Management's Discussion and Analysis of

ALUULA COMPOSITES INC.

For the three and six months ended April 30, 2025 and 2024

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

NOTICE

The following Management Discussion and Analysis ("MD&A") provides information concerning Aluula Composites Inc.'s (the "Company") financial condition for the three and six months ended April 30, 2025 and 2024 (the "Interim Consolidated Financial Statements"). This MD&A should be read in conjunction with the Company's audited Consolidated Financial Statements and notes thereto for the years ended October 31, 2024 and 2023 (the "Consolidated Financial Statements"). Additional information related to the Company is available on the Company's website www.aluula.com and on sedarplus.ca.

This MD&A was prepared by the Company's management and was approved by the Board of Directors on June 24, 2025. All amounts are in Canadian dollars unless otherwise stated.

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.

"2023" 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 Company's audited consolidated financial statement for the years ended October 31, 2024 and 2023 unless indicated otherwise.

The term "brand partners" does not refer to formal partnerships with our customers. The term refers to marketing relationships with our customers who use ALUULA's technology as a brand ingredient in their products.

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 that are referred to without the TM symbol. However, these trademarks and trade names are the property of their respective owners.

FORWARD-LOOKING INFORMATION

Certain statements contained in this MD&A are forward-looking 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 | 2025 | ALUULA COMPOSITES INC.

COMPARATIVE INFORMATION

Unless indicated otherwise, all comparative figures for the three and six months ended April 30, 2025, are referring to the results for the three and six months ended April 30, 2024.

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.

This MD&A may make reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, 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.

ACCOUNTING ESTIMATES AND ASSUMPTIONS

Management is required to make estimates, judgements and assumptions in preparation of the Interim Consolidated Financial Statements in accordance with IFRS. These estimates affect the reported amounts of assets and liabilities at the date of the Interim Consolidated Financial Statements, and the amounts of reported revenue and expenses during the reporting period.

ROUNDING AND PERCENTAGES

Rounded numbers are used throughout this MD&A, with all year-over-year percentage changes calculated in whole dollar amounts.

SHARE CONSOLIDATION

On February 18, 2025, the TSX Venture Exchange approved the consolidation of the Company's common shares (the "Shares") on the basis of one (1) post-consolidation Share outstanding for every twenty (20) pre-consolidation Shares (the "Consolidation"). On March 12, 2025 (the "Effective Date") the Company's Shares commenced trading on the TSXV on a consolidated basis. All shares and per share amounts referenced in this MD&A have been adjusted to reflect post Consolidation numbers and values.

COMPANY AND INDUSTRY OVERVIEW

COMPANY STRUCTURE

ALUULA was incorporated on July 18, 2019 under the British Columbia Business Corporations Act. On October 31, 2022, ALUULA acquired all the outstanding shares of Ocean Rodeo, a company incorporated on January 12, 2001 under the British Columbia Business Corporations Act. Both legal entities are domiciled in Victoria, BC Canada with registered offices at 300 - 4240 Glanford Avenue where most of its management and staff are located.

On April 14, 2023, Bastion Square Partners Inc. ("BSP"), a Canadian company previously listed on the TSX Venture exchange under the symbol BASQ.P, acquired all the outstanding shares of ALUULA by way of a three-cornered amalgamation with BSP changing its name to Aluula Composites Inc. and ALUULA changing its name to Aluula Composites Canada Inc. The transaction was accounted for as a Reverse Takeover ("RTO") and the resulting financial statements are presented as a continuance of ALUULA (accounting acquirer), and comparative figures presented in the consolidated financial statements are those of ALUULA.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

In 2019, Ocean Rodeo's founders invented the ALUULA process to gain a competitive advantage in the wind sport industry. At the time, all market competitors used the same input materials to manufacture kites and wings and leveraged marketing budgets to differentiate their brands. Ocean Rodeo was first to field test products manufactured with ALUULA materials and successfully demonstrated their superior performance resulting in an increase in demand across wind sport brands for ALUULA materials.

ALUULA has undergone significant evolution since 2019, broadening its product range from one to approximately fifty SKUs. Additionally, ALUULA expanded the number of commercialized wind sport brands featuring ALUULA materials from one to sixteen, with current and ongoing growth expected.

During this evolution, ALUULA identified that its materials' unique properties benefit products in markets beyond wind sport, creating an opportunity to expand its strategy to the broader performance outdoor market.

To successfully execute this updated strategy and eliminate a perceived conflict of interest with its growing list of wind sport brands, the Company's Board of Directors approved a mandate to sell specific assets used in the Ocean Rodeo business and discontinue its operations on April 29, 2024. Accordingly, Ocean Rodeo's operations have been accounted for under "IFRS 5 - Non-current assets held for sale and discontinued operations" in these Interim Consolidated Financial Statements.

On August 1, 2024, Aluula Composites Inc. was amalgamated with its wholly owned subsidiary Aluula Composites Canada Inc. The amalgamation was completed to simplify the organizational structure. The newly amalgamated entity will carry on business under the legal name Aluula Composites Inc.

CORE BUSINESS

ALUULA

ALUULA's core business is the development, assembly, and sale of a broad range of composite materials to globally recognized industry brand partners within a variety of markets. ALUULA's primary sales channels are Performance Outdoor and Commercial Industrial.

The Performance Outdoor channel encompasses a number of vertical markets including but not limited to wind sport, pack and bag, tents, bike accessories, and outdoor safety and survival. The Commercial Industrial channel encompasses customers purchasing materials for industrial use in large scale structures and applications.

ALUULA leverages a patented process to fuse high tech fibers and technical coatings together at a molecular level without the use of heavy glues. Compared to conventional coated and laminated woven fabrics, ALUULA's products are lighter, stronger, more durable, more UV resistant than incumbent materials, and recycle-ready at the end of their useful life.

ALUULA's most mature market is the wind sport vertical market, within the Performance Outdoor channel, where its ALUULA Gold™ ("Gold") product has successfully displaced Dacron as the leading material used in manufacturing premium priced kites and wings. With Gold materials demonstrating clear competitive advantages on weight and durability compared to incumbent materials, ALUULA realized that its process supports the production of a variety of soft composite materials capable of disrupting markets beyond wind sport. While the wind sport market has generated the majority of ALUULA's sales to date, customer inquiries from various industries have helped the Company understand that its materials have strong potential in markets that are significantly larger than wind sport.

In 2023, ALUULA expanded its sales pipeline and onboarded additional customers in the Performance Outdoor and Commercial Industrial channels. Working in partnership with these customers to successfully replace incumbent materials, ALUULA developed additional composite materials including ALUULA Aeris™ ("Aeris"), ALUULA Aeris X™ (Aeris X), ALUULA Durlyte™ ("Durlyte"), and ALUULA Graflyte™ ("Graflyte").

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

Aeris features the highest strength-to-weight ratio across all ALUULA materials and supports unique construction capabilities such as heat welding and thermoforming. Aeris has been developed for the wind powered vertical markets such as wind sport and sailing.
Aeris X has all the strength to weight and construction benefits of Aeris but is reinforced with an X-weave which makes the material more durable and stretch and tear resistant. This material is well suited to sailing, ultralight tents and aerospace applications.
Durlyte is ideal for use in applications where abrasion resistance and extreme toughness are critical, for example in inflatable rafts and inflatable shelters.
The Graflyte product is waterproof, UV resistant, and puncture resistant. This fabric is ideal for use in applications where lightness and strength are important, for example with ultralight packs.

Each of the above composite materials is recycle-ready at the end of useful life.

