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Velan Inc. — Audit Report / Information 2026
May 15, 2026
43181_rns_2026-05-14_fe03f91f-fa20-4736-8037-20c68f7fd733.pdf
Audit Report / Information
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VELAN
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 28, 2026 and 2025
pwc
Independent auditor's report
To the Shareholders of Velan Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Velan Inc. and its subsidiaries (together, the Company) as at February 28, 2026 and 2025, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards).
What we have audited
The Company's consolidated financial statements comprise:
- the consolidated statements of financial position as at February 28, 2026 and 2025;
- the consolidated statements of income (loss) for the years then ended;
- the consolidated statements of comprehensive income (loss) for the years then ended;
- the consolidated statements of changes in equity for the years then ended;
- the consolidated statements of cash flow for the years then ended; and
- the notes to the consolidated financial statements, comprising material accounting policy information and other explanatory information.
PricewaterhouseCoopers LLP
1250 René-Lévesque Boulevard West, Suite 2500
Montréal, Quebec, Canada H3B 4Y1
T.: +1 514 205 5000, F.: +1 514 876 1502
Fax to mail: [email protected]
"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended February 28, 2026. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| Key audit matter | How our audit addressed the key audit matter |
|---|---|
| Accuracy and existence of inventories |
Refer to note 2 – Summary of material accounting policies and note 7 – Inventories to the consolidated financial statements.
The Company’s inventories totalled $147,140 thousand as at February 28, 2026. Inventories are valued at the lower of cost and net realizable value. The cost of raw material is determined principally using the weighted average method. Costs of work in process and finished goods are determined using the raw material cost plus applicable direct labour and manufacturing overhead. Management applies significant judgment in determining the value of obsolete or unmarketable inventory based on an assessment of market conditions for its products determined by ageing of inventory, historical usage, estimated | Our approach to addressing the matter included the following procedures, among others:
• Tested the operating effectiveness of the physical inventory cycle counts control. This included observing the physical cycle inventory count procedures at certain locations and performing independent test counts for a sample of inventory items and comparing the results to the Company’s accounting records.
• For a sample of raw material and finished parts inventory items, tested the weighted average cost by agreeing to source documents and recalculating the weighted average cost. |
| Key audit matter | How our audit addressed the key audit matter |
|---|---|
| future demand and, in some cases, the specific risk of loss on specifically identified inventory. |
We considered this a key audit matter due to the magnitude of the inventories balance, the number of inventory locations across the Company’s network, the significant judgment applied by management in the determination of the value of obsolete or unmarketable inventory and the audit effort involved in testing the inventories balance. | • For a sample of raw material cost included in finished goods and work in process, compared the raw material cost to the cost transferred from raw material inventory.
• Tested the allocation of direct labour and manufacturing overhead costs to the finished goods and work in process by performing a reasonability test.
• Tested that inventories at year-end were recorded at the lower of cost and net realizable value by:
– comparing the cost of a sample of finished goods or work in process items to the most recent selling prices of the inventory items; and
– performing an independent point estimate of obsolete inventory or unmarketable inventory provision based on the ageing of inventory and an assessment of market conditions for inventory items based on historical usage and estimated future demand. For a sample of inventory items, tested the usage, estimated future demand and ageing of inventory prepared by the Company by agreeing to source or other documents as applicable.
Considered specific risk of loss on specifically identified inventory by inquiry with management and based on evidence obtained in other areas of the audit. |
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the information, other than the consolidated financial statements and our auditor's report thereon, included in the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Company as a basis for forming an opinion on the consolidated financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Jean-François Lecours.
/s/PricewaterhouseCoopers LLP¹
Montréal, Quebec
May 14, 2026
¹ CPA auditor, public accountancy permit No. A126402
VELAN
Consolidated Statements of Financial Position
(in thousands of U.S. dollars)
| As at | ||
| February 28, | February 28, | |
| 2026 | 2025 | |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | 53,354 | 34,872 |
| Short-term investments | 371 | 358 |
| Accounts receivable (note 6) | 75,369 | 62,612 |
| Income taxes recoverable | 5,511 | 5,617 |
| Inventories (note 7) | 147,140 | 134,969 |
| Deposits and prepaid expenses | 3,337 | 3,689 |
| Derivative assets (note 27) | 59 | 24 |
| Assets held for sale (note 5) | - | 176,762 |
| 285,141 | 418,903 | |
| Non-current assets | ||
| Property, plant and equipment (note 9) | 50,935 | 51,349 |
| Intangible assets and goodwill (note 11) | 4,477 | 5,893 |
| Deferred income taxes (note 22) | 5,283 | 25,101 |
| Other assets | 771 | 720 |
| 61,466 | 83,063 | |
| Total assets | 346,607 | 501,966 |
| Liabilities | ||
| Current liabilities | ||
| Bank indebtedness (note 12) | 11,862 | 2,508 |
| Accounts payable and accrued liabilities (note 13) | 85,094 | 78,776 |
| Income taxes payable | 1,330 | 1,818 |
| Customer deposits | 20,211 | 22,338 |
| Provisions (note 14) | 10,227 | 153,957 |
| Derivative liabilities (note 27) | 130 | 480 |
| Current portion of long-term lease liabilities (note 10) | 1,592 | 1,437 |
| Current portion of long-term debt (note 15) | 3,737 | 2,096 |
| Liabilities held for sale (note 5) | - | 110,883 |
| 134,183 | 374,293 | |
| Non-current liabilities | ||
| Long-term lease liabilities (note 10) | 3,968 | 4,727 |
| Long-term debt (note 15) | 14,488 | 14,107 |
| Income taxes payable | - | 692 |
| Deferred income taxes (note 22) | 1,346 | 737 |
| Customer deposits | 5,584 | 3,876 |
| Other liabilities | 4,935 | 4,796 |
| 30,321 | 28,935 | |
| Total liabilities | 164,504 | 403,228 |
| Total equity | 182,103 | 98,738 |
| Total liabilities and equity | 346,607 | 501,966 |
Commitments and contingencies (note 24)
The accompanying notes are an integral part of these audited consolidated financial statements.
