with cash and banking. The Company limits banking access to members of finance who require access and executive with signing authority.

Use of ERP software

The Company has invested in cloud-based Enterprise Reporting Planning (“ERP”) software system for managing data, including its sales, production, and accounting records. Access to the ERP is user based, and employees have role-based permissions assigned to limit access to their areas of responsibility.

External review and tax preparation

Financial statements are internally prepared and are subject to an annual financial statement audit on a consolidated basis. Income tax is externally reviewed and filed, and an external SR&ED consultant is engaged to ensure appropriateness and completeness of submissions.

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

10.0 ENVIRONMENTAL SUSTAINABILITY

The ALUULA process uses no adhesives or volatile substances and does not produce wastewater. It is our intent to ensure that all ALUULA produced composites are single polymer and therefore inherently recycle ready. The majority of our products are already 100% recycle ready, and we continue to work on new materials with the same qualities. All of our packaging is recycled material and we take pride in minimizing packaging waste. Our team is also working with our partners to try to create easy access to recycling processes for end-of-life products.

11.0 FUTURE OUTLOOK

With a strong competitive advantage established in the windsport market, ALUULA is focused on increased penetration within this market and growing within the additional vertical markets. This means ensuring our production output can scale while maintaining quality control, allowing us to meet rising demand for our composite materials. A comprehensive in-house marketing strategy has been created to support this scaling and enable us to properly co-brand with our experienced multi-national partners as new products containing ALUULA are released in the coming years.

12.0 RELATED PARTIES

Shareholders and ultimate controlling parties:

The Company leased office and warehouse space from an immediate family member of a shareholder until the lease was cancelled in December 2022. Payments for this lease totaled $12,377 during the three months ended January 31, 2023 (January 31, 2022 - $12,377). No amounts were owed at the end of the period (October 31, 2022 – nil). Additional payments of $16,000 were made to this related party during the three months ended January 31, 2023 for the collateralization of the building against the term loan with Scotia Bank (January 31, 2022 - $20,000).

Affiliates:

The Company shares leased office and warehouse space with Ocean Rodeo, a related company under common management that was acquired by ALUULA on October 31, 2022. ALUULA and Ocean Rodeo also share staffing resources and are part of one overall cash management group.

During the quarter ended January 31, 2023, ALUULA sold $1,011 of sample materials to Ocean Rodeo (January 31, 2022 - $18,888).

Key management compensation:

MANAGEMENT’S DISCUSSION AND ANALYSIS | Q1 2023 | ALUULA COMPOSITES INC.

Team has the authority and responsibility for overseeing, planning, directing and controlling the Company’s activities.

13.0 SUBSEQUENT EVENTS

A number of events have occurred subsequent to the year ended October 31, 2022, and are disclosed in the Consolidated Financial Statements. The most significant that has not occurred to the date of this MD&A are included below.

13.1 REVERSE ACQUISITION OF BASTION SQUARE PARTNERS INC.

On December 20, 2022, the Company entered an Amalgamation Agreement with Bastion Square Partners Inc. (“BSP”), a company listed on the TSX Venture Exchange, in which BSP will acquire 100% of the outstanding shares of ALUULA in exchange for shares of BSP (the “Proposed Transaction”).

Management’s Discussion and Analysis of

ALUULA COMPOSITES INC.

For the year ended October 31, 2022

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

1.0	PREFACE............................................................................................................................................ 3
2.0	COMPANY AND INDUSTRY OVERVIEW........................................................................................... 4
2.1	COMPANY STRUCTURE ................................................................................................................. 4
2.2	CORE BUSINESS ............................................................................................................................. 5
2.3	LEGAL AND REGULATORY ENVIRONMENT ................................................................................... 6
3.0	FINANCIAL PERFORMANCE.............................................................................................................. 7
4.0	BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES................................................ 9
4.1	BALANCE SHEET ANALYSIS ............................................................................................................ 9
4.2	CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES ............................... 10
4.3	WORKING CAPITAL AND DEBT MANAGEMENT .......................................................................... 11
4.4	CONTRACTUAL OBLIGATIONS ..................................................................................................... 11
4.5	PRODUCTION CAPACITY AND CAPITAL EXPENDITURES .............................................................. 12
4.6	RESEARCH AND DEVELOPMENT.................................................................................................. 12
5.0	EQUITY............................................................................................................................................ 13
6.0	TAX MATTERS................................................................................................................................. 13
7.0	ACCOUNTING POLICIES AND ESTIMATES...................................................................................... 14
7.1	CRITICAL ACCOUNTING ESTIMATES ............................................................................................ 14
7.2	FUTURE ACCOUNTING PRONOUNCEMENTS .............................................................................. 16
7.3	FAIR VALUE MEASUREMENTS ..................................................................................................... 16
8.0	KEY RISKS AND RISK MANAGEMENT............................................................................................. 17
8.1	STRATEGIC RISKS ......................................................................................................................... 17
8.2	OPERATIONAL RISKS ................................................................................................................... 17
8.3	FINANCIAL RISKS ......................................................................................................................... 19
9.0	INTERNAL CONTROLS AND PROCEDURES..................................................................................... 20
9.1	QUALITY CONTROL ...................................................................................................................... 20
9.2	FINANCIAL CONTROLS ................................................................................................................. 20
10.0	ENVIRONMENTAL SUSTAINABILITY............................................................................................... 21
11.0	FUTURE OUTLOOK.......................................................................................................................... 21
12.0	RELATED PARTIES........................................................................................................................... 21
13.0	SUBSEQUENT EVENTS.................................................................................................................... 22
13.1	REVERSE ACQUISITION OF BASTION SQUARE PARTNERS INC. ................................................... 22
13.2	REVISED BANKING AGREEMENT – SCOTIA BANK ....................................................................... 22

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

1.0 PREFACE

1.1 DEFINITIONS

In this document, the terms “we”, “us”, “our”, and “Company” refer to Aluula Composites Inc. on a consolidated basis. “ALUULA” refers to the standalone entity Aluula Composites Inc., and “Ocean Rodeo” refers to the standalone entity Ocean Rodeo Sports Inc. As Ocean Rodeo was acquired by ALUULA on October 31, 2022, consolidated figures from the statement of comprehensive income exclude the results of Ocean Rodeo for the year ended October 31, 2022 by necessity.

“2021”, “2022” and future years refer to our fiscal years, which run from November 1 to October 31. Any references to a calendar year or other period will be noted as such.

The term “Consolidated Financial Statements” refers to the Consolidated Financial Statements of Aluula Composites Inc. dated October 31, 2022, unless indicated otherwise.

Other capitalized terms in this document are defined at the time of their first use.

1.2 FORWARD-LOOKING INFORMATION

1.3 BOARD OF DIRECTORS RESPONSIBILITY AND APPROVAL

The Board of Directors is responsible for the review and approval of the MD&A, and as approved the contents of this MD&A on February 10, 2023.

1.4 MANAGEMENT RESPONSBILITY

Management is responsible for creating and implementing effective systems, controls, and processes over both operations and financial reporting. Refer to sections 8 and 9 of this MD&A for further detail on key risk areas and controls implemented.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

1.5 COMPARATIVE INFORMATION

Unless indicated otherwise, all comparative figures for the year ended October 31, 2022 are referring to the results for the year ended October 31, 2021.

1.6 ACCOUNTING FRAMEWORK

The Company’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) using the accounting policies described in note 3 of those Consolidated Financial Statements.

1.7 ACCOUNTING ESTIMATES AND ASSUMPTIONS

Management is required to make estimates, judgements and assumptions in preparation of the Consolidated Financial Statements in accordance with IFRS. These estimates affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements, and the amounts of reported revenue and expenses during the reporting period. Refer to section 7.1 of this MD&A for further detail.

1.8 ROUNDING AND PERCENTAGES

Rounded numbers are used throughout this MD&A, with all year-over-year percentage changes calculated on whole dollar amounts.

2.0 COMPANY AND INDUSTRY OVERVIEW

2.1 COMPANY STRUCTURE

ALUULA was incorporated under the British Columbia Business Corporations Act on July 18, 2019, and is domiciled in Victoria, BC Canada with a registered office at 300 - 4240 Glanford Avenue. Ocean Rodeo was incorporated in 2001. The Company’s management and the majority of staff are also located in Victoria.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

2.2 CORE BUSINESS

ALUULA

ALUULA is the core business of the Company, developing, assembling and selling a broad range of composite materials to globally recognized industry partner brands in a variety of commercial markets. The ALUULA team works directly with brand partners to develop and approve prototype products made from our composite materials, shipping materials directly to globally dispersed design teams for each brand partner until commercialization when we work directly with the brand partner’s factory or manufacturing partner.

The team at ALUULA is working with customers in a number of vertical markets for which the major market trends are discussed below. Outside of windsport our market share is early-stage and involves providing sample materials and working through development with potential brand partners.

Windsport industry

Four years ago, ALUULA was unknown to the windsport market. Today it provides the majority of the Company’s sales revenue, and we are experiencing industry-wide demand with leading brands using ALUULA composites to further elevate their premium products. Windsport is experiencing a postCOVID-19 recovery in consumer demand, and the market is both growing and being driven upscale through ALUULA’s ability to provide lighter, higher performance materials.

Aerospace industry

The Aerospace industry provides the opportunity for significant long-term order volumes, with companies in this market bringing large development budgets and financial stability. Our durable, lightweight composites are a natural fit for this heavily regulated industry where shedding weight allows for both cost savings and additional revenues for market participants. The heavy regulation causes long product development lead times, which limits market entry for competitors. ALUULA is in year four of a strategic partnership with a well-established industry leader, developing FAA compliant solutions within the aviation segment of aerospace that we expect to begin to commercialize in the coming year. We are also developing relationships with other aviation brands in a variety of product applications with shorter development times, between 1 and 3 years.

Airship industry

The Airship industry is a significant market with few players with each requiring large amounts of material per airship. Larger airships are typically constructed with a durable outer hull and an internal gas bladder system. The ALUULA process allows us to create custom composites to suit this market due to their lightweight nature, durability, and ability to hold helium. We are in early to mid-stage development with partners on composite materials to meet both of these needs.

Outdoor industry

The Outdoor industry is far reaching, and includes opportunities in packs and bags, tents, sleeping pads, impact protection, bikes and bike accessories, rafts, kayaks, canoes, paragliding and hang-

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

gliding, stand-up paddleboarding, outdoor safety and survival, and travel and luggage. Our ultralight and ultra-strong composites are a natural fit and relatively quick substitute for current materials.

Sailing industry

ALUULA has the potential to disrupt the sailing industry with our recycle-ready materials, which are both desired by participants and also beginning to be required for competitions. This market is quite technologically advanced by nature, so the barriers to entry are higher. We have begun market entry by offering accessory sail components where traditional materials used in high wear-and-tear applications add significant weight to the sail but delivery only modest durability. We are now in the testing stage for downwind sails where ALUULA’s advantages are an easy fit and order volumes could be significant.

OCEAN RODEO

Ocean Rodeo was established in 2001 to develop best-in-class windsport products. It was this business that inspired its founders to establish a soft composite product for the windsport market and that, in turn, has allowed ALUULA to develop composites for other vertical markets. It is a well-established design hub for ALUULA and for windsport products, which it both sells and patents the design of. Ocean Rodeo sells to distributors, dealers and individuals worldwide, and sponsors team riders competing in windsport events at the highest level. Ocean Rodeo sets the bar for what is possible with ALUULA materials and is an innovation hub for our materials. By focusing its strategy on disruptive innovation using ALUULA materials we are accelerating the market acceptance of ALUULA and are able to offer ALUULA composite materials to Ocean Rodeo’s competitors without creating a conflict.

Due to the timing of its acquisition by ALUULA, Ocean Rodeo’s revenues and expenses are not included in the Company’s consolidated results for the year ended October 31, 2022 or comparative periods as reported in section 3.0 of this MD&A. Had Ocean Rodeo been acquired on November 1, 2021, consolidated sales would have been $8,556,737 and consolidated net loss would have been $1,335,418.

2.3 LEGAL AND REGULATORY ENVIRONMENT

Outside of Canada, the Company may be subject to import duties, tariffs, value-added taxes and applicable Consumer Guarantee Law. The Company has no employees outside of Canada.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

3.0 FINANCIAL PERFORMANCE

The following table is a management level summary of the financial results of the Company for 2022 compared to 2021, with relevant variance analysis below:

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2022 2021
Sales $ 2,784,082 $ 2,032,562
Cost of sales 2,136,385 982,472
Gross profit 647,697 1,050,090
Operating expenses
Employee costs 952,306 768,430
Research and development 171,627 122,546
Freight 149,453 76,663
Interest and bank charges 136,222 32,276
General and administrative 111,320 49,479
Insurance 96,535 51,056
Depreciation and amortization 94,720 44,813
Marketing 86,997 43,380
Professional fees 67,497 15,733
SR&ED income (70,866) (158,912)
License fee income (128,608) (43,280)
1,667,203 1,002,184
Operating income (1,019,506) 47,906
Other income 436,438 (37,597)
Income tax 101,498 501,054
Net income (loss) $ (481,570) $ 511,363
Earnings (loss) per share:
Basic earnings (loss) per share: $ (0.08) $ 0.13
Diluted earnings (loss) per share: $ (0.08) $ 0.12
A non-IFRS measure
----- End of picture text -----

While the ALUULA business is generating significant revenues, it is still early in its growth stage and the increases to balances year-over-year is expected. Employee costs, R&D expenses, and marketing expenses increased directly as a result of our growth.

Sales

Sales increased by $751,520 or 37% compared to 2021, and represent early stage validation of the use of our materials within the windsport industry. Sales to the Company’s top two customers increased from 2021, and the number of customers purchasing small quantities of composite materials for internal testing and design in other markets also increased. These newer customers are in the earlier stages of the development timeline, with commercialization expected over the coming years. While the sales growth was positive year-over-year, it did not meet the growth levels expected by management due to a quality control issue discussed in the cost of sales notes below. Delays in future orders occurred while the Company rectified the issue, but sales to this customer returned to expected levels near the end of 2022.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Cost of sales and gross profit

Cost of sales increased by $1,153,913 compared to the prior year, which reduced gross profit by 28%. This increase in cost was primarily driven by a quality control issue for which replacement product was provided to a manufacturing partner.

In early 2022 an inconsistency in our material was identified as a result of our rapid expansion to meet production demand using our previous production facility. The resolution of this issue occurred quickly, but the customer chose to move slowly while the solution was validated with their manufacturer. This delayed approximately 6 months of business with that key customer, but they have now returned to expected production levels and further expanded their use of ALUULA material. Management’s due diligence on this issue has paid off, and business growth has now returned to expected levels.

A new production facility and fusion pod are now in use and enhanced quality control processes have since been added throughout our procurement and production processes, as discussed in section 9.1 of this MD&A. Management is confident that any subsequent quality control issues will be identified much earlier on in the production process, minimizing the associated costs and related production delays. If this issue is removed from cost of sales, gross profit improves to $1,134,539 and 41% for 2022.

Freight

Freight costs increased by $72,790 or 95% compared to the prior year. Contributing factors include sales growth and an increase in base shipping costs due to reliance on air freight rather than sea freight during the height of the COVID-19 pandemic.

Interest and bank charges

Interest and bank charges increased by $103,946 or 322% compared to the prior year. This increase was driven by interest accruing on leases that didn’t exist in the prior year in addition to variable rate interest charged on bank indebtedness that had increased significantly from prior year.

General and administrative

General and administrative expenses increased by $61,841 or 125% compared to the prior year. This increase was caused by business growth demanding more warehouse space and the addition of a more sophisticated ERP system.

Insurance

Insurance increased by $45,479 or 89% compared to the prior year. This increase was driven by the addition of insurance on foreign accounts receivable and general increases to insurance costs as a result of the hardening of the insurance industry.

Depreciation and amortization

Depreciation and amortization increased by $49,907 or 111% compared to the prior year. This increase was as a result of the new office, warehouse, machinery and equipment that was added near the end of 2021 and throughout 2022.

Professional fees

Professional fees increased by $51,764 or 329% compared to the prior year. This increase was driven by the additional audit and legal costs associated with the Company’s signing of a definitive agreement for the reverse acquisition discussed in section 13.1 of this MD&A.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Scientific Research & Experimental Development (“SR&ED”) income

SR&ED income decreased by $88,046 or 55% compared to the prior year. This decrease relates to the allocation of R&D costs and project work between Ocean Rodeo and ALUULA, as SR&ED credits are allocated to offset the expenses incurred.

License fee income

License fees increased by $85,328 or 197% compared to the prior year due to the number of months for which license fees were applicable. In 2022, a licensing agreement was in place for 10 months, compared to 2 months at a higher rate during 2021.

Other income

In the consolidated statement of financial position, other income includes SR&ED income and license fee income which have been separated out for this analysis. Other income, as presented in this table, increased by $474,035 or compared to the prior year. This increase is primarily due to the cancellation of a royalty agreement set up as a lease obligation, which was recognized as a gain, and a fair value adjustment relating to an interest-free government loan.

Earnings (loss) per share

Basic and diluted earnings (loss) per share decreased $0.21 and $0.21 or 166% and 170%, respectively, as a result of the sales delay discussed above under cost of sales, and as a result of costs associated with rapid business growth.

4.0 BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES

4.1 BALANCE SHEET ANALYSIS

The following table presents selected information from the consolidated statements of financial position of the Consolidated Financial Statements, followed by a variance analysis below:

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2022 2021
Selected assets
Inventory $ 2,166,825 $ 375,220
Property and equipment 1,206,169 839,265
Intangible assets 4,334,833 13,363
Goodwill 3,906,786 -
Selected liabilities
Bank indebtedness, net of cash and cash equivalents $ 2,449,320 $ 103,870
Long-term debt 1,259,405 38,370
Lease obligations 978,928 1,180,178
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**Current and long-term portions combined for this analysis

ALUULA acquired 100% of the shares of Ocean Rodeo on October 31, 2022. As a result the consolidated 2022 statement of financial position includes the assets and liabilities of the standalone ALUULA entity plus the assets and liabilities of Ocean Rodeo recorded at their estimated fair values as of the acquisition date, and 2021 figures due not include Ocean Rodeo’s balances. This acquisition caused significant movements in balances compared to 2021 across the board. The addition of $1,726,893 of Inventory, $4,296,834 of Intangible assets, and $3,906,786 of Goodwill makes up the majority of the movement of those balances.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Property and equipment (including tangible right-of-use assets)

Property and equipment increased by $366,904 compared to the prior year. The Company invested $323,362 in production machinery and R&D equipment, which is discussed in more detail in section 4.5 of this MD&A. A further $202,361 relates to the acquisition of Ocean Rodeo. There were additional smaller purchases of furniture and equipment, computer equipment, and leasehold improvements, and all of these additions are net of depreciation incurred during the year.