ALUULA's commercialization process involves multiple steps in partnership with its brand partners and progressing from initial contact through to final product launch can be time consuming to help ensure the launch is successful. After the market demand and potential brand partner is validated, the process starts with a needs analysis where ALUULA gathers information on what product characteristics are important to the brand partner. This is followed by collaboration on product development, advising on ideal manufacturing techniques and field testing. Once field testing has successfully concluded, ALUULA works with the brand partner and/or their manufacturer to launch full scale commercialization, which the Company defines as ordering approximately 1,000 square meters of material. Upon the completion of commercialization, brand partners then launch their products in-market. Although this long sales cycle results in delayed revenue, it is essential for ALUULA to help ensure successful long-term customer and brand relationships where the unique ALUULA materials are constructed into high value products.

SECOND QUARTER IN REVIEW

During the second quarter ended April 30, 2025, ALUULA continued to make progress against its fiscal year strategic objectives which include:

Continued sales growth and customer diversification across Performance Outdoor and Commercial Industrial sales channels.
Manufacture specific ALUULA materials at a wider width to support increased sales to existing customers and expansion into new vertical markets.
Engage with existing customers to ensure they are benefiting from innovative construction techniques unique to the ALUULA materials.
Increase brand awareness within the Performance Outdoor channel to highlight the performance advantages and eventual circularity of ALUULA's materials.
Focus on operational efficiencies to ensure gross margins align with expectation as the Company continues to advance against key financial milestones.

During the three months ended April 30, 2025, the Company:

Reduced sales concentration in wind sport vertical market to 76% in Q2 2025 compared to 80% in Q1 2025 and 96% in Q2 2024 with notable increases in the pack and bag and sailing vertical markets as well as the Commercial Industrial sales channel.
Leveraged kite design and product knowledge gained through experience in the wind sport vertical market to advance leads in wind power vertical market through the sales pipeline.
Continued diversification in the sales pipeline with 100% of prototype sized orders being generated by customers outside the wind sport vertical market compared to 95% in Q1 2025 and 94% in Q2 2024.
Reported gross margins with the Company's expected range for a second consecutive quarter and maintained operating expenses within a 10% range for the third consecutive quarter.
Continued progress against the project plan to expand manufacturing capabilities at a wider width. The next stage of the project plan includes third party quality testing of those SKUs

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

manufactured at 1.5m width to compare performance against the Company's baseline product specifications in conjunction with planning out raw material supply chain logistics for inputs at the wider width.

Identified business development activities for the second half of fiscal 2025 aimed at increasing exposure to key markets within the Commercial Industrial channel, which includes attending the May 2025 CANSEC tradeshow, Canada's leading defense, security and emerging technology event.
Celebrated pack and bag brand partner Db Journey being the first brand to launch 5 ALUULA products at once with their Weigh Lighter pack which successfully sold out.
Recruited seasoned executives with experience and connections to support continued advancement against strategic objectives:
Sven Sandahl joined the Company in April 2025 as Chief Commercial Officer. Sven is a veteran in the outdoor action sports industry with considerable experience building market leading global brands. Sven will focus on evolving the Company's ingredient brand strategy, developing key customer relationship and new market expansion.
Scott Mant joined ALUULA as Director Business Development in February 2025. Scott is also a veteran in the outdoor action sports industry and brings with him numerous connections developed over the course of his 20 years' experience. Scott's primary focus will be customer relationship management and sales pipeline expansion.
Peter Reid, P.Eng, assumed the role of Director Manufacturing and Materials Engineering in April 2025. Peter holds a Masters degree in Metals and Materials Engineering and is an ASQ certified quality engineer. Prior to joining Aluula, Peter worked at various companies including Mustang Survival where he was responsible for production and design quality and most recently Arc'teryx, where he held the role of Manager, Raw Material Sourcing. Peter will be focused on production efficiency, expansion of manufacturing capabilities and continuous improvement of the Company's quality control program.

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.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

FINANCIAL PERFORMANCE

The following table is a management level summary of the Company's financial results for the three and six months ended April 30, 2025 and 2024 with relevant variance analysis below.

	For the three months ended		For the six months ended
	April 30, 2025	April 30, 2024	April 30, 2025	April 30, 2024
Sales	$ 1,573,677	$ 1,403,151	$ 2,835,206	$ 3,400,430
Cost of sales	913,244	841,600	1,607,026	1,937,252
Gross profit	660,433	561,551	1,228,180	1,463,178
Gross margin %	42%	40%	43%	43%
Operating expenses:
Salaries and benefits	536,172	974,347	1,089,012	1,350,617
General and administrative	211,948	469,239	382,603	640,876
Marketing	24,860	66,178	36,977	143,700
Research and development	76,169	48,670	112,342	75,435
Share-based compensation	32,694	(1,941)	80,439	28,897
	881,843	1,556,493	1,701,373	2,239,525
Income before interest, tax and amortization	(221,410)	(994,942)	(473,193)	(776,347)
Other income	15,540	752,379	23,312	760,176
Interest expense	(32,594)	(41,049)	(70,745)	(62,841)
Depreciation and amortization	(104,917)	(113,977)	(209,718)	(226,851)
Loss from continued operations before tax	(343,381)	(397,589)	(730,344)	(305,863)
Deferred income tax recovery	17,643	27,909	35,285	53,768
Net and comprehensive loss from continued operations	(325,738)	(369,680)	(695,059)	(252,095)
Net and comprehensive loss from discontinued operations	(60,936)	(394,680)	(66,331)	(741,237)
Net and comprehensive loss	$ (386,674)	$ (764,360)	$ (761,390)	$ (993,332)

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

For the three month periods ended April 30, 2025 (“Q2 2025”), and April 30, 2024 (“Q2 2024”):

Sales

Q2 2025 sales were $1,573,677 compared to $1,403,151 in Q2 2024, which represents a $170,526 or 12% quarter over quarter increase.

While Q2 2025 sales increased compared to Q2 2024, the results were negatively impacted by a production heating variance that occurred because of a rapid and unforeseen change in ambient conditions between January 20, 2025 and February 5, 2025 (the "Variance Period"). During Q2 2025, the Company tested materials on hand that were manufactured during the Variance Period, finding that those materials tested demonstrated mechanical performance consistent with product specification. The Company also collaborated with customers who received materials manufactured during the Variance Period and in cases where the materials may have been impacted, issued credits and accepted returns. If the impact of the production heating variance was excluded from Q2 2025 results, sales would have increased by 37% compared to Q2 2024. To reduce the risk of reoccurrence, the Company conducted a full review of the matter and implemented additional quality assurance controls.

The market primarily impacted by the production heating variance was the wind sport vertical market, which reported a sales decline of 12% in Q2 2025 compared to Q2 2024. If the impact of the production heating variance was excluded, wind sport vertical market would have increased by 14%.

The wind sport vertical market accounts for a significant percentage of the Company's sales (76% in Q2 2025 and 96% in Q2 2024). As its most mature market, the Company has successfully onboarded all targeted wind sport customers and is currently focused on relationship management and delivering excellent customer service which is expected to result in steady sales growth for the remainder of the fiscal 2025 year. Meanwhile, proactive sales outreach activities are being directed to nurturing new leads in key vertical markets within the Performance Outdoor and Commercial Industrial channels where ALUULA can leverage its core competencies and products' competitive advantages to build brand awareness across these larger total addressable markets.

As an early result of these efforts, the Performance Outdoor channel sales excluding wind sport vertical market increased by 8% in Q2 2025 compared to Q2 2024 due to the receipt of significant sales orders from customers in the sailing and pack & bag vertical markets.

Q2 2025 sales to the Commercial Industrial channel increased by $56,591 compared to Q2 2024 due to demand from customers in the wind power vertical market.

Cost of sales and gross margin

Q2 2025 cost of sales were $913,244 compared to $841,600 in Q2 2024 while gross margins increased from 40% in Q2 2024 to 42% in Q2 2025. Gross margins for both Q2 periods were within the Company's expected range of 40%-45%.