Approved by the Board of Directors,
(s) James A. Mannebach
James A. Mannebach
Director
(s) Suzanne Blanchet
Suzanne Blanchet
Director
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(in thousands of U.S. dollars, excluding number of shares and per share amounts)
Consolidated Statements of Income (loss)
| Fiscal years ended | ||
|---|---|---|
| February 28, 2026 | February 28, 2025 | |
| $ | $ | |
| Sales (note 25) | 296,405 | 295,196 |
| Cost of sales (note 17) | 215,313 | 210,279 |
| Gross profit | 81,092 | 84,917 |
| Administration costs (note 18) | 69,003 | 68,603 |
| Other expense (income) | 841 | (1,833) |
| Restructuring expenses (note 20) | 9,614 | 100,412 |
| Operating income (loss) | 1,634 | (82,265) |
| Finance income | 251 | 470 |
| Finance costs | (1,878) | (207) |
| Finance costs – net | (1,627) | 263 |
| Income (loss) before income taxes | 7 | (82,002) |
| Income tax expense (recovery) (note 22) | (15,052) | (14,551) |
| Net Income (loss) for the period from continuing operation | 15,059 | (67,451) |
| Results from discontinued operations (note 5) | 58,599 | (8,254) |
| 73,658 | (75,705) | |
| Net Income (loss) attributable to: | ||
| Subordinate Voting Shares and Multiple Voting Shares | 73,909 | (75,500) |
| Non-controlling interest | (251) | (205) |
| Net Income (loss) attributable to Shareholders for the period | 73,658 | (75,705) |
| Net Income (loss) per Subordinate and Multiple Voting Share | ||
| Basic and diluted from continuing operations | 0.71 | (3.12) |
| Basic and diluted from discontinued operations | 2.71 | (0.38) |
| Basic and diluted from all operations | 3.42 | (3.50) |
| Dividends declared per Subordinate and Multiple | 0.38 | 0.02 |
| Voting Share | (CA$ 0.53) | (CA$0.03) |
| Total weighted average number of Subordinate and Multiple Voting Shares | ||
| Basic and diluted common number of shares | 21,585,635 | 21,585,635 |
| Net Income (loss) attributable to Shareholders: | ||
| Continuing operations | 15,059 | (67,451) |
| Discontinued operations | 58,599 | (8,254) |
| Net Income (loss) for the period | 73,658 | (75,705) |
The accompanying notes are an integral part of these audited consolidated financial statements.
VELAN
Consolidated Statements of Comprehensive Income (loss)
(in thousands of U.S. dollars)
| Fiscal years ended | ||
|---|---|---|
| February 28, 2026 | February 28, 2025 | |
| $ | $ | |
| Comprehensive Income (loss) | ||
| Net Income (loss) for the period | 73,658 | (75,705) |
| Other comprehensive income (loss) | ||
| Foreign currency translation of foreign subsidiaries | 5,545 | (4,318) |
| Foreign currency translation of foreign subsidiaries from discontinued operations | - | (4,131) |
| Reclassification of foreign currency translation from discontinued operations | 12,456 | - |
| Comprehensive Income (loss) | 91,659 | (84,154) |
| Comprehensive Income (loss) attributable to: | ||
| Subordinate Voting Shares and Multiple Voting Shares | 91,910 | (83,949) |
| Non-controlling interest | (251) | (205) |
| Comprehensive Income (loss) | 91,659 | (84,154) |
Other comprehensive Income (loss) is composed solely of items that may be reclassified subsequently to the consolidated statement of Income (loss).
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VELAN
Consolidated Statements of Changes in Equity
(in thousands of U.S. dollars, excluding number of shares)
Equity attributable to the Subordinate and Multiple Voting shareholders
| Share capital | Contributed surplus | Accumulated other comprehensive Income (loss) | Retained earnings | Total | Non-controlling interest | Total equity | |
|---|---|---|---|---|---|---|---|
| Balance - February 29, 2024 | 72,695 | 6,260 | (38,692) | 141,914 | 182,177 | 1,082 | 183,259 |
| Net Income (loss) for the period | - | - | - | (75,500) | (75,500) | (205) | (75,705) |
| Other comprehensive Income (loss) | - | - | (8,449) | - | (8,449) | - | (8,449) |
| Comprehensive Income (loss) | - | - | (8,449) | (75,500) | (83,949) | (205) | (84,154) |
| Other | - | 95 | - | - | 95 | - | 95 |
| Dividends | |||||||
| Multiple Voting Shares | - | - | - | (333) | (333) | - | (333) |
| Subordinate Voting Shares | - | - | - | (129) | (129) | - | (129) |
| Balance - February 28, 2025 | 72,695 | 6,355 | (47,141) | 65,952 | 97,861 | 877 | 98,738 |
| Balance - February 28, 2025 | 72,695 | 6,355 | (47,141) | 65,952 | 97,861 | 877 | 98,738 |
| Net Income (loss) for the period | - | - | - | 73,909 | 73,909 | (251) | 73,658 |
| Other comprehensive Income (loss) | - | - | 5,545 | - | 5,545 | - | 5,545 |
| Reclassification of foreign currency translation from discontinued operations | - | - | 12,456 | - | 12,456 | - | 12,456 |
| Comprehensive Income (loss) | - | - | 18,001 | 73,909 | 91,910 | (251) | 91,659 |
| Dividends | |||||||
| Multiple Voting Shares | - | - | - | (5,980) | (5,980) | - | (5,980) |
| Subordinate Voting Shares | - | - | - | (2,314) | (2,314) | - | (2,314) |
| Balance - February 28, 2026 | 72,695 | 6,355 | (29,140) | 131,567 | 181,477 | 626 | 182,103 |
The accompanying notes are an integral part of these audited consolidated financial statements.