Goodwill

Goodwill was acquired in the Ocean Rodeo share purchase, and is made up of the unquantifiable value attached to the R&D team’s extensive knowledge and expertise, existing customer relationships and distribution systems, and other established relationships.

Selected liabilities

Bank indebtedness, net of cash and cash equivalents, increased by $2,345,450 compared to the prior year, and is discussed in section 4.2 of this MD&A.

Long-term debt increased by $1,221,035 compared to the prior year, and is discussed in section 4.3 of this MD&A.

Lease obligations decreased by $201,250 compared to the prior year. The change is primarily due the cancellation of the licensing agreement and scheduled lease payments, offset by the acquisition of new machinery and equipment financed by leases. In addition, an office and warehouse lease obligation was included in the liabilities acquired with Ocean Rodeo. Additional details on lease obligations can be found in sections 4.3 and 4.4 of this MD&A.

Off-balance sheet arrangements

As of the date of this MD&A, the Company has not entered any off-balance sheet arrangements.

4.2 CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES Analysis of cash flows:

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2022 2021
Cash used in operating activities $ (945,478) $ (334,428)
Cash used in investing activities (819,026) (100,628)
Cash provided by (used in) financing activities (580,946) 107,178
Decrease in cash and cash equivalents $ (2,345,450) $ (327,878)
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Operating activities

Cash used in operating activities increased by $611,050, primarily due to the operating losses incurred during the year as discussed in the cost of sales analysis in section 3.0 of this MD&A.

Investing activities

The majority of the $718,398 increase to cash used in investing activities is due to the acquisition of Ocean Rodeo’s net bank indebtedness of $579,206, with the remainder primarily attributable to the acquisition of machinery and equipment as discussed in section 4.5 of this MD&A.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Financing activities

Cash used for financing activities increased by $688,124, which was made up of the following:

$1,036,377 in loans to related parties, including the net proceeds of shareholder loans and intercompany transactions between the legal Aluula and Ocean Rodeo entities.
$331,945 of repayments of lease obligations for buildings, machinery and equipment;
Net of
$189,930 of lease financing proceeds relating to production equipment; and
$490,268 of financing received from Western Economic Diversification Canada (“WD Canada”) in the form of an interest-free loan.

4.3 WORKING CAPITAL AND DEBT MANAGEMENT

The primary credit facilities held by the company are with Scotia Bank, with whom management has a strong working relationship. In addition to the debt facilities, the Scotia Bank lease facility is revolving and the Company had room for $147,609 of additional lease financing at October 31, 2022.

Refer to note 10, note 11 and note 12 of the Consolidated Financial Statements for a detailed description of the terms and repayment details of the bank indebtedness, debt facilities and lease facilities, respectively.

Loans to shareholders also exist, totaling $2,122,802 at October 31, 2022. These loans are not considered part of the Company’s capital. They are non-interest bearing and are not repayable on demand. On completion of the reverse acquisition of BSP, as discussed in section 13.1 of this MD&A, the majority of these shareholder loans will be converted to equity.

4.4 CONTRACTUAL OBLIGATIONS

The Company is subject to a number of contractual obligations, including office and warehouse leases, machinery and equipment leases, and long-term debt repayments. Management believes the Company will have sufficient liquidity available to meet its contractual obligations in the coming years.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

The following table summarizes contractual obligations due by fiscal year:

	2027 &
	2023 2024 2025 2026 beyond Total
Repayments of long-term debt Payments for lease obligations	212,758 $ 390,521 $ 372,816 $ 306,732 $ 361,271 $ 1,644,098 $ 267,127 271,658 271,658 231,855 33,347 1,075,645
Total	479,885 $ 662,179 $ 644,474 $ 538,587 $ 394,618 $ 2,719,743 $

4.5 PRODUCTION CAPACITY AND CAPITAL EXPENDITURES

Fusion Pods

An ALUULA fusion pod is a standalone device that converts input materials into finished composites. Each pod requires two to three production staff to operate. Production scheduling and capacity is monitored closely. Machine maintenance and cleaning is undertaken as needed, with attempts made to use existing downtime to complete the maintenance.

During 2022 a new fusion pod was introduced, increasing automation and consistency and adding a new level of quality control to our process.

Other Equipment

The Company also invests in R&D equipment to test new composite materials, new input materials, and existing input materials from new sources. The materials are subject to tests including strength, abrasion resistance, UV resistance, permeability, and accelerated life cycle testing. Equipment is also purchased to assist with new assembly methods, such as heat welding and other alternatives to sewing.

Patents & Molds

Where management feels it’s warranted, patents are sought out to protect both designs and processes in certain global jurisdictions. The legal costs of acquiring these patents are capitalized as intangible assets. In addition, some Ocean Rodeo products require the creation of molds for the external manufacturing of certain products. These molds are purchased from a supplier and capitalized as property and equipment.

Other Capital Expenditures

The Company also invests in standard office improvements, furniture equipment and computer equipment as required, and will expects to continue to make these purchases on an as-needed basis.

4.6 RESEARCH AND DEVELOPMENT

ALUULA has a process for assembling composite materials, and because it is a process rather than a specific product offering it is very customizable. R&D activities are the core of the Company’s success and are separated into four main areas discussed below. The Ocean Rodeo R&D and design team has decades of experience designing and working with products in the windsport industry, which we are also able to apply to all areas of ALUULA’s R&D inside and outside of windsport.

Customization of ALUULA

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

composites or methodologies to meet their needs. Once finalized we work with the brand’s manufacturing partner to ensure smooth implementation of our materials into their processes.

Development of new ALUULA use cases

Where an opportunity to use ALUULA in an existing market is identified, R&D may proactively create a sample of a product that includes our composites. This is then presented to prospective brand partners to help them see the benefits of using ALUULA in their product lines.

Improvements to the ALUULA process

If an inefficiency or pain point is identified, the R&D team will work with the production team to investigate and determine whether an alternative process could be used to improve efficiency or output quality.

Quality control

Quality control is discussed in detail in section 9.1 of this MD&A.

5.0 EQUITY

The Company has the following share structure at October 31:

2022 2021

Authorized:

10,000,000 Class A common voting shares without par value
1,000,000 Class B common voting shares with a par value of $0.01 per share
1,000,000 Class C common non-voting shares with a par value of $0.10 per share
1,000,000 Class AA preferred non-voting shares with a par value of $0.01 per share
1,000,000 Class BB preferred non-voting shares with a par value of $0.01 per share
Issued and fully paid:
5,765,058 Class A common voting shares (2021 - 3,450,045) 6,305,977 $ 611 $
6,305,977 $ 611 $

During the year ended October 31, 2022, 1,706,182 Class A common voting shares were issued in exchange for 100% of the shares of Ocean Rodeo (Note 21). There were no shares issued during 2021.

In addition to the shares issued and fully paid, the Company has issued 352,000 share options under its share-based compensation plan. 243,750 were vested and exercisable as at October 31, 2022. More detail on these share options can be found in note 18 of the Consolidated Financial Statements.

6.0 TAX MATTERS

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

operating losses available to be carried forward for tax purposes, but Scientific Research and Experimental Development (“SR&ED”) tax credits will become non-refundable.

7.0 ACCOUNTING POLICIES AND ESTIMATES

7.1 CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with IFRS requires management to make certain estimates, judgments and assumptions that impact the application of accounting methods and the amounts recognized in the financial statements. These estimates and the underlying assumptions are established and reviewed continuously based on past experience, current trends, and other factors considered reasonable in the circumstances. Actual results may differ from the estimates. The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended October 31, 2022, which have been prepared in accordance with IFRS.

Significant judgements, estimates and assumptions that have the most significant impact on the amounts recognized in the financial statements are described below:

Valuation of assets and liabilities acquired in a business combination:

Leases:

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Deferred income tax assets and liabilities:

Long-lived assets valuation:

The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of:

(i) value in use; or
(ii) fair value less selling costs.

Provision for sales returns and warranties:

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Revenue recognition:

7.2 FUTURE ACCOUNTING PRONOUNCEMENTS

IAS 1 - Presentation of Financial Statements:

IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors:

IAS 12 - Income Taxes:

7.3 FAIR VALUE MEASUREMENTS

A number of the Company’s financial instruments are recognized at fair value. Fair value is discussed in detail in note 3 and note 18 to the Consolidated Financial Statements.

Trade receivables

The Company holds trade receivables from customers who have obtained credit terms, which are held at amortized cost. Management assesses the lifetime expected credit losses (“ECL”) associated with these receivables, representing the expected credit losses that will result from all possible default events. The amount of ECL is updated at each reporting date to reflect changes in credit risk. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring as at the reporting date with the risk of default as at the date of initial recognition based on all information available, including reasonable and supportive forward-looking information. When a financial instrument is uncollectible, it is written off against the provision for impairment.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Management’s assessment is that the customers for which credit has been granted are creditworthy, and efforts are made to collect all outstanding receivables. Despite this, an ECL allowance has been set up to reflect possible future credit losses.

Share-based Compensation

The Company has a share-based compensation plan, which is described in note 18 to the Consolidated Financial Statements. The Company accounts for share-based payments and awards to employees, directors and officers at fair value using the Black-Scholes option pricing model. Under the fair valuebased method, compensation cost attributable to awards intended to settle in equity is based on the fair value of the award on the grant date and recognized as an expense, with a corresponding increase in equity over the vesting period using the graded vesting method. At the end of each reporting period management reassesses its estimates of the number of awards that are expected to vest and recognizes the impact of the revisions in the consolidated statement of comprehensive income (loss). The cumulative impact of share-based compensation is included in contributed surplus within the consolidated statements of financial position.

Investments

The Company holds strategic long-term investments in private companies, providing management with access to market data for the windsport industry as well as a closer relationship with a local specialty chemical company that may create new technologies that ALUULA can leverage in its process.

Fair value for these investments is determined using available financial and market information which can include financial statements and company projections. These investments are intended to be held long-term, and make up a very small portion of the Company’s total assets. More detail on these investments can be found in note 8 to the Consolidated Financial Statements.

8.0 KEY RISKS AND RISK MANAGEMENT

The Company is regularly exposed to risks and opportunities in the normal course of business. Along with the KPIs discussed above, effective risk management is vital to the ongoing growth and success of the Company. As the Company is still in its growth stage, management’s focus began with mitigating the key risks as they were identified, with additional risk management being added over time.

8.1 STRATEGIC RISKS

Reputation

As an early-stage innovative company earning its market share with multiple customers in multiple vertical markets, we must meet expectations on deliverability and quality while we also scale up rapidly. There is risk of reputational damage and liability if composite materials experience quality control issues or do not hold up in the long-term.

Management has mitigated the risk of quality control issues through the implementation processes discussed in section 9.1 of this MD&A.

8.2 OPERATIONAL RISKS

Confidentiality of trade secrets

We are a very innovative company, with many closely held trade secrets in addition to the intellectual property that has been obtained over the years.

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Supply chain

Management mitigates supply chain risk in the following ways:

We invest in research and quality control up front to determine the best sources of raw materials, both for cost and flexibility to meet our specifications.
We prepare a detailed production planning schedule including lag times for receipt of raw materials.
We purchase only enough materials to meet confirmed purchase orders or production schedules, except where the cost savings of purchasing larger quantities is warranted.
We have invested in shipping insurance to cover losses that may occur on incoming materials.
We store our raw materials and finished goods in our own warehouse with limited access to the facility by outsiders.

Excess production

Cyber security

The Company relies on a number of electronic systems to store and process data. Management has implemented contracts with and uses the services of well-established or off-the-shelf service providers to meet these needs, such as Google, Microsoft, Dropbox, and NetSuite.

Employees and management are often subject to phishing attempts, primarily through email. The risks associated with these attempts is mitigated through employees being centralized in one office and having open discussions with other staff when they are targeted, ensuring other staff are aware of the attempt.

Data and information

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

Employee retention

8.3 FINANCIAL RISKS

The Company’s is exposed to a number of financial risks during the normal course of business. These risks are discussed in more detail in note 16 to the Consolidated Financial Statements.

Credit risk

We transact with Scotia Bank, a reputable Canadian bank.
Customers who wish to trade on credit terms are subject to a credit verification process.
We have obtained accounts receivable insurance through Export Development Canada (“EDC”) for significant customers based in foreign countries.
We obtain customer deposits where the Company is incurring out-of-pocket costs that cannot be recovered through retention and sale of the product being manufactured.
We obtain payment prior to shipping for customers who are not subject to credit terms.

Liquidity risk

Foreign currency risk

Interest rate risk

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

where rates are favourable. The upcoming reverse acquisition, as discussed in section 13.1 of this MD&A, is expected to provide sufficient available working capital to remove the ongoing reliance on the variable rate credit facilities.

9.0 INTERNAL CONTROLS AND PROCEDURES

9.1 QUALITY CONTROL

Quality control procedures are vital to the Company’s success to reduce the risk of warranties, returns, and damaged customer relationships.

ALUULA composite materials

Quality control measures are undertaken at many steps throughout the ALUULA process. To select raw materials, our research and development team tests each input material to ensure we are purchasing from reliable sources that meet our quality control specifications. Where raw materials require modification prior to use in our assembly process we contract a reputable factory and remain in constant communication as to the specifications that must be met. ALUULA staff will occasionally visit the facility to ensure compliance with specifications. Raw materials are inspected once received, and continuously during the assembly process. When the composite materials are assembled they undergo a final quality control check during the re-rolling and packaging stage and a Quality Control Report is prepared for inclusion with the shipment to our customer. Any changes to the production process are carefully tested and verified prior to implementation in full-scale production.

Ocean Rodeo windsport products

Ocean Rodeo’s finished products are purchased from established overseas manufacturers. Each delivery of finished goods for resale is subject to the manufacturer’s quality control process, and in the case of kites and wings Ocean Rodeo also contracts a third party to conduct secondary quality control review.

9.2 FINANCIAL CONTROLS

The Company has been operating with a small business mindset for a number of years, and has financial controls in place to mitigate financial risks.

Segregation of cash

There is an inherent risk of loss due to fraud and error with cash and banking. The Company only provides banking access to members of finance who require access, and payments over a certain threshold require a secondary approver.

Use of ERP software

The Company has invested in a NetSuite ERP system for managing data, including its accounting records. Access to NetSuite is user based, and employees have role-based permissions assigned to limit access to their areas of responsibility.

External review and tax preparation

Prior to the conversion to IFRS, an external accountant prepared year-end financial statements, tax returns, and SR&ED returns. For the IFRS conversion and subsequent the financial statements are prepared internally and are subject to a review engagement for 2021 and a financial statement audit

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

for 2022. Tax will continue to be externally reviewed and filed, and the external SR&ED consultant will be retained to ensure appropriateness and completeness of submissions.

10.0 ENVIRONMENTAL SUSTAINABILITY

11.0 FUTURE OUTLOOK

With a strong competitive advantage established in the windsport market, ALUULA is focused on increased penetration within this market and growing within the additional vertical markets. This means ensuring our production output can scale while maintaining quality control, allowing us to meet rising demand for our composite materials at the correct time. A comprehensive in-house marketing strategy has been created to support this scaling and enable us to properly co-brand with our experienced multinational partners as new products containing ALUULA are released in the coming years.

12.0 RELATED PARTIES

Shareholders and ultimate controlling parties:

At October 31, 2022, loans to shareholders existed in the amount of $2,122,802 (2021 – $18,172). These loans bear no interest and are not repayable on demand. On completion of the reverse acquisition discussed in section 13.1 of this MD&A, the majority of these loans will be converted to equity.

Affiliates:

Key management compensation:

Total compensation expense paid to the Executive Leadership Team for the year ended October 31, 2022 was $281,270 (2021 - $350,252), which includes $14,492 (2021 - $14,492) in share-based payments. Employment agreements with the members of the Executive Leadership Team provide for severance payments if the executive is terminated without cause totaling $328,000 (2021 - $168,000).

MANAGEMENT’S DISCUSSION AND ANALYSIS | 2022 | ALUULA COMPOSITES INC.

13.0 SUBSEQUENT EVENTS

A number of events have occurred subsequent to the year ended October 31, 2022, and are disclosed in the Consolidated Financial Statements. The most significant are included below.

13.1 REVERSE ACQUISITION OF BASTION SQUARE PARTNERS INC.

The Proposed Transaction will be structured as a three-cornered amalgamation pursuant to the provisions of the Business Corporations Act (British Columbia) (the “BCABC”) whereby BSP incorporates a wholly owned subsidiary under the BCABC which amalgamates with the Company to form a newly amalgamated company that will continue as a wholly owned subsidiary of BSP. To effect the Proposed Transaction, BSP acquire all of the outstanding shares of the Company, and in exchange the Company’s shareholders receive common shares in BSP. The quantity of common shares to be received by the Company’s shareholders has not been determined at the time of signing of this MD&A.

13.2 REVISED BANKING AGREEMENT – SCOTIA BANK

SCHEDULE “E”

OCEAN RODEO FINANCIAL STATEMENTS

Attached hereto are the following financial statements of Ocean Rodeo:

Ocean Rodeo’s annual financial statements for the year ended October 31, 2022.
Ocean Rodeo’s annual financial statements for the year ended October 31, 2021.

Financial Statements of

OCEAN RODEO SPORTS INC.

Years ended October 31, 2022 and 2021

January 31, 2023 Edmonton, Alberta

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INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Ocean Rodeo Sports Inc.

Opinion

We have audited the financial statements of Ocean Rodeo Sports Inc. (the Company), which comprise the consolidated statement of financial position as at October 31, 2022, and the statements of income (loss) and comprehensive income (loss), changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the company as at October 31, 2022, and the financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the company in accordance with ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Matter

The financial statements for the year ended October 31, 2021 are unaudited.

Other Information

(continues)

Independent Auditor's Report to the Shareholders of Ocean Rodeo Sports Inc. (continued)

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the company's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

l Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
l Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.
l Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
l Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.
l Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

(continues)

Independent Auditor's Report to the Shareholders of Ocean Rodeo Sports Inc. (continued)

The engagement partner on the audit resulting in this independent auditor's report is Justin Rousseau.

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Kingston Ross Pasnak LLP Chartered Professional Accountants

OCEAN RODEO SPORTS INC.

Statements of Financial Position

October 31, 2022 with comparative information for 2021

					2021
	Note		2022		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	41,004	$	241,507
Trade and other receivables	4		352,709		685,825
Inventory	5		1,291,764		876,575
Deferred tax asset	19		327,194		-
Prepaid expenses and other current assets			481,439		630,994
			2,494,110		2,434,901
Property and equipment	6		202,361		225,606
Intangible assets	7		202,092		116,435
Other long-term assets			8,102		8,102
Investments	8		44,482		44,482
		$	2,951,147	$	2,829,526
Liabilities and Shareholder's Equity
Current liabilities:
Bank indebtedness	10	$	620,210	$	158,158
Trade and other payables	9		569,839		714,061
Customer deposits			189,543		581,707
Current portion of long-term debt	11		252,519		38,366
Current portion of lease obligations	12		29,139		28,117
Income tax payable	19		12,234		33,507
Deferred tax liability	19		-		1,121
			1,673,484		1,555,037
Long-term debt	11		549,407		891,838
Lease obligations	12		66,819		95,959
Due to related parties	13		1,569,661		278,723
			3,859,371		2,821,557
Shareholder's equity:
Share capital	17		300,002		300,002
Deficit			(1,208,226)		(292,033)
			(908,224)		7,969
Commitments	20
Subsequent events	21
		$	2,951,147	$	2,829,526

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

Approved on behalf of the Board: _______ Richard Myerscough, CEO

John Zimmerman, COO

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OCEAN RODEO SPORTS INC.

