AirBoss of America : 2025 Annual Management Discussion & Analysis (AirBoss AR MDA 2025 Final)

About this update from Airboss Of America Corporation

Management's Discussion and Analysis of Financial Condition and Results of Operations The following Management's Discussion and Analysis of Financial Condition and Results of Operations of AirBoss of America Corp. ("AirBoss" or the "Company") has been prepared as of March 20, 2026 and should be read in conjunction with the Consolidated Financial Statements and Notes for the year ended December 31, 2025 prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board. All dollar amounts are shown in thousands of US dollars, except per share amounts, unless otherwise specified. Additional information regarding the Company, including its Annual Information Form, can be found on SEDAR+ at www.sedarplus.com and on the Company's website at www.airboss.com . FORWARD-LOOKING INFORMATION Certain statements contained or incorporated by reference herein, including those that express management's expectations or estimates of future developments or AirBoss' future performance, constitute "forward-looking information" or "forward-looking statements" within the meaning of applicable securities laws, and can generally be identified by words such as "will", "may", "could", "expects", "believes", "anticipates", "forecasts", "plans", "intends", "should" or similar expressions. These statements are not historical facts but instead represent management's expectations, estimates and projections regarding future events and performance. Statements containing forward-looking information are necessarily based upon a number of opinions, estimates and assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies. AirBoss cautions that such forward-looking information involves known and unknown contingencies, uncertainties and other risks that may cause AirBoss' actual financial results, performance or achievements to be materially different from its estimated future results, performance or achievements expressed or implied by the forward-looking information. Numerous factors could cause actual results to differ materially from those in the forward-looking information, including without limitation: impact of general economic conditions, notably including its impact on demand for rubber solutions and products; dependence on key customers; global defense budgets, notably in the Company's target markets, and success of the Company in obtaining new or extended defense contracts; contract-related risks; cyclical trends in the tire and automotive, construction, mining and retail industries; sufficient availability of raw materials at economical costs; weather conditions affecting raw materials, production and sales; global political uncertainty and policy change; AirBoss' ability to maintain existing customers or develop new customers in light of increased competition; AirBoss' ability to successfully integrate acquisitions of other businesses and/or companies or to realize on the anticipated benefits thereof; AirBoss' ability to successfully develop and execute effective business strategies including, without limitation, the recently announced strategic transition; changes in accounting policies and methods, including uncertainties associated with critical accounting assumptions and estimates; changes in the value of the Canadian dollar relative to the US dollar; changes in tax laws; changes in trade policies or the imposition of new tariffs, duties or other similar restrictions which could influence the cost and flow of goods and services across borders; current and future litigation; ability to obtain financing on acceptable terms and ability to satisfy the covenants set forth in such financing arrangements; environmental damage and noncompliance with environmental laws and regulations; impact of global health situations; IT/cybersecurity risks; potential product liability and warranty claims and equipment malfunction. There is increased uncertainty associated with future operating assumptions and expectations as compared to prior periods. This list is not exhaustive of the factors that may affect any of AirBoss' forward-looking information. All of the forward-looking information in this Annual Report is expressly qualified by these cautionary statements. Investors are cautioned not to put undue reliance on forward-looking information. All subsequent written and oral forward-looking information attributable to AirBoss or persons acting on its behalf are expressly qualified in their entirety by this notice. Forward-looking information contained herein is made as of the date of this press release and, whether as a result of new information, future events or otherwise, AirBoss disclaims any intent or obligation to update publicly the forward-looking information except as required by applicable laws. Risks and uncertainties about AirBoss' business are more fully discussed under the heading "Risk Factors" in our most recent Annual Information Form and are otherwise disclosed in our filings with securities regulatory authorities which are available on SEDAR+ at https://www.sedarplus.com . OVERALL PERFORMANCE Recent Highlights (In US dollars except as otherwise noted) Adjusted EBITDA 1 in the fourth quarter of 2025 ("Q4 2025") increased by $3.3 million to $8.4 million compared to $5.1 million in the fourth quarter of 2024 ("Q4 2024") and losses increased by $5.0 million to $7.6 million, with the loss primarily attributable to restructuring initiatives and non-cash asset impairment charges; Adjusted EBITDA 1 for the year increased by $12.1 million to $34.0 million compared to $21.9 million for full-year 2024 and losses decreased by $11.8 million to $8.6 million, with the loss primarily attributable to restructuring initiatives and non-cash asset impairment charges; Cash provided by operating activities increased by $16.7 million to $21.0 million in Q4 2025 compared to $4.3 million in Q4 2024; Cash provided by operating activities increased by $40.3 million to $49.1 million for full-year 2025 compared to $8.8 million for full-year 2024; Reduced borrowings under our revolving credit facility by $28.4 million since the beginning of the year for a Net Debt to Adjusted EBITDA ratio 1 of 1.99x (4.51x at December 31, 2024); and Declared a quarterly dividend of CAD$0.035 per common share. Selected Financial Information In thousands of US dollars, except share data Three months ended December 31, Year ended December 31, In thousands of US dollars, except share data 2025 (unaudited) 2024 (unaudited) 2025 2024 2023 Financial results: Net sales 106,037 91,963 410,203 387,024 426,025 Loss (7,572) (2,616) (8,617) (20,390) (41,749) Adjusted Profit 1 145 (1,613) 1,913 (12,536) (6,424) Earnings (loss) per share (US$) - Basic (0.28) (0.10) (0.32) (0.75) (1.54) - Diluted (0.28) (0.10) (0.32) (0.75) (1.54) Adjusted earnings per share 1 (US$) - Basic 0.01 (0.06) 0.07 (0.46) (0.24) - Diluted 0.01 (0.06) 0.07 (0.46) (0.24) EBITDA 1 664 5,105 23,379 15,063 (11,177) Adjusted EBITDA 1 8,401 5,105 33,988 21,914 26,758 Net cash from operating activities 21,026 4,295 49,108 8,780 40,917 Free cash flow 1 16,802 1,175 37,254 (1,826) 32,453 Dividends declared per share (CAD$) 0.035 0.035 0.140 0.175 0.370 Capital expenditures 4,413 3,132 12,043 10,632 8,505 Financial position: Total assets 276,969 309,528 356,656 Debt 2 83,766 117,390 131,092 Net Debt 1 67,573 98,888 88,213 Shareholders' equity 115,735 126,010 148,857 Outstanding shares* 27,149,224 27,130,556 27,130,556 * 27,149,224 at March 20, 2026 1. See Non-IFRS Financial Measures 2. Debt includes $8,200 of lease liabilities (2024: $12,011; 2023: $13,890) NON-IFRS FINANCIAL MEASURES This MD&A is based on consolidated financial statements prepared in accordance with IFRS accounting standards and uses Non-IFRS Financial Measures. Management believes that these measures provide useful information to investors in measuring the financial performance of the Company. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. These terms are not a measure of performance under IFRS and should not be considered in isolation or as a substitute for profit or loss under IFRS. EBITDA and Adjusted EBITDA are non-IFRS measures used to measure the Company's ability to generate cash from operations for debt service, to finance working capital and capital expenditures, potential acquisitions and to pay dividends. EBITDA is defined as earnings before income taxes, finance costs, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding impairment costs, acquisition costs, and non-recurring costs. A reconciliation of profit (loss) to EBITDA and Adjusted EBITDA is below. Three months ended December 31, Year ended December 31, In thousands of US dollars 2025 (unaudited) 2024 (unaudited) 2025 2024 2023 EBITDA: Loss (7,572) (2,616) (8,617) (20,390) (41,749) Finance costs 155 3,144 8,045 12,763 5,233 Depreciation and amortization 4,680 5,188 19,523 21,012 22,345 Income tax expense (recovery) 3,401 (611) 4,428 1,678 2,994 EBITDA 664 5,105 23,379 15,063 (11,177) Professional fees related to AEP negotiations - - - - 152 Write-down of inventory 249 - 249 6,049 8,031 Restructuring costs 466 - 1,627 802 3,104 Impairment of assets 7,022 - 8,733 - 26,648 Adjusted EBITDA 8,401 5,105 33,988 21,914 26,758 In 2025, the Manufactured Products segment substantially completed the relocation of its operations in Jessup, Maryland to Auburn Hills, Michigan. In connection with this move, the Company recorded restructuring costs of $1,147 related to staff reductions and $1,711 of impairment charges against a right of use asset and leasehold improvements. In addition, the Rubber Solutions segment incurred restructuring costs of $480 related to staff reductions. In 2023 and 2024, the Company completed a series of staff reductions. At December 31, 2025, the Company recognized an impairment related to the defense operation's assets. The carrying amount of these assets was determined to be higher than its recoverable amount of nil and an impairment loss of $7,022 was recognized. In 2023, the Company recognized a goodwill impairment related to the defense operations. In 2025, 2024 and 2023, the Company recorded write-downs of $249, $6,049 and $8,031, respectively, related to its inventory of medical gowns and/or nitrile gloves due to downward shifts in pricing. Adjusted profit is a non-IFRS measure defined as profit (loss) before impairment costs, acquisition costs and non-recurring costs. This measure and Adjusted earnings per share are used to evaluate operating results of the Company. A reconciliation of Profit (loss) to Adjusted profit and Adjusted earnings per share is below. Three months ended December 31, Year ended December 31, In thousands of US dollars 2025 (unaudited) 2024 (unaudited) 2025 2024 2023 Adjusted Profit: Loss (7,572) (2,616) (8,617) (20,390) (41,749) Write-off of deferred finance costs (after tax) - 1,003 - 1,003 - Professional fees related to AEP negotiations (after tax) - - - - 116 Write-down of inventory (after tax) 249 - 249 6,049 6,264 Restructuring costs (after tax) 446 - 1,548 802 2,297 Impairment of assets (after tax) 7,022 - 8,733 - 26,648 Adjusted profit 145 (1,613) 1,913 (12,536) (6,424) 27,149 27,131 27,144 27,131 27,118 27,639 27,131 27,533 27,131 27,118 Basic weighted average number of shares outstanding Diluted weighted average number of shares outstanding Adjusted earnings per share (in US dollars): Basic 0.01 (0.06) 0.07 (0.46) (0.24) Diluted 0.01 (0.06) 0.07 (0.46) (0.24) Net Debt measures the financial indebtedness of the Company assuming that all cash on hand is used to repay a portion of the outstanding debt. A reconciliation of loans and borrowings to Net Debt is below. In thousands of US dollars 2025 2024 2023 Net Debt: Loans and borrowings - current 5,494 5,002 2,437 Loans and borrowings - non-current 78,272 112,388 128,655 Leases included in loans and borrowings (8,200) (12,011) (13,890) Cash (7,993) (6,491) (28,989) Net Debt 67,573 98,888 88,213 The Company has a Net Debt to trailing twelve-month Adjusted EBITDA ratio of 1.99x (2024: 4.51x, 2023: 3.30x) Free cash flow is a non-IFRS measure used to evaluate cash flow after investing in the maintenance or expansion of the Company's business. It is defined as cash provided by operating activities, less cash expenditures on long-term assets. A reconciliation of net cash from (used in) operating activities to free cash flow is below. Three months ended December 31, Year ended December 31, In thousands of US dollars 2025 (unaudited) 2024 (unaudited) 2025 2024 2023 Free cash flow: Net cash from operating activities 21,026 4,295 49,108 8,780 40,917 Acquisition of property, plant and equipment (4,233) (3,077) (11,144) (9,902) (7,256) Acquisition of intangible assets (180) (55) (899) (730) (1,249) Proceeds from disposition - 12 - 26 41 Proceeds from government grant 189 - 189 - - Free cash flow 16,802 1,175 37,254 (1,826) 32,453 Basic weighted average number of shares outstanding 27,149 27,131 27,144 27,131 27,118 Diluted weighted average number of shares outstanding 27,639 27,331 27,533 27,131 27,439 Free cash flow per share (in US dollars): Basic 0.62 0.04 1.37 (0.07) 1.20 Diluted 0.61 0.04 1.35 (0.07) 1.18 OVERVIEW Overall, 2025 represented a marked improvement for AirBoss compared to 2024, despite pronounced economic and geopolitical headwinds that affected each segment to varying degrees. AirBoss Rubber Solutions ("ARS"), in particular, experienced significant market softness, partially offset by strong performance at AirBoss Manufactured Products ("AMP") across both its defense and rubber-molded products businesses, supported by deliveries under previously announced contracts and footprint optimization initiatives. Management continued implementing risk-mitigation strategies in response to these challenges, including cost controls and continuous improvement initiatives. The Company navigated ongoing uncertainty related to economic conditions, geopolitical developments, tariffs, inflationary pressures, and supply-chain disruption, while maintaining focus on executing its long-term strategic plan. Given the cross-border nature of its operations, a significant portion of products manufactured in Canada are sold into the United States and may be subject to existing or future tariffs. While most products qualify under USMCA/CUSMA, the Company continues to evaluate and implement contingency plans to mitigate potential impacts, particularly in advance of any future trade negotiations or agreement renegotiations. Despite this environment of continued economic uncertainty, management remains focused on converting key opportunities to support sustainable long-term growth. The Company currently expects volume recovery at ARS to commence midway through 2026, although the timing and magnitude of recovery could be affected by additional tariffs, duties, or evolving trade restrictions as well as general market conditions and continued geopolitical uncertainties. ARS experienced continued and pronounced softness in Q4 2025 compared to Q4 2024, with revenue contraction and reduced margins driven by overall softness in most customer sectors. This was primarily attributable to tariff-related market conditions, as customers continued to manage potential exposure through the sale of pre-existing inventories. As a segment, ARS continued to invest in research and development to support enhanced collaboration with customers and remains committed to executing its strategy focused on specialized products, expanded production of a broader array of specialty compounds, and enhanced flexibility in attracting and fulfilling new business opportunities. AMP experienced overall volume improvement in Q4 2025 compared to Q4 2024, primarily driven by its defense products business and improvements in the rubber molded products business. The defense business had improvements in both revenue and gross profit, mainly driven by deliveries under recently announced awards. The rubber molded products had improved volumes in both auto and non-auto sectors, despite continued volatility related to the original equipment manufacturers (OEMs) periodically shuttering production to rebalance vehicle inventory levels throughout 2025. During the quarter, the Company substantially completed the relocation of its operations in Jessup, Maryland to Auburn Hills, Michigan in an effort to optimize its manufacturing footprint. The business continued its focus on cost management, operational efficiencies, automation and diversification into adjacent product sectors. Management also continued its focus on operational improvements and working with key customers to leverage opportunities aligned with its growth initiatives. The Company's long-term priorities consist of the following: Growing the core Rubber Solutions segment by emphasizing rubber compounding as the core driver for sustainable growth and productivity, focusing on innovation in custom rubber compounding while aiming to expand market share through organic and inorganic means, while striving to achieve enhanced diversification by a broadening of product breadth through technological advancements and investments in specialty compound niches; and Manufactured Products' growth strategy is focused on diversifying and expanding its range of advanced rubber-molded products while positioning current and future core defense products to take advantage of new growth opportunities within NATO and other partner customers around the world. AirBoss continues to focus on these long-term priorities while investing in core areas of the business to expand a solid foundation that will support long-term growth. RESULTS OF OPERATIONS - For year ended December 31, 2025 compared to 2024 NET SALES Consolidated net sales for the year ended December 31, 2025 increased by 6.0% to $410,203, compared with 2024 primarily due to significant increased sales at Manufactured Products' defense products business and increases in the rubber molded products business partially offset by decreased sales at Rubber Solutions across most sectors. In thousands of US dollars Rubber Solutions Manufactured Products