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(in thousands of U.S. dollars)
Consolidated Statements of Cash Flow
| Fiscal years ended | ||
|---|---|---|
| February 28, 2026 | February 28, 2025 | |
| $ | $ | |
| Cash flows from | ||
| Operating activities | ||
| Net Income (loss) for the period | 73,658 | (75,705) |
| Results from discontinued operations | 58,599 | (8,254) |
| Net Income (loss) for the period for continuing operations | 15,059 | (67,451) |
| Adjustments to reconcile net Income (loss) to cash provided by operating activities (note 29) | (13,455) | 60,153 |
| Changes in non-cash working capital items (note 30) | (18,187) | 33,823 |
| Cash provided (used) by operating activities from continuing operations (excluding Asbestos settlement) | (16,583) | 26,525 |
| Asbestos Settlement transaction ( note 30) | (143,553) | - |
| Cash provided (used) by operating activities from continuing operations | (160,136) | 26,525 |
| Investing activities | ||
| Short-term investments | (28) | 172 |
| Additions to property, plant and equipment | (5,536) | (7,772) |
| Additions to intangible assets | (1,549) | (2,905) |
| Proceeds on disposal of property, plant and equipment, and intangible assets | 28 | 231 |
| Net change in other assets | (9) | (3) |
| Cash provided (used) by investing activities from continuing operations (excluding proceeds on disposal of France assets) | (7,094) | (10,277) |
| Proceeds on disposal of France assets | 182,363 | - |
| Cash provided (used) by investing activities from continuing operations | 175,269 | (10,277) |
| Financing activities | ||
| Dividends paid to Subordinate and Multiple Voting shareholders | (8,294) | (462) |
| Short-term bank loans | 1,199 | - |
| Net change in revolving credit facility | 7,940 | (5,000) |
| Increase in long-term debt | - | 326 |
| Repayment of long-term debt (note 15) | (7,690) | (4,163) |
| Repayment of long-term lease liabilities | (1,669) | (516) |
| Cash used by financing activities from continuing operations | (8,514) | (9,815) |
| Effect of exchange rate differences on cash and cash equivalents | 2,509 | (1,352) |
| Net change in cash during the period from continuing operations | 9,128 | 5,081 |
| Net change in cash during the period from discontinued operations (note 5) | 8,745 | 6,354 |
| Net change in cash and cash equivalents during the period | 17,873 | 11,435 |
| Net cash – Beginning of the period | 32,364 | 27,283 |
| Net cash – End of the period | 41,492 | 32,364 |
| Net cash is composed of: | ||
| Cash and cash equivalents | 53,354 | 34,872 |
| Bank indebtedness | (11,862) | (2,508) |
| Net cash – End of the period | 41,492 | 32,364 |
| Supplementary information | ||
| Interest paid | (382) | (735) |
| Income taxes paid | (6,925) | (3,261) |
The accompanying notes are an integral part of these audited consolidated financial statements.
VELAN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 28, 2026 and February 28, 2025
(in thousands of U.S. dollars, excluding number of shares and per share amounts)
1 General information and basis of preparation
These consolidated financial statements represent the consolidation of the accounts of Velan Inc. (the "Company") and its subsidiaries. The Company is an international manufacturer of industrial valves.
The Company is a public company listed on the Toronto Stock Exchange under the symbol "VLN". It was incorporated under the name Velan Engineering Ltd. on December 12, 1952, and continued under the Canada Business Corporations Act on February 11, 1977. It changed its name to Velan Inc. on February 20, 1981. Velan Inc. maintains its registered head office at 7007 Côte-de-Liesse, Montreal, Quebec, Canada, H4T 1G2. The Company's controlling shareholder is Velan Holdings Co. Ltd.
On January 14, 2026, the Company announced that its controlling shareholder, Velan Holding Co. Ltd. ("Velan Holding"), the sole holder of the Company's multiple voting shares, has agreed to sell its 15,566,567 multiple voting shares and one subordinate voting share (representing approximately 72.1% of the Company's outstanding shares and 92.8% of its aggregate voting rights) to funds managed by Birch Hill Equity Partners Management Inc. ("Birch Hill"), at a price of C$13.10 per share, for aggregate gross proceeds of C$203,922,040.80 to Velan Holding and two other entities associated with shareholders of Velan Holding (the "VH Transaction").
The VH Transaction is expected to close in the first half of 2026, subject to the receipt of the certain regulatory approvals and other customary closing conditions. The completion of the VH Transaction is not subject to any financing conditions or approval by the Company's shareholders.
The Company's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IASB") ("IFRS Accounting Standards").
These consolidated financial statements were approved by the Company's Board of Directors on May 14, 2026.
2 Summary of material accounting policies
Functional and presentation currency
Functional currency is defined as the currency of the primary economic environment in which an entity operates. Indicators for determining an entity's functional currency are broken down into primary and secondary indicators.
Primary indicators include:
- the currency of sales and cash inflows;
- the currency of the country having primary influence over sales prices; and
- the currency of expenses and cash outflows.
Primary indicators receive more weight than secondary indicators. If a functional currency can be determined based on the primary indicators, the secondary indicators are not considered.
The functional and presentation currency of the Company is the U.S. dollar.
Consolidation
These consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with an investee, including a structured entity, and has the ability to affect those returns through its power to direct
VELAN
the activities of an investee. Subsidiaries are fully consolidated from the date control has been transferred to the Company and deconsolidated from the date control ceases.
All subsidiaries prepare their financial statements at the same reporting date as the Company. Consolidated earnings include the Company's share of the results of its operations to that date. Intercompany transactions, balances and unrealized gains or losses on transactions between companies are eliminated.
Foreign currency transactions and balances
The Company and its subsidiaries translate foreign currency transactions and balances into their functional currencies. Foreign currency is defined as any currency that is different from an individual entity's functional currency.
Monetary assets and liabilities in foreign currencies are translated at year-end exchange rates. Non-monetary assets are translated at rates prevailing at the transaction dates. Revenue and expenses in foreign currencies are translated at weekly average rates throughout the year. Gains and losses arising on translation are included in the consolidated statement of income (loss) for the year.
Translation of accounts of foreign subsidiaries
The financial statements of the Company's foreign subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollars for reporting purposes. All assets and liabilities are translated at year-end rates, and revenue and expenses at the average rate for the period. Resulting gains and losses are included in other comprehensive income (loss) for the year.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The Company's financial assets comprise mainly cash and cash equivalents, short-term investments, accounts receivable and derivative assets. The Company's financial liabilities comprise mainly bank indebtedness, short-term bank loans, accounts payable and accrued liabilities, customer deposits, long-term debt and derivative liabilities.
The Company recognizes a financial instrument on its consolidated statement of financial position when the Company becomes party to the contractual provisions of the financial instrument or non-financial derivative contract (see Embedded derivatives). All financial instruments are initially recognized at fair value and subsequently measured at amortized cost, fair value through other comprehensive income or fair value through profit and loss depending on the Company's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Except in very limited circumstances, the classification is not changed subsequent to initial recognition.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation underlying the liability has been discharged, cancelled or has expired.
Financial instruments classified at fair value through profit and loss
Derivative financial instruments are classified at fair value through profit and loss at each statement of financial position date with the changes in fair value recorded in the consolidated statement of income (loss) in the year in which these changes arise.
Financial instruments classified at amortized cost
The Company's cash and cash equivalents, short-term investments and accounts receivable, bank indebtedness, short-term bank loans, accounts payable and accrued liabilities, customer deposits and long-term debt, including interest payable are financial instruments carried at amortized cost using the effective interest rate method. The interest income or expense is included in the consolidated statement of income (loss) over the expected life of the instrument.