Statements of Loss and Comprehensive Loss

Year ended October 31, 2022 with comparative information for 2021

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2021
Note 2022 (Unaudited)
Sales $ 5,772,655 $ 4,583,156
Cost of sales 4,594,166 3,916,384
Gross profit 1,178,489 666,772
Operating expenses:
Marketing 896,542 437,524
Salaries and benefits 13 877,039 686,143
General and administrative 557,315 551,549
Research and development 136,589 129,778
2,467,485 1,804,994
Loss before interest, tax and amortization (1,288,996) (1,138,222)
Other income 14 212,129 221,361
Interest expense (91,583) (76,751)
-
Gain on disposal of assets 622,545
Income tax recovery 19 21,273 75,688
Deferred tax recovery 19 328,315 58,459
Depreciation of capital assets 6 (88,558) (94,065)
Amortization of intangible assets 7 (8,773) (8,346)
-
Discontinued operations 106,346
Net loss and comprehensive loss $ (916,193) $ (232,985)
Earnings (loss) per share: 18
Basic loss per share: $ (0.27) $ (0.07)
Diluted loss per share: $ (0.27) $ (0.07)
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The accompanying notes are an integral part of these consolidated financial statements.

OCEAN RODEO SPORTS INC.

Statements of Changes in Equity

Year ended October 31, 2022 with comparative information for 2021

					Retained		Total
	Shares		Share		earnings		shareholder's
	outstanding		capital		(deficit)		equity
Balance, October 31, 2020 (Unaudited)	3,450,045	$	300,002	$	(59,048)	$	240,954
Net loss	-		-		(232,985)		(232,985)
Balance, October 31, 2021 (Unaudited)	3,450,045	$	300,002	$	(292,033)	$	7,969
Net loss	-		-		(916,193)		(916,193)
Balance, October 31, 2022	3,450,045	$	300,002	$	(1,208,226)	$	(908,224)

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

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OCEAN RODEO SPORTS INC.

Statements of Cash Flows

Year ended October 31, 2022 with comparative information for 2021

OCEAN RODEO SPORTS INC. Statements of Cash Flows Year ended October 31, 2022 with comparative information for 2021	OCEAN RODEO SPORTS INC. Statements of Cash Flows Year ended October 31, 2022 with comparative information for 2021
Note		2022 2021 (Unaudited)
Cash flows from operating activities: Net loss before taxes Income taxes Items not involving cash: Depreciation of capital assets 6 Amortization of intangible assets 7 Government grants and fair value adjustments 14 Accretion of loans and leases 11,12 Gain on sale of intangibles 7 Changes in non-cash working capital items: Decrease (increase) in trade and other receivables 4 Increase in inventory 5 Increase in income taxes 19 Increase in deferred taxes 19 Decrease (increase) in prepaid expenses and other assets Decrease in other assets Increase (decrease) in trade and other payables 9 Increase (decrease) in customer deposits Cash flows from investing activities: Acquisition of property and equipment 6 Proceeds from sale of intangible assets 7 Acquisition of intangible assets 7 Cash flows from financing activities: Net proceeds from related parties 13 Payments for principal portion of lease obligations 12 Proceeds from lease obligations 12 Proceeds from long-term debt 11 Repayments of long-term debt 11
		(1,265,781) $ (367,132) $ 349,588 134,147

		88,558 94,065 8,773 8,346 - (76,860) 35,612 14,754 - (635,691)

		333,116 (207,319) (415,189) (168,393) (21,273) (77,088) (328,315) (58,459) 149,555 (3,213) - 112,659 (144,222) 297,685 (392,164) 248,988
		(1,601,742) (683,511)

		(65,313) (218,323) - 738,946
		(94,430) (11,526)
		(159,743) 509,097

		1,290,938 (187,233) (32,000) (26,667) - 146,752 - 838,000 (160,008) (765,466)
		1,098,930 5,386
Decrease in cash and cash equivalents Net cash and cash equivalents, beginning of year1		(662,555) (169,028) 83,349 252,377
Net cash and cash equivalents, end of year		(579,206) $ 83,349 $
1 Cash and cash equivalents Bank indebtedness
		41,004 $ 241,507 $ (620,210) (158,158)

Net cash and cash equivalents		(579,206) $ 83,349 $

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

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

1. Nature of operations:

Ocean Rodeo Sports Inc. (the “Company” or “Ocean Rodeo”) was incorporated under the British Columbia Business Corporations Act on January 12, 2001. The Company is domiciled in Victoria, BC Canada, with a registered office at 300-4240 Glanford Avenue. The Company undertakes research and development activities to create top-of-the-line windsport products which it purchases from its manufacturer for resale within the windsport sector.

2. Basis of preparation:

(a) Statement of compliance:

These financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). These financial statements were approved by the Board of Directors for issue on January 31, 2023.

(b) Basis of measurement:

These financial statements have been prepared on a going concern basis, under the historical cost basis except for certain financial instruments that are measured at fair value as detailed in the Company’s significant accounting policies.

These financial statements are presented in Canadian Dollars, which is the Company’s functional currency and the currency in which it maintains its accounting records. An entity’s functional currency is the currency of the principal economic environment in which it operates.

(d) Estimates and judgments:

Significant judgements and estimates relate to:

(i) Allowance for credit losses:

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

2. Basis of preparation (continued):

(d) Estimates and judgments (continued):

(i) Allowance for credit losses (continued):

The determination of a significant increase in credit risk takes into account many different factors, including relative changes in probability of default since origination. In determining whether there has been a significant increase in credit risk and in calculating the amount of ECL, the Company must rely on estimates and exercise judgment regarding matters for which the ultimate outcome is unknown. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or decrease in the allowance for credit losses.

In order to calculate ECL, the Company analyzes receivable balances by age, geography and customer type and applies a historical default percentage. Amounts that are known to be uncollectible are written off when identified.

(ii) Valuation of inventory:

Valuing inventory requires the Company to estimate future retail sales prices and reductions, future customer product demand, inventory losses or shrinkage, vendor rebates based on volume purchases and the probability that funds will be collected from vendors. If actual losses on inventory differ from those estimated, inventory and comprehensive income (loss) will be affected in future periods.

(iii) Internally generated assets:

(iv) Long-Lived Assets Valuation:

Management determines the estimated useful lives and residual values of long-lived assets to calculate amortization and depreciation. This estimate is determined by considering a typical life cycle for the asset, expected usage levels, and expected maintenance levels. Useful lives and residual values are reviewed annually and future depreciation charges are adjusted where management believes the outcomes differ from previous estimates.

Indefinite life intangible assets are tested for impairment annually. Indefinite life intangibles, property and equipment, and definite life intangibles are also tested for impairment when circumstances indicate that impairment may exist. Management judgement is involved in determining if there are circumstances indicating that testing for impairment is required, and in identifying Cash Generating Units (“CGUs”) for the purpose of impairment testing.

The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of:

(i) value in use; or (ii) fair value less selling costs.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

2. Basis of preparation (continued):

(d) Estimates and judgments:

(iv) Long-Lived Assets Valuation (continued):

(v) Provision for sales returns and warranties:

The Company provides its customers with a 60-day satisfaction guarantee in addition to a oneyear warranty on current season goods or a 90-day warranty on discontinued products. Products sold for professional applications such as schools or rentals are eligible for a 30-day warranty. The Company has made certain assumptions to estimate both the quantity of future expected merchandise returns as well as the warranty provision. The cumulative warranty expense as a percentage of relevant sales over the past 10 years has been used as a basis to estimate the warranty provision for the reporting period. Sales returns are calculated using the cumulative sales returns as a percentage of relevant sales over the past 10 years, multiplied by relevant sales for the reporting year.

(vi) Leases:

The Company applies judgment in assessing whether a contract is or contains a lease. Such judgements include the determination of whether an asset is specifically or implicitly identified in the contract, if the Company has the right to obtain substantially all the economic benefits from use of the asset and whether the Company has the right to direct the use of the asset. These judgments are made at the inception of a contract and may change if there are material changes to the agreement.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

2. Basis of preparation (continued):

(d) Estimates and judgments (continued):

(vii) Deferred income tax assets and liabilities:

Deferred income tax assets and liabilities result from timing differences between the financial reporting and tax bases of assets and liabilities. Loss carryforwards also comprise a portion of the temporary differences and result in a deferred income tax asset. Deferred income tax assets are only recognized to the extent that management considers it probable that a deferred income tax asset will be realized. The assessment for the recognition of a deferred tax asset requires significant judgement. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Unknown future events and circumstances, such as changes in tax rates and laws, may materially affect the assumptions and estimates made from one period to the next.

(viii) Measurement of fair values:

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and nonfinancial assets and liabilities. The Company uses observable market data to the extent possible. Where fair values cannot be determined based on quoted prices in active markets, fair value is measured using valuation techniques and models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are required to establish fair values. Changes in assumptions about the inputs of these models could affect the reported fair value of the Company’s financial and non-financial assets and liabilities.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in the associated notes to the financial statements.

(ix) Revenue recognition:

Revenue is recognized when the criteria in IFRS 15 are met, the timing of which requires judgement by management. This judgement includes whether collection of receivables is reasonably assured, and whether control has passed from the Company to the customer. The timing of change of control is estimated based on historical results, using assumptions for the time to delivery based on shipping terms, date, and destination. Actual timing of the change of control could vary from the estimates made.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

3. Summary of significant accounting policies:

(a) Financial assets and liabilities:

(i) Recognition and measurement of financial instruments:

(ii) Provision for impairment:

(iii) Cash and cash equivalents:

(iv) Trade and other receivables:

Trade and other receivables are initially recognized at fair value less provision for impairment. Subsequently, trade and other receivables are measured at amortized cost. As receivables are due in less than one year, they are not discounted. The provision established against trade and other receivables represents lifetime ECL and is updated at each reporting date. Any increase in the provision is recognized in the statement of comprehensive income (loss). When a trade receivable is uncollectible it is written off against the provision for impairment. Subsequent recoveries of amounts previously written off are recognized in the statement of comprehensive income (loss).

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

3. Summary of significant accounting policies (continued):

(a) Financial assets and liabilities (continued):

(v) Investments:

IFRS 9 prescribes a single approach to determine whether an investment in an equity instrument is classified and measured at amortized cost or at fair value, with each instrument measured separately. The classification and measurement of investments is based on the Company’s business models for managing its financial assets and whether the contractual cash flows represent solely payments of principal and interest. The Company’s investments are measured at fair value and are classified as Fair Value through Profit or Loss (“FVTPL”). Subsequent changes in fair value are recognized as gains or losses in the statement of comprehensive income (loss). Transaction costs relating to investments classified as FVTPL are recognized in profit or loss as they are incurred.

(vi) Borrowings and other financial liabilities:

Trade and other payables, due to related parties and bank indebtedness are initially recognized at fair value, net of transaction costs, plus or minus any premiums or discounts. Bank loans and other financial liabilities are subsequently measured at amortized cost calculated using the effective interest method. Interest accrued on borrowings is included in trade and other payables on the statement of financial position. Cash flows linked to short-term payable amounts are not discounted. Long-term cash flows are discounted when the impact is significant. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.

(b) Inventory:

Inventory is valued at the lower of cost and net realizable value, with cost being determined using the specific identification cost method. The cost of finished goods for resale includes direct product costs. When circumstances that previously caused inventory write-downs below cost no longer exist, or when there is clear evidence of an increase in the net realizable value, the amount of a write-down previously recorded is reversed through cost of goods sold.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

3. Summary of significant accounting policies (continued):

Furniture and computer equipment	3 - 10 years
Molds	3 - 7 years
Leased office and warehouse space	Term of the lease
Leasehold improvements	Term of the lease

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

(d) Intangible assets:

Intangible assets include patents, licenses and trademarks. Upon recognition of an intangible asset, the Company determines whether the asset has a definite or indefinite life. In making this determination, the Company considers the expected use, expiry of agreements, the nature of the asset and whether the value of the asset decreases over time. Definite life intangible assets are measured at cost less accumulated amortization net of accumulated impairment losses. Amortization is recognized in the statements of comprehensive income (loss) on a straight-line basis over the estimated useful life as follows:

Trademarks	Up to 20 years
Patents and licenses	Up to 20 years

(e) Leases:

The supplier has a substantive substitution right;
The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period; and
The Company has the right to direct the use of the asset.

The Company has the right to control when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. For contracts that contain a lease the Company recognizes a right-of-use asset, presented under property and equipment or intangible assets in the statement of financial position, and a lease obligation at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or site on which it is located, less any lease incentives received.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

3. Summary of significant accounting policies (continued):

(e) Leases (continued):

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those within the same category of property and equipment or intangible assets.

(f) Impairment of non-financial assets:

On each reporting date, the Company reviews the carrying amounts of property and equipment, intangible assets and right-of use assets for any indication of impairment. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the assets recoverable amount.

An impairment loss is recognized when the carrying amount of an asset, or its CGU, exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive income (loss).

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

3. Summary of significant accounting policies (continued):

(g) Provisions:

Provisions are liabilities of the Company for which the amount and/or timing of settlement is uncertain. A provision is recognized in the financial statements when the Company has a present legal or constructive obligation because of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and when appropriate the risks specific to the liability.

(h) Revenue recognition:

The Company follows the following steps when accounting for revenue from contracts with customers:

(i) Identify the contract with a customer
(ii) Identify the performance obligations
(iii) Determine the transaction prices
(iv) Allocate the transaction price to the performance obligations
(v) Recognize revenue when/as performance obligations(s) are satisfied

The Company generates revenue through the sale of windsport products. All revenue is recognized net of any tax collected from customers, which is subsequently remitted to the relevant government authorities. Customer payment terms vary, but are short-term in nature. Customer contracts do not contain significant financing components or variable consideration.

Revenue is recognized at the time the customer takes control of the product, which is estimated based on historical experience of shipping terms, shipping date and shipping destination. When a right to return exists, a sales return allowance is recognized based on historical return rates. A sales return allowance is measured at the amount of consideration received, or receivable, for which the Company does not expect to be entitled. When a return occurs, the Company has the right to recover the goods sold, and so recognizes a corresponding adjustment to cost of sales and right to returned goods. The Company’s standard warranty period is not considered to create a separate performance obligation. Warranty obligations are accounted for as provisions, and the estimated cost of satisfying the warranty obligation is recognized when the necessity of the provision is evident. The sales return allowance and warranty provision are updated at the end of each reporting period for changes in circumstances.

(i) Government grants:

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

3. Summary of significant accounting policies (continued):

(j) Research and development expenses:

(k) Income tax:

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities that intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

(l) Basic and diluted earnings (loss) per share:

Basic earnings (loss) per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted income (loss) per share, whereby all “in the money” stock options are assumed to have been exercised at the beginning of the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during the period. When a loss is incurred during the period, basic and diluted loss per share are equal as the exercise of stock options is considered to be anti-dilutive.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

3. Summary of significant accounting policies (continued):

(m) Future accounting pronouncements:

(i) IAS 1 - Presentation of Financial Statements:

(ii) IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors:

(iii) IAS 12 - Income Taxes:

4. Trade and other receivables:

Trade and other receivables are comprised of the following:

				2021
		2022		(Unaudited)
Trade receivables	$	520,137	$	809,274
Sales return allowance		(125,991)		(119,606)
Expected credit losses		(41,437)		(76,550)
Government receivables		-		72,707
	$	352,709	$	685,825

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

4. Trade and other receivables (continued):

Trade receivables, net of expected credit losses, outstanding at October 31 were aged as follows:

				2021
		2022		(Unaudited)
Current	$	3,366	$	151,485
30 - 60 days		222,751		180,277
60 - 90 days		135,111		17,909
Over 90 days		117,471		383,052
	$	478,700	$	732,724

The following table summarizes the change in sales return allowances for the period:

				2021
		2022		(Unaudited)
Opening balance	$	119,606	$	68,238
Additional allowances during the period		125,991		119,606
Amounts used during the period		(34,779)		(61,916)
Unused amounts reversed		(84,827)		(6,322)
	$	125,991	$	119,606

The following table summarizes the change in expected credit losses for the period:

				2021
		2022		(Unaudited)
Opening balance	$	76,550	$	11,763
Additional provisions during the period		90,371		84,279
Amounts used during the period		(125,484)		(19,492)
	$	41,437	$	76,550

5. Inventory:

Inventory is comprised of the following:

Inventory is comprised of the following:
				October 31
		2022		2021
Raw materials	$	76,686	$	67,835
Finished goods		1,215,078		808,740
	$	1,291,764	$	876,575

During the year ended October 31, 2022, inventories totalling $3,986,774 (2021 - $3,155,088) were included in cost of sales. There were no write-downs to net realizable value recorded during the period (2021 – nil). There were no reversals of write-downs from previous periods

Notes to the Financial Statements Year ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

6. Property and equipment:

										Right-of-
			Computer			Leasehold				use
	Furniture		equipment		improvements			Molds		buildings		Total
Cost
Balance, October 31, 2020	$	29,449	$	41,846	$	37,676	$	295,172	$	-	$	404,143
Additions		15,505		1,866		-		54,200		146,752		218,323
Disposals		-		-		-		-		-		-
Balance, October 31, 2021		44,954		43,712		37,676		349,372		146,752		622,466
Additions		5,776		9,002		-		50,535		-		65,313
Disposals		-		-		-		-		-		-
Balance, October 31, 2022	$	50,730	$	52,714	$	37,676	$	399,907	$	146,752	$	687,779
Accumulated depreciation
Balance, October 31, 2020	$	17,795	$	38,810	$	28,580	$	217,610	$	-	$	302,795
Depreciation		1,321		2,494		5,436		60,355		24,459		94,065
Disposals		-		-		-		-		-		-
Balance, October 31, 2021		19,116		41,304		34,016		277,965		24,459		396,860
Depreciation		3,300		3,918		2,537		49,453		29,350		88,558
Disposals		-		-		-		-		-		-
Balance, October 31, 2022	$	22,416	$	45,222	$	36,553	$	327,418	$	53,809	$	485,418
Carrying amounts: Balance, October 31, 2021 Balance, October 31, 2022	$ $	25,838 28,314	$ $	2,408 7,492	$ $	3,660 1,123	$ $	71,407 72,489	$ $	122,293 92,943	$ $	225,606 202,361

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

7. Intangible assets:

==> picture [452 x 332] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|Patents and|
|licenses|
|Cost|
|Balance, October 31, 2020|$ 239,395|
|Additions|11,528|
|Disposals|(112,959)|
|Balance, October 31, 2021|137,964|
|Additions|94,430|
|-|
|Disposals|
|Balance, October 31, 2022|$ 232,394|
|Accumulated amortization|
|Balance, October 31, 2020|$ 22,885|
|Amortization|8,346|
|Disposals|(9,702)|
|Balance, October 31, 2021|21,529|
|Additions|8,773|
|-|
|Disposals|
|Balance, October 31, 2022|$ 30,302|
|Carrying amounts:|
|Balance, October 31, 2021|$ 116,435|
|Balance, October 31, 2022|$ 202,092|

----- End of picture text -----

As at October 31, 2022, intangible assets with a cost of $60,219 (2021 - $30,462) were recorded for patents, licenses or trademarks management expects to be granted but were still pending approval.