Q2 2025 gross margins were also impacted by the production heating variance outlined earlier in this MD&A as well as the sale of previously returned materials from customer LMS Manufactory, as described in the subsequent events note to the Consolidated Financial Statements. If the impact of these two events were adjusted for, normalized gross margins for Q2 2025 would have been approximately 48%, which exceeds the Company's expected range and is due to both the standardization of pricing policies as well as the ongoing focus on improved manufacturing logistics and efficiencies.

Salaries and benefits

Salaries and benefits expense was $536,172 in Q2 2025 compared to $974,347 in Q2 2024 representing a quarter over quarter decrease of $438,175. Q2 2024 salaries and benefits included approximately $390,000 of accrued severance payments associated with the organization restructuring implemented at the end of that quarter while no similar costs were incurred in Q2 2025.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

General and administrative

General and administrative ("G&A") expenses were $211,948 in Q2 2025 compared to $469,239 in Q2 2024 representing a quarter over quarter decrease of $257,291. G&A expenses are comprised primarily of professional fees, rent, commercial insurance, bad debt provision, warranty costs, freight, bank charges and license fees paid for the Company's ERP system.

G&A decreased in Q2 2025 compared to Q2 2024 due to lower professional fees, bad debt and warranty provisions. Professional fees were higher in Q2 2024 as the Company expensed approximately $50,000 in patent and trademark costs no longer needed to support the Company's future growth. ALUULA's bad debt provision is impacted by the value of accounts receivable over 90 days. In Q2 2025, accounts receivable over 90 days was $10,699 compared to $562,849 in Q2 2024 resulting in a lower bad debt expense recognized in Q2 2025. Warranty reserves were higher in Q2 2024 when the Company recognized a higher-than-average warranty rate associated with older GC-82 materials.

Marketing

Marketing expense was $24,860 in Q2 2025 compared to $66,178 in Q2 2024 representing a decrease of $41,318. The Q2 2024 marketing expense was higher due to the cost of exhibiting at the Tech Textile trade show in Frankfurt, Germany. ALUULA did not attend the trade show in Q2 2025 as the sales team focused efforts on managing existing customer relationships and nurturing opportunities in the Company's sales pipeline.

Research and development ("R&D")

R&D expense was $76,169 in Q2 2025 compared to $48,670 in Q2 2024 representing a quarter over quarter increase of $27,499. R&D expense for Q2 2025 was higher than Q2 2024 due to an increase in materials utilized to advance research and development initiatives, including methods of manufacturing at a wider width.

Share-based compensation

Share-based compensation was $32,694 in Q2 2025 compared to $(1,941) in Q2 2024 representing an increase of $34,635. Share-based compensation was negative in Q2 2024 due to actual stock option forfeiture rates exceeding expected forfeiture rates resulting in the reversal of previously recognized compensation expense for stock options that did not vest.

Other income

Other income was $15,540 in Q2 2025 compared to $752,379 in Q2 2024 representing a decrease of $736,839. In Q2 2024, Other income included a fair value adjustment of $749,391 associated with the Company's investment in Xlynx Materials Inc. common shares (the "Xlynx Shares"). The fair value adjustment was based on the sale price negotiated for the Xlynx Shares in a May 2024 purchase and sale agreement. Other income in Q2 2025 is primarily of interest income earned on cash balances.

Interest expense

Interest expense for Q2 2025 was $32,594 compared to $41,049 for Q2 2024 representing a quarter over quarter decrease of $8,455. Interest expense is primarily due to interest paid on the Company's loan from related party 0876991 B.C. Ltd. ALUULA repaid $200,000 of this related party loan in January 2025, which contributed to the decrease in interest expense incurred in Q2 2025 compared to Q2 2024.

Depreciation and Amortization

Depreciation and amortization expense for Q2 2025 was $104,917 which is consistent with the Q2 2024 expense of $113,977.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

Deferred taxes

Deferred income tax recovery for Q2 2025 was $17,643 which is consistent with the Q1 2024 recovery of $27,909. Deferred income tax recoveries recognized in both periods relate to the reduction of the deferred tax liability that occurs as intangible assets are amortized.

Net and comprehensive loss from discontinued operations

Net and comprehensive loss from Ocean Rodeo's discontinued operations was $60,936 in Q2 2025 compared to a net and comprehensive loss of $394,680 in Q2 2024 representing a quarter over quarter decrease of $333,744. Additional information on discontinued operations is included in Note 18 of the Interim Consolidated Financial Statements.

Ocean Rodeo's sales decreased to $134,405 in Q2 2025 compared to $263,299 in Q2 2024 as a result of the strategic decision made at the end of Q2 2024 to hibernate Ocean Rodeo's operations.

Gross margin from discontinued operations were negative in both Q2 2025 and 2024. The negative gross margins are due to the sale of inventory at a discount and on an "as is" basis. Discounts increased in Q2 2025 as Ocean Rodeo approached March 31, 2025, which was the final date the Company could sell inventory under the terms of its definitive purchase and sale agreement (the "Agreement") between Ocean Rodeo and Bainbridge International Ltd ("Bainbridge"). Additional information on the Agreement is included in Note 18 to the Interim Consolidated Financial Statements. Ocean Rodeo and Bainbridge have an agreement in principle for Ocean Rodeo to sell Bainbridge its remaining inventory. Once this transaction is complete, Ocean Rodeo's operations will be deemed to have ceased.

Ocean Rodeo's operating expenses decreased by $715,602 in Q2 2025 compared to Q2 2024. Q2 2024 operating costs included various charges associated with the decision to discontinue operations such as severance costs as well as the write down of accounts receivable, patents and trademarks to net realizable value. G&A costs incurred in Q2 2025 include those expenses required to wind down operations and primarily include the cost of insurance, ERP system, freight out, bank charges and credit card fees.

Other income recorded in Q2 2024 relates to a SRED refund received.

For the six month periods ended April 30, 2025 ("YTD Q2 2025"), and April 30, 2024 ("YTD Q2 2024"):

Sales

YTD Q2 2025 sales were $2,835,206 compared to $3,400,430 during YTD Q2 2024, which represents a decrease of $565,224 or 17%.

The decrease in YTD Q2 2025 sales is due to Q1 windspport market sales, where Q1 2025 sales were $752,859 lower than in Q1 2024. In Q1 2024, ALUULA received and shipped materials associated with large sales orders from a customer that manufactures kites and wings for several of the Company's brand partners. In subsequent fiscal 2024 quarters, this customer's ordering volumes declined significantly. For fiscal 2025, the Company expects this customer to place more consistent sales orders across each quarter, a trend that is holding true through the six-month period ending April 30, 2025.

YTD Q2 2025 sales were also impacted by the production heating variance outlined earlier in this MD&A. If the impact from this issue was excluded, YTD Q2 2025 sales would have decreased from YTD Q2 2024 sales by 7%.

Commercial Industrial sales for YTD Q2 2025 increased by approximately $90,000 compared to YTD Q2 2024 due to demand from current customers in the wind power vertical market.

Cost of sales and gross margin

YTD Q2 2025 cost of sales were $1,607,026 compared to $1,937,252 in YTD Q2 2024, which represents a decrease of $330,226. Gross margins in both periods remained consistent at 43%.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

YTD Q2 2025 gross margin was also negatively impacted by the production heating variance and sale of previously returned materials from customer LMS Manufactory outlined earlier in this MD&A. If the impact of these two events were adjusted for, normalized gross margins for YTD Q2 2025 would have been approximately 47%, which exceeds the Company's expected range and is due to both the standardization of pricing policies as well as the ongoing focus on improved manufacturing logistics and efficiencies.