The Company assesses the expected credit losses associated with its financial assets measured at amortized costs at the end of every fiscal year. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
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VELAN
The Company applies the simplified approach permitted by IFRS 9 for trade receivables which requires the expected lifetime losses to be recorded at initial recognition.
Embedded derivatives
Derivatives may be embedded in other financial instruments (the "host instrument"). Embedded derivatives are treated as separate derivatives if their economic characteristics and risks are not closely related to those of the host instrument, the terms of the embedded derivative are the same as those of a stand-alone derivative, and the combined contract is not measured at fair value with changes in fair value recognized in profit and loss, nor designated at fair value through profit or loss.
The Company and its subsidiaries enter into certain contracts for the purchase and sale of non-financial items that are denominated in currencies other than their respective functional currencies. In cases where the foreign exchange component is not leveraged and does not contain an option feature, the contract is denominated in the functional currency of any substantial party to that contract, the currency in which the price of the related good or service that is acquired or delivered is routinely denominated in commercial transactions around the world, the currency that is commonly used in contracts to purchase or sell non-financial items in the economic environment in which the transactions takes place, the embedded derivative is considered to be closely related to the host instrument and is not accounted for separately.
The fair value of the embedded derivatives related to sales contracts is recorded in sales; purchase contracts are recorded in cost of sales. On the consolidated statement of financial position, gains are recorded as derivative assets and losses are recorded as derivative liabilities.
Transaction costs are expensed when incurred.
Fair value
Estimated fair values for financial instruments are designed to approximate amounts at which the instruments could be exchanged in a current arm's-length transaction between knowledgeable willing parties. The fair value of derivative instruments is determined using valuation techniques.
The Company has evaluated the fair values of its financial instruments based on the current interest rate environment, related market values and current pricing of financial instruments with comparable terms.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Company's activities. Revenue is shown net of variable compensation such as returns, rebates, discounts and provisions for performance guarantees.
Sales of goods
Sales of goods are recognized when the Company has delivered products to the customer and there is no unfulfilled obligation that could affect the customer's acceptance of the products. Delivery of the products does not occur until the products have been shipped to a specified location in accordance with the agreed-upon shipping terms, the control, the risk of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that all criteria for acceptance have been satisfied. Customers have a right to return faulty products, and some products are sold with volume discounts. Sales are recorded based on the price specified in the sales contract, net of the estimated volume discounts and returns at the time of sale. Accumulated experience is used to estimate and provide for the discounts, returns and accruals for performance guarantees. The volume discounts are assessed based on anticipated annual purchases.
Provision for performance guarantees are provisions that arise for possible late delivery and other contractual non-compliance penalties or liquidated damages. It is recognized as a reduction of sales when the Company has a present legal or constructive obligation as a result of a past event, and the amount has been reliably estimated.
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Sales of services
Sales of services are recognized as the services are rendered, considering their acceptance by the Company's customers.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash in banks, other short-term highly liquid investments with original maturities of three months or less, and bank indebtedness. Bank indebtedness is shown in current liabilities on the consolidated statement of financial position.
Short-term investments
Short-term investments include all highly liquid investments with original maturities greater than three months but less than one year.
Inventories
Inventories are valued at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost of inventories is determined as follows:
a) raw materials principally using the weighted average method except for items that are not ordinarily interchangeable, in which case specific identification of their individual costs is used; and
b) work in process and finished goods using the raw material cost described in (a) plus applicable direct labour and manufacturing overhead.
The value of obsolete or unmarketable inventory is based on the Company's assessment of market conditions for its products determined by historical usage, estimated future demand and, in some cases, the specific risk of loss on specifically identified inventory. The write-down may be reversed if the circumstances which caused it no longer exist.
Property, plant and equipment
Property, plant and equipment are valued at acquisition or manufacturing costs less any related government assistance, accumulated depreciation and any accumulated impairment losses. Acquisition costs include any expenditure that is directly related to the acquisition of the item. Manufacturing costs include direct material and labour costs plus applicable manufacturing overheads. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to be ready for their intended use are added to the cost of those assets, until such time as those assets are ready for their intended use.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be reliably measured. The carrying amount of a replaced part is expensed as the parts are used. All other repairs and maintenance are charged to the consolidated statement of income (loss) during the period in which they are incurred.
Depreciation of assets commences when the assets are ready for their intended use. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Changes in expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the depreciation period or method, as appropriate, and treated on a prospective basis as a change in estimate.
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VELAN
Depreciation on the property, plant and equipment is determined principally using the following methods and annual rates or terms:
| Method | Rate/term | |
|---|---|---|
| Buildings | Declining balance | 4% to 5% |
| Machinery and equipment/Furniture and fixtures | Declining balance | 10% to 31% |
| Data processing equipment | Straight-line | 3 years |
| Rolling stock | Declining balance | 30% |
| Leasehold improvements | Straight-line | Over lease terms |
Intangible assets
Purchased intangible assets relate primarily to patents, products, designs, customer lists and computer software. Internally generated intangible assets relate to development costs. Research and development costs are expensed as incurred unless the development costs meet the criteria for deferral.
Amortization expense is recognized in the consolidated statement of income (loss) in the expense category consistent with the function of the intangible asset. The assets' useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period or more frequently if events or circumstances occur that would indicate a change in useful life. Changes in expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated on a prospective basis as a change in estimate. Amortization is determined principally using the following methods and terms:
| Method | Rate/term | |
|---|---|---|
| Patents, products and designs | Straight-line | 5 to 15 years |
| Computer software | Straight-line | 1 to 3 years |
Impairment of non-financial assets
Assets that have an indefinite life (e.g. goodwill or indefinite life intangible assets) are not subject to amortization are tested annually for impairment or more frequently if events or circumstances indicate there may be impairment.
All other long-lived assets must be reviewed at the end of each reporting period in order to determine whether there is an indication of possible impairment.
For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows. A cash-generating unit ("CGU") is the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. If an indication of impairment exists, the recoverable amount of the CGU is estimated in order to determine the extent of the impairment loss, if any. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. If the recoverable amount of the CGU is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU on a pro rata basis of the carrying amount of each asset in the CGU. The recoverable amount is the greater of an asset's or CGU's fair value less costs of disposal and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Non-current and non-financial assets, other than goodwill, that have previously suffered an impairment loss are reviewed for possible reversal of the impairment at each reporting date.