Inter-segment net sales Total Net sales 2025 205,247 239,203 (34,247) 410,203 2024 226,351 176,696 (16,023) 387,024 Increase (decrease) $ (21,104) 62,507 (18,224) 23,179 Increase (decrease) % (9.3) 35.4 113.7 6.0 Rubber Solutions Net sales in the Rubber Solutions segment decreased by 9.3%, to $205,247 compared with 2024. This was due to softness across most sectors driven by pronounced and continued economic headwinds. Volume was down 13.0% with decreases across the majority of sectors. Tolling volumes for the year ended December 31, 2025 decreased by 59.7% compared with 2024. Non-tolling volumes for the year ended December 31, 2025 decreased by 11.3% compared with 2024. The overall decrease in volume was across most sectors. Manufactured Products Net sales in the Manufactured Products segment increased by 35.4%, to $239,203 compared with 2024. This is primarily due to higher sales in the defense products business driven by deliveries under new contract awards, and improved sales in the molded rubber products business. GROSS PROFIT For the year ended December 31, 2025, consolidated gross profit increased by 31.6% to $71,069 compared with 2024. Gross profit as a percentage of net sales increased to 17.3% from 14.0% in 2024. The increase in margin percentage was driven primarily by margin improvements resulting from the new business awards at AMP's defense products business, by margin improvement at AMP's rubber molded products business, and a $6,049 inventory write-down in 2024 compared to a $249 write-down in 2025, partially offset by margin contraction in the Rubber Solutions segment due to unfavorable mix and lower volume across most customer sectors driven by market softness and economic uncertainty partially offset by managing controllable overhead costs and continuous improvement initiatives. In thousands of US dollars Rubber Solutions Manufactured Products Total Gross Profit 2025 26,625 44,444 71,069 2024 35,500 18,496 53,996 Increase (decrease) $ (8,875) 25,948 17,073 % of net sales 2025 13.0 18.6 17.3 2024 15.7 10.5 14.0 For the year ended December 31, 2025, gross profit for Rubber Solutions of $26,625 (13.0% of net sales), decreased by $8,875 compared to $35,500 (15.7% of net sales) in 2024. The decrease was primarily a result of unfavorable mix and margin pressure in addition to decreased tolling and non-tolling volumes compared to the same period in 2024. Manufactured Products Gross profit for the year ended December 31, 2025 in the Manufactured Products segment of $44,444 (18.6% of net sales), increased by $25,948 compared to $18,496 (10.5% of net sales) in 2024. The increase was primarily a result of significant volume and mix improvements in the defense products business driven by the ongoing delivery of new business awards in addition to improvements in the rubber molded products business and a $6,049 inventory write-down in 2024 compared to a $249 write-down in 2025. OPERATING EXPENSES Consolidated operating expenses for the year ended December 31, 2025 increased by $7,268 to $67,213 compared with 2024. The increase was primarily due to $8,733 of impairment charges, $825 higher restructuring costs, higher selling costs and bad debt expense, partially offset by a $3,700 legal settlement, lower legal and administrative expenses, and foreign exchange gain compared to a loss in the prior year. As a percentage of net sales, operating expenses for the year ended December 31, 2025 increased to 16.4% from 15.5% in 2024. In thousands of US dollars Rubber Solutions Manufactured Products Corporate Total Operating Expenses 2025 15,545 39,479 12,189 67,213 2024 16,001 31,216 12,728 59,945 Increase (decrease) $ (456) 8,263 (539) 7,268 % of net sales 2025 7.6 16.5 N/A 16.4 2024 7.1 17.7 N/A 15.5 Rubber Solutions Rubber Solutions' operating expenses for the year ended December 31, 2025 decreased by 2.8%, to $15,545, compared with $16,001 in 2024. The decrease was primarily due to lower administrative costs, partially offset by restructuring costs of $480 and a higher bad debt expense. Manufactured Products Manufactured Products' operating expenses for the year ended December 31, 2025 increased by 26.5% to $39,479. The increase was due to $8,733 of impairment charges, higher selling costs related to defense products, $345 higher restructuring costs and a higher bad debt expense, partially offset by a $3,700 legal settlement, a larger foreign exchange gain compared to a loss in the prior year, and lower amortization expense. Unallocated Corporate Costs Unallocated corporate costs for the year ended December 31, 2025 decreased by $539 from 2024. The decrease was primarily due to a smaller foreign exchange loss compared to a gain in the prior year, partially offset by higher administrative costs. FINANCE COST Finance costs in 2025 were $8,045 (2024: $12,763). The decrease was primarily due to lower overall borrowings, lower interest rates under the new revolving credit facility, a cost recovery related to an earn-out liability payable to former owners of an acquired business, and the write-off of deferred finance costs in the prior year. INCOME TAX EXPENSE For the year ended December 31, 2025, the Company recorded an income tax expense of $4,428 (2024: expense of $1,678) for an effective income tax rate of (105.7)% (2024: (9.0)%). The effective tax rates are negative due to the derecognition of deferred tax assets in 2025 and not recognizing deferred tax assets in 2025 and 2024. Tax expense/(recovery) Rate In thousands of US dollars 2025 2024 2025 2024 Expected statutory rate (1,110) (4,959) 26.50% 26.50% Foreign rate differential 462 999 (11.03)% (5.34)% Effect of permanent differences (164) 273 3.92% (1.46)% Change in tax rates and new legislation - 405 - (2.16)% Filing differences (11) 5 0.26% (0.03)% Deductible temporary differences not recognized 4,945 4,916 (118.05)% (26.27)% Other 306 39 (7.31)% (0.21)% Effective tax rate 4,428 1,678 (105.71)% (8.97%) LOSS AND LOSS PER SHARE Net loss in 2025 amounted to $8,617, compared with a loss of $20,390 in 2024. The basic and fully diluted net loss per share was $0.32 (2024: loss of $0.75). The decreased loss was primarily due to a higher gross profit at AMP's defense products business, lower finance costs, and a legal settlement in the Company's favour, partially offset by lower profitability at ARS, an impairment charge, higher restructuring costs, and higher tax expense. QUARTERLY INFORMATION In thousands of US dollars Earnings (loss) per share Quarter Ended Net Sales Profit (loss) Basic Diluted 2025 December 31, 2025 106,037 (7,572) (0.28) (0.28) September 30, 2025 100,420 (2,902) (0.11) (0.11) June 30, 2025 98,637 2,265 0.08 0.08 March 31, 2025 105,109 (408) (0.02) (0.02) 2024 December 31, 2024 91,963 (2,616) (0.10) (0.10) September 30, 2024 96,204 (3,279) (0.12) (0.12) June 30, 2024 95,367 (9,568) (0.35) (0.35) March 31, 2024 103,490 (4,927) (0.18) (0.18) Fourth Quarter 2025 Results NET SALES Consolidated net sales for Q4 2025 increased by 15.3% to $106,037, from $91,963 in Q4 2024, with increases at Manufactured Products partially offset by Rubber Solutions. Rubber Solutions Net sales for Q4 2025 in the Rubber Solutions segment decreased by 3.3% to $45,767, from $47,349 in Q4 2024. The decrease in net sales for Q4 2025 was primarily due to softness across most sectors. Volume was down 3.5% with decreases across the majority of sectors. Tolling volume was down 65.0%, while non-tolling volume was down 1.2% driven by decreases in most sectors. In tolling applications, the Company only realizes net sales on the provision of compounding services for customer-supplied material, versus non-tolling where AirBoss also supplies the raw material inputs that are reflected in net sales. Manufactured Products Manufactured Products net sales for Q4 2025 increased by 50.4% to $72,451 compared with Q4 2024. The increase was a result of higher volumes in the defense product business and increases across the rubber molded product lines, despite continued volume softness and volatility related to OEMs shuttering production to rebalance vehicle inventory levels. GROSS PROFIT Consolidated gross profit for Q4 2025 increased to $19,941 (18.8% of net sales) from $15,297 (16.6% of net sales) in Q4 2024, primarily as a result of increased sales at AMP. Gross profit at Rubber Solutions for Q4 2025 was $5,256 (11.5% of net sales), compared with $5,938 (12.5% of net sales) in Q4 2024. The decrease in gross profit was principally due to lower volumes across most customer sectors and product mix partially offset by managing controllable overhead costs and continuous improvement initiatives. Manufactured Products Gross profit at Manufactured Products for Q4 2025 increased by $5,326 to $14,685 compared with $9,359 in Q4 2024. The increase was primarily a result of new business awards at AMP's defense products business, margin improvement at AMP's rubber molded products business further supported by operational cost improvements in the segment, managing controllable overhead costs and continuous improvement initiatives. OPERATING EXPENSES Consolidated