Salaries and benefits

Salaries and benefits expense was $1,089,012 in YTD Q2 2025 compared to $1,350,617 in YTD Q2 2024 representing a decrease of $261,605. YTD Q2 2024 salaries and benefits included approximately $390,000 of accrued severance payments associated with the organization restructuring implemented at the end of that period. If severance costs were excluded, Salaries and benefits in YTD Q2 2025 would have increased due to additional headcount in the sales & marketing, production, R&D and accounting departments as well as severance payments incurred to restructure the sales department.

General and administrative

General and administrative ("G&A") expense was $382,603 in YTD Q2 2025 compared to $640,876 in YTD Q2 2024 representing a decrease of $258,273 or 40%. G&A expenses are comprised primarily of professional fees, rent, commercial insurance, bad debt provision, warranty costs, freight, bank charges and license fees paid for the Company's ERP system.

YTD Q2 2024 G&A costs were higher than YTD Q2 2025 due to higher professional fees, bad debt expense and warranty provisions previously outlined in this MD&A.

Marketing

Marketing expense was $36,977 in YTD Q2 2025 compared to $143,700 in YTD Q2 2024 representing a decrease of $106,723. Marketing expenses were higher in YTD Q2 2024 due to costs incurred to exhibit at the November 2023 ISPO trade show and April 2024 Tech Textil trade show, both held in Germany. ALUULA did not attend these trade show in YTD Q2 2025 as the sales team focused efforts on managing existing customer relationships and nurturing opportunities in the Company's sales pipeline.

Research and development ("R&D")

R&D expense was $112,342 in YTD Q2 2024 compared to $75,435 in YTD Q2 2024 representing an increase of $36,907. R&D expense for YTD Q2 2025 was higher than YTD Q2 2024 due to an increase in materials utilized to advance research and development initiatives, including methods of manufacturing at a wider width.

Share based compensation

Share based compensation was $80,439 in YTD Q2 2025 compared to $28,897 in YTD Q2 2024 representing an increase of $51,542. Share-based compensation for YTD Q2 2024 was lower than YTD Q2 2025 due to actual stock option forfeiture rates exceeding expected forfeiture rates resulting in the reversal of previously recognized compensation expense for stock options that did not vest.

Other income

Other income was $23,312 in YTD Q2 2025 compared to $760,176 in YTD Q2 2024. The $736,864 decrease to other income is primarily due to the fair value adjustment to ALUULA's Xlynx Shares as outlined earlier in this MD&A.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

Interest expense

Interest expense for YTD Q2 2025 was $70,745 compared to $62,841 for YTD Q2 2024. Interest expense for both periods relates to the Company's loan agreement with related party 0876991 B.C. Ltd. YTD Q2 2024 interest expense was $7,904 lower because the loan was advanced on December 29, 2023 and therefore was only outstanding for a portion of the period.

Depreciation and Amortization

Depreciation and amortization expense for YTD Q2 2025 was $209,718 which is consistent with the YTD Q2 2024 expense of $226,851.

Deferred taxes

Deferred income tax recovery for YTD Q2 2025 was $35,285 compared to $53,768 in YTD Q2 2024. Deferred income tax recoveries recognized in both periods relate to the reduction of the deferred tax liability that occurs as intangible assets are amortized.

Net and comprehensive loss from discontinued operations

Net and comprehensive loss from discontinued operations was $66,331 in YTD Q2 2025 compared to $741,237 in YTD Q2 2024 representing a decrease of $674,906.

YTD Q2 2025 sales decreased by $281,781 compared to YTD Q2 2024 as a result of the strategic decision made at the end of Q2 2024 to hibernate Ocean Rodeo's operations.

YTD Q2 2025 gross margins were 2% while YTD Q2 2024 gross margins were 18%. YTD Q2 2025 gross margins were low due to the sale of inventory at a discount and on an "as is" basis discussed earlier in this MD&A. YTD Q2 2024 gross margins were negatively impacted by the accounting treatment of ALUULA's October 31, 2022 acquisition of Ocean Rodeo. When ALUULA acquired Ocean Rodeo, accounting standards required that ALUULA value Ocean Rodeo's inventory on hand (the "Acquisition Inventory") at its fair market value, which was deemed to be the sales price for those finished goods. Therefore, as Acquisition Inventory is sold, it generates a zero margin (as the cost equals fair value which equals the sales price). Acquisition Inventory sold or written down during YTD Q2 2024 resulted in a negative impact to normalized margins of approximately 11%. YTD Q2 2024 gross margins were also impacted by approximately 12% due to the write down of inventory to net realizable value.

Ocean Rodeo's operating expenses decreased by $1,122,724 to $78,326 in YTD Q2 2025 compared to $1,201,050 in YTD Q2 2024. YTD Q2 2024 operating costs included various charges associated with the decision to discontinue operations such as severance costs as well as the write down of accounts receivable, patents and trademarks to net realizable value. Spending controls were in place throughout YTD Q2 2025 as operations were wound down. A marketing expense recovery was recognized in the YTD Q2 2025 period after the Company successfully negotiated a lower cost to exit a fixed term commitment previously accrued at full contract value.

Other income recorded in the YTD Q2 2024 period relates to a SRED refund received.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

SUMMARY OF QUARTERLY RESULTS

The following table is a management level summary of the financial results of the Company for each of the three month periods ending:

	April 30, 2025 ("Q2 2025")	January 31, 2025 ("Q1 2025")	October 31, 2024 ("Q4 2024")	July 31, 2024 ("Q3 2024")	April 30, 2024 ("Q2 2024")	January 31, 2024 ("Q1 2024")	October 31, 2023 ("Q4 2023")	July 31, 2023 ("Q3 2023")
Sales *	1,573,677	$ 1,261,529	$ 1,666,861	$ 1,291,938	$ 1,403,151	$ 1,997,279	$ 881,198	$ 966,565
Net and comprehensive income (loss) from continued operations	(325,738)	(369,321)	(1,166,371)	(1,215,139)	(369,680)	117,585	(527,297)	(441,786)
Net and comprehensive loss	(386,674)	(374,716)	(1,819,654)	(1,123,209)	(764,360)	(228,972)	(844,251)	(533,880)
Loss per share basic and diluted **	$ (0.02)	$ (0.03)	$ (0.15)	$ (0.09)	$ (0.06)	$ (0.02)	$ (0.07)	$ (0.05)

Excludes sales from discontinued operations and includes reclassifications outlined below.
** All per share amounts are presented in this table have been adjusted to reflect the 20:1 share consolidation outlined in Note 14 of the Interim Condensed Consolidated Financial Statements.

	July 31, 2023
Sales - as originally reported	975,939
Restatement - shipping revenue	(9,374)
Restatement - warranty expense	-
Sales - restated	966,565

Sales

Sales for fiscal 2023 averaged $1,040,422 per quarter, which represents a 52% increase compared to fiscal 2022 average quarterly sales. Sales during the second half of the fiscal year lagged the annual average due to the timing of receipt of orders from customers in the wind sport vertical market, which made up 85% of sales.

Sales for fiscal 2024 averaged $1,589,807 per quarter, which represents a 53% increase compared to fiscal 2023 average quarterly sales. ALUULA sales increased by $1,116,081 in Q1 2024 compared to Q4 2023 due to existing wind sport customers ordering more materials during the quarter, in addition to several new wind sport brands purchasing materials to support product launches. Also contributing to the increase in Q1 2024 sales were orders of approximately $200,000 from new customers in the pack and bag vertical market. Q1 2024 sales were higher than subsequent quarters due to the ordering pattern of one wind sport customer that manufactures for several of the Company's brand partners discussed earlier in this MD&A.

Year to date sales for fiscal 2025 are currently averaging $1,417,603 per quarter, which is below fiscal 2024 average of $1,589,807 due to the timing of receipt of wind sport sales orders during fiscal 2024 discussed above. ALUULA collaborates with its customers to plan annual order volumes and resulting production timelines and is expecting more consistent revenue recognition across quarters as a result. The Company is also experiencing longer sales cycles due to time requirements needed to collaborate with customers in new vertical markets on technical developments and prototype testing prior to moving into commercial production.