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VELAN
Income taxes
The provision for income taxes for the year comprises current and deferred income taxes. Taxes are recognized in the consolidated statement of income (loss), except to the extent that it relates to items recognized in other comprehensive income (loss) or directly in equity, in which case the taxes are recognized in other comprehensive income (loss) or equity, respectively.
Current income taxes
The current income taxes charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Company generates taxable profits. When an asset is transferred between entities within the consolidated group, the difference between the tax rates of the two entities is recognized as a tax expense in the period in which the transfer occurs. Current taxes payable is recognized for any taxes payable in the current period. Current tax liabilities are recognized for current taxes to the extent that they remain unpaid for current and prior periods.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate. Uncertain income tax provisions are recorded when probable and are recorded at the Company's best estimate of the amount.
Deferred income taxes
Deferred income taxes are recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the consolidated financial statements. However, the deferred income taxes are not accounted for if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income taxes are determined using tax rates and laws that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be used. Deferred income tax assets are reviewed at each statement of financial position date and amended to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred income taxes are provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Current income tax assets and liabilities are offset when the Company has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Normally, the Company would only have a legally enforceable right to set off a current tax asset against a current tax liability when they relate to income taxes levied by the same taxation authority and the taxation authority permits the Company to make or receive a single net payment. Deferred income tax assets and liabilities are offset when the Company has a legally enforceable right to set off current income tax assets against current income tax liabilities and deferred income tax assets and liabilities related to income taxes levied by the same taxation authority on either: (1) the same taxable entity; or (2) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred income tax liabilities or assets are expected to be settled or recovered.
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized for costs that need to be incurred to operate in the future or expected future operating losses.
Provisions are measured at the present value of the expenditures required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
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VELAN
Leases
In situations where the Company is a lessee, it recognizes a right-of-use asset and a lease liability when the asset is available for use. The right-of-use asset is measured at the amount of the lease liability adjusted for any initial direct costs, prepaid lease payments, restoration costs, and any lease incentives received. The right-of-use asset is depreciated over the shorter of the lease term and useful life of the asset using the straight-line method since it closely reflects the expected pattern of consumption of the future economic benefits. The right-of-use asset may be periodically reduced by impairment losses, if any, and adjusted for certain remeasurement of the lease liability.
The lease liability is measured at the present value of lease payments payable discounted using the implicit rate or the Company's incremental borrowing rate when the implicit rate cannot be determined. It is subsequently measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index, rate or estimate. Cash payments for the principal portion of the lease liability are presented within the financing activities and the interest portion of the lease liability is presented within the operating activities of the statement of cash flows.
The Company has elected to apply the recognition exemptions for short term leases and leases where the underlying asset has a low value whereby payments made are charged to the consolidated statement of income (loss) on a straight-line basis over the term of the lease.
Share-based compensation plans
Grants under the Company's share-based compensation plans are accounted for in accordance with the fair value-based method of accounting. The Company operates a share-based compensation plan under which it receives services from employees as consideration for share options, performance share units ("PSUs") and deferred share units ("DSUs").
Share options
The fair value of the employee services received in exchange for the grant of the options is amortized over the vesting period as compensation expense, with a corresponding increase to contributed surplus. The total amount to be expensed is determined by multiplying the number of options expected to vest with the fair value of one option as of the grant date as determined by the Black-Scholes option pricing model. Remaining an employee of the Company for a specified period of time is the only condition for vesting. Vesting typically occurs one-quarter per year over four years from the grant date. This non-market performance condition is factored into the estimate of the number of options expected to vest. If the number of options expected to vest differs from that originally expected, the expense is adjusted accordingly. When options are exercised, the Company issues new shares. The proceeds received, together with the amount recorded in contributed surplus, net of any directly attributable transaction costs, are recorded in share capital.
PSUs and DSUs
PSUs and DSUs may be granted to certain independent directors and full-time employees as part of their long-term compensation package entitling them to receive payout in cash based on the Company's share price at the relevant time. A liability for PSUs and DSUs is measured at fair value on the grant date and is subsequently adjusted at each balance sheet date for changes in fair value according to the estimation made by management of the number of PSUs and DSUs that will eventually vest. The liability is recognized to accounts payable and accrued liabilities over the vesting period, with a corresponding charge to compensation expense. These plans have been suspended until the VH Transaction is closed.
Critical accounting estimates and assumptions
The Company's material accounting policies as described above are essential to understanding the Company's results of operations, financial positions and cash flows. Certain of these accounting policies require critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. The assumptions and estimates used are based on parameters which are derived from the knowledge at the time of preparing the financial statements and believed to be reasonable under the circumstances. In particular, the circumstances prevailing at this time and assumptions as to the expected future development of the global and industry-specific environment were used to estimate the Company's future business performance. Where these conditions develop differently than assumed and
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VELAN
beyond the control of the Company, the actual results may differ from those anticipated. These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is changed.
Since the announcement in February 2026 of customs tariffs by the United States, the global economic environment has been affected by the uncertainty surrounding the evolution of trade relations between different countries and the United States. Based on this highly uncertain situation, the judgments, estimates and assumptions made in the preparation of these financial statements could differ from future results.
Inventories
Inventories must be valued at the lower of cost and net realizable value. A write-down of inventory will occur when its estimated net realisable value (which is the estimated selling price minus costs necessary to make the sell) is below its carrying amount. This involves that management applies significant judgement in determining the value of obsolete or unmarketable inventory based on an assessment of market conditions for its products determined by ageing of inventory, historical usage, estimated future demand and, in some cases, the specific risk of loss on specifically identified inventory. Any change in the assumptions used in assessing this valuation or selling costs could impact the carrying amount of the inventory on the consolidated statement of financial position with a corresponding impact made to cost of sales on the consolidated statement of income (loss).
Warranty provisions
Provisions must be established for possible product warranty expenses. The Company estimates its warranty exposure by taking into account past experience as well as any known technical problems and estimates of costs to resolve these issues. The Company estimates its exposure under these obligations based on an analysis of all identified or expected claims. Any change in the assumptions used could impact the value of the provision on the consolidated statement of financial position with a corresponding impact made to cost of sales on the consolidated statement of income (loss).
Impairment of non-financial assets
Assets that have an indefinite life, such as goodwill, are tested annually by the Company for impairment, or more frequently if events or circumstances indicate there may be impairment. All other assets must be reviewed by the Company at the end of each reporting period in order to determine whether there is an indication of possible impairment. Determining whether there are indicators of potential impairment is a matter of significant judgment. When determining the recoverable amount of a CGU, management prepares estimates based on assumptions such as the weighted-average cost of capital, the Earnings before interest, taxes, depreciation and amortization ("EBITDA") margin, revenue growth or the recoverable amount of each individual assets. Any change in the assumptions used could impact the carrying amount of the CGU.