operating expenses for Q4 2025 increased by $8,577 to $23,957, compared with $15,380 in Q4 2024. The increase was primarily due to the $7,022 impairment charge and $466 of restructuring costs noted above, higher administrative costs and bad debt expense, partially offset by a foreign exchange gain compared to a loss in the prior year. INCOME TAX EXPENSE The Company recorded an income tax expense of $3,401 for Q4 2025 compared with a tax recovery of $611 for Q4 2024. The change was due to the derecognition of tax deferred assets in 2025. LIQUIDITY AND CAPITAL RESOURCES Overview The Company expects to fund its 2026 operating cash requirements, including required working capital investments, capital expenditures and scheduled debt repayments from cash on hand, cash flow from operations and committed borrowing capacity. The Company's asset-based revolving line of credit provides financing up to $125,000 (with an accordion of $25,000 upon the satisfaction of customary conditions), subject to a borrowing base calculation that is based on cash on hand, and a percentage of eligible accounts receivable and inventory (as defined in the credit agreement). As of December 31, 2025, the total available borrowing capacity under this facility was $71,532. As at December 31, 2025, $24,315 was drawn against the revolving credit facility, from outstanding borrowings of $24,000 plus $315 drawn as a letter of credit. For the year ended December 31, 2025, $49,108 of cash was provided by operations (2024: $8,780 provided), $11,854 was used by investing activities (2024: $10,606) and $35,972 was used by financing activities (2024: $20,792). Cash increased by $1,502 from $6,491 to $7,993, adjusted for the effect of exchange rate fluctuations on cash held. Operating activities For the year ended December 31, 2025, cash provided by operating activities increased by $40,328 compared to 2024. The increase was primarily due to $29,173 more cash from working capital and a reduced loss partially offset by a $4,083 increase in income tax payments. Cash provided by working capital for the year ended December 31, 2025 was $22,771 (2024: $6,402 cash used) as a result of the following factors: Cash provided by trade and other receivables was $7,292 due to lower sales at the Rubber Solutions segment, partially offset by increased receivables related to new defense contracts and automotive business; Cash provided by inventories was $6,394, primarily related to lower sales at the Rubber Solutions segment and contract deliveries for defense contracts in late 2025; Cash provided by prepaid expenses was $315 primarily due to lower insurance premiums; Cash provided by trade and other payables was $12,424 primarily to support new defense contracts and increased automotive volumes. Cash used for provisions of $3,654 related to the payouts for a legal settlement, restructuring costs and settlement of performance share units. Investing Activities Property, Plant and Equipment For the year ended December 31, 2025, the following investments were made in each segment: Rubber Solutions invested $4,528. $288 was invested in growth initiatives, and the balance was invested on cost savings initiatives and to replace or upgrade existing property, plant and equipment. Manufactured Products invested $6,616. $1,721 was invested in growth initiatives, $389 on cost savings initiatives and the balance was invested to replace or upgrade existing property, plant and equipment. Intangible assets The Company invested $899 on productivity software and rolling out company-wide enterprise software. Financing activities In November 2024, the Company entered into two secured credit facilities: an asset-based revolving line of credit; and a term loan. Proceeds from the two secured credit facilities were used to repay the Company's previous revolving credit facility. The two facilities are secured against substantially all of the Company's assets and contain cross-default provisions along with customary financial and nonfinancial covenants, including minimum earnings and liquidity, and limitations on capital expenditures, dividend payments and additional indebtedness. The revolving line of credit provides for maximum borrowings of up to $125,000 (with an accordion of $25,000 upon the satisfaction of customary conditions). In January 2025, the facility was modified from a maximum borrowing of $100,000 with a $50,000 accordion, with all other terms unchanged. In June 2025, the facility was modified to exclude insured letters of credit from the calculation of excess availability. In July 2025, the revolving credit facility and term loan were amended to extend the deadline to add back certain costs for earnings covenants. The revolving line of credit is subject to a borrowing base calculation that is based on cash on hand, and a percentage of eligible accounts receivable and inventory (as defined in the credit agreement). As of December 31, 2025, the total available borrowing capacity under this facility was $71,532 with $24,315 drawn under the facility (2024: $79,428 available and $52,665 drawn). The borrowing base is recalculated monthly and may fluctuate based on changes in cash, accounts receivable and inventory levels. The revolving line of credit bears interest at Secured Overnight Financing Rate (SOFR) plus applicable margins from 175 to 225 basis points, depending on unused borrowing capacity, and matures on November 29, 2027. The previous revolving facility provided up to $150,000, bore interest at SOFR plus applicable margins from 145 to 450 basis points, depending on covenants, and was scheduled to mature on September 23, 2026. The term loan was for an original amount of $55,000 and matures on November 29, 2027. As of December 31, 2025, the outstanding principal balance was $52,938. The term loan bears interest at SOFR plus applicable margins from 425 to 450 basis points, depending on earnings. Interest and principal are paid on a monthly basis, with additional principal payments required if the balance outstanding exceeds a borrowing base calculation that is based on appraised collateral. Deferred financing fees less accumulated amortization are deducted against borrowings for presentation purposes. The Company is amortizing $2,137 of financing fees over the term of the new credit facilities. In 2024, the Company wrote-off $1,355 of unamortized deferred financing fees related to the previous credit facility. This write-off was included in finance costs. Commitments and contractual obligations The Company's contractual obligations as at December 31, 2025 are summarized below: Payments Due In 2026 2027 2028 2029 2030 Thereafter Total Revolving line of credit - 24,000 - - - - 24,000 Term debt 4,240 48,698 - - - - 52,938 Lease liabilities 1,970 2,012 2,113 1,810 173 122 8,200 Purchase obligations 24,822 - - - - - 24,822 Total 31,032 74,710 2,113 1,810 173 122 109,960 Government assistance The Company recognized $722 from government investment tax credits to support the acquisition of capital assets that were reduced accordingly, of which $189 has been collected. Scientific research and investment tax credits of $446 were recognized in 2025 (2024: $429); research and development expenses were reduced accordingly. Dividends A quarterly dividend of $0.035 CAD per share was declared on November 5, 2025 and paid on January 15, 2026. Total dividends declared during the year were $0.14 CAD per common share compared to $0.175 per common share in 2024. Outstanding shares As at December 31, 2025 the Company had 27,149,224 common shares outstanding. TRANSACTIONS WITH RELATED PARTIES During the year, the Company paid $167 (2024: $173) to companies controlled by the Chairman & co-CEO of the Company for use of office facilities. Key management includes directors, Chairman & co-CEO, President & co-CEO, CFO, and senior management. The compensation expense to key management for employee services is shown below: December 31 2025 2024 Salaries and other short-term benefits Share-based payment expense 5,037 1,080 3,218 851 6,117 4,069 The amounts disclosed in this table are the amounts recognized as operating expenses for accounting purposes during the period and do not necessarily represent amounts receivable or received in cash. Key management own 20.4% of the outstanding common shares as at December 31, 2025 (2024: 20.1%). In July 2023, the Company agreed to forgive CAD $591 of loans due from the President & co-Chief Executive Officer by 12.5% annually. The loans bear interest at 2% and 51,178 shares of the Company having a fair value of CAD $237 are pledged as collateral on these loans. At December 31, 2025, CAD $369 remains outstanding under the loans. Principal and accrued interest totaling $274 is included in Other Assets on the consolidated statement of financial position ($312 at December 31, 2024). The loans are due upon the earlier of the disposition date of all or proportionate to any part of the pledged securities, termination of employment, and maturity. The loans are full recourse and interest is due and payable semi-annually. During the