8. Investments:

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----- Start of picture text -----

||||
|---|---|---|
|2021|
|2022|(Unaudited)|
|GKA Event GMBH|$ 44,482|$ 44,482|

----- End of picture text -----

GKA Event GMBH (“GKA”)

The Company owns 4,167 shares (2021 – 4,167) in GKA, representing 16.67% (2021 – 16.67%) of its issued and outstanding share capital. Based in Hamburg, Germany, GKA was established as an event company for the purpose of organizing events in connection with or relating to kitesurfing.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

9. Trade and other payables:

Trade and other payables are comprised of the following:

				2021
		2022		(Unaudited)
Trade payables	$	379,800	$	564,696
Credit cards payable		59,991		44,593
Warranty provisions		57,965		39,051
Accrued liabilities		48,000		6,500
Payroll liabilities		14,209		46,773
Government payables		9,874		12,448
	$	569,839	$	714,061

The following table summarizes the change in warranty provisions for the period:

				2021
		2022		(Unaudited)
Opening balance	$	39,051	$	16,373
Additional provisions during the period		57,965		78,665
Amounts used during the period		(34,486)		(55,987)
Unused amounts reversed		(4,565)		-
	$	57,965	$	39,051

10. Bank indebtedness:

(a) Operating line of credit - Scotia Bank:

The Company has a credit facility with Scotia Bank (the “LOC”) to fund general operations. The LOC bears interest at 1% above Scotia’s prime lending rate and is repayable on demand. At October 31, 2022, the Company’s borrowing capacity was $750,000 and the balance outstanding was $618,533 (2021 - $154,237).

(b) Operating line of credit – Royal Bank:

The Company held a credit facility with Royal Bank (the “RBC LOC”) to fund general operations until June 2022. The RBC LOC bore interest at 3% above Royal Bank’s prime lending rate and was repayable on demand. Under the terms of the RBC LOC, Aluula shareholders postponed their right to repayment of shareholder loans under certain circumstances and guaranteed the facility. At October 31, 2022, the Company’s borrowing capacity was nil and the balance outstanding was nil (2021 - nil).

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

10. Bank indebtedness (continued):

Ocean Rodeo has guaranteed the Scotia Bank loans of its parent, Aluula Composites Inc. (“Aluula”). Aluula shareholders have also guaranteed the bank loans and waived the right to repayment of shareholder loans where such repayment would put the covenants offside.

11. Long-term debt:

(a) Western Economic Diversification Canada:

On August 24, 2020, the Company signed an agreement to receive up to $190,000 through WD Canada’s Regional Relief and Recovery Fund (“RRRF”) to offset costs of business expansion as prescribed in the funding agreement. This funding is in the form of an interest free loan, repayable in monthly instalments of $5,275 beginning January 31, 2023. As at October 31, 2022, $190,000 of funding had been received with a discounted balance of $178,823 (2021 - $172,552).

(b) Scotia Bank:

On August 10, 2021, the Company entered into a banking agreement with Scotia Bank that provided the Company with an $800,000 non-revolving term loan to fund general business needs. The loan is repayable in monthly instalments of $13,334 plus interest at Scotia Bank prime plus 1.25%. As at October 31, 2022 discounted loan balance was $583,342 (2021 – $719,286).

(c) Government of Canada:

On April 23, 2020, the Company received a $40,000 interest free loan as part of its Canada Emergency Benefit Account. This loan was expanded to $60,000 on January 11, 2021. If this loan is repaid in full on or by December 31, 2022, $20,000 is forgiven. Subsequent to year-end the repayment date was extended to December 31, 2023. As at October 31, 2022 the loan had a discounted balance of $39,761 (2021 - $38,366).

				2021
		2022		(Unaudited)
Opening long-term debt balance	$	930,204	$	923,767
Cash movement:
Debt repayments		(160,008)		(765,466)
Debt advances		-		838,000
Non-cash movement:
Accretion expense		31,730		10,763
Fair value adjustments		-		(76,860)
	$	801,926	$	930,204
Less: current portion		252,519		38,366
	$	549,407	$	891,838

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

12. Lease obligations:

The Company has leases and lease obligations for office and warehouse space. The interest rate implicit in the recorded lease was not readily determinable, so the Company used the incremental borrowing rate (“IBR”) of 3.58% for new lease obligations during the year ended October 31, 2021.

				2021
		2022		(Unaudited)
Balance, November 1	$	124,076	$	-
Additions		-		146,752
Payments		(32,000)		(26,667)
Accretion of lease liabilities		3,882		3,991
Balance,October 31	$	95,958	$	124,076
Lease liabilities due within one year	$	29,139	$	28,117
Lease liabiltiies due beyond one year		66,819		95,959
	$	95,958	$	124,076

Future minimum lease payments at October 31, 2022 are as follows:

		Within		One to five
		oneyear		years		Total
Lease payments	$	32,000	$	69,333	$	101,333
Finance charges		2,861		2,514		5,375
Net present value	$	29,139	$	66,819	$	95,958

Lease amounts recognized in profit or loss are as follows:

				2021
		2022		(Unaudited)
Expenses relating to short-term leases	$	12,423	$	8,940
Income from sub-leasing right-of-use assets		5,672		-
Interest on lease liabilities		3,882		3,991
Lease amounts recognzied in profit or loss	$	21,977	$	12,931

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

13. Related parties:

(a) Shareholders and ultimate controlling parties:

The Company’s shares are owned by Aluula Composites Inc, its parent company. Aluula has four ultimate shareholders, two of whom are actively involved in the day-to-day operations of the businesses. In addition, one family member of a shareholder is employed by the Company.

At October 31, 2022, loans to shareholders existed in the amount of $1,722,802 (2021 – $1,730,374). These loans bear no interest and are not repayable on demand.

(b) Affiliates:

The Company shares leased office and warehouse space with Aluula, a related company under common management that acquired Ocean Rodeo on October 31, 2022. Aluula and Ocean Rodeo also share staffing resources and are part of one overall cash management group.

During the year ended October 31, 2022, Ocean Rodeo purchased $22,940 of sample materials from Aluula (2021 - $15,569). As at October 31, 2022, $153,141 was receivable from Aluula (2021 - $1,451,651).

Total compensation expense paid to the Executive Leadership Team for the year ended October 31, 2022 was $172,827 (2021 - $163,803). Employment agreements with the members of the Executive Leadership Team provide for severance payments if the executive is terminated without cause totaling $160,000 (2021 - $160,000).

14. Other income:

Other income is comprised of the following:

				2021
		2022		(Unaudited)
Scientific research and experimental development refund	$	196,000	$	116,400
Other income		16,129		8,101
Fair value adjustment on term loan		-		70,762
Forgivable portion of government loan		-		20,000
Fair value adjustment on interest free government loan		-		6,098
	$	212,129	$	221,361

There were no government grants offset against expenses during the year ended October 31, 2022 (2021 – $20,000).

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

15. Financial instruments:

(a) Fair Value:

The following fair value measurement hierarchy is used for financial instruments that are measured in the statement of financial position at fair value using:

Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: techniques (other than quoted prices included in Level 1) that are observable for the asset or liability either directly (as prices) or indirectly (as derived from prices); and
Level 3: techniques which use inputs that are both significant to the overall fair value measurement of the asset or liability and are not based on observable market data (unobservable inputs).

The carrying value of cash and cash equivalents, trade and other receivables, trade and other payables, and bank indebtedness approximate their fair value due to the relatively short-term maturity of these financial instruments. The carrying value of long-term debt and lease obligations are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.

There were no transfers between levels of the fair value hierarchy in the year ended October 31, 2022 or 2021.

The following table summarizes the fair value hierarchy of assets and liabilities recorded at FVTPL:

2022	2021(Unaudited)
Level 2	Level 3 Level 2 Level 3
Investment in GKA Event GmbH -	44,482 - 44,482

16. Financial risk and capital management:

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk, foreign exchange risk.

(a) Credit risk:

Credit risk is the risk that a counterparty will not meet its obligations under a customer contract or financial instrument, leading to a financial loss. The Company transacts only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, the Company holds credit insurance on trade receivables exceeding a specified value and all receivable balances are managed and monitored on an ongoing basis. The Company’s top five customers account for 81.4% (2021 – 52.2%) of trade receivables at October 31, 2022, with the largest customer accounting for 63.3% (2021 – 23.2%).

OCEAN RODEO SPORTS INC. Notes to the Financial Statements Years ended October 31, 2022 and 2021

16. Financial risk and capital management (continued):

(b) Liquidity risk:

As at October 31, 2022 and 2021, the contractual maturities of financial liabilities were as follows:

2022
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Bank indebtedness	$	620,210	$	620,210	$	-
Trade and other payables		569,839		569,839		-
Due to related parties		1,569,661		-		1,569,661
Lease obligations		101,333		32,000		69,333
Long-term debt		856,658		252,758		603,900
Total financial liabilities	$	3,717,701	$	1,474,807	$	2,242,894

October 31, 2021

October 31, 2021
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Bank indebtedness	$	158,158	$	158,158	$	-
Trade and other payables		714,061		714,061		-
Due to related parties		278,723		-		278,723
Lease obligations		133,333		32,000		101,333
Long-term debt		1,003,332		160,008		843,324
Total financial liabilities	$	2,287,607	$	1,064,227	$	1,223,380

(c) Interest rate risk:

Interest rate risk is the risk the fair value of future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company continuously monitors interest rates and economic conditions. At October 31, 2022, the Company had credit facilities with outstanding principal of $620,210. A 1% change in the interest rate on the credit facilities would have an aftertax impact of $4,528 on the statement comprehensive income (loss).

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

16. Financial risk and capital management (continued):

(d) Foreign exchange risk:

(e) Capital management:

Management’s objective when managing its capital structure is to support its financial obligations and execute its operating and strategic plans. The Company’s capital is defined as the aggregate of its share capital, bank indebtedness, and long-term debt.

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||||
|---|---|---|
|2021|
|2022|(Unaudited)|
|Share capital|$ 300,002|$ 300,002|
|Bank indebtedness|620,210|158,158|
|Long-term debt|801,926|930,204|
|$ 1,722,138|$ 1,388,364|

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17. Share capital:

Issuance of common shares:

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|||
|---|---|
|2021|
|2022|(Unaudited)|

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Authorized:

Unlimited Class A common voting shares without par value

1,000,000 Class B common non-voting shares without par value

1,000,000 Class C common non-voting shares without par value

1,000,000 Class D preferred non-voting retractable redeemable shares without par value Unlimited Class E common voting shares with a par value of $0.01 per share

Issued and fully paid:

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||||
|---|---|---|
|3,450,045 Class E common voting shares (2021 - 3,450,045)|$ 300,002|$ 300,002|
|$ 300,002|$ 300,002|

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OCEAN RODEO SPORTS INC.

Notes to the Financial Statements Years ended October 31, 2022 and 2021

17. Share capital (continued):

Common shares	Number		Amount
Balance, October 31, 2020	3,450,045	$	300,002
October 31, 2022 exchange	-		-
Balance, October 31 2021, 2022	3,450,045	$	300,002

On October 31, 2022, ownership of 100% of the shares of the Company was transferred from the previous shareholders to Aluula, and Aluula became the Company’s parent. There were no shares issued during 2022 or 2021.

18. Earnings (loss) per share:

The following table shows the computation of basic and diluted loss per share:

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2021
2022 (Unaudited)
Net loss $ (916,193) $ (232,985)
Weighted average number of shares outstanding - basic 3,450,045 3,450,045
Effect of dilutive securities:
None - -
Weighted average number of shares outstanding - diluted 3,450,045 3,450,045
Basic earnings (loss) per share $ (0.27) $ (0.07)
Effect of dilutive securities - -
Diluted loss per share $ (0.27) $ (0.07)
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19. Income taxes:

Income tax expense differs from the amounts that would be obtained by applying the Canadian statutory income tax rate to net loss before income taxes as follows:

				2021
		2022		(Unaudited)
Net loss before income taxes	$	(1,265,781)	$	(367,132)
Tax recoveryrate		27%		27%
Expected income tax recovery		(341,761)		(99,126)
Decrease in income tax recovery resulting from:
Non-deductible expenses		-		-
Loss carry-forwards applied		320,488		23,438
	$	(21,273)	$	(75,688)

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

19. Income taxes (continued):

The Company has net operating losses carried forward for income tax purposes of approximately $1,207,129 (2021 - nil).

The components of deferred income taxes are as follows:

The components of deferred income taxes are as follows:
				2021
		2022		(Unaudited)
Deferred income taxes:
Canadian tax loss carry forwards	$	325,925	$	-
Other temporary differences arising from:
Property and equipment		(19,223)		(18,214)
Right-of-use assets		(25,095)		(33,019)
Intangible assets		(33,242)		(26,295)
Lease obligations		25,909		33,501
Scientific research and development refunded		52,920		42,906
Total deferred income tax assets (liabilities)	$	327,194	$	(1,121)

20. Commitments:

Commitments include leases recognized as lease obligations, as well as short-term and low value leases which don’t meet the capitalization requirements of IFRS 16.

2023	$	32,694
2024		32,000
2025		32,000
2026		5,333
2027	and thereafter	-
	$	102,027

Notes to the Financial Statements Years ended October 31, 2022 and 2021

OCEAN RODEO SPORTS INC.

21. Subsequent events:

(a) Reverse acquisition of Bastion Square Partners Inc.:

On December 20, 2022, the Company’s parent entered an Amalgamation Agreement with Bastion Square Partners Inc. (“BSP”), a company listed on the TSX Venture Exchange, in which BSP will acquire 100% of the outstanding shares of Aluula in exchange for shares of BSP (the “Proposed Transaction”).

The Proposed Transaction will be structured as a three-cornered amalgamation pursuant to the provisions of the Business Corporations Act (British Columbia) (the “BCABC”), whereby BSP incorporates a wholly-owned subsidiary under the BCABC which amalgamates with Aluula to form a newly amalgamated company that will continue as a wholly owned subsidiary of BSP. To effect the Proposed Transaction, BSP acquire all of the outstanding shares of Aluula, and in exchange the Aluula shareholders receive common shares in BSP. The quantity of common shares to be received by the Aluula shareholders has not been determined at the time of signing of these financial statements.

(b) Scotia Bank: revised banking agreement:

On December 6, 2022, Scotia Bank committed to a new banking agreement with the Company. This agreement is effective as of October 31, 2022, but does not take full force and effect until general conditions are met, including confirmation of the capital injection and review of the executed Amalgamation Agreement, as discussed in (a) above. As a result of the new agreement, changes to the covenants and reporting frequency have occurred. The Company is onside with all amended covenants as at October 31, 2022.

Subsequent to year-end, management cancelled the building lease at 41 Cadillac Avenue with an effective date of December 31, 2022. No penalties were incurred on the cancellation of this lease agreement.

(d) Extension of CEBA loan:

Subsequent to year-end, the Government of Canada extended the repayment with debt forgiveness deadline from December 31, 2022 to December 31, 2023. If the Company does not take advantage of the debt forgiveness, repayments will occur over 24 months rather than 36 months.

Financial Statements of

OCEAN RODEO SPORTS INC.

Year ended October 31, 2021, with comparative information for the 10 month period ended October 31, 2020

Unaudited, with comparative periods not subject to review engagement

January 31, 2023 Edmonton, Alberta

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INDEPENDENT PRACTITIONER'S REVIEW ENGAGEMENT REPORT

To the Shareholders of Ocean Rodeo Sports Inc.

We have reviewed the accompanying financial statements of Ocean Rodeo Sports Inc. (the Company) that comprise the statement of financial position as at October 31, 2021, and the statements of income (loss) and comprehensive income (loss), changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Practitioner's Responsibility

Our responsibility is to express a conclusion on the accompanying financial statements based on our review. We conducted our review in accordance with Canadian generally accepted standards for review engagements, which require us to comply with relevant ethical requirements.

A review of financial statements in accordance with Canadian generally accepted standards for review engagements is a limited assurance engagement. The practitioner performs procedures, primarily consisting of making inquiries of management and others within the entity, as appropriate, and applying analytical procedures, and evaluates the evidence obtained.

The procedures performed in a review are substantially less in extent than, and vary in nature from, those performed in an audit conducted in accordance with Canadian generally accepted auditing standards. Accordingly, we do not express an audit opinion on these financial statements.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial statements do not present fairly, in all material respects, the financial position of Ocean Rodeo Sports Inc. as at October 31, 2021, and its financial performance and its cash flows for the year then ended in accordance with IFRS.

(continues)

Independent Practitioner's Review Engagement Report to the Shareholders of Ocean Rodeo Sports Inc. (continued)

Other Matter

The financial statements of Ocean Rodeo Sports Inc. for the year ended October 31, 2020 and the statement of financial position as at January 1, 2020 were compiled and are presented for comparative purposes only.

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Kingston Ross Pasnak LLP
Chartered Professional Accountants
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OCEAN RODEO SPORTS INC.

Statements of Financial Position

October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with the comparative periods not subject to review engagement)

			October 31		October 31		January 1
	Note		2021		2020		2020
Assets
Current assets:
Cash and cash equivalents		$	241,507	$	252,377	$	8,052
Trade and other receivables	4		685,825		478,506		415,972
Inventory	5		876,575		708,182		1,142,567
Income tax receivable	19		-		-		223,087
Deferred tax asset	19		-		-		61,585
Prepaid expenses and other current assets			630,994		627,781		111,746
			2,434,901		2,066,846		1,963,009
Property and equipment	6		225,606		101,348		181,814
Intangible assets	7		116,435		216,510		300,055
Other long-term assets			8,102		120,761		-
Investments	8		44,482		44,482		44,482
		$	2,829,526	$	2,549,947	$	2,489,360
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness	10	$	158,158	$	-	$	746,541
Trade and other payables	9		714,061		416,376		502,466
Customer deposits			581,707		332,719		135,221
Current portion of long-term debt	11		38,366		197,152		191,986
Current portion of lease obligations	12		28,117		-		-
Income tax payable	19		33,507		110,595		-
Deferred tax liability	19		1,121		59,580		-
			1,555,037		1,116,422		1,576,214
Long-term debt	11		891,838		726,615		-
Lease obligations	12		95,959		-		-
Due to related parties	13		278,723		465,956		1,165,084
			2,821,557		2,308,993		2,741,298
Shareholders' equity:
Share capital	17		300,002		300,002		300,002
Deficit			(292,033)		(59,048)		(551,940)
			7,969		240,954		(251,938)
Commitments	20
Subsequent events	22
		$	2,829,526	$	2,549,947	$	2,489,360

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

Approved on behalf of the Board:

_______ Richard Myerscough, CEO

John Zimmerman, COO

OCEAN RODEO SPORTS INC.