Net and comprehensive loss from continued operations

The Company's net and comprehensive loss from continued operations for Q3 and Q4 2023 were within expectation given gross profit reported during both quarterly periods.

The Company reported net and comprehensive income for Q1 2024 as both sales and gross margins increased while operating costs remained consistent. Q2 2024 net and comprehensive loss was impacted by the approximately $390,000 in accrued restructuring costs arising from organizational changes and write

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

downs associated with patents and trademark no longer needed to support the Company's growth. If these restructuring costs were excluded, the Company would have reported net and comprehensive income for the three months ended April 30, 2024.

Net and comprehensive loss in Q3 2024 was $1,215,139 as sales and gross margins decreased for the three month period, the Company allowed for approximately $700,000 in accounts receivables, and wrote-off approximately $70,000 of raw input materials that did not pass quality control testing when utilized in the manufacturing of ALUULA finished good materials.

Net and comprehensive loss was $1,166,371 in Q4 2024 due to the recognition of a deferred tax expense of $827,301. The deferred tax expense arose after the Company booked a full valuation allowance against a deferred tax asset previously recognized. The deferred tax asset was comprised of tax loss carryforward amounts that the Company de-recognized under IFRS. As the Company meets its profitability milestones, it will revisit whether these deferred tax assets can be recognized in accordance with IFRS. If this non-cash deferred tax expense was excluded, the net and comprehensive loss from continued operations would have been $339,070.

The Company's net and comprehensive loss from continued operations was $369,321 in Q1 2025 and $325,739 in Q2 2025, which is in line with expectation given sales and gross margins reported.

Net and comprehensive loss

The net and comprehensive loss includes the net and comprehensive loss from both continued and discontinued operations. The decision to sell ALUULA materials to an increasing number of wind sport brands had a negative impact on Ocean Rodeo's competitive advantage resulting in sales declines and ongoing quarterly net and comprehensive losses. The decision was made to discontinue Ocean Rodeo operations in Q2 2024 and as a result, its operating expenses were significantly reduced. The Company continued efforts to sell inventory in stock on an "as is" basis which combined with reduced operating costs resulted in net income from discontinued operations for the Q3 2024 period. Other than this Q3 2024 period, the Company has reported quarterly losses from Ocean Rodeo in seven of the eight previous quarters.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES

ANALYSIS OF STATEMENT OF FINANCIAL POSITION

The following table presents selected information from the April 30, 2025 Interim Consolidated Financial Statements and the October 31, 2024 Consolidated Financial Statements, followed by a variance analysis below:

| | April 30
2025 | October 31
2024 |
| --- | --- | --- |
| Selected assets | | |
| Cash and cash equivalents | $ 1,763,232 | $ 857,011 |
| Trade and other receivables | 1,094,296 | 1,032,754 |
| Inventory | 1,727,498 | 1,098,320 |
| Intangible assets | 3,491,920 | 3,618,375 |
| Goodwill | 4,037,139 | 4,037,139 |
| Selected liabilities | | |
| Trade and other payables | 845,324 | 981,067 |
| Loan from related party * | 800,000 | 1,000,000 |
| Debt * | 499,816 | 556,675 |
| Lease obligations * | 202,472 | 271,523 |

Current and long term debt and lease obligations combined for this analysis

Cash and cash equivalents

Cash and cash equivalents balance at April 30, 2025 was $1,763,232 which is $906,221 higher than the balance at the end of October 2024. The increase in cash is due to the Company rights offering which closed January 21, 2025 and resulted in cash proceeds after share issuance costs of $2,377,588. These proceeds have been used throughout YTD Q2 2025 to purchase raw materials for manufacturing finished goods inventory and fund operations.

Trade and other receivables

Trade and other receivables increased by $61,542 from $1,032,754 at October 31, 2024 to $1,094,296 at April 30, 2025. Trade receivables increased by $315,697 due to timing of receipt of customer payments based on credit terms. Offsetting the increase in trade receivables was a $229,769 increase in sales return allowance arising from the production heating variance issue outlined earlier in this MD&A.

68% of the Company's accounts receivable balance, net of credit losses, are current while 1% or $10,699 are over 90 days.

Inventory

Inventory at April 30, 2025 was $1,727,498, representing an increase of $629,178 compared to the balance at October 31, 2024. The increase in inventory is due to the purchase of raw materials in anticipation of higher sales order volumes.

Intangible Assets

Intangible assets are primarily comprised of patents and trademarks. ALUULA acquired Ocean Rodeo on October 31, 2022 to support its efforts in product innovation and testing within the wind sport vertical market. At that time, Ocean Rodeo's patent portfolio was valued at $4,296,834. On October 31, 2023, certain key patents held by Ocean Rodeo were transferred to Aluula to ensure all patents supporting the Company's

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

windsport cash generating unit were in one legal entity. The value of intangible assets continues to decrease as they are amortized over their estimated useful life.

Goodwill

The Company recorded $4,037,139 of goodwill when ALUULA acquired Ocean Rodeo on October 31, 2022. The decision to discontinue Ocean Rodeo's operations raised the question of potential impairment of goodwill. An impairment analysis was performed on the Company's wind sport division, which is comprised of the Ocean Rodeo and ALUULA's wind sport business in accordance with IAS 36 – Impairment of Assets. The overall growth trend in sales generated by wind sport customers was a key factor contributing to the conclusion that there was no impairment to goodwill at April 30, 2025.

Trade and other payables

Trade and other payables balance was $845,324 at April 30, 2025 compared to $981,067 at October 31, 2024. The $135,743 decrease in trade and other payables is primarily due a reduction in warranty reserves.

Loan from related party

The loan from related party decreased from $1,000,000 at October 31, 2024 to $800,000 at April 30, 2025 due to a repayment made on January 1, 2025 in accordance with the terms of the loan.

Debt

As at April 30, 2025, the Company had debt of $499,816 which is $56,859 lower than the fiscal year ended October 31, 2024. The decrease in debt is a result of repayments made in accordance with terms of the debt.

Lease obligations

The Company's lease obligations consist of right-of-use lease obligations for the rental of office and production space. Lease obligations at April 30, 2025 were $202,472, a decrease of $69,051 compared to October 31, 2024. This decrease is a result of lease payments made in the normal course of operations.

Off-balance sheet arrangements

As of the date of this MD&A, the Company has not entered into any off-balance sheet arrangements.

CASH FLOW FROM OPERATING, INVESTING, AND FINANCING ACTIVITIES

Analysis of cash flows:

For the six months ended	April 30 2025	April 30 2024
Cash used in operating activities - continued operations	$ (1,260,515)	$ (347,295)
Cash provided by (used in) operating activities - discontinued operations	59,345	(55,608)
Cash provided by (used in) investing activities - continued operations	148,393	(71,762)
Cash provided by investing activities - discontinued operations	-	27,864
Cash provided by financing activities - continued operations	2,031,517	880,674
Cash used in financing activities - discontinued operations	(72,519)	(71,648)
Increase in cash and cash equivalents	$ 906,221	$ 362,225

Operating activities

Cash used in operating activities from continued operations was $1,260,515 during YTD Q2 2025 compared to $347,295 in YTD Q2 2024. Use of cash increased by $913,220 primarily due to an increase in inventory purchases as well as a reduction in trade payables.

Cash provided by operating activities from discontinued operations was $59,345 in YTD Q2 2025 compared to cash used in operating activities of $55,608 in YTD Q2 2024. Cash provided by operations in YTD Q2

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

2025 is primarily due to the collection of accounts receivable exceeding trade payables and accrued liabilities.