year, interest payments of $3 (2024: $7) was received. FUTURE ACCOUNTING STANDARDS IFRS 18 Presentation and Disclosure in Financial Statements IFRS18 will replace IAS 1 and applies for annual reporting periods beginning on or after January 1, 2027 and is to be applied retrospectively. The new standard will change how the Company presents and discloses its financial statements and accompanying notes by requiring defined subtotals in the statement of profit or loss, requiring disclosure about management-defined performance measures and adding new principles for aggregation and disaggregation of information. The Company is currently evaluating the standard and developing an implementation plan. CRITICAL ACCOUNTING ESTIMATES The Company's preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. The Company's estimates are based upon historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of the Company's ongoing evaluation of these estimates form the basis for making judgments about the carrying value of assets and liabilities and the reported amounts for net sales and expenses. Actual results may differ from these estimates under different assumptions. These estimates and assumptions are affected by management's application of accounting policies. The Company's critical accounting policies are those that affect our consolidated financial statements materially and involve a significant level of judgment by the Company. A summary of the significant accounting policies, including critical accounting policies, is set forth in note 3 to the consolidated financial statements. The Company's critical accounting estimates include valuation of intangible assets and income taxes. Valuation of Goodwill The Company reviews and evaluates goodwill for impairment when an indicator of impairment exists in the associated cash-generating units ("CGUs") or CGU groups, but at least on an annual basis. In determining whether impairment has occurred in one of the CGUs, management compares the CGU's carrying value to its recoverable amount based on value in use. Value in use was determined by the future cash flows generated from the continuing use of the CGU. The calculations are most sensitive to the discount rate and growth rate. Determination of growth rate is based on a number of assumptions arising from the most current financial performance of each cash generating unit, the upcoming annual budget for each reporting unit and the historical variability of earnings. Other factors, such as any foreign exchange volatility and volatility in world markets for raw materials can also materially alter our expectations. Accordingly, management's judgment is required to determine whether these factors at any one point in time and in light of business initiatives, suggest a major change, positive or negative, to the prospects of the business and, therefore, to the valuation of goodwill. As at December 31, 2025 and 2024, there was no goodwill impairment. The calculation of value-in-use is most sensitive to the following assumptions: Discount rate of 12.3% to 12.7% determined using risk-adjusted returns from comparable companies adjusted for the Company's capital structure Terminal multiple of 5.9 based on analyst estimates Projected sales growth of 8% to 13% and cost of sales growth of 7% to 12% over the forecast period A one percent change in the discount rate or a 1.0 change in the terminal multiple would not result in an impairment. Other Long-lived Assets The Company reviews and evaluates long-lived assets for impairment when events or changes in economic and other circumstances indicate that the carrying value of such assets may not be fully recoverable. The net recoverable value of an asset, or cash-generating unit, is calculated as the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use. Future net cash flows are developed using assumptions that reflect the planned course of action for an asset given management's best estimate of the most probable set of economic conditions. Inherent in these assumptions are significant risks and uncertainties. At December 31, 2025, the Company recognized an impairment related to the defense operation's intangible assets. The carrying amount of these assets was determined to be higher than its recoverable amount of nil and an impairment loss of $7,022 was recognized. Accounting for Income Taxes The provision for income taxes is calculated based on the expected tax treatment of transactions recorded in the consolidated financial statements. The objectives of accounting for income taxes are to recognize the amounts of taxes payable or refundable for the current year and future tax liabilities and assets for the future tax consequences of events that have been recognized in the consolidated financial statements or tax returns. In determining both the current and deferred components of income taxes, the Company interprets tax legislation in a variety of jurisdictions, as well as makes assumptions about the expected timing of the reversal of deferred tax assets and liabilities and recognition of deferred tax assets is based on a probable criteria. If its interpretations differ from those of tax authorities or if the timing of reversals is not as anticipated, the provision or relief for income taxes could increase or decrease in future periods. Additional information regarding our accounting for income taxes is contained in note 16 to the consolidated financial statements. Deferred tax assets have been recorded relating to loss carry-forward amounts when management believes it is more likely than not that these will be used before expiration. FINANCIAL INSTRUMENTS Foreign exchange hedge At December 31, 2025, the Company had contracts to sell $7,934 from January 2026 to June 2026 for Canadian dollars ("CAD") $11,000. The fair value of these contracts, representing an unrealized gain of $92, are included in trade and other receivables, including derivatives on the consolidated statement of financial position. The unrealized changes in fair value, representing a gain of $92 (2024: loss of $586), are recorded on the statement of loss as other expenses. Share price hedge At December 31, 2025, the Company had contracts to reduce its exposure to the change in its share price on its share-based compensation costs. The fair value of these agreements, representing a loss of $422 (2024: loss of $535) is included in trade and other payables, including derivatives on the consolidated statement of financial position. The change in the fair value, representing a gain of $143 (2024: loss of $166), is recorded on the consolidated statement of loss as other expenses. The realized loss from the swap agreements was $43 (2024: loss of $61). RISK FACTORS Impact of Economic Cycle Demand for the Company's products is highly sensitive to general economic cycles and the economic conditions of the industry sectors it serves. In addition, a number of our customers' industry sectors are cyclical in nature. The Company is particularly sensitive to trends in the defense, automotive, tire, energy generation, construction, mining and transportation industries because these industries are significant markets for the Company's business and are highly cyclical. In a severe economic slowdown, prices for coal, copper and other mined materials may fall, affecting demand for conveyor belting, off-road retread tires and other rubber products manufactured by our customers from rubber compounds manufactured by the Rubber Solutions segment. A general economic slowdown or deteriorating economic conditions in our customers' specific industry sectors could have a material adverse effect on our profitability, financial condition and long-term growth prospects. At Manufactured Products, the timing and size of orders from government defense departments worldwide is highly dependent on the political climate in the applicable jurisdiction, the broader geopolitical climate and their impact on defense budgeting and spending; a significant decline in defense budget and spending from current levels could have a material adverse effect on the profitability, financial condition and long-term growth prospects of Manufactured Products. In particular, the global automotive industry is also cyclical, with the potential for regional differences in timing of expansion and contraction. A significant decline in automobile production volumes for the North American market from current levels could have a material adverse effect on the profitability, financial condition and long-term growth prospects of our Manufactured Products segment. Political Uncertainty and Policy Change Certain of the business sectors in which we and our customers operate, both in the Manufactured Products' and Rubber Solutions' segments, are either highly-globalized industries or industries which rely on the movement of goods between Canada and the United States. The election of protectionist governments or implementation of protectionist trade policies could negatively impact the movement of goods, services and people across borders, including within North