Statements of Income (Loss) and Comprehensive Income (Loss)

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with the comparative periods not subject to review engagement)

	Note		2021		2020
Sales		$	4,583,156	$	2,145,079
Cost of sales			3,916,384		1,831,962
Gross profit			666,772		313,117
Operating expenses:
Salaries and benefits	13		686,143		309,382
General and administrative			551,549		238,787
Marketing			437,524		215,783
Research and development			129,778		129,471
			1,804,994		893,423
Loss before interest, tax and amortization			(1,138,222)		(580,306)
Other income	14		221,361		23,187
Interest expense			(76,751)		(59,946)
Gain on disposal of assets			622,545		1,236,413
Income tax recovery (expense)	19		75,688		(109,195)
Deferred tax recovery (expense)	19		58,459		(121,165)
Depreciation of capital assets	6		(94,065)		(89,832)
Amortization of intangible assets	7		(8,346)		(11,793)
Discontinued operations			106,346		205,529
Net income (loss) and comprehensive income (loss)		$	(232,985)	$	492,892
Earnings (loss) per share:	18
Basic earnings (loss) per share:		$	(0.07)	$	0.14
Diluted earnings (loss) per share:		$	(0.07)	$	0.14

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

OCEAN RODEO SPORTS INC.

Statements of Changes in Equity

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with the comparative periods not subject to review engagement)

					Retained		Total
	Shares		Share		earnings		shareholders'
	outstanding		capital		(deficit)		equity
Balance, January 1, 2020	3,450,045	$	300,002	$	(551,940)	$	(251,938)
Net income	-		-		492,892		492,892
Balance,October 31,2020	3,450,045	$	300,002	$	(59,048)	$	240,954
Net loss	-		-		(232,985)		(232,985)
Balance,October 31,2021	3,450,045	$	300,002	$	(292,033)	$	7,969

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

OCEAN RODEO SPORTS INC.

Statements of Cash Flows

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with the comparative periods not subject to review engagement)

		Note		2021		2020
Cash flows from operating activities:
	Net loss before taxes		$	(367,132)	$	723,252
	Income taxes			134,147		(230,360)
	Items not involving cash:
	Depreciation of capital assets	6		94,065		89,832
	Amortization of intangible assets	7		8,346		11,793
	Government grants and fair value adjustments	14		(76,860)		(21,371)
	Accretion of loans and leases	11,12		14,754		1,021
	Gain on sale of intangibles	7		(635,691)		(1,236,413)
	Changes in non-cash working capital items:
	Decrease in trade and other receivables	4		(207,319)		(62,534)
	Decrease (increase) in inventory	5		(168,393)		434,385
	Decrease (increase) in income taxes	19		(77,088)		333,682
	Decrease (increase) in deferred taxes	19		(58,459)		121,165
	Decrease in prepaid expenses and other assets			(3,213)		(270,103)
	Decrease (increase) in other assets			112,659		(120,761)
	Increase (decrease) in trade and other payables	9		297,685		(86,090)
	Increase in customer deposits			248,988		197,498
				(683,511)		(115,004)
Cash flows from investing activities:
	Acquisition of property and equipment	6		(218,323)		(9,366)
	Proceeds from sale of intangible assets	7		738,946		1,071,768
	Acquisition of intangible assets	7		(11,526)		(9,535)
				509,097		1,052,867
Cash flows from financing activities:
	Net payments to related parties	13		(187,233)		(699,128)
	Payments for principal portion of lease obligations	12		(26,667)		-
	Proceeds from lease obligations	12		146,752		-
	Proceeds from long-term debt	11		838,000		784,000
	Repayments of long-term debt	11		(765,466)		(31,869)
				5,386		53,003
Increase (decrease) in cash and cash equivalents				(169,028)		990,866
Net cash and cash equivalents, beginning of year1				252,377		(738,489)
Net cash and cash equivalents, end of year			$	83,349	$	252,377
1	Cash and cash equivalents		$	241,507	$	252,377
	Bank indebtedness			(158,158)		-
Net cash and cash equivalents			$	83,349	$	252,377

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

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

1. Nature of operations:

2. Basis of preparation:

(a) Statement of compliance:

(b) Basis of measurement:

(d) Estimates and judgments:

Significant judgements and estimates relate to:

(i) Allowance for credit losses:

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

2. Basis of preparation (continued):

(d) Estimates and judgments (continued):

(i) Allowance for credit losses (continued):

(ii) Valuation of inventory:

Valuing inventory requires the Company to estimate future retail sales prices and reductions, future customer product demand, inventory losses or shrinkage, vendor rebates based on volume purchases and the probability that funds will be collected from vendors. If actual losses on inventory differ from those estimated, inventory and comprehensive income (loss) will be affected in future periods.

(iii) Internally generated assets:

(iv) Long-Lived Assets Valuation:

Management determines the estimated useful lives and residual values of long-lived assets to calculate amortization and depreciation. This estimate is determined by considering a typical life cycle for the asset, expected usage levels, and expected maintenance levels. Useful lives and residual values are reviewed annually and future depreciation charges are adjusted where management believes the outcomes differ from previous estimates.

The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of:

(i) value in use; or

(ii) fair value less selling costs.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

2. Basis of preparation (continued):

(d) Estimates and judgments (continued):

(iv) Long-Lived Assets Valuation (continued):

(v) Provision for sales returns and warranties:

(vi) Leases:

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

2. Basis of preparation (continued):

(d) Estimates and judgments (continued):

(vii) Deferred income tax assets and liabilities:

Deferred income tax assets and liabilities result from timing differences between the financial reporting and tax bases of assets and liabilities. Loss carryforwards also comprise a portion of the temporary differences and result in a deferred income tax asset. Deferred income tax assets are only recognized to the extent that management considers it probable that a deferred income tax asset will be realized. The assessment for the recognition of a deferred tax asset requires significant judgement. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Unknown future events and circumstances, such as changes in tax rates and laws, may materially affect the assumptions and estimates made from one period to the next.

(viii) Measurement of fair values:

A number of the Company’s accounting policies and disclosures require the measurement of fair values for both financial and nonfinancial assets and liabilities. The Company uses observable market data to the extent possible. Where fair values cannot be determined based on quoted prices in active markets, fair value is measured using valuation techniques and models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are required to establish fair values. Changes in assumptions about the inputs of these models could affect the reported fair value of the Company’s financial and non-financial assets and liabilities.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in the associated notes to the financial statements.

(ix) Revenue recognition:

Revenue is recognized when the criteria in IFRS 15 are met, the timing of which requires judgement by management. This judgement includes whether collection of receivables is reasonably assured, and whether control has passed from the Company to the customer. The timing of change of control is estimated based on historical results, using assumptions for the time of delivery based on shipping terms, date, and destination. Actual timing of the change of control could vary from the estimates made.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

3. Summary of significant accounting policies:

(a) Financial assets and liabilities:

(i) Recognition and measurement of financial instruments:

Financial instruments are initially recognized at fair value. If the financial instrument is not classified at fair value through profit and loss (“FVTPL”), then the initial measurement includes directly attributable transaction costs. Subsequent to initial recognition, financial assets are measured at either amortized cost, or fair value through OCI or FVTPL. Financial liabilities are measured at either amortized cost or FVTPL. Classification depends on the nature and objective of each financial instrument and is determined when first recognized.

(ii) Provision for impairment:

Financial assets carried at amortized cost include cash and cash equivalents and trade and other receivables. The Company assesses the lifetime expected credit losses (“ECL”) associated with its assets carried at amortized cost. ECL represents the expected credit loss that will result from all possible default events over the expected life of the financial instrument. The amount of ECL is updated at each reporting date to reflect changes in credit risk. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring as at the reporting date with the risk of default as at the date of initial recognition based on all information available, including reasonable and supportive forward-looking information. When a financial instrument is uncollectible it is written off against the provision for impairment.

(iii) Cash and cash equivalents:

(iv) Trade and other receivables:

Trade and other receivables are initially recognized at fair value less provision for impairment. Subsequently, trade and other receivables are measured at amortized cost. As receivables are due in less than one year, they are not discounted. The provision established against trade and other receivables represents lifetime ECL and is updated at each reporting date. Any increase in the provision is recognized in the statement of comprehensive income (loss). When a trade receivable is uncollectible it is written off against the provision for impairment. Subsequent recoveries of amounts previously written off are recognized in the statement of comprehensive income (loss).

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

3. Summary of significant accounting policies (continued):

(a) Financial assets and liabilities (continued):

(v) Investments:

IFRS 9 prescribes a single approach to determine whether an investment in an equity instrument is classified and measured at amortized cost or at fair value, with each instrument measured separately. The classification and measurement of investments is based on the Company’s business models for managing its financial assets and whether the contractual cash flows represent solely payments of principal and interest. The Company’s investments are measured at fair value, and are classified as Fair Value through Profit or Loss (“FVTPL”). Subsequent changes in fair value are recognized as gains or losses in the statement of comprehensive income. Transaction costs relating to investments classified as FVTPL are recognized in profit or loss as they are incurred.

(vi) Borrowings and other financial liabilities:

Trade and other payables, due to related parties, and bank indebtedness are initially recognized at fair value, net of transaction costs, plus or minus any premiums or discounts. Bank loans and other financial liabilities are subsequently measured at amortized cost calculated using the effective interest method. Interest accrued on borrowings is included in trade and other payables on the statement of financial position. Cash flows linked to short-term payable amounts are not discounted. Long-term cash flows are discounted when the impact is significant. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.

(b) Inventory:

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

3. Summary of significant accounting policies (continued):

Furniture and computer equipment	3 - 10 years
Molds	3 - 7 years
Leased office and warehouse space	Term of the lease
Leasehold improvements	Term of the lease

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

(d) Intangible assets:

Intangible assets include patents, licenses, and trademarks. Upon recognition of an intangible asset, the Company determines if the asset has a definite or indefinite life. In making this determination, the Company considers the expected use, expiry of agreements, the nature of the asset and whether the value of the asset decreases over time. Definite life intangible assets are measured at cost less accumulated amortization net of accumulated impairment losses. Amortization is recognized in the statements of comprehensive income (loss) on a straight-line basis over the estimated useful life as follows:

Trademarks	Up to 20 years
Patents and licenses	Up to 20 years

(e) Leases:

At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

The supplier has a substantive substitution right;
The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period; and
The Company has the right to direct the use of the asset.

The Company has the right to control when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. For contracts that contain a lease the Company recognizes a right-of-use asset, presented under property and equipment or intangible assets in the statement of financial position, and a lease obligation at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or site on which it is located, less any lease incentives received.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

3. Summary of significant accounting policies (continued):

(e) Leases (continued):

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those within the same category of property and equipment or intangible assets.

(f) Impairment of non-financial assets:

An impairment loss is recognized when the carrying amount of an asset, or its CGU, exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive income (loss).

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

3. Summary of significant accounting policies (continued):

(g) Provisions:

(h) Revenue recognition:

The Company follows the following steps when accounting for revenue from contracts with customers:

(i) Identify the contract with a customer
(ii) Identify the performance obligations
(iii) Determine the transaction prices
(iv) Allocate the transaction price to the performance obligations
(v) Recognize revenue when/as performance obligations(s) are satisfied

Revenue is recognized at the time the customer takes control of the product, which is estimated based on historical experience of shipping terms, shipping date and shipping destination. When a right to return exists, a sales return allowance is recognized based on historical return rates. A sales return allowance is measured at the amount of consideration received, or receivable, for which the Company does not expect to be entitled. When a return occurs the Company has the right to recover the goods sold, and so recognizes a corresponding adjustment to cost of sales and right to returned goods. The Company’s standard warranty period is not considered to create a separate performance obligation. Warranty obligations are accounted for as provisions, and the estimated cost of satisfying the warranty obligation is recognized when the necessity of the provision is evident. The sales return allowance and warranty provision are updated at the end of each reporting period for changes in circumstances.

(i) Government grants:

(j) Research and development expenses:

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

3. Summary of significant accounting policies (continued):

(k) Income tax:

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities that intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

(l) Basic and diluted earnings (loss) per share:

Basic earnings (loss) per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted income (loss) per share, whereby all “in the money” stock options are assumed to have been exercised at the beginning of the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during the period. When a loss is incurred during the period, basic and diluted loss per share are equivalent, as the exercise of stock options is considered to be anti-dilutive.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

3. Summary of significant accounting policies (continued):

(m) Future accounting pronouncements:

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended October 31, 2021, and therefore have not been applied in the preparation of these financial statements.

(i) IFRS 3 – Business combinations:

In May 2020, the IASB issued an amendment to IFRS 3 to expand the exceptions to the recognition principle to include liabilities and contingent liabilities within the scope of IAS 37 or IFRIC 21. These liabilities and contingent liabilities must be considered as if incurred separately rather than assumed in a business combination. The amendment is effective for annual periods beginning on or after January 1, 2022, with early application permitted.

(ii) IFRS 9 – Financial Instruments:

In May 2020, the IASB issued annual improvements to IFRS Standards 2018-2020, which included amendments to IFRS 9 clarifying the fees an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf. The amendment is effective for annual periods beginning on or after January 1, 2022, with early application permitted.

(iii) IAS 1 - Presentation of Financial Statements:

(iv) IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors:

(v) IAS 12 - Income Taxes:

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

4. Trade and other receivables:

Trade and other receivables are comprised of the following:

		October 31		October 31		January 1
		2021		2020		2020
Trade receivables	$	809,274	$	547,323	$	515,629
Sales return allowance		(119,606)		(68,238)		(44,049)
Expected credit losses		(76,550)		(11,763)		(55,608)
Government receivables		72,707		11,184		-
	$	685,825	$	478,506	$	415,972

Trade receivables, net of expected credit losses, outstanding at October 31 were aged as follows:

		October 31		October 31		January 1
		2021		2020		2020
Current	$	151,485	$	150,100	$	134,364
30 - 60 days		180,277		68,833		14,481
60 - 90 days		17,909		7,243		18,208
Over 90 days		383,052		309,384		292,968
	$	732,724	$	535,560	$	460,021

The following table summarizes the change in sales return allowances for the period:

		2021		2020
Opening balance	$	68,238	$	44,049
Additional allowances during the period		119,606		102,697
Amounts used during the period		(61,916)		(78,508)
Unused amounts reversed		(6,322)		-
	$	119,606	$	68,238

The following table summarizes the change in expected credit losses for the period:

		2021		2020
Opening balance	$	11,763	$	55,608
Additional provisions during the period		84,279		-
Amounts used during the period		(19,492)		(1,188)
Unused amounts reversed		-		(42,657)
	$	76,550	$	11,763

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

5. Inventory:

Inventory is comprised of the following:

		October 31		October 31		January 1
		2021		2020		2020
Raw materials	$	67,835	$	67,031	$	155,844
Finished goods		808,740		641,151		986,723
	$	876,575	$	708,182	$	1,142,567

During the year ended October 31, 2021, inventories totalling $3,155,088 (2020 - $1,443,021) were included in cost of sales. There were no write-downs to net realizable value recorded during the period (2020 – nil). There were no reversals of write-downs from previous periods.

6. Property and equipment:

										Right-of-
			Computer			Leasehold				use
	Furniture		equipment		improvements			Molds		buildings		Total
Cost
Balance, January 1, 2020	$	21,197	$	40,951	$	37,676	$	294,953	$	-	$	394,777
Additions		8,252		895		-		219		-		9,366
Disposals		-		-		-		-		-		-
Balance, October 31, 2020		29,449		41,846		37,676		295,172		-		404,143
Additions		15,505		1,866		-		54,200		146,752		218,323
Disposals		-		-		-		-		-		-
Balance,October 31,2021	$	44,954	$	43,712	$	37,676	$	349,372	$	146,752	$	622,466
Accumulated depreciation
Balance, January 1, 2020	$	17,341	$	37,264	$	22,717	$	135,641	$	-	$	212,963
Depreciation		454		1,546		5,863		81,969		-		89,832
Disposals		-		-		-		-		-		-
Balance, October 31, 2020		17,795		38,810		28,580		217,610		-		302,795
Depreciation		1,321		2,494		5,436		60,355		24,459		94,065
Disposals		-		-		-		-		-		-
Balance,October 31,2021	$	19,116	$	41,304	$	34,016	$	277,965	$	24,459	$	396,860
Carrying amounts:
Balance, January 1, 2020	$	3,856	$	3,687	$	14,959	$	159,312	$	-	$	181,814
Balance, October 31, 2020	$	11,654	$	3,036	$	9,096	$	77,562	$	-	$	101,348
Balance,October 31,2021	$	25,838	$	2,408	$	3,660	$	71,407	$	122,293	$	225,606

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

7. Intangible assets:

		Patents and
		licenses
Cost
Balance, January 1, 2020	$	316,686
Additions		9,534
Disposals		(86,825)
Balance, October 31, 2020		239,395
Additions		11,528
Disposals		(112,959)
Balance,October 31,2021	$	137,964
Accumulated amortization
Balance, January 1, 2020	$	16,631
Amortization		11,793
Disposals		(5,539)
Balance, October 31, 2020		22,885
Amortization		8,346
Disposals		(9,702)
Balance,October 31,2021	$	21,529
Carrying amounts:
Balance, January 1, 2020	$	300,055
Balance, October 31, 2020	$	216,510
Balance,October 31,2021	$	116,435

As at October 31, 2021, intangible assets with a cost of $30,462 (2021 - $31,322) were recorded for patents, licenses or trademarks management expects to be granted but were still pending approval.

8. Investments:

		October 31		October 31		January 1
		2021		2020		2020
GKA Event GMBH	$	44,482	$	44,482	$	44,482

GKA Event GMBH (“GKA”)

The Company owns 4,167 shares (2020 – 4,167) in GKA, representing 16.67% (2020 – 16.67%) of its issued and outstanding share capital. Based in Hamburg, Germany, GKA was established as an event company for the purpose of organizing events in connection with or relating to kitesurfing.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

9. Trade and other payables:

Trade and other payables are comprised of the following:

		October 31		October 31		January 1
		2021		2020		2020
Trade payables	$	564,696	$	344,374	$	370,312
Payroll liabilities		46,773		39,214		5,660
Credit cards payable		44,593		14,490		96,417
Warranty provisions		39,051		16,373		21,507
Government payables		12,448		1,925		8,570
Accrued liabilities		6,500		-		-
	$	714,061	$	416,376	$	502,466

The following table summarizes the change in warranty provisions for the period:

		2021		2020
Opening balance	$	16,373	$	21,507
Additional provisions during the period		78,665		16,373
Amounts used during the period		(55,987)		(2,902)
Unused amounts reversed		-		(18,605)
	$	39,051	$	16,373

10. Bank indebtedness:

(a) Operating line of credit - Scotia Bank:

The Company has a credit facility with Scotia Bank (the “LOC” or the “Facility”) to fund general operations. The LOC bears interest at 1% above Scotia’s prime lending rate and is repayable on demand. At October 31, 2021, the Company’s borrowing capacity was $750,000 and the balance outstanding was $154,237 (2020 - nil).