Investing activities

Cash provided by investing activities from continued operations was $148,393 in YTD Q2 2025 compared to cash used in investing activities of $71,762 in YTD Q2 2024. The cash flow provided by investing activities in YTD Q2 2025 is primarily due to the sale of Xlynx shares discussed earlier in this MD&A and outlined in Note 9 and 24 of the Consolidated Financial Statements. Cash used in investing activities in YTD Q2 2024 was related to the acquisition of property, equipment and intangible assets in the normal course of operations.

Cash provided by investing activities from discontinued operations was $nil in YTD Q2 2025 compared to $27,864 in YTD Q2 2024. The cash flow from investing activities in YTD Q2 2024 was primarily due to a $36,297 repayment of a capital reserve account from GKA Event GmbH ("GKA"). Additional information on GKA can be found in Note 9 of the Consolidated Financial Statements.

Financing activities

Cash provided by financing activities from continued operations was $2,031,517 in YTD Q2 2025 compared to $880,674 in YTD Q2 2024. YTD Q2 2025 cash flows were generated by the Company's rights offering as outlined in Note 14 to the Interim Consolidated Financial Statements. The inflow of funds during YTD Q2 2024 was due to receipt of a $1,000,000 loan from a related party detailed in the Working Capital and Debt Management section below.

Cash used in financing activities from discontinued operations was $72,519 in YTD Q2 2025 compared to $71,648 in YTD Q2 2024. The cash flow used in financing activities in both YTD Q2 periods was due to the repayment of third party debt.

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 debt and equity issuances. Where government grants for interest free or forgivable loans are available to the Company, management applies for funding. ALUULA continuously explores sources of additional capital available to companies in their early growth lifecycle stage.

Loans from related parties

On December 29, 2023, the Company entered into a $1,000,000 loan agreement (the "Loan Agreement") with 0876991 B.C. Ltd., a related party. The loan bears interest at a rate of 12% per annum.

In June 2024, the parties agreed to amend the Loan Agreement and extend the repayment date from July 1, 2024 to January 1, 2025. On October 16, 2024, the parties entered into a second amendment to the Loan Agreement pursuant to which: (i) $200,000 of the loan remains payable on January 1, 2025 and the due date for repayment of the balance of $800,000 of the loan was extended to January 1, 2026; and (ii) the Company was affirmed as the debtor due to the corporate amalgamation with its wholly-owned subsidiary on August 1, 2024. All other terms of the Loan Agreement remain unchanged. The Company repaid $200,000 on January 1, 2025 in accordance with the loan repayment schedule.

Debt and government funding

On January 29, 2025, the Company signed a Contribution Agreement with the National Research Council of Canada ("NRC"), as representatives of the Industrial Research Assistance Program ("IRAP"). Under the terms of the Contribution Agreement, the NRC has agreed to reimburse the Company up to $75,000 against specific costs incurred in relation to a project aimed at utilizing artificial intelligence to improve the efficiency of the Company's quality assurance and quality control processes (the "Project"). The Project term is from February 1, 2025 to October 31, 2025. The Company must comply with the terms of the Contribution

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

Agreement in order to qualify for cost reimbursement. Reimbursements recorded for the three and six months ended April 30, 2025 were $22,246 and $22,246 respectively (three and six months ended April 30, 2024 - $nil and $nil). These reimbursements have been recorded as a reduction of salaries and benefits in the statements of loss and comprehensive loss.

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. Monthly installments commenced April 1, 2024 and will continue until the loan is repaid on March 1, 2029. As of April 30, 2025, $729,114 (October 31, 2024 - $729,114) of the available funding had been received, and the loan had a discounted balance of $499,816 (October 31, 2024 - $556,675).

On August 24, 2020, Ocean Rodeo 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. On December 6, 2024, the Company repaid the remaining $68,675 balance of this loan therefore as at April 30, 2025, the discounted balance was $nil (October 31, 2024 - $72,307).

Equity issuances

On January 21, 2025, the Company completed an offering of rights (the "Rights Offering") which resulted in the issuance of 12,530,781 common shares at a price of $0.20 per share for gross proceeds of $2,506,156. In connection with the Rights Offering, the Company has entered into a $1,500,000 standby purchase agreement with certain directors and officers of the Company (the "Standby Purchasers"), who agreed to: (i) fully exercise their Basic Subscription Privilege to purchase 2,912,800 Shares; and (ii) to purchase up to an additional 7,500,000 Shares not otherwise subscribed for under the Rights Offering (the "Standby Commitment"). As consideration for the Standby Commitment, the Company issued 1,312,500 bonus warrants to the Standby Purchasers. Each bonus warrant is exercisable into one Share at a price of $2.00 per Share for a period of five years. Because the Company raised the maximum amount permitted under the Rights Offering, the Standby Purchasers were not required to purchase additional Shares under the terms of the Standby Commitment. Share issuance costs for the Rights Offering were $665,617 including $537,064 representing the estimated fair value of the warrants. Net proceeds of $2,337,588 were apportioned between share capital ($1,840,540) and contributed surplus ($537,064) based on the relative fair value of the shares and warrants issued in the Rights Offering.

A summary of proceeds raised by the Company from the issuance of equity starting in April 2023 at the time of the RTO with BSP is as follows:

Date	Issuance of equity from:	Gross proceeds	Transaction costs	Net proceeds	FMV warrants issued
April 6, 2023	BSP SubCo pre-RTO private placement	$ 2,186,800	$ 12,180	$ 2,174,620	n/a
April 13, 2023	Exercise of employee stock options pre RTO	152,585	-	152,585	n/a
April 13, 2023	Repayment of shareholder loan via share issuance	1,983,002	-	1,983,002	n/a
April 14, 2023	BSP private placement	813,200	21,000	792,200	n/a
May 2023	Warrant exercise	14,793	-	14,793	n/a
July 12, 2023	Brokered private placement	3,673,493	441,154	3,232,339	1,194,566
April 14, 2024	Exercise of employee stock options	6,000	-	6,000	n/a
January 21, 2025	Rights Offering	2,506,156	128,553	2,377,603	537,064

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

CONTRACTUAL OBLIGATIONS

The Company is subject to contractual obligations, including office and warehouse leases, promissory notes owing to related parties, and long-term debt repayments.

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.

ALUULA currently has two fusion pods that are utilized in the production of various materials. One pod is used for the production of the materials at commercial scale, while the second pod manufactures R&D materials and smaller batch samples.

The Company is in the process of assessing the most efficient and effective way to manufacture at a width of 1.5 meters. Transitioning the Company's method of manufacturing to a wider width is a significant project with a long term multi-stage project plan. ALUULA has completed the stage of identifying suitable options for manufacturing at this wider width and producing larger quantities of specific ALUULA SKUs at 1.5m width. The next stage of the project plan includes third party quality testing of those SKUs manufactured at 1.5m width to compare performance against the Company's baseline product specifications in conjunction with planning out raw material supply chain logistics for inputs at the wider width.

Other Equipment

The Company invests in research and development 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

Where management feels it is warranted, patents are sought to protect both designs and processes in certain global jurisdictions. The legal costs of acquiring these patents are capitalized as intangible assets where appropriate.

RESEARCH AND DEVELOPMENT

ALUULA has a patented, highly customizable process for manufacturing composite materials. R&D activities are key to the Company's success and are separated into two main areas:

Customization of the ALUULA process to support sales opportunities

When the sales opportunity warrants, the R&D team works closely with brand partners to customize materials to meet their needs. Through this collaboration process, the Company determines material specifications required and applies its internal knowledge of the ALUULA process and the chemical and physical properties of potential input materials to develop new composite materials or methodologies to meet brand partner needs. Once finalized, ALUULA works with the brand partner's manufacturer to ensure smooth integration of our materials into their processes.