America. In particular, the recently-enacted tariffs and the potential for further escalating cross-border tariffs between the U.S. and Canada, as well as other countries, introduces heightened uncertainty that could materially adversely impact our supply chains, increase production costs, and erode our competitive positioning. The recently-introduced tariffs and the potential for further increased tariffs on goods exported from Canada to the U.S. could significantly raise our production costs and reduce profit margins. Retaliatory tariffs could further disrupt supply chains and restrict our market access. "Buy America" policies could limit the Company's ability to secure U.S. government contracts, necessitating changes in supply chain strategies to comply with local content requirements. Uncertainty created by rapidly changing political and trade environments may impact our ability to plan effectively for our businesses over the short- and medium-terms, until such time as policy changes or new laws, if any, are implemented and particularly as tariff negotiations, retaliatory measures, and evolving regulatory frameworks remain fluid. Such uncertainty may affect plans relating to establishing operations in new locations (directly or through joint ventures) or potential acquisitions. A material variation between our planning assumptions and actual outcomes could have a material adverse effect on our profitability, financial condition and long-term growth prospects. In addition, certain of the Company's defense and survivability products may be subject to export control laws and regulations in the United States, Canada and other jurisdictions, including restrictions administered under applicable export control and sanctions regimes. These laws and regulations may limit the countries, end-users or end-uses to which products may be sold and may require the Company to obtain export licenses or other governmental approvals. Changes in export control laws, sanctions programs or their interpretation, or a failure to comply with applicable requirements, could result in the imposition of fines, penalties, restrictions on the Company's ability to export products, suspension or debarment from government contracting, reputational harm or other material adverse effects on the Company's business, financial condition and results of operations. Raw Materials and Inventory The Company depends on various outside sources of supply for raw materials used in the production of its products, the price and availability of which are subject to market conditions. As a result, any shortage of such raw materials could potentially delay delivery of our products or supplies, increase our costs and decrease our profitability. The Company maintains multiple supply sources in different areas of the world to mitigate the risk of shortages or price increases experienced in certain, but not all, markets. However, there can be no assurance that such multiple supply sources can be maintained in the future and multiple sources cannot overcome a global shortage in a particular raw material, should one occur. Historically, raw material markets have been extremely volatile with key materials doubling or halving in price within a relatively short period, and the Company does not expect such volatility to cease. Excess inventory or shortages of raw material could prove costly to the Company in these markets. The Company does not have long-term supply contracts with the majority of its suppliers and purchases most raw materials on a purchase order basis. The price of many raw materials, such as carbon black, synthetic and natural rubber, chemicals for rubber mixing, steel and silicone is directly or indirectly affected by factors such as exchange rates and the price of oil and, in the case of natural rubber, weather conditions that impact harvest seasons. Although the Company attempts to pass price changes in raw materials on to its customers, it may not always be able to adjust its prices, especially in the short term, to recover the costs of increased raw material prices. Conversely, if raw material prices decrease significantly and rapidly, the Company may be at risk to recover the cost of any inventory purchased based on demand at higher prices. The following table approximates the financial impact (assuming changes are not passed along to its customers) on the Company of a 10% increase in the cost of its most critical raw materials based upon purchases made in the respective years: Earnings before tax in millions of dollars 2025 2024 Natural and synthetic rubber (5.56) (6.15) Chemicals (Rubber mixing) (3.76) (4.98) Carbon black (2.24) (2.61) Metal (1.74) (2.04) (13.30) (15.78) Competition and Price Pressure The Company competes directly against major North American and international companies. Some of these companies have strong established competitive positions in these markets, including having a direct local presence in international markets where the Company does not, and may be sheltered by domestic tariffs. In the case of rubber compounding, the industry leader may have greater resources, both financial and technical, than the Company and has long-standing relationships with some of the Company's prospective customers using well-established marketing and distribution networks. Furthermore, the customers of several industry sectors are price sensitive and thus, certain of the more commodity-like products in our businesses can be affected by severe price pressure, which in turn could adversely impact our profitability in those areas. Litigation In December 2022, a statement of claim was filed in the Ontario Superior Court of Justice against AirBoss and several named officers. The applicants under the proceeding sought an order for leave to proceed under the Securities Act (Ontario), certifying the proceeding as a class proceeding and appointing them as representative plaintiffs. The applicants sought, among other relief, a declaration that the Company made misrepresentations contrary to the Securities Act (Ontario) during a period extending from November 9, 2021 to September 6, 2022, as well as unspecified damages. In May 2024, the Company announced that the matter was settled within insurance limits, that none of the defendants admitted any liability, wrongdoing, or fault as part of the settlement and that it did not result in any direct financial impact to the Company. In addition to ongoing litigation, the Company may become party to litigation from time to time in the ordinary course of business which could adversely affect our business. Should any litigation in which the Company becomes involved be determined against the Company, such a decision could adversely affect the Company's ability to continue operating and the market price for our shares, and could require the use of significant resources. Even if the Company is involved in litigation and wins, litigation can redirect significant Company resources. Contract-related Risks Contracts from many of our customers, in both operating segments, consist of individual purchase orders or blanket orders under umbrella supply agreements. In these cases, there is no obligation on any customer to continue to issue individual purchase orders and most umbrella supply agreements do not impose minimum purchase requirements and also permit the customer to terminate blanket orders at any time. Customers may also cancel contracts for convenience or due to changes in political or economic conditions, including geopolitical instability, government budget constraints or shifting procurement priorities. The termination of blanket orders or other contracts could result in the Company incurring various pre-production, engineering and other costs that we may not recover from our customers and which could have a material adverse impact on our financial condition and profitability. In addition, it is difficult to accurately predict when opportunities to win contract awards for defense products and personal protective equipment from the United States, Canadian or other foreign governments or agencies will arise and how long the contract tender to award and subsequent commencement of production process will take. A prolonged tender process without a corresponding award could also result in the Company incurring various pre-production, engineering and other costs that we may not recover and which could have a material adverse impact on our financial condition and profitability. Obtaining new contract awards from U.S. government agencies may be adversely impacted by changes in procurement policy including "Buy American" policies. Customers may also cancel contracts for convenience or due to changes in political or economic conditions, including geopolitical instability, government budget constraints or shifting procurement priorities. Failing to win new contract awards or losing existing contracts could have a material adverse impact on our financial condition or profitability. The Company's government contracts are subject to applicable procurement laws and regulations, audit