(b) Operating line of credit – Royal Bank:

The Company has a credit facility with Royal Bank (the “RBC LOC”) to fund general operations. The RBC LOC bears interest at 3% above Royal Bank’s prime lending rate and is repayable on demand. Under the terms of the RBC LOC, shareholders of a related company have postponed their right to repayment of shareholder loans under certain circumstances and guaranteed the facility. At October 31, 2021, the Company’s borrowing capacity was $700,000 and the balance outstanding was nil (2020 - nil).

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

10. Bank indebtedness (continued):

Ocean Rodeo has guaranteed the Scotia Bank loan of a related company, Aluula Composites Inc. (“Aluula”). Shareholders of a related company have also guaranteed the bank loans and waived the right to repayment of shareholder loans where such repayment would put the covenants offside.

11. Long-term debt:

(a) Western Economic Diversification Canada:

On August 24, 2020, the Company signed an agreement to receive up to $190,000 through WD Canada’s Regional Relief and Recovery Fund (“RRRF”) to offset costs of business expansion as prescribed in the funding agreement. This funding is in the form of an interest free loan, repayable in monthly instalments of $5,275 beginning January 31, 2023. As at October 31, 2021, $190,000 of funding had been received with a discounted balance of $172,552 (2020 - $134,615).

(b) Scotia Bank:

On August 10, 2021, the Company entered into a banking agreement with Scotia Bank that provided the Company with an $800,000 non-revolving term loan to fund general business needs. The loan is repayable in monthly instalments of $13,334 plus interest at Scotia Bank prime plus 1.25%. As at October 31, 2021 discounted loan balance was $719,286 (2020 – nil).

On April 23, 2020, the Company received a $40,000 interest free loan as part of its Canada Emergency Benefit Account. This loan was expanded to $60,000 on January 11, 2021. If this loan is repaid in full on or by December 31, 2022, $20,000 is forgiven. Subsequent to year-end the repayment date was extended to December 31, 2023. As at October 31, 2021 the loan had a discounted balance of $38,366 (2020 - $37,021).

		2021		2020
Opening long-term debt balance	$	923,767	$	191,986
Cash movement:
Debt repayments		(765,466)		(31,869)
Debt advances		838,000		784,000
Non-cash movement:
Accretion expense		10,763		1,021
Fair value adjustments		(76,860)		(21,371)
	$	930,204	$	923,767
Less: current portion		38,366		197,152
	$	891,838	$	726,615

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

12. Lease obligations:

The Company has leases and lease obligations for office and warehouse space. The interest rate implicit in the office and warehouse lease was not readily determinable, so the Company used the incremental borrowing rate of 3.58% for new lease obligations during the year ended October 31, 2021.

		2021		2020
Beginning of year	$	-	$	-
Additions		146,752		-
Payments		(26,667)		-
Accretion of lease liabiltiies		3,991		-
End ofyear	$	124,076	$	-
Lease liabilities due within one year	$	28,117	$	-
Lease liabiltiies due beyond one year		95,959		-
	$	124,076	$	-

Future minimum lease payments at October 31, 2021 are as follows:

		Within		One to five
		oneyear		years		Total
Lease payments	$	32,000	$	101,334	$	133,334
Finance charges		3,883		5,375		9,258
Netpresent value	$	28,117	$	95,959	$	124,076

Amounts recognized in profit or loss as a result of leases are as follows:

		2021		2020
Expenses relating to short-term leases	$	8,940	$	-
Interest on lease liabilities		3,991		-
Lease amounts recognzied inprofit or loss	$	12,931	$	-

13. Related parties:

(a) Shareholders and ultimate controlling parties:

At October 31, 2021, loans to shareholders existed in the amount of $1,730,374 (2020 – $1,816,446). These loans bear no interest and are not repayable on demand.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

13. Related parties (continued):

(b) Affiliates:

The Company shares leased office and warehouse space with Aluula, a related company under common management that will acquire Ocean Rodeo on October 31, 2022. Aluula and Ocean Rodeo also share staffing resources and are part of one overall cash management group.

During the year ended October 31, 2021, Ocean Rodeo purchased $15,569 of sample materials from Aluula (2020 - $71,728). As at October 31, 2021, $1,451,651 was receivable from Aluula (2020 - $1,350,490).

Total compensation expense paid to the Executive Leadership Team for the year ended October 31, 2021 was $163,803 (2020 - $51,250). Employment agreements with the members of the Executive Leadership Team provide for severance payments if the executive is terminated without cause totaling $160,000 (2020 - $160,000).

14. Other income:

Other income is comprised of the following:

		2021		2020
Scientific research and experimental development refund	$	116,400	$	-
Fair value adjustment on term loan		70,762		-
Forgivable portion of government loan		20,000		-
Other income		8,101		1,334
Fair value adjustment on interest free government loan		6,098		21,853
	$	221,361	$	23,187

During the year ended October 31, 2021, $20,000 of government grants were offset against expenses salaries and benefits (2020 – nil).

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

15. Financial instruments:

(a) Fair Value:

The following fair value measurement hierarchy is used for financial instruments that are measured in the statement of financial position at fair value using:

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: techniques (other than quoted prices included in Level 1) that are observable for the asset or liability either directly (as prices) or indirectly (as derived from prices); and
Level 3: techniques which use inputs that are both significant to the overall fair value measurement of the asset or liability and are not based on observable market data (unobservable inputs).

The carrying value of cash and cash equivalents, trade and other receivables, trade and other payable and bank indebtedness approximate their fair value due to the relatively short-term maturity of these financial instruments. The carrying value of long-term debt and lease obligations are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.

There were no transfers between levels of the fair value hierarchy in the year ended October 31, 2021 or 2020.

The following table summarizes the fair value hierarchy of assets and liabilities recorded at FVTPL:

	October	31, 2021	October	31, 2020	January	1, 2020
	Level 2	Level 3	Level 2	Level 3	Level 2	Level 3
Investment in GKA Event GmbH	-	44,482	-	44,482	-	44,482

16. Financial risk and capital management:

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk, foreign exchange risk.

(a) Credit risk:

Credit risk is the risk that a counterparty will not meet its obligations under a customer contract or financial instrument, leading to a financial loss. The Company transacts only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, the Company holds credit insurance on trade receivables exceeding a specified value and all receivable balances are managed and monitored on an ongoing basis. The Company’s top five customers account for 52.2% of trade receivables at October 31, 2021, with the largest customer accounting for 23.2%.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

16. Financial risk and capital management (continued):

(b) Liquidity risk:

As at October 31, 2021 and 2020, the contractual maturities of financial liabilities were as follows:

October 31, 2021
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Bank indebtedness	$	158,158	$	158,158	$	-
Trade and other payables		714,061		714,061		-
Due to related parties		278,723		-		278,723
Lease obligations		133,333		32,000		101,333
Long-term debt		1,003,332		160,008		843,324
Total financial liabilities	$	2,287,607	$	1,064,227	$	1,223,380

October 31, 2020

October 31, 2020
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Trade and other payables	$	416,376	$	416,376	$	-
Due to related parties		465,956		-		465,956
Long-term debt		784,000		313,096		470,904
Total financial liabilities	$	1,666,332	$	729,472	$	936,860

January 31, 2020

January 31, 2020
		Contractual		Up to		Greater than
		cash flow		1year		1year
Financial liabilities
Trade and other payables	$	502,466	$	502,466	$	-
Due to related parties		1,165,084		-		1,165,084
Long-term debt		192,000		31,869		160,131
Total financial liabilities	$	1,859,550	$	534,335	$	1,325,215

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

16. Financial risk and capital management (continued):

(c) Interest rate risk:

Interest rate risk is the risk the fair value of future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company continuously monitors interest rates and economic conditions. At October 31, 2021, the Company had credit facilities with outstanding principal of $158,158. A 1% change in the interest rate on the credit facilities would have an aftertax impact of $1,155 on the statement comprehensive income (loss).

(d) Foreign exchange risk:

(e) Capital management:

		October 31		October 31		January 1
		2021		2020		2020
Share capital	$	300,002	$	300,002	$	300,002
Bank indebtedness		158,158		-		746,541
Long-term debt		930,204		923,767		191,986
	$	1,388,364	$	1,223,769	$	1,238,529

The Company’s debt obligations are subject to certain financial covenants. Management’s capital management strategy includes ensuring it remains in compliance with covenants to maintain continuous access to its borrowing facilities to fund growth. Management reviews results and forecasts on a monthly basis to ensure compliance and Scotia Bank reviews certain results monthly to ensure compliance with the banking agreement. There were no changes to the Company’s approach to capital management during the period.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

17. Share capital:

Issuance of common shares:

October 31	October 31	January 1
2021	2020	2020

Authorized:

Unlimited Class A common voting shares without par value 1,000,000 Class B common non-voting shares without par value

1,000,000 Class C common non-voting shares without par value

1,000,000 Class D preferred non-voting retractable redeemable shares without par value Unlimited Class E common voting shares with a par value of $0.01 per share

Issued and fully paid:

Issued and fully paid:
3,450,045 Class E common voting
shares (2020 - 3,450,045)	$	300,002	$	300,002	$	300,002
	$	300,002	$	300,002	$	300,002

Common shares				Number		Amount
Balance, January 1, 2020				3,450,045	$	300,002
Issuances				-		-
Balance,October 31,2020,2021				3,450,045	$	300,002

There were no shares issued during 2021 or 2020.

18. Earnings (loss) per share:

The following table shows the computation of basic and diluted earnings (loss) per share:

		2021		2020
Net loss	$	(232,985)	$	492,892
Weighted average number of shares outstanding - basic		3,450,045		3,450,045
Effect of dilutive securities:
None		-		-
Weighted average number of shares outstanding- diluted		3,450,045		3,450,045
Basic earnings (loss) per share	$	(0.07)	$	0.14
Effect of dilutive securities		-		-
Diluted lossper share	$	(0.07)	$	0.14

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

19. Income taxes:

Income tax expense differs from the amounts that would be obtained by applying the Canadian statutory income tax rate to net loss before income taxes as follows:

		2021		2020
Net income (loss) before income taxes	$	(367,132)	$	723,252
Tax recoveryrate		27%		27%
Expected income tax expense (recovery)		(99,126)		195,278
Increase (decrease) in income tax expense (recovery) resulting from:
Non-deductible expenses		-		-
Loss carry-forwards applied		23,438		(86,083)
	$	(75,688)	$	109,195

The Company has no net operating losses carried forward for income tax purposes (2020 - nil).

The components of deferred income taxes are as follows:

		October 31		October	31		January 1
		2021		2020			2020
Deferred income taxes:
Canadian tax loss carry forwards	$	-	$		-	$	150,451
Other temporary differences arising from:
Property and equipment		(18,214)		(18,956)			(40,864)
Right-of-use assets		(33,019)		-			-
Intangible assets		(26,295)		(40,624)			(48,002)
Lease obligations		33,501		-			-
Scientific research and development refunded		42,906		-			-
Total deferred income tax assets(liabilities)	$	(1,121)	$	(59,580)		$	61,585

20. Commitments:

Commitments include leases recognized as lease obligations, as well as short-term and low value leases which don’t meet the capitalization requirements of IFRS 16.

2022		$	40,197
2023			32,694
2024			32,000
2025			32,000
2026	and thereafter		5,333
		$	142,224

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

21. First-time adoption of IFRS:

These are the Company’s first financial statements prepared in accordance with IFRS. The date of transition to IFRS is January 1, 2020.

The Company’s IFRS accounting policies described in Note 3 have been applied in preparing the financial statements for the year ended October 31, 2021, the comparative information and the opening statement of financial position at the date of transition.

The Company has applied IFRS 1 First-time Adoption of International Financial Reporting Standards in preparing these first IFRS financial statements. The effects of the transition to IFRS on equity and total comprehensive income are presented in this note. No statements of cash flow were reported under previous Canadian Generally Accepted Accounting Principles (“GAAP”), and therefore no transition information has been provided for cash flows below.

(a) First-time adoption exemptions applied:

Upon transition, certain exemptions from full retrospective application are permitted. The Company has applied the mandatory exceptions and the optional exemptions set out below.

(i) Mandatory exemptions applied:

The Company has used estimates under IFRS that are consistent with those applied under previous GAAP (with adjustments for differences in accounting policies) unless there is objective evidence that those estimates were in error.

(ii) Optional exemptions applied:

The Company has not recognized right of use assets, corresponding lease obligations, or fair value adjustments for long-term debt obligations where the remaining amortization period is under twelve months from the date of transition to IFRS.

(b) Presentation differences:

Certain presentation differences between IFRS and previous GAAP have no impact on reported profit or total equity.

Under previous GAAP the Company did not report total comprehensive income. There are no amounts recognized in other comprehensive income under IFRS, and therefore is no impact as a result of this change.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

21. First-time adoption of IFRS (continued):

(b) Presentation differences (continued):

Some line items have been renamed under IFRS compared to previous GAAP. These line items are as follows (previous GAAP in brackets):

Cash and cash equivalents (Cash)
Trade and other receivables (Accounts receivable)
Prepaid expenses and other current assets (Prepaid expenses)
Property and equipment (Property, plant and equipment)
Intangible assets (Deferred charges)
Due from related parties (Loan receivable – Aluula; Due to shareholders)
Bank indebtedness (Operating line of credit)
Trade and other payables (Accounts payable)
Customer deposits (deposits received)

(c) Reconciliations:

The following tables reconcile the Company’s statements of financial position, statement of income (loss) and comprehensive income (loss), and statements of equity prepared in accordance with Canadian GAAP as previously reported to those prepared and reported in these financial statements in accordance with IFRS, and should be read in conjunction with the notes to the reconciliations as included in note 21 (d):

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

21. First-time adoption of IFRS (continued):

Reconciliation of Statements of Financial Position:

Note	Note	October 31, 2020
		Canadian GAAP Effects of transition to IFRS IFRS
Assets Current assets: Cash and cash equivalents Trade and other receivables Inventory Prepaid expenses and other current assets Property and equipment Intangible assets Other long-term assets Investments		252,377 $ - $ 252,377 $ 478,506 - 478,506 708,182 - 708,182 627,781 - 627,781
		2,066,846 - 2,066,846 101,348 - 101,348 216,510 - 216,510 120,761 - 120,761 44,482 - 44,482
		2,549,947 $ - $ 2,549,947 $
Liabilities and Shareholder's Equity Current liabilities: Trade and other payables Customer deposits Current portion of long-term debt Income tax payable Deferred tax liability (i) Long-term debt Due to related parties Shareholder's equity: Share capital Deficit		416,376 $ - $ 416,376 $ 332,719 - 332,719 197,152 - 197,152 110,595 - 110,595 - 59,580 59,580
	Long-term debt Due to related parties	1,056,842 59,580 1,116,422 726,615 - 726,615 465,956 - 465,956
		2,249,413 59,580 2,308,993 300,002 - 300,002 532 (59,580) (59,048)
		300,534 (59,580) 240,954
		2,549,947 $ - $ 2,549,947 $

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

21. First-time adoption of IFRS (continued):

Reconciliation of Statements of Financial Position (continued):

Note	Note	As at January 1, 2020
		Canadian GAAP Effects of transition to IFRS IFRS Opening
Assets Current assets: Cash and cash equivalents Trade and other receivables Inventory Income tax receivable Deferred tax asset (i) Prepaid expenses and other current assets Property and equipment Intangible assets Investments		8,052 $ - 8,052 $ 306,484 - 306,484 1,142,567 - 1,142,567 223,087 - 223,087 - 61,585 61,585 111,746 - 111,746
		1,791,936 61,585 1,853,521 181,814 - 181,814 300,055 - 300,055 44,482 - 44,482
		2,318,287 $ 61,585 $ 2,379,872 $
Liabilities and Shareholder's Equity Current liabilities: Bank indebtedness Trade and other payables Customer deposits Current portion of long-term debt Due to related parties Shareholder's equity: Share capital Deficit		746,541 $ - $ 746,541 $ 502,466 - 502,466 25,733 - 25,733 191,986 - 191,986
	Due to related parties	1,466,726 - 1,466,726 1,165,084 - 1,165,084
		2,631,810 - 2,631,810 300,002 - 300,002 (613,525) 61,585 (551,940)
		(313,523) 61,585 (251,938)
		2,318,287 $ 61,585 $ 2,379,872 $

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

21. First-time adoption of IFRS (continued):

Reconciliation of Statement of Income and Comprehensive Income:

			Previous
			GAAP at		Effects of		IFRS at
			October 31		transition to		October 31
	Note		2020		IFRS		2020
Sales		$	2,145,079	$	-	$	2,145,079
Cost of sales			1,452,531		-		1,452,531
Gross profit			313,117		-		313,117
Operating expenses:
Salaries and benefits			309,382		-		309,382
General and administrative			238,787		-		238,787
Marketing			215,783		-		215,783
Research and development			129,471		-		129,471
Impairment of intangible assets			-		-		-
			893,423		-		893,423
Loss before interest, tax and amortization			(580,306)		-		(580,306)
Other income			23,187		-		23,187
Interest expense			(59,946)		-		(59,946)
Gain on disposal of assets			1,236,413		-		1,236,413
Income tax expense			(109,195)		-		(109,195)
Deferred tax expense	(i)		-		(121,165)		(121,165)
Depreciation of capital assets			(89,832)		-		(89,832)
Amortization of intangible assets			(11,793)		-		(11,793)
Discontinued operations			205,529		-		205,529
Net income and comprehensive income		$	614,057	$	(121,165)	$	492,892

		IFRS	Opening	300,002 $	(551,940)	(251,938) $		(613,525) $		-	61,585	61,585	(551,940) $
January 1, 2020	Effects of	Canadian transition to	GAAP IFRS	300,002 $ - $	(613,525) 61,585	(313,523) $ 61,585 $	January 1, 2020
October 31, 2020	Effects of	Canadian transition to	GAAP IFRS IFRS	300,002 $ - $ 300,002 $	532 (59,580) (59,048)	300,534 $ (59,580) $ 240,954 $	October 31, 2020	532 $		61,585	(121,165)	(59,580)	(59,048) $
							Note				(i)
				Share capital	Deficit	Total equity	Reconciliation of retained earnings (deficit)	Canadian GAAP	Effects of transition to IFRS:	January 1, 2020 adjustments	Deferred tax recovery (expense)	Total	IFRS

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

21. First-time adoption of IFRS (continued):

(d) Notes to the reconciliations:
(i) Deferred tax asset and liability:

The adjustments to deferred income tax assets and liabilities reflect the tax effects under IAS 12 Income Taxes , primarily comprised of the future tax benefit of net operating losses, and adjusted for timing differences between the recognition of expenses for accounting compared to their deductibility for tax. The associated income or expense is recorded as deferred tax recovery or deferred tax expense.