Income taxes
The Company must estimate its income taxes in each jurisdiction in which it operates. This involves assessing the probability of using net operating losses against future taxable profits as well as evaluating positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. In the event these assessments are changed, there would be an adjustment to income tax expense with a corresponding adjustment to income tax balances on the consolidated statement of financial position.
Critical judgements in applying the Company's material policies
Deferred tax assets
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be used. Deferred income tax assets are reviewed at each statement of financial position date and amended to the extent that it is no longer probable that the related tax benefit will be realized. The Company estimates that future taxable profits will be sufficient to realize this asset.
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VELAN
3 New accounting standards and amendments
Accounting standards and amendments issued but not yet adopted
(material items only – as at February 28, 2026)
The following new standard has been issued by the IASB and is not yet effective for the Company's consolidated financial statements. The Company has not early adopted this standard.
IFRS 18 – Presentation and Disclosure in Financial Statements
In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements, which replaces IAS 1 Presentation of Financial Statements. IFRS 18 introduces new requirements related to the presentation of financial performance, including the classification of income and expenses into defined categories and the presentation of new mandatory subtotals in the statement of profit or loss. The Standard also introduces enhanced disclosure requirements, including disclosures of management-defined performance measures, and updated principles for aggregation and disaggregation of financial information.
IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, with early adoption permitted. The Company does not plan to early adopt this Standard. The adoption of IFRS 18 is not expected to have an impact on the recognition or measurement of amounts in the consolidated financial statements but will result in changes to presentation and disclosures.
Standards and amendments effective January 1, 2026
Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures, including amendments related to the classification and measurement of financial instruments, contracts referencing nature-dependent electricity, and annual improvements to IFRS Accounting Standards, are effective for annual reporting periods beginning on or after January 1, 2026. The Company is currently assessing these amendments and does not expect them to have a material impact on the consolidated financial statements.
4 Reclassification of comparative figures
As described in note 14 Provisions, the Company settled its current and future exposure to asbestos-related litigation. As these expenses were significant, management considered that the historical information needed to be presented separately to best depict the past performance of the Company, and it reclassified the element of the expenses in "Restructuring expenses" on the Consolidated Statements of Income (loss) and note 20 as follows:
| As previously reported | |
|---|---|
| February 28, 2025 | |
| (thousands) | $ |
| Administration cost – as would have been disclosed | 119,049 |
| Reclassification | (24,201) |
| Discontinued operations | (21,801) |
| Administration – as reclassified | 73,047 |
| Finance cost – as would have been disclosed | 75,948 |
| Reclassification | (76,211) |
| Finance cost – as reclassified | (263) |
VELAN
5 Disposal of Velan S.A.S. and Segault S.A.S.
On March 31, 2025, the Company completed the closing of the sale of its French subsidiaries Velan S.A.S. and Segault S.A.S. (the disposal group) for a total consideration of €192,500 ($208,227), including the transfer of an intercompany loan of $24,361, for a net cash consideration of $183,143 after related transaction costs.
Based on the net book value at the closing of the transaction and the related costs, a gain of $95,824 recorded in the fiscal year 2026.
a) The assets and liabilities of the disposal group is as follows:
| As at | |
|---|---|
| March 31, | |
| 2025 | |
| (thousands) | $ |
| Cash and cash equivalents | 25,063 |
| Accounts receivable | 47,700 |
| Income taxes recoverable | 1,042 |
| Inventories | 76,329 |
| Deposits and prepaid expenses | 2,104 |
| Property, plant and equipment | 16,319 |
| Intangible assets and goodwill | 8,960 |
| Deferred income taxes | (51) |
| Assets held for sale | 177,466 |
| Accounts payable and accrued liabilities | 24,057 |
| Customer deposits | 49,587 |
| Provisions | 3,707 |
| Current portion of long-term lease liabilities | 179 |
| Current portion of long-term debt | 1,129 |
| Long-term lease liabilities | 6,105 |
| Long-term debt | 2,717 |
| Income taxes payable | 861 |
| Deferred income taxes | 1,716 |
| Other liabilities | 89 |
| Liabilities held for sale | 90,147 |
| Net Assets | 87,319 |
| Net consideration received in cash | 183,143 |
| Gain on disposal | 95,824 |
b) The income and expenses, gains and losses relating to the discontinuation the disposal group have been subtracted from the Company's net income from continuing operations and are presented on a separate line in the consolidated statement of income. The result for the current period only covers one month due to the closing of the sale on March 31, 2025. The details of the elements making up this result are as follows:
VELAN
| For the years ended | ||
|---|---|---|
| (thousands) | March 31, 2025 | February 28, 2025 |
| Sales | 4,764 | 95,778 |
| Cost of sales | 3,127 | 58,640 |
| Gross profit | 1,637 | 37,138 |
| Administration costs | 1,782 | 21,801 |
| Gain on disposal of Velan S.A.S. and Segault S.A.S. | (95,824) | - |
| Reclassification of foreign currency translation of foreign subsidiaries from discontinued operations | 12,456 | - |
| Other expense (income) | 782 | 21 |
| Operating income (loss) | 82,441 | 15,316 |
| Finance costs – net | (128) | (82) |
| Income (loss) before income taxes | 82,569 | 15,398 |
| Income tax expense | 23,970 | 23,652 |
| Net profit (loss) for the period | 58,599 | (8,254) |
c) Cash flows generated by the disposal group for the reporting periods under review until its disposal are as follows:
| For the years ended | ||
|---|---|---|
| March 31, | February 28, | |
| 2025 | 2025 | |
| (thousands) | $ | $ |
| Operating activities | (948) | 12,042 |
| Investing activities | 8,912 | (5,667) |
| Financing activities | 781 | (214) |
| Effect of exchange rate differences on cash and cash equivalents | - | 192 |
| Net change in cash during the period from discontinued operations | 8,745 | 6,354 |
6 Accounts receivable
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| $ | $ | |
| Trade accounts receivable | 69,308 | 54,100 |
| Loss allowance | (621) | (381) |
| Other accounts receivables | 6,682 | 8,893 |
| 75,369 | 62,612 |
VELAN
The table below summarizes the movements in the loss allowance:
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Balance – Beginning of year | 381 | 224 |
| Loss allowance expense (reversal) | 229 | 166 |
| Recoveries of trade accounts receivable | - | (3) |
| Write-off of trade accounts receivable | - | (3) |
| Foreign exchange | 11 | (3) |
| Balance – End of year | 621 | 381 |
The loss allowance is included in the administration costs on the consolidated statement of income (loss). Amounts charged to the loss allowance account are generally written off when there is not a reasonable expectation of recovery.