rights and compliance requirements, and any failure to comply with such requirements could result in penalties, contract termination, suspension or debarment. Financing-Related Risks The Company's ability to secure necessary financing on acceptable terms is crucial for day-to-day operations, capital improvements, strategic initiatives and growth. Failure to obtain, maintain or renew such financing could have a material adverse effect on the Company's liquidity, financial position and operations. The Company's credit facilities require that the Company does not exceed certain ratios, including covenants related to minimum adjusted EBITDA and liquidity requirements. The Company uses forecasts to project its future compliance with these financial covenants and has in the past negotiated amendments to these covenants when there was a risk of default. Compliance with these covenants is dependent on the Company's financial performance, which could be adversely affected by various factors, such as changes in geopolitical or economic conditions, including tariffs and trade restrictions, operational results and customer contracts. Should results for any fiscal period not meet the Company's expectations it may request amendments of these covenants in order to remain in compliance, though there is no guarantee such a request will be granted by the Company's lenders. Failure to obtain such amendments could result in the Company's lenders taking certain actions including acceleration of debt repayment, imposition of additional restrictive covenants, increased borrowing costs or cross-default risks, which could have a material adverse effect on the Company's liquidity, financial position and operations. In addition, credit availability under the Company's credit facilities is subject to asset-values, cash on hand, accounts receivable and inventory levels, which could also be impacted by various factors, such as geopolitical or economic conditions, including tariffs and trade restrictions, operational results and customer contracts. A decrease in credit availability could have a material adverse effect on the Company's liquidity, financial position and operations. Currency Exposure The Company has net sales and expenses denominated in both CAD and USD dollars. In addition, the cost to the Company of certain key raw materials and other expense items and the competitiveness of prices charged by the Company for its products will be indirectly affected by currency fluctuations. Changes in the value of the Canadian dollar relative to the US dollar could have a material positive or adverse effect on the Company's results of operations. The Company reviews its currency exposure positions from time to time and reacts accordingly by increasing or decreasing the proportion of borrowings denominated in CAD funds as a natural balance sheet hedge or establishing forward contracts to purchase CAD funds to manage its foreign exchange risk related to cash flows. However, there is no assurance that such strategies will be successful or cost effective and the profitability of the Company's business could be adversely affected by currency fluctuations. The following table approximates the impact on the Company of a 10.0% decrease in the value of one CAD dollar in the Company's USD functional currency: in millions of dollars 2025 Sales (1) (2.1) (1.7) Purchases (2) 4.8 5.4 Earnings before tax 2024 Based upon Canadian dollar-denominated sales Based upon Canadian dollar-denominated debt repayments, purchases and expenses The Company's term loan (denominated in USD) is secured against certain real estate (valued in CAD) and capital equipment. An increase in the value of the USD to CAD decreases the value of the collateral in USD. If the value of collateral is insufficient, the Company is required to make a principal repayment to cover the shortfall. At December 31, 2025, a $0.10 decrease in the value of one Canadian dollar in US currency would not require a principal repayment (2024: $1,797). Health, Safety and the Environmental The Company's operations are subject to extensive health, safety and environmental (HSE) regulations by federal, provincial, state and local authorities. The Company employs individuals who undertake manufacturing activity and handle various substances in its manufacturing process, the nature of which may expose the Company to risks of causing or being deemed liable for injury or environmental or other damages. The Company regularly assesses its policies and procedures relating to workplace safety in its production facilities. While its use of potentially hazardous materials is limited, the Company ensures that its operations are conducted in a manner that minimizes such risks and maintains insurance coverage considered reasonable by management. To date, no regulatory authority has required the Company to pay any material fines or remediation expenses in connection with any alleged violation of HSE regulations. However, there can be no assurance that future personal injury or environmental damage will not occur or that personal injury or environmental damage due to prior or present practices will not result in future liabilities. While management believes that the Company is in substantial compliance with all material HSE government requirements relating to its operations, changes in government laws and regulations are ongoing and may make HSE compliance increasingly expensive. It is not possible to predict future costs, which may be incurred to meet such obligations. Impacts of Global Health Situations Global health situations can have an impact on the Company's operations. The duration and scope of future outbreaks is not known with any certainty and the Company is unable to accurately project the ultimate impact on the business. However, if outbreaks continue for an extended period of time, AirBoss may continue to experience supply chain and logistics challenges, in particular given production delays throughout the world, a decline in sales activities, and reductions in operations and workforce. Dependence on Key Customers and Contracts From time to time, a significant portion of the Company's sales for a given period may be represented by a relatively small number of customers. Net sales from five customers represented 31% of consolidated net sales in 2025 (2024: 30%). While the Company continues to work on diversification of its customer base in all segments, there is no assurance of continued success and shifts in market share away from these top customers could adversely impact our profitability. Product Liability and Warranty Claims As a manufacturer of rubber-based and other products, products which are used in vehicles and products which are worn by individuals in the defense and first responder communities, the Company faces a risk of product liability and warranty claims from its direct customers and, in some cases, from end-users of its products. Although the Company carries commercial general liability insurance of the types, and in the amounts it believes to be reasonable by industry standards, any claim which is successful and is not covered by insurance or which exceeds the policy limit could have a material adverse effect on the Company and its results. Capacity and Equipment Our rubber compounding facilities have an annual capacity to process over 500 million turn pounds. The Company remains committed to continuous maintenance and upgrading of its equipment. Critical equipment remains not only in a high state of repair, but is also technologically up to date so that the Company is able to ensure the reliability of supply to its customers at competitive prices and at a high quality standard. The Company has made regular investments in capacity and efficiency across its operations and should additional equipment be required to fulfill any substantial increases in sales, the Company expects that it can be readily sourced in the market; however, any material failure of our equipment or inability to purchase additional required equipment could have a material adverse effect on the Company. Production Disruptions Our production facilities, and those of our subcontractors and suppliers, are subject to risk of shut-down caused by fire, natural disaster or other catastrophic event, pandemic, labour conflicts or other forces or events beyond our control, or could result from a disruption of supply of source materials from suppliers and sub-suppliers. Any prolonged shut-down of one or more of our production facilities or that of our subcontractors could result in a materially negative impact on our profitability. Intellectual Property The Company relies on patents, trade secrets, confidentiality agreements and other contractual protections to safeguard its proprietary technologies, formulations, product designs and manufacturing processes. These measures may not prevent unauthorized use or disclosure of proprietary information. In addition, the Company may be subject to claims alleging infringement of third-party intellectual property rights. Any failure to adequately protect