(ii) Investments:
Investments recorded at cost under previous GAAP are now recorded at FVTPL under IFRS 9. There is no change to the reported value of these assets as a result of the transition to IFRS.

22. Subsequent events:

(a) Acquisition of Ocean Rodeo by Aluula Composites Inc.:

On October 31, 2022, Aluula acquired 100% of the shares of Ocean Rodeo to strategically align the companies in preparation for the three-cornered amalgamation discussed in significant event (b) below. Aluula is a related company under common control.

(b) Reverse acquisition of Bastion Square Partners Inc.:

The Proposed Transaction will be structured as a three-cornered amalgamation pursuant to the provisions of the Business Corporations Act (British Columbia) (the “BCABC”), whereby BSP incorporates a wholly-owned subsidiary under the BCABC which amalgamates with Aluula to form a newly amalgamated company that will continue as a wholly owned subsidiary of BSP. To effect the Proposed Transaction, BSP acquire all of the outstanding shares of Aluula, and in exchange the Aluula shareholders receive common shares in BSP. The quantity of common shares to be received by the Aluula shareholders has not been determined at the time of signing of these financial statements.

On December 6, 2022, Scotia Bank committed to a new banking agreement with the Company. This agreement is effective as of October 31, 2022, but does not take full force and effect until general conditions are met, including confirmation of the capital injection and review of the executed Amalgamation Agreement, as discussed in Note 23 (a) above. As a result of the new agreement, changes to the covenants and reporting frequency have occurred. The Company is onside with all amended covenants as at October 31, 2022.

OCEAN RODEO SPORTS INC.

Notes to the Financial Statements

Year ended October 31, 2021 with comparative information for the 10 months ended October 31, 2020 (Unaudited, with comparative periods not subject to review engagement)

22. Subsequent events (continued):

(d) Lease cancellation:

(e) Extension of CEBA loan:

SCHEDULE “F”

RESULTING ISSUER FINANCIAL STATEMENTS

Attached hereto are the following financial statements of the Resulting Issuer:

The unaudited pro forma consolidated balance sheet of the Resulting Issuer as at January 31, 2023.

Pro Forma Consolidated Statement of Financial Position

(Expressed in Canadian dollars)

BASTION SQUARE PARTNERS INC.

January 31, 2023

(Unaudited)

BASTION SQUARE PARTNERS INC.

Pro Forma Consolidated Statement of Financial Position

(Unaudited)

==> picture [469 x 557] intentionally omitted <==

----- Start of picture text -----

Bastion Square Aluula Pro-Forma
Partners Inc. at Composites Inc. Consolidated at
Jan 31, 2023 at Jan 31, 2023 Adjustments Note Jan. 31, 2023
Assets
Current assets:
Cash and cash equivalents $ 1,605,150 $ 411,986 $ 2,156,229 3 $ 4,173,365
Trade and other receivables - 931,964 - 931,964
Inventory - 1,980,034 - 1,980,034
Prepaid expense and other current assets 7,667 749,781 - 757,448
1,612,817 4,073,765 2,156,229 7,842,811
Property and Equipment - 1,052,099 - 1,052,099
Intangible assets - 4,291,128 - 4,291,128
Other long-term assets - 30,796 - 30,796
Investments - 43,126 - 43,126
Deferred tax asset - 880,713 - 880,713
Goodwill - 3,906,786 - 3,906,786
$ 1,612,817 $ 14,278,413 $ 2,156,229 $ 18,047,459
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ - $ 2,646,634 - $ 2,646,634
Trade and other payables 137,885 1,078,567 - 1,216,452
Customer deposits - 262,256 - 262,256
Current portion of long-term debt - 1,037,677 (756,051) 3 b) 281,626
Current portion of lease obligations - 203,106 - 203,106
Income tax payable - 12,234 - 12,234
Deferred tax liability - 134,163 - 134,163
137,885 5,374,637 (756,051) 4,756,471
Long-term debt - 1,028,079 - 1,028,079
Lease obligations - 627,125 - 627,125
Due to related parties - 2,122,802 (2,122,802) 3 c), e) -
Deferred tax liability - 1,035,012 - 1,035,012
137,885 10,187,655 (2,878,853) 7,446,687
Shareholders' equity:
Share capital 1,845,219 6,305,977 6,189,863 4 14,341,059
Contributed surplus 174,393 57,591 (174,393) 57,591
Deficit (544,680) (2,272,810) (980,388) 2 (3,797,878)
1,474,932 4,090,758 5,035,082 10,600,772
$ 1,612,817 $ 14,278,413 $ 2,156,229 $ 18,047,459
----- End of picture text -----

BASTION SQUARE PARTNERS INC.

Notes to the Pro Forma Consolidated Statement of Financial Position January 31, 2023 (Unaudited)

1. Basis of Presentation:

The accompanying unaudited pro forma consolidated statement of financial position has been prepared by the management of Bastion Square Partners Inc. (“BSP” or the “Company”) for inclusion in the BSP filing statement in connection with the definitive agreement to acquire 100% of the issued and outstanding shares of Aluula Composites Inc. (“Aluula”).

The acquisition will occur by way of three-cornered amalgamation (the “Transaction”) between BSP, Aluula and BSP’s wholly owned subsidiary, 1391093 BC Ltd (“BSP SubCo”). BSP SubCo holds no assets or liabilities prior to the Transaction.

The aggregate consideration paid to Aluula to effect the Transaction will be $21,001,123 paid by way of 175,009,365 BSP common shares at a deemed price of $0.12 per share.

This pro forma unaudited consolidated statement of financial position has been compiled from and combines BSP’s unaudited Statement of Financial Position as at January 31, 2023 with Aluula’s unaudited Statement of Financial Position as at January 31, 2023 giving effect to the Transaction as if it occurred on January 31, 2023.

It is management’s opinion that this pro forma consolidated statement of financial position includes all adjustments necessary for the fair presentation of the transaction described herein and have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applied on a basis consistent with the Company’s accounting policies.

The pro forma consolidated statement of financial position is not intended to reflect the financial position that will exist following the Transaction. Actual amounts recorded when the Transaction closes will likely differ from those recorded in the pro forma financial information.

2. Acquisition:

After the Transaction, the existing shareholders of Aluula will own a majority of the outstanding shares of the resulting company and will control it. The Transaction does not meet the definition of a business combination under IFRS 3, Business Combinations, therefore it has been accounted for in accordance with IFRS 2, Share-based Payments. The Transaction is equivalent to the issuance of shares and options by the resulting company for the net assets and the listing status of the Company as follows:

Fair Value of BSP: 25,000,000 common shares at$0.12per share	$	3,000,000
Consideration		3,000,000
Net assets of BSP as at January31,2023		1,474,932
Listing cost	$	1,525,068

The Company’s estimated fair value is based on the number of common shares outstanding multiplied by the Transaction deemed price per share of $0.12.

BASTION SQUARE PARTNERS INC.

Notes to the Pro Forma Consolidated Statement of Financial Position January 31, 2023 (Unaudited)

3. Pro Forma Assumptions and Adjustments:

The Proforma Consolidated Statement of Financial Position includes the effects of the following assumptions and adjustments:

a) The Company intends to complete a private placement financing by issuing 25,000,000 subscription receipts at a subscription price of $0.12 per subscription receipt for total gross proceeds of $3,000,000. Each subscription receipt issued pursuant to the financing shall be convertible into one share of BSP. Estimated share issuance costs (which include a 6% finders fee paid to brokers) of $50,000 have been recorded as a reduction to share capital.
b) Upon closing of the Transaction, Aluula will repay the promissory note owing to Gustavson Capital Corporation (“GCC”) in the amount of $750,000 plus accrued interest at 7%.
c) Upon closing of the Transaction, the Company will repay $139,800 owing to a related party.
d) Prior to the Transaction closing, Aluula will receive $102,080 proceeds from the exercise of 352,000 employee stock options.
e) Prior to the Transaction closing, Aluula will settle $1,983,002 in amounts due to related parties in exchange for the issuance of 601,152 common shares.

The adjustments to Cash and cash equivalents on Pro Forma Consolidated Statement of Financial Position resulting from the transactions described above are as follows:

Private placement net of estimated share issuance costs	3. a)	$	2,950,000
Repayment of promissory note to GCC	3. b)		(756,051)
Repayment of amount owing to a related party	3. c)		(139,800)
Proceeds from exercise of Aluula employee stock options	3. d)		102,080
Adjustments to Cash and cash equivalents		$	2,156,229

4. Pro Forma Share Capital:

Share capital as at January 31, 2023 in the Pro forma Consolidated Statement of Financial Position comprises the following:

		Number of
	Note	shares	Share capital
Opening share capital - Aluula		5,765,058	$	6,305,977
Shares issued on exercise of Aluula employee stock options	3. d)	352,000		102,080
Shares issued on conversion of relatedpartyloans	3. e)	601,152		1,983,002
Share capital prior to the Transaction close		6,718,210	$	8,391,059
Additional shares issued to effect the Transaction	1.	168,291,155		-
Common shares held by BSP	2.	25,000,000		3,000,000
Shares issued in theprivateplacement,net of issuance costs	3. a)	25,000,000		2,950,000
		225,009,365	$	14,341,059

BASTION SQUARE PARTNERS INC.

Notes to the Pro Forma Consolidated Statement of Financial Position January 31, 2023 (Unaudited)

5. Outstanding stock options:

Under the terms of the Company’s stock option plan, the total number of stock options available to be issued is 10% of the outstanding common shares or 22,500,937 stock options after the Transaction closes. The pro forma number of options that will be outstanding at the close of the Transaction is as follows:

	Number of stock
	options
BSP stock options outstanding at January 31, 2023	2,500,000
Options granted on close of the Transaction	9,666,905
	12,166,905

SCHEDULE “G”

RESULTING ISSUER AUDIT COMMITTEE CHARTER

The primary function of the audit committee (the “ Audit Committee ”) is to assist the board of directors (the “ Board ”) in fulfilling its financial oversight responsibilities by reviewing the financial reports and other financial information provided by the Company to regulatory authorities and shareholders, the Company’s systems of internal controls regarding finance and accounting, and the Company’s auditing, accounting and financial reporting processes. Consistent with this function, the Committee will encourage continuous improvement of, and should foster adherence to, the Company’s policies, procedures and practices at all levels.

The Committee’s primary duties and responsibilities are to:

serve as an independent and objective party to monitor the Company’s financial reporting and internal control systems and review the Company’s financial statements;
review and appraise the performance of the Company’s external auditors; and
provide an open avenue of communication among the Company’s auditors, financial and senior management and the Board.

Composition

The Audit Committee will be comprised of three directors as determined by the Board, the majority of whom will be free from any relationship that, in the opinion of the Board, would reasonably interfere with the exercise of his or her independent judgement as a member of the Audit Committee. At least one member of the Audit Committee will have accounting or related financial management expertise. All members of the Audit Committee that are not financially literate will work towards becoming financially literate to obtain a working familiarity with basic finance and accounting practices. For the purposes of this Audit Committee Charter, the definition of “financially literate” is the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can presumably be expected to be raised by the Company’s financial statements. The members of the Audit Committee will be elected by the Board at its first meeting following the annual shareholder’s meeting.

Meetings

The Audit Committee will meet at least four times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Audit Committee will meet at least annually with the Chief Financial Officer and the external auditors in separate sessions.

Responsibilities and Duties

To fulfill its responsibilities and duties, the Audit Committee will:

Documents/Reports Review

(a) Review and update this Audit Committee Charter annually.

(b) Review the Company’s financial statements, MD&A and any annual and interim earnings, press releases before the Company publicly discloses this information and any reports or other financial information (including quarterly financial statements), which are submitted to any governmental body, or to the public, including certification, report, opinion, or review rendered by the external auditors.
(c) Confirm that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements.

External Auditors

(a) Review annually, the performance of the external auditors who will be ultimately accountable to the Board and the Audit Committee as representatives of the shareholders of the Company.
(b) Obtain annually, a formal written statement of the external auditors setting forth all relationships between the external auditors and the Company, consistent with the Independence Standards Board Standard 1.
(c) Review and discuss with the external auditors any disclosed relationships or services that may impact the objectivity and independence of the external auditors.
(d) Take, or recommend that the full Board, take appropriate action to oversee the independence of the external auditors.
(e) Recommend to the Board the selection and compensation and, where applicable, the replacement of the external auditors nominated annually for shareholder approval.
(f) At each meeting, consult with the external auditors, without the presence of management, about the quality of the Company’s accounting principles, internal controls and the completeness and accuracy of the Company’s financial statements.
(g) Review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company.
(h) Review with management and the external auditors the audit plan for the year-end financial statements and intended template for such statements.
(i) Review and pre-approve all audit and audit-related services and the fees and other compensation related thereto, and any non-audit services, provided by the Company’s external auditors. The preapproval requirement is waived with respect to the provision of non-audit services if:
i. the aggregate amount of all such non-audit services provided to the Company constitutes not more than five percent of the total amount of fees paid by the Company to its external auditors during the fiscal year in which the non-audit services are provided;
ii. such services were not recognized by the Company at the time of the engagement to be nonaudit services; and
iii. such services are promptly brought to the attention of the Committee by the Company and approved prior to the completion of the audit by the Committee or by one or more members of the Audit Committee who are members of the Board to whom authority to grant such approvals has been delegated by the Audit Committee. Provided the pre-approval of the nonaudit services is presented to the Audit Committee’s first scheduled meeting following such approval, such authority may be delegated by the Audit Committee to one more independent members of the Audit Committee.

Financial Reporting Processes

(a) In consultation with the external auditors, review with management the integrity of the Company’s financial reporting process, both internal and external.
(b) Consider the external auditors’ judgements about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting.
(c) Consider and approve, if appropriate, changes to the Company’s auditing and accounting principles and practices as suggested by the external auditors and management.
(d) Review significant judgements made by management in the preparation of the financial statements and the view of the external auditors as to appropriateness of such judgements.
(e) Following completion of the annual audit, review separately with management and the external auditors any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information.
(f) Review any significant disagreement among management and the external auditors in connection with preparation of the financial statements.
(g) Review with the external auditors and management the extent to which changes and improvements in financial or accounting practices have been implemented.
(h) Review any complaints or concerns about any questionable accounting, internal accounting controls or auditing matters.
(i)
Review certification process.
(j) Establish a procedure for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

Other

Review any related-party transactions.

SCHEDULE “H”

RESULTING ISSUER COMPENSATION COMMITTEE CHARTER

1. General

The board of directors (the “ Board ”) of Aluula Composites Inc. (the “ Company ”) has established a Compensation Committee (the “ Compensation Committee ”) to assist the Board in fulfilling its responsibilities with respect to: the recruitment and assessment of the performance and the Chief Executive Officer (“ CEO ”) of the Company; the compensation of the CEO; the compensation of the other senior officers of the Company and the directors of the Company; executive compensation disclosure; and, oversight of the compensation structure and benefit plans of the Company.

The composition, responsibilities, and authority of the Compensation Committee are set out in this Charter.

This Charter and the Articles of the Company and such other procedures, not inconsistent therewith, as the Compensation Committee may adopt from time to time, shall govern the meetings and procedures of the Compensation Committee.

2. Composition

The Compensation Committee shall be composed of at least two directors of the Company (the “Members”), each of whom is “independent” as defined in National Instrument 52-110 Audit Committees (“ NI 52-110 ”) or any successor policy. A Director is considered to be “independent” if he or she has no direct or indirect material relationship which could in the view of the Board reasonably interfere with the exercise of a director’s independent judgment. Although NI 52-110 does not specifically define “material relationship”, it does specifically list certain relationships between issuers and individuals which are categorized as being material to an issuer as set out in Exhibit “1” attached hereto.

Members shall be appointed by the Board and shall serve until they resign, cease to be a director, or are removed or replaced by the Board.

Each member will have, to the satisfaction of the Board, sufficient skills and/or experience which are relevant and will be of contribution to carrying out the mandate of the Compensation Committee.

The Board shall designate one of the Members as chair of the Compensation Committee (the “ Chair ”).

The Members shall appoint, from among their number, a secretary of the Compensation Committee (the “ Secretary ”).

3. Responsibilities

3.1 Responsibilities with respect to the Recruitment and Assessment of the Performance of the CEO

The Compensation Committee shall:

(a) when required, oversee the process of identifying and recruiting new candidates for appointment as CEO, including assessing the competencies and skills of identified individuals and reporting the results of that assessment to the Board; and
(b) annually and more frequently if appropriate, review and approve corporate goals and objectives relative to the compensation of the CEO and assess the performance of the CEO in light of those goals and objectives.

3.2 Responsibilities with respect to the Compensation of the CEO and Other Officers

The Compensation Committee shall annually, or more frequently if required:

(a) make recommendations to the Board with respect to the compensation (including salary, bonus and stock options) and benefits of the CEO;
(b) make recommendations to the Board with respect to the compensation (including salary, bonus and stock options) and benefits of the other senior officers of the Company;
(c) review and approve the terms of the employment agreements and severance arrangements of the CEO and other senior officers of the Company;
(d) research and identify trends in employment benefits and compensation structures and report its findings to the Board;
(e) review and approve the statement of executive compensation required to be included in the management proxy circular of the Company;
(f) the Compensation Committee shall prepare a report on executive compensation on an annual basis in connection with the preparation of the Company’s annual information circular or as otherwise required pursuant to applicable securities laws. The Compensation Committee is also responsible to review all other executive compensation disclosure before it is filed with regulators and/or made public;
(g) the report on executive compensation should be compliant with regulatory form requirements and should describe the process undertaken by the Compensation Committee and should speak specifically to the weighting factors and target levels set out in the determination of the executive’s compensation. Where there are no clearly pre-established targets or payout ranges, the report on executive compensation should clearly indicate this fact; and
(h) review and approve any other executive compensation disclosure before it is publicly disclosed by the Company.

3.4 Responsibilities with respect to Compensation of the Directors

The Compensation Committee shall review periodically the compensation of the directors of the Company for service on the Board and Board committees and make recommendations to the Board with respect thereto.

3.5 Responsibilities with respect to Compensation Structure and Benefit Plans

The Compensation Committee shall review and assess periodically the compensation structure and benefit plans (including incentive equity-based plans) of the Company and make recommendations to the Board with respect thereto.

4. Authority

The Compensation Committee is authorized to carry out its responsibilities as set out in this Charter, and to make recommendations to the Board arising therefrom.