7 Inventories
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Raw materials | 17,238 | 22,001 |
| Work in process and finished parts | 93,898 | 77,450 |
| Finished goods | 36,004 | 35,518 |
| 147,140 | 134,969 |
As a result of variations in the ageing of its inventories, the Company recognized a net decrease of inventory provision for the year of $57 (2025 – net increase of $10,466), including reversals of $11,378 (2025 – $6,180).
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VELAN
8 Subsidiaries and transactions with non-controlling interests
Interest in subsidiaries
Set out below are the Company's principal subsidiaries as at February 28, 2026. Unless otherwise stated, the subsidiaries have share capital consisting solely of ordinary shares, which are held directly by the Company, and the proportion of ownership interests held equals the voting rights held by the Company. The country of incorporation or registration is also their principal place of business.
| Name of entity | Functional currency | Country of incorporation | % of ownership held by the Company | % of ownership held by the non-controlling interests | Principal activities | ||
|---|---|---|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | ||||
| Velan Valve Corp. (note 14) | U.S. Dollar | U.S.A. | - | 100 | - | - | Valve Manufacturer |
| Velan Valve United States Opco Inc. | U.S. Dollar | U.S.A. | 100 | 100 | - | - | Valve Manufacturer |
| Velan Ltd. | U.S. Dollar | Korea | 100 | 100 | - | - | Valve Manufacturer |
| Velan Gulf Manufacturing Co. Ltd. | Saudi Riyal | Saudi Arabia | 60 | 60 | 40 | 40 | Valve Manufacturer |
| Velan Valvulas Industrials Lda. | Euro | Portugal | 100 | 100 | - | - | Valve Manufacturer |
| Velan S.A.S. (note 5) | Euro | France | - | 100 | - | - | Valve Manufacturer |
| Segault S.A.S. (note 5) | Euro | France | - | 100 | - | - | Valve Manufacturer |
| Velan GmbH | Euro | Germany | 100 | 100 | - | - | Valve Distribution |
| Velan ABV S.r.l. | Euro | Italy | 100 | 100 | - | - | Valve Manufacturer |
| Velan Valvac Manufacturing Co. Ltd. | U.S. Dollar | Taiwan | 90 | 90 | 10 | 10 | Valve Manufacturer |
| Velan Valve (Suzhou) Co. Ltd. | U.S. Dollar | China | 85 | 85 | 15 | 15 | Valve Manufacturer |
| Velan Valves India Private Limited | Indian Rupee | India | 100 | 100 | - | - | Valve Manufacturer |
VELAN
9 Property, plant and equipment
| (thousands) | Land $ | Buildings $ | Machinery & equipment $ | Furnitures & fixtures $ | Data processing equipment $ | Rolling stock $ | Leasehold improvements $ | Right-of-use assets (note 10) $ | Total $ |
|---|---|---|---|---|---|---|---|---|---|
| At February 29, 2024 | |||||||||
| Cost | 9,412 | 54,291 | 136,721 | 8,604 | 4,557 | 2,002 | 3,915 | 17,790 | 237,292 |
| Accumulated depreciation | - | (31,403) | (114,564) | (7,999) | (3,762) | (1,767) | (2,617) | (5,262) | (167,374) |
| 9,412 | 22,888 | 22,157 | 605 | 795 | 235 | 1,298 | 12,528 | 69,918 | |
| Year ended February 28, 2025 | |||||||||
| Beginning balance | 9,412 | 22,888 | 22,157 | 605 | 795 | 235 | 1,298 | 12,528 | 69,918 |
| Transfer to Assets held for sale (note 5) | (1,395) | (2,838) | (5,887) | (208) | (204) | (64) | (1,255) | (5,983) | (17,835) |
| Additions | - | 581 | 4,068 | 170 | 662 | 55 | 337 | 1,187 | 7,060 |
| Modifications to lease terms | - | - | - | - | - | - | - | 464 | 464 |
| Disposals | - | - | (71) | 13 | - | - | - | (173) | (231) |
| Depreciation | - | (1,079) | (3,627) | (131) | (234) | (78) | (138) | (1,576) | (6,864) |
| Exchange differences | (120) | (194) | (376) | (18) | (24) | (6) | (51) | (374) | (1,163) |
| 7,897 | 19,358 | 16,264 | 431 | 994 | 142 | 190 | 6,073 | 51,349 | |
| At February 28, 2025 | |||||||||
| Cost | 7,897 | 43,797 | 116,595 | 8,545 | 4,563 | 1,989 | 1,919 | 11,206 | 196,511 |
| Accumulated depreciation | - | (24,439) | (100,331) | (8,114) | (3,569) | (1,847) | (1,729) | (5,133) | (145,162) |
| 7,897 | 19,358 | 16,264 | 431 | 994 | 142 | 190 | 6,073 | 51,349 | |
| Year ended February 28, 2026 | |||||||||
| Beginning balance | 7,897 | 19,358 | 16,264 | 431 | 994 | 142 | 190 | 6,073 | 51,349 |
| Additions | - | 424 | 4,072 | 186 | 505 | 119 | 85 | 399 | 5,790 |
| Modifications to lease terms | 4 | 4 | |||||||
| Disposals | - | - | (133) | (1) | - | (1) | - | (24) | (159) |
| Depreciation | - | (1,048) | (3,393) | (137) | (496) | (68) | (165) | (1,591) | (6,898) |
| Exchange differences | 21 | 74 | 365 | 54 | (141) | 1 | 24 | 451 | 849 |
| 7,918 | 18,808 | 17,175 | 533 | 862 | 193 | 134 | 5,312 | 50,935 | |
| At February 28, 2026 | |||||||||
| Cost | 7,918 | 44,502 | 121,734 | 8,751 | 4,776 | 2,121 | 2,248 | 12,023 | 204,073 |
| Accumulated depreciation | - | (25,694) | (104,559) | (8,218) | (3,914) | (1,928) | (2,114) | (6,711) | (153,138) |
| 7,918 | 18,808 | 17,175 | 533 | 862 | 193 | 134 | 5,312 | 50,935 |
Depreciation expense of $6,899 (2025 – $6,864) is included in the consolidated statement of income (loss): $5,594 (2025 – $5,577) in "cost of sales" and $1,305 (2025 – $1,288) in "administration costs".