Ongoing product and process innovation

The R&D team is also engaged in various long projects including but not limited to transitioning ALUULA's materials into the circular economy and ongoing composite material innovation.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

MANUFACTURING

The Company manufactures its composite materials using batch process production pods which are custom designed and proprietary equipment. A production pod can produce approximately 25,000 square meters in a month of Gold material. As the Company commences commercial scale manufacturing of its various other materials, production capacity may change. The Company monitors production output and continuously explores process streamlining, planning and equipment adaptations to maximize output from its manufacturing facility.

Based on brand partner feedback, the Company commenced the process of exploring production at a 1.5 meter width. Current materials are produced at 0.925 meter width. ALUULA started at the slimmer width so the initial variables involved would be easier to control as the Company developed the industrial process. As noted earlier in this MD&A, the Company plans to transition certain SKUs to the wider 1.5 meter width as it allows customers to create their products with better nesting of the material, less waste, and fewer seams, reducing labour and assembly time.

EQUITY

On February 18, 2025, the TSX Venture Exchange ("TSXV") approved the consolidation of the Company's common shares (the "Shares") on the basis of one (1) post-consolidation Share outstanding for every twenty (20) pre-consolidation Shares (the "Consolidation"). On March 12, 2025 (the "Effective Date") the Company's Shares commenced trading on the TSXV on a consolidated basis. As a result of the Consolidation, on the Effective Date, a total of 25,061,562 Shares were issued and outstanding.

As of April 30, 2025, the Company had 25,061,562 shares issued and outstanding, 2,656,386 warrants outstanding and 1,041,158 stock options outstanding.

More detail on these transactions can be found in Notes 14 and 15 of the Interim Consolidated Financial Statements.

TAX MATTERS

The Company is considered to be 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.

ACCOUNTING POLICIES AND ESTIMATES

Management is required to make estimates, judgements, and assumptions in preparation of the Interim Consolidated Financial Statements in accordance with IFRS. These estimates affect the reported amounts of assets and liabilities at the date of the Interim Consolidated Financial Statements, and the amounts of reported revenue and expenses during the reporting period.

CRITICAL ACCOUNTING ESTIMATES

The Company's significant judgement and estimates made in preparation of the Interim Consolidated Financial Statements are described in Note 2 of those financial statements, with the associated accounting policies described in Note 3 to the Consolidated Financial Statements.

FUTURE ACCOUNTING PRONOUNCEMENTS

No new significant accounting standards were adopted during three and six months ended April 30, 2025. Future accounting pronouncements are disclosed in Note 3 of the Consolidated Financial Statements.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

FAIR VALUE MEASUREMENTS

A number of the Company's financial instruments are recognized at fair value. Fair value is discussed in detail in the Interim Consolidated Financial Statements. There have been no changes to the fair value policies during the three and six months ended April 30, 2025.

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.

STRATEGIC RISKS

Reputation

As an early-stage commercial manufacturing 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 of controls and processes as outlined later in this MD&A.

New markets

We are actively working to expose the Company's composite materials to vertical markets outside 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, based on pipeline sales opportunities, with the understanding that not all opportunities will materialize within the expected timelines.

OPERATIONAL RISKS

Confidentiality of trade secrets

The Company relies on closely held trade secrets in addition to the intellectual property that has been developed 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 non-disclosure agreements 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

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

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 slowdowns 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 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.
We remain in constant communication with key suppliers and occasionally make site visits to both strengthen the relationship and monitor quality control.
We seek to engage with multiple suppliers for key input materials to mitigate reliance on any one vendor.

Management mitigates cash flow risk by negotiating credit terms with key suppliers, matching order quantities with sales forecasts and maintaining key relationships enabling access to additional capital to ensure sufficient cash is on hand to support the raw materials requirements of the business.

Excess production

As ALUULA is early in the growth stage, there is risk attached to producing finished composites in advance of sales order demand, as overproduction could divert the Company's working capital from other areas.

Management mitigates the risk of overproduction by, where possible, only purchasing raw materials to meet upcoming sales orders from customers, and by primarily producing to meet the demand of those confirmed sales 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 Microsoft 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 most employees being centralized in one office, secondary approvals for bank payments, requiring verbal confirmation with a known party prior to making any changes to wire instructions 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

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

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 employee stock option plan, an optional benefits package, and ensuring a strong work-life balance. The senior 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.

Changing international trade policies

Due to the interconnected nature of the global economy, policy changes in one region can have immediate and significant adverse effects on markets worldwide. Amendments to international trade policies—including changes to existing agreements, increased restrictions on free trade, and substantial rises in customs duties and tariffs on goods imported could negatively impact the Company's results of operations.

In early 2025, the United States ("US") administration has announced intentions to implement or increase tariffs. In early 2025, tariffs of 25% were announced on most Canadian and Mexican goods as well as 20% on Chinese products imported into the US. Shortly thereafter, retaliatory tariffs were announced by Canada and China. At this time, specific additional actions and effective date for tariffs remain uncertain. The impact of these potential tariffs on our business and financial condition is influenced by several unknown factors, including the effective date and duration of such tariffs, their scope and nature, the amount imposed, and any further retaliatory measures by the target countries.

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 13 the Interim Consolidated 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 and CIBC, which are both chartered Canadian banks.
Customers who wish to trade on credit terms are subject to a credit verification process.
We obtain customer deposits, where possible, 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, and proactively 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. As the Company's cash flows become more predictable, it will explore the implementation of a formal hedging policy.

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. Management mitigates Interest rate risk by seeking out alternate sources of financing and securing fixed-rate or equity-based financing where rates are favourable.

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

INTERNAL CONTROLS AND PROCEDURES

QUALITY CONTROLS

Quality control procedures are vital to the Company's success to reduce the risk of warranties, returns, and damaged customer relationships. Management is responsible for creating and implementing effective systems, controls, and processes for both operations and financial reporting.

ALUULA composite materials

Quality assurance and control measures are critical to the success of the ALUULA process. To select raw materials, our R&D team tests each input material to ensure it will perform as required, and our supply chain evaluates potential new vendors to ensure we are purchasing from reliable sources that will meet our quality control specifications. Where raw materials require modification prior to use in our assembly process we contract a reputable factory partner and remain in constant communication throughout the planning and production process. As required, ALUULA staff visit the facility to ensure compliance with specifications. Raw materials are visually inspected once received, and continuously evaluated during the assembly process

Once AUULA composite materials are assembled, we perform a two-step quality control check. A final visual inspection occurs during the re-rolling and packaging stage to check for imperfections and contaminates, and a material sample is taken from each lot to be tested against the performance requirements for each material SKU. A Quality Control Report is prepared for inclusion with each shipment.

Any changes to either material inputs or 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. In many cases pilot test batches are manufactured to confirm fit for use.

FINANCIAL CONTROLS

The Company 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 limits banking access to members of finance who require access and executives with signing authority. Generating transfers of cash outside of the Company's bank requires two people to create and authorize payments.

Use of Enterprise Reporting Planning ("ERP") software

The Company has invested in cloud-based 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 SRED consultant is engaged to ensure appropriateness and completeness of submissions.

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 our packaging is recyclable material, and we take pride in minimizing

MANAGEMENT'S DISCUSSION AND ANALYSIS | 2025 | ALUULA COMPOSITES INC.

packaging waste. Our team is also working with our partners to try to create easy access to recycling processes for end-of-life products.

OUTLOOK

The Company continues to work with its growing list of brand partners, developing products that are lighter, stronger, and recycle-ready. These partnerships are built on the mutual understanding that performance and circularity can be synonymous in the outdoor industry and beyond. The products that are born from these partnerships work to change their respective industries for the better.