The Compensation Committee is authorized to retain, and to set and pay the compensation of, independent legal counsel, compensation consultants and other advisers, if it considers this appropriate.

The Compensation Committee is authorized to invite officers and employees of the Company, and outsiders with relevant experience and expertise, to attend or participate in its meetings and proceedings, if it considers this appropriate.

The Company shall pay directly or reimburse the Compensation Committee for the expenses incurred by the Committee in carrying out its responsibilities.

5. Meetings and Proceedings

The Compensation Committee shall meet as frequently as required, but not less than twice each year.

Any Member may call a meeting of the Compensation Committee.

The agenda of each meeting of the Compensation Committee will include input from the directors, officers and employees of the Company as appropriate. Meetings will include presentations by management, or professional advisers and consultants when appropriate, and will allow sufficient time to permit a full and open discussion of agenda items.

Unless waived by all Members, a notice of each meeting of the Compensation Committee confirming the date, time, place, and agenda of the meeting, together with any supporting materials, shall be forwarded to each Member at least three days before the date of the meeting.

The quorum for each meeting of the Compensation Committee is a majority of the Members. The Chair of the Compensation Committee shall chair each meeting. In the absence of the Chair, the other Members may appoint one of their number as chair of a meeting. The chair of a meeting shall not have a second or casting vote.

The Chair of the Compensation Committee or his delegate shall report to the Board following each meeting of the Compensation Committee.

The Secretary or his delegate shall keep minutes of all meetings of the Compensation Committee, including all resolutions passed by the Compensation Committee. Minutes of meetings shall be distributed to the Members and the other directors of the Company after preliminary approval thereof by the Chair of the Compensation Committee.

An individual who is not a Member may be invited to attend a meeting of the Compensation Committee for all or part of the meeting.

The Compensation Committee shall meet regularly alone to facilitate full communication.

Self-Assessment

The Compensation Committee and the Board shall annually assess the effectiveness of the Compensation Committee with a view to ensuring that the performance of the Compensation Committee accords with best practices.

The Compensation Committee and the Board shall annually review this Charter and update it as required.

EXHIBIT “1” to Schedule “H”

Subject to the exemptions available under National Instrument 52-110 - Audit Committees, the following individuals are considered to have a material relationship with the Company:

(a) an individual who is, or has been within the last three years, an employee or executive officer of the Company;
(b) an individual whose immediate family member is, or has been within the last three years, an executive officer of the Company;
(c) an individual who:
(i) is a partner of a firm that is the Company’s internal or external auditor;
(ii) is an employee of that firm; or
(iii) was within the last three years a partner or employee of that firm and personally worked on the Company’s audit within that time;
(d) an individual whose spouse, minor child or stepchild, or child or stepchild who shares a home with the individual:
(i) is a partner of a firm that is the Company’s internal or external auditor;
(ii) is an employee of that firm and participates in its audit, assurance or tax compliance (but not tax planning) practice, or
(iii) was within the last three years a partner or employee of that firm and personally worked on the Company’s audit within that time;
(e) an individual who, or whose immediate family member, is or has been within the last three years, an executive officer of an entity if any of the Company's current executive officers serves or served at that same time on the entity's compensation committee; and
(f) an individual who received, or whose immediate family member who is employed as an executive officer of the Company received, more than $75,000 in direct compensation from the Company during any 12 month period within the last three years, other than as remuneration for acting as a member of the Board or of any Board committee, or the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service for the Company if the compensation is not contingent in any way on continued service.

Despite the above, an individual will not be considered to have a material relationship with the Company solely because the individual or his or her immediate family member:

(a) has previously acted as an interim chief executive officer of the Company; or
(b) acts, or has previously acted, as a chair or vice-chair of the Board or of any Board committee of the Company on a part-time basis.

SCHEDULE “I”

SUMMARY OF VALUATION REPORT

[ Attached ]

SUMMARY OF VALUATION REPORT

Background

Bastion Square Partners Inc. (“ BSP ”) is a capital pool company with a focus on investing in growthoriented businesses in a variety of sectors, including the material composites industry. BSP is based in Victoria, British Columbia. BSP is contemplating a potential qualifying transaction with Aluula Composites Inc. (“ Aluula ”), whereby BSP will acquire Aluula (the “ Proposed Transaction ”).

Aluula is a privately held, Victoria, British Columbia based composite materials manufacturer incorporated under the Business Corporations Act (British Columbia) on July 18, 2019. Aluula was initially formed in 2016 as a division of Ocean Rodeo Sports Inc. (“ Ocean Rodeo ”, and together with Aluula, the “ Company ”). Aluula was spun out of Ocean Rodeo in 2019 dedicated to composite materials development and manufacturing.

On October 31, 2022, Aluula entered into a share purchase agreement to acquire 100% of the issued and outstanding shares of Ocean Rodeo. Under the transaction, Ocean Rodeo became a wholly owned subsidiary of Aluula.

Ocean Rodeo is a privately held, Victoria, British Columbia based company incorporated under the Business Corporations Act (British Columbia) on January 12, 2001. Ocean Rodeo specialize in the design and production of wind sports equipment, such as kites and boards, as well as a range of accessories and apparel for wind sports enthusiasts. Ocean Rodeo uses composite materials in the production of its products to ensure high performance and durability.

BSP engaged Evans & Evans, Inc. (“ Evans & Evans ”) to prepare a comprehensive valuation report (the “ Report ”) with respect to the fair market value of the Company, as of October 31, 2022 (the “ Valuation Date ”) in connection with the Proposed Transaction.

Selection of Evans & Evans

BSP considered Evans & Evans due to, among other things, its qualifications to prepare a formal valuation of companies in circumstances similar to the Proposed Transaction. BSP interviewed Evans & Evans and made enquires as to the qualifications and independence of Evans & Evans. After deliberation, BSP determined that Evans & Evans was independent and qualified to prepare a formal valuation and should be retained as financial advisor to BSP for the purposes of, among other things, preparing and delivering to BSP a formal valuation of the Company i.e., fair market value of the Company, (the “ Valuation ”). Accordingly, BSP formally engaged Evans & Evans and entered into an engagement letter with Evans & Evans (the “ Engagement Letter ”).

Pursuant to the Engagement Letter, BSP agreed to pay Evans & Evans a customary fee, consisting of an initial engagement fee, payable upon execution of the Engagement Letter, with the remaining balance upon receipt of the Valuation. BSP also agreed to reimburse Evans & Evans for its reasonable expenses and to indemnify it in respect of certain liabilities that might arise out of its engagement. The fees to be paid to Evans & Evans under the Engagement Letter were negotiated and agreed to by Evans & Evans and BSP. None of the fees payable to Evans & Evans were contingent upon the conclusions reached by Evans & Evans or on the completion of the Proposed Transaction.

Credentials of Evans & Evans

Evans & Evans is a leading Canadian boutique investment banking firm which offers a range of independent and advocate services including capital formation assistance, mergers and acquisitions advice, valuation and fairness opinions, business due diligence, business planning and research, and market and competitive research.

Independence of Evans & Evans

Evans & Evans has no present or prospective interest in BSP, Aluula or Ocean Rodeo and has no personal interest with respect to the parties involved. For the purposes of the Valuation, Evans & Evans is independent to BSP, Aluula, Ocean Rodeo and all other interested parties in the Proposed Transaction.

Scope of Review

In connection with rendering the Valuation, Evans & Evans reviewed and relied upon those items identified in the Valuation under the heading “Scope of the Report”. In addition, Evans & Evans has interviewed management and representatives of the Company. The purpose of the interviews was to gain an understanding of the Company’s financial results, business model and operations plan going forward. Evans & Evans did not undertake a visit to any of Aluula’s or Ocean Rodeo’s premises in Victoria, British Columbia.

Assumptions and Limitations

In arriving at its conclusions, Evans & Evans made the following assumptions:

1) An audit of the financial statements of the Company would not result in any material differences to the financial statements provided to Evans & Evans.
2) As at the Valuation Date, all assets and liabilities of Aluula and Ocean Rodeo have been recorded in their respective accounts and financial statements and follow International Financial Reporting Standards.
3) The financial forecast for Aluula and Ocean Rodeo for FY2023 and FY2024 as provided by management of Aluula, represents management's best estimate of the future economic performance of Aluula and Ocean Rodeo as at the Valuation Date.
4) There was no material change in the financial position of Aluula or Ocean Rodeo between the date of the most recent financial statements and the Valuation Date unless noted in the Report.
5) There are no liens or encumbrances on Aluula’s, and Ocean Rodeo’s respective assets and no assets have been pledged in any way unless noted in Aluula’s and Ocean Rodeo’s financial statements.
6) The book values of the assets as recorded in the consolidated Aluula’s, standalone Aluula and standalone Ocean Rodeo’s financial statements are equal to their fair market values unless noted in the Report.
7) The book value of investments in XlynX Materials Inc. and GKA Event GmbH as recorded in the consolidated financial statements of Aluula for the year ended October 31, 2022 are equal to their fair market values unless noted in the Report
8) Evans & Evans has assumed that Aluula and Ocean Rodeo and all of its related parties and their principals have no current and/or other contingent liabilities, unusual contractual arrangements, or substantial commitments, other than in the ordinary course of business, nor litigation pending or threatened, nor judgments rendered against, other than those disclosed by management and included in the Report, (the Report is not a formal fairness opinion) that would affect Evans & Evans’ evaluation or comments.
9) Aluula and Ocean Rodeo has complied with all government taxation, import and export and regulatory practices as well as all aspects of its contractual agreements that would have an effect on the Report, and there are no other material agreements entered into by Aluula and Ocean Rodeo that are not disclosed in the Report or Aluula’s and Ocean Rodeo’s disclosure documents.
10) At the Valuation Date, no specific special purchaser(s) was/were identified that would pay a premium to purchase 100% of Aluula or Ocean Rodeo, together or independently.

Definition of Fair Market Value

For the purposes of the Report, fair market value is the highest price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms-length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.

With respect to the market for the shares of a company viewed “en bloc” there are, in essence, as many “prices” for any business interest as there are purchasers and each purchaser for a particular “pool of assets”, be it represented by overlying shares or the assets themselves, can likely pay a price unique to it because of its ability to utilize the assets in a manner peculiar to it.

In any open market transaction, a purchaser will review a potential acquisition in relation to what economies of scale (e.g., reduced or eliminated competition, ensured source of material supply or sales, cost savings arising on business combinations following acquisitions, and so on), or “synergies” that may result from such an acquisition.

Theoretically, each corporate purchaser can be presumed to be able to enjoy such economies of scale in differing degrees and therefore each purchaser could pay a different price for a particular pool of assets than can each other purchaser.

Based on Evans & Evans’ experience, it is only in negotiations with such a special purchaser that potential synergies can be quantified and even then, the purchaser is generally in a better position to quantify the value of any special benefits than is the vendor.

In this engagement Evans & Evans was not able to expose Aluula or Ocean Rodeo for sale in the open market and were therefore unable to determine the existence of any special interest purchasers who might be prepared to pay a price equal or greater than the fair market value (assuming the existence of special interest purchasers) outlined in the Report. As noted above, special interest purchasers might be prepared to pay a price higher than fair market value for the synergies noted above. The shares of Company have been valued en bloc.

Valuation Methodologies

In valuing an asset and/or a business, there is no single or specific mathematical formula. The particular approach and the factors to consider will vary in each case. Where there is evidence of open market transactions having occurred involving the shares, or operating assets, of a business interest, those transactions may often form the basis for establishing the value of the company. In the absence of open market transactions, the three basic, generally-accepted approaches for valuing a business interest are:

(a) The Income / Cash Flow Approach;
(b) The Market Approach; and
(c) The Cost or Asset-Based Approach.

A summary of these generally-accepted valuation approaches along with the approaches selected by Evans & Evans is provided below.

The Income/Cash Flow Approach is a general way of determining a value indication of a business (or its underlying assets), using one or more methods wherein a value is determined by capitalizing or discounting anticipated future benefits. This approach contemplates the continuation of the operations, as if the business is a “going concern”. Under the Income Approach, Evans & Evans used a Discounted Cash Flow method (the “ DCF Method ”). The DCF Method was deemed appropriate as the Target Company has a history of generating revenues; and is projecting revenues to grow significantly over the next few years. As such, the DCF Method captures the potential of the Target Company going forward.

The Market Approach to valuation is a general way of determining a value indication of a business or an equity interest therein using one or more methods that compare the subject entity to similar businesses, business ownership interests and securities (investments) that have been sold. Examples of methods applied under this approach include, as appropriate: (a) the “Guideline Public Company Method”; (b) the “Merger and Acquisition Method”; and (c) analyses of prior transactions of ownership interests in the subject entity. Under the Market Approach, Evans used a Guideline Public Company Method (the “ GPC Method” ). Evans & Evans considered the GPC Method appropriate as it reflects the prices that investors are willing to pay for similar companies operating in composite material and wind sports equipment space. The GPC Method focuses more on short-term results of the Target Company.

The Cost Approach is based upon the economic principle of substitution. This basic economic principle asserts that an informed, prudent purchaser will pay no more for an asset than the cost to obtain an opportunity of equal utility (that is, either purchase or construct a similar asset). From an economic perspective, a purchaser will consider the costs that they will avoid and use this as a basis for value. The Cost Approach typically includes a comprehensive and all- inclusive definition of the cost to recreate an asset. Typically, the definition of cost includes the direct material, labor and overhead costs, indirect administrative costs, and all forms of obsolescence applicable to the asset. Evans & Evans did not deem the Cost Approach appropriate given the Company has a history of revenues.

The Asset-Based Approach is adopted where either: (a) liquidation is contemplated because the business is not viable as an ongoing operation; (b) the nature of the business is such that asset values constitute the prime determinant of corporate worth (e.g., vacant land, a portfolio of real estate, marketable securities, or investment holding company, etc.); or (c) there are no indicated earnings/cash flows to be capitalized. If consideration of all relevant facts establishes that the Asset-Based Approach is applicable, the method to be employed will be either a going-concern scenario (“Net Asset Method”) or a liquidation scenario (on either a forced or an orderly basis), depending on the facts. Given the majority of the Target Company’s assets are intangible in nature, Evans & Evans did not consider the Asset-Based Approach.

Lastly, a combination of the above approaches may be necessary to consider the various elements that are often found within specialized companies and/or are associated with various forms of intellectual property.

Valuation Conclusion

Evans & Evans delivered the Valuation, dated February 8, 2023 to BSP. Based on and subject to the limitations and qualifications set out in the Valuation and such other factors as Evans & Evans considered relevant, Evans & Evans was of the opinion that, as of the date of the Valuation, the fair market value of the Company is in the range of $16,850,000 to $18,450,000.

CERTIFICATE OF BASTION SQUARE PARTNERS INC.

Dated: April 12, 2023

The foregoing constitutes full, true and plain disclosure of all material facts relating to the securities of Bastion Square Partners Inc., assuming Completion of the Qualifying Transaction.

“Peter Gustavson”

PETER GUSTVASON Chief Executive Officer

“Briony Bayer” BRIONY BAYER Chief Financial Officer

ON BEHALF OF THE BOARD OF DIRECTORS

“Tim McElvaine”

“Jeremy South”

TIM McELVAINE Director

JEREMY SOUTH Director

CERTIFICATE OF ALUULA COMPOSITES INC.

Dated: April 12, 2023

The foregoing, as it relates to Aluula Composites Inc., constitutes full, true and plain disclosure of all material facts relating to the securities of Aluula Composites Inc.

“Richard Myerscough” “Peter Dorrius” RICHARD MYERSCOUGH PETER DORRIUS Chief Executive Officer Chief Financial Officer

ON BEHALF OF THE BOARD OF DIRECTORS

“John Zimmerman” “Peter Berrang” JOHN ZIMMERMAN PETER BERRANG Director Director

ACKNOWLEDGEMENT – PERSONAL INFORMATION

“Personal Information” means any information about an identifiable individual, and includes information contained in any Items in the attached Filing Statement that are analogous to Items 4.2, 11, 12.1, 15, 17.3, 18, 22, 23, 25, 30.3, 31, 32, 33, 34, 35, 36, 37, 40 and 41 of Form 3B2, as applicable.

The undersigned hereby acknowledges and agrees that it has obtained the express written consent of each individual to:

(a) the disclosure of Personal Information by the undersigned to the Exchange (as defined in Appendix 6B) pursuant to Form 3B2; and
(b) the collection, use and disclosure of Personal Information by the Exchange for the purposes described in Appendix 6B or as otherwise identified by the Exchange, from time to time.

Dated: April 12, 2023

BASTION SQUARE PARTNERS INC.

“Peter Gustavson”

Peter Gustavson Chief Executive Officer

AI assistant

Aluula Composites Inc. — M&A Activity 2023

48163_rns_2023-04-12_0b52fd69-4714-4142-b44a-5265547e2c24.pdf

BASTION SQUARE PARTNERS INC.

FILING STATEMENT

TABLE OF CONTENTS

SCHEDULE “A” – ISSUER’S FINANCIAL STATEMENTS

GLOSSARY

FORWARD-LOOKING STATEMENTS

SUMMARY OF FILING STATEMENT

General

Details Respecting the Issuer

Details Respecting the Target Company

Terms of the Qualifying Transaction

Amalgamation Agreement

Financings

Name Change

Shareholder Approval

Pro Forma Fully Diluted Share Capital

Notes:

See “ Information Concerning the Resulting Issuer – Pro Forma Consolidated Capitalization ”.

Interest of Insiders, Promoters or Control Persons

Arm’s Length Transaction

Available Funds and Principal Purposes

Selected Pro Forma Consolidated Financial Information

Exchange Listing and Market Price of Issuer Shares

Sponsorship and Agent Relationship

Conflicts of Interest

Interest of Experts

Reports and Opinions

Summary of Risk Factors

See “ Risk Factors ”.

Conditional Listing Approval

INFORMATION CONCERNING THE ISSUER

Corporate Structure

General Development of the Business

History

Description of the Qualifying Transaction

Conditions to the Completion of the Transaction

Termination of the Amalgamation Agreement

Name Change

BSP SubCo Subscription Receipt Financing

BSP Financing

Management’s Discussion and Analysis

Description of the Securities

Stock Option Plan

Notes:

Prior Sales

Stock Exchange Price

Arm’s Length Transactions

Legal Proceedings

Auditor, Transfer Agent and Registrar

Material Contracts

INFORMATION CONCERNING THE TARGET COMPANY

Corporate Structure

Description of the Business

Summary of the Business

Aluula

ALUULA Durlyte™

ALUULA Graflyte™

Ocean Rodeo

Market Overview

Composite Materials

Aerospace Market

Wind Sport Market

Outdoor Gear and Equipment

Sailing

Production and Services

Specialized Skill and Knowledge

Competitive Conditions

Raw Materials and Components

Intangible Property

Sales Cycles

Key Contracts

Environmental Protection

Employees

Lending

Reorganizations

Development of the Business

Three-Year History

Aluula Composites Inc. M&A Activity 2023