its intellectual property or any adverse determination in such claims could have a material adverse effect on the Company's business, financial condition and results of operations. Climate Change Risks Extreme weather events and natural disasters Extreme weather events such as floods and windstorms and other natural disasters caused by climate change could cause catastrophic destruction to some of our or our suppliers' facilities, interrupt the Company's and its suppliers' and customers' operations and activities and interrupt the ability of raw materials and finished products to be received from suppliers and delivered to customers (physical risks), which could in turn disrupt our production and/or prevent us from supplying products to our customers. Climate change may also have indirect effects on the Company's business by increasing the cost of (or making unavailable) property insurance on terms the Company finds acceptable, as well as increasing the costs of maintenance, capital replacement and expansion, energy, water and other services at the Company's facilities. In addition to physical risks associated with climate change, the potential future requirements that could be imposed by external stakeholders in the transition to a net-zero economy (transition risk) may also impact the Company's business operations. While we conduct risk assessments of our facilities and have implemented mitigation strategies to address, such as insurance policies which protect against property damage and business continuity risk, where practical, physical risks related to extreme weather events or natural disasters and the frequency and severity of any such event can vary by region and cannot be predicted. A catastrophic destruction of our facilities or those of our suppliers could have a material adverse effect on our operations and profitability. Reputational risks As public awareness and concern about climate change increases, consumer preferences are rapidly evolving towards environmentally friendly and sustainable products. There is a risk that we may face reputational challenges if our products or processes are perceived as harmful to the environment or lagging behind our peers in sustainability practices. In addition, there is a growing emphasis on sustainable and responsible investment criteria by institutional and retail investors that could impact our Company's attractiveness to investors. Failure to meet these evolving criteria may result in a revaluation of our Company by the market, potentially affecting our stock price and access to capital. Market Risks Climate change poses risks to the stability and cost-efficiency of our global supply chain. Extreme weather events, such as floods, hurricanes, and droughts, can disrupt production and logistics, leading to increased costs and delays. These disruptions could impact our ability to meet customer demand and maintain competitive pricing. In addition, regulatory and societal shifts towards a low-carbon economy could significantly alter demand for certain materials and products. Our Company may face risks associated with shifts in demand for our products, particularly if we are unable to adapt our offerings to align with market transitions towards sustainable alternatives. Policy Risks The introduction of new regulations aimed at reducing carbon emissions and greenhouse gas emissions, such as carbon pricing mechanisms, emissions trading schemes, and stricter environmental standards, could result in significant compliance costs. Management believes that the Company is in substantial compliance with all material environmental regulations relating to its operations however changes to these regulations are ongoing and accordingly may make compliance increasingly expensive. These costs may impact our profitability and require substantial capital investments to adapt our operations and products. In addition, the Company faces the risk that certain chemicals and raw materials which are used in the manufacturing of rubber compounds could be restricted or prohibited from use, which the Company would have to mitigate by finding alternatives, which could in turn increase the costs of its products and make them less attractive to customers. Further, the global transition to a low-carbon economy could impose additional regulatory compliance costs if our business model, operations, or products do not align with emerging regulatory requirements or incentives for low-emission technologies, which could affect our competitive positioning and necessitate significant strategic adjustments. Catastrophic Events AirBoss has operations and facilities which manufacture products in Canada and the United States. Natural events (such as a hurricane or major earthquake), terrorist attack, pandemics, epidemics, outbreaks of an infectious disease or similar events or other catastrophic events, including adverse weather events associated with global climate change which have increased in severity and frequency in recent years, could cause delays in developing, manufacturing or selling products. Although AirBoss conducts risk assessments and implements mitigation, such as property and business continuity insurance, and third-party supplier monitoring, such events that occur in major markets where AirBoss sells products could reduce the demand for our products in those areas and, as a result, impact our sales into those markets. In either case, any such disruption could have a material adverse effect on the Company's business, financial condition and results of operations. IT/Cybersecurity Risks Although we have established and continue to enhance security controls intended to protect our IT systems and infrastructure, there is no guarantee that such security measures will be effective in preventing unauthorized physical access or cyber-attacks. A significant breach of our IT systems could: result in theft of funds; cause disruptions in our manufacturing operations; lead to the loss, destruction or inappropriate use of sensitive data; or result in theft of our, our customers' or our suppliers' intellectual property or confidential information. The occurrence of any of the foregoing could adversely affect our operations and/or reputation, and could lead to claims against us that could have a material adverse effect on our profitability. Acquisitions and Integration As part of our growth strategy, we will continue to pursue acquisitions in areas we have identified as consistent with such strategy. However, there can be no assurance that we will identify suitable targets for acquisition or be able to acquire suitable targets successfully. In addition, there is also a risk that the Company may not be able to successfully integrate any acquisition or achieve all or any of the anticipated synergies of such acquisitions or to do so within the anticipated timelines, any of which could adversely impact our profitability and financial condition. Key Personnel The Company's future success largely depends on its ability to recruit, retain and develop qualified managers and other key personnel. If key persons leave the Company and successors cannot be recruited or if the Company is unable to attract qualified personnel, this could have a negative impact on our profitability and financial condition. DISCLOSURE CONTROLS AND PROCEDURES As of the end of the fiscal year of the Company, an evaluation was carried out under the supervision of and with the participation of the Company's management, including our Chairman & co-CEO, President and co-CEO, and CFO, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chairman & co-CEO, President and co-CEO, and CFO concluded that the design and operation of our disclosure controls and procedures were effective as of December 31, 2025, the end of the period covered by management's discussion and analysis, to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by officers within those entities. The Company's Chairman & co-CEO, President and co-CEO, and CFO are responsible for establishing and maintaining the Company's disclosure controls and procedures. The Disclosure Committee, composed of senior managers of the Company, assists the Chairman & co-CEO, President and co-CEO, and CFO in evaluating the information and appropriateness of material subject to public disclosure. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING During the most recent period, there have been no changes in the Company's existing policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. INTERNAL CONTROLS OVER FINANCIAL REPORTING Management has designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of the Company's financial reporting and its compliance with IFRS in its consolidated financial statements. The Chairman & co-CEO, President and co-CEO, and CFO have supervised management in the evaluation of the design and effectiveness of the Company's internal controls over financial reporting as at December 31, 2025 and believe the design and effectiveness of the internal controls to be effective.

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