The Windsport and other Performance Outdoor categories are still the core drivers of ALUULA's growth as more companies move from concept into commercialization launching new ALUULA enabled products. Collaborative research and development programs with other industrial partners, such as Michelin Inflatable Solutions and AirSeas, continue to advance the materials' development as these opportunities move towards commercial application.

While these existing opportunities continue to progress, the Company is also prioritizing proactive sales outreach in large and growing markets where strong product fit exists and ALUULA's high performance materials enable uses not possible with incumbent materials. This includes focusing on Commercial Industrial applications such as renewable energy sources (wind power is one example with the current drive towards decarbonization of the shipping industry) and defense applications (such as ultra-light and ultra strong sustainable portable shelters particularly for extreme cold environments).

With the Company's corporate foundation now stabilized, ALUULA is focused key areas including sales pipeline expansion, product innovation, and circularity. The Company has prioritized these areas as well as continued improvements to the patented manufacturing process as it expects them to contribute to improved efficiencies and profitability. All of these operational aspects will work together to achieve ALUULA's mission which is to help instigate a global composite textile revolution and prove that high-performance and circularity are synonymous.

RELATED PARTY TRANSACTIONS

Director related transactions:

The Company has a royalty agreement with Epic Ventures Inc. ("Epic"), which is controlled by a director of the Company, pursuant to which royalties are paid on each square meter of certain patented materials, in exchange for Epic's assignment of the applicable patents to the Company. The Company has recorded royalties of $56,244 and $87,520 for the three and six months ended April 30, 2025 (three and six months ended April 30, 2024 - $57,601 and $93,952).

Loan from related parties:

On December 29, 2023, the Company entered into a $1,000,000 loan agreement (the "Loan Agreement") with 0876991 B.C. Ltd., a related party. The loan is guaranteed by the Company and secured against all present and after acquired personal property pursuant to a general security agreement. The loan bears interest at a rate of 12% per annum. Total interest paid for the three and six months ended April 30, 2025 was $23,408 and $51,616 respectively (three and six months ended April 30, 2024 - $9,863 and $39,452) and is recorded in interest expense on the consolidated statement of loss and comprehensive loss.

MANAGEMENT'S DISCUSSION AND ANALYSIS
| 2025
| ALUULA COMPOSITES INC.

subsidiary on August 1, 2024. All other terms of the Loan Agreement remain unchanged. In accordance with the terms of the second amended Loan Agreement, the Company repaid $200,000 on January 1, 2025 resulting in a balance owing of $800,000 on April 30, 2025.

Key management compensation:

The Company's key management personnel include the Executive Leadership Team, which is comprised of the Chief Executive Officer, Chief Financial Officer, Chief Scientific Officer and Chief Commercial Officer. The Executive Leadership Team has the authority and responsibility for overseeing, planning, directing and controlling the Company's activities.

Total compensation expense relating to the Executive Leadership Team for the three and six months ended April 30, 2025 was $206,868 and $414,339 respectively (three and six months ended April 30, 2024 - $286,691 and $457,339), which includes $31,966 and $72,253 (April 30, 2024 - $34,156 and $34,156) in share-based compensation. Agreements with the members of the Executive Leadership Team provide for severance payments under specific circumstances if the executive is terminated without cause totaling $399,600 (April 30, 2024 - $322,000). At April 30, 2025, the remaining balance of accrued restructuring liabilities recorded during the fiscal 2024 year was $36,318 (October 31, 2024 - $189,319).

SUBSEQUENT EVENTS

Stock option reprice, grant and cancellation

Subsequent to April 30, 2025, the Company announced that its board of directors has approved amending the exercise price of a total of 188,601 outstanding stock options held by non-insiders of the Company, with previous exercise prices ranging from $3.00 to $2.00, to $0.61 per common share. The Company proposed the reprice to support retention of valued team members by better aligning the exercise price with the current market price, which experienced a decline following the completion of the Company's rights offering in the first quarter of 2025. Repricing these non-insider options remains subject to approval of the TSX Venture Exchange.

The Company made the following changes to stock options issued pursuant to the Company's share option plan. The Company cancelled 575,833 options issued to officers and granted 2,058,760 options to certain directors, officers, and consultants to purchase up to 2,058,560 common shares of the Company. 1,504,960 of these options are exercisable at a price of $0.61 and 553,800 options are exercisable at a price of $0.65 per common share. 583,613 options vested on grant, and the remaining options vest over a three-year period.

Warrant extension and reprice

On June 17, 2025 the Company announced its intention to amend the expiry date and exercise price of 1,224,498 outstanding share purchase warrants (the "Warrants") that were granted pursuant to the Company's July 12, 2023 private placement. At the time of issuance, each Warrant entitled the holder to acquire one common share of the Company at a price of $0.25 per share, exercisable until July 12, 2025. Following the Company's 20:1 share consolidation completed on March 12, 2025, the Warrants were adjusted in accordance with the terms of the warrant indenture such that 20 Warrants are exercisable for one common share at a price of $5.00 per share. ALUULA proposes to amend the Warrants to extend the expiry date to July 12, 2026 and reprice the Warrants such that 20 Warrants will entitle the holder to acquire one common share at a price of $0.81 per share. All other terms of the Warrants will remain unchanged. The proposed amendments are subject to the approval of the TSX Venture Exchange and a resolution approved by 2/3 of the Warrant holders.

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Aluula Composites Inc. — Management Reports 2025

48163_rns_2025-06-25_cddd5a22-4a40-44ba-ab31-51ced57973a7.pdf

ALUULA COMPOSITES INC.

NOTICE

DEFINITIONS

FORWARD-LOOKING INFORMATION

COMPARATIVE INFORMATION

ACCOUNTING FRAMEWORK

ACCOUNTING ESTIMATES AND ASSUMPTIONS

ROUNDING AND PERCENTAGES

SHARE CONSOLIDATION

COMPANY AND INDUSTRY OVERVIEW

COMPANY STRUCTURE

CORE BUSINESS

ALUULA

SECOND QUARTER IN REVIEW

LEGAL AND REGULATORY ENVIRONMENT

FINANCIAL PERFORMANCE

Sales

Cost of sales and gross margin

Salaries and benefits

General and administrative

Marketing

Research and development ("R&D")

Share-based compensation

Other income

Interest expense

Depreciation and Amortization

Deferred taxes

Net and comprehensive loss from discontinued operations

For the six month periods ended April 30, 2025 ("YTD Q2 2025"), and April 30, 2024 ("YTD Q2 2024"):

Sales

Cost of sales and gross margin

Salaries and benefits

General and administrative

Marketing

Research and development ("R&D")

Share based compensation

Other income

Interest expense

Depreciation and Amortization

Deferred taxes

Net and comprehensive loss from discontinued operations

SUMMARY OF QUARTERLY RESULTS

Sales

Net and comprehensive loss from continued operations

Net and comprehensive loss

BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES

ANALYSIS OF STATEMENT OF FINANCIAL POSITION

Cash and cash equivalents

Trade and other receivables

Inventory

Intangible Assets

Goodwill

Trade and other payables

Loan from related party

Debt

Lease obligations

Off-balance sheet arrangements

CASH FLOW FROM OPERATING, INVESTING, AND FINANCING ACTIVITIES

Operating activities

Investing activities

Financing activities

WORKING CAPITAL AND DEBT MANAGEMENT

Loans from related parties

Debt and government funding

Equity issuances

CONTRACTUAL OBLIGATIONS

PRODUCTION CAPACITY AND CAPITAL EXPENDITURES

Fusion Pods

Other Equipment

Patents

RESEARCH AND DEVELOPMENT

Customization of the ALUULA process to support sales opportunities

Ongoing product and process innovation

MANUFACTURING

EQUITY

TAX MATTERS

ACCOUNTING POLICIES AND ESTIMATES

Aluula Composites Inc. Management Reports 2025