VELAN
10 Leases
a) Right-of-use assets
| Carrying value by asset class | As at | |
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Buildings | 3,836 | 4,423 |
| Machinery & Equipment | 465 | 577 |
| Data Processing Equipment | 118 | 149 |
| Rolling Stock | 893 | 924 |
| 5,312 | 6,073 | |
| Depreciation by asset class | As at | |
| --- | --- | --- |
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Land | - | - |
| Buildings | 1,017 | 993 |
| Furniture & Fixtures | - | - |
| Machinery & Equipment | 146 | 140 |
| Data Processing Equipment | 41 | 50 |
| Rolling Stock | 387 | 393 |
| 1,591 | 1,576 |
b) Long-term lease liabilities
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Current portion of long-term lease liabilities | 1,592 | 1,437 |
| Long-term lease liabilities | 3,968 | 4,727 |
| 5,560 | 6,164 |
VELAN
Amounts recognized in the consolidated statement of income (loss):
| Fiscal years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| $ | $ | |
| Expenses relating to short-term leases (included in “cost of sales” and “administration costs”) | 54 | 159 |
| Expenses relating to leases of low-value assets, excluding short-term leases of low value (included in “cost of sales” and “administration costs”) | 126 | 14 |
| Expenses related to variable lease payments (included in “cost of sales” and “administration costs”) | 27 | 117 |
| Interest expenses (included in “finance costs”) | 178 | 358 |
11 Intangible assets and goodwill
| (thousands) | Goodwill $ | Computer software $ | Patent, products & designs $ | Others $ | Total $ |
|---|---|---|---|---|---|
| At February 29, 2024 | |||||
| Cost | 8,463 | 5,069 | 22,169 | 5,849 | 41,550 |
| Accumulated amortization | - | (4,349) | (14,811) | (5,847) | (25,007) |
| 8,463 | 720 | 7,358 | 2 | 16,543 | |
| Year ended February 28, 2025 | |||||
| Beginning balance | 8,463 | 720 | 7,358 | 2 | 16,543 |
| Transfer to Assets held for sale | (7,884) | (1,097) | (9) | - | (8,989) |
| Additions | - | 754 | 1,548 | - | 2,302 |
| Amortization | - | (202) | (2,007) | - | (2,209) |
| Exchange differences | (579) | (30) | (1,142) | (2) | (1,753) |
| - | 145 | 5,748 | - | 5,893 | |
| At February 28, 2025 | |||||
| Cost | - | 2,124 | 21,650 | 14 | 23,788 |
| Accumulated amortization | - | (1,979) | (15,902) | (14) | (17,895) |
| - | 145 | 5,748 | - | 5,893 |
VELAN
| (thousands) | Computer software | Patent, products & designs | Total |
|---|---|---|---|
| $ | $ | $ | |
| Year ended February 28, 2026 | |||
| Beginning balance | 145 | 5,748 | 5,893 |
| Additions | 64 | 1,485 | 1,549 |
| Disposal | - | (936) | (936) |
| Amortization | (127) | (2,149) | (2,276) |
| Exchange differences | 3 | 244 | 247 |
| 85 | 4,392 | 4,477 | |
| At February 28, 2026 | |||
| Cost | 2,283 | 24,728 | 27,011 |
| Accumulated amortization | (2,198) | (20,336) | (22,534) |
| 85 | 4,392 | 4,477 |
Amortization expense of $2,276 (2025 – $2,209) is included in the consolidated statement of income (loss): $786 (2025 – $725) in “cost of sales” and $1,490 (2025 – $1,484) in “administration costs”.
As at February 28, 2026, the Company capitalized $1,485 (2025 – $1,548) of development costs, net of research and development tax credits of $211 (2025 - 293), as patents, products and designs.
12 Credit facilities
| As at | ||
|---|---|---|
| February 28, 2026 | February 28, 2025 | |
| (thousands) | $ | $ |
| Velan Korea (note a) | 2,723 | 2,508 |
| Velan North America (note b) | 7,940 | - |
| Velan India (note c) | 1,199 | - |
| 11,862 | 2,508 |
a) The company borrowed an amount of $2,723 ($2,508 in 2025) on lines of credit in Korea with interest rates of 4.55% to 6.88%. These lines of credit mature in July and August 2026.
b) The Company reported that on May 21, 2025, it entered a new, $25 million, three-year, revolving credit facility (the "Credit Agreement"), the Credit Agreement also includes a $5M swing line and a $5M letter of credit facility. The Credit Agreement replaces the prior ABL agreement, dated as of February 28, 2025, which matured on the closing of the French and Asbestos transactions. The revolving credit facility may be used for general corporate purposes. The credit facility was funded and operational on June 25, 2025. The credit facility matures on May 21, 2028, and may be extended at maturity, subject to lender and borrower agreement. As at February 28, 2026, the Company had drawn down $7,940 (2025 – Nil) on the revolving credit facility and had $4,785 (2025 - $1,789) in the form of outstanding letters of credit and letters of guarantee on a total of $49,153 (2025 - $35,316) borrowing availability.
The aggregate net book value of the assets pledged as collateral under the revolving credit facility amounted to $12,533 (2025 - $122,307).
- 24 -
VELAN
c) The Company borrowed an amount of $1,199 (Nil in 2025) as PCFC (Pre-Shipment Credit in Foreign Currency) short-term working capital loan from Yes Bank in India with Interest rate of 5.23%. These PCFC short-term working capital loan mature in June 2026.
Foreign subsidiaries have the following credit facilities available as at February 28, 2026. These facilities are only available for the subsidiary that entered the facility.
| Credit facilities available (thousands) | As at February 28, 2026 | As at February 28, 2025 | Borrowing Rates |
|---|---|---|---|
| European subsidiaries | $35,544 (€30,089) | $36,156 (€34,190) | 0.70% to 6.58% |
| Korean subsidiaries | $3,226 (KW4,649,000) | $3,350 (KW4,679,200) | 4.55% to 6.88% |
| Indian subsidiary | $2,492 (INR 227,000) | $2,685 (INR 227,000) | 7.00% |
| Taiwanese subsidiary | $382 (NTD 12,000) | $370 (NTD 12,000) | 1.65% |
| Chinese subsidiary | $1,458 (CNY 10,000) | $967 (CNY 7,000) | 3.00% |
The majority of the facilities are available in the form of letter of credit. They are secured by corporate guarantees. Most of these credit facilities have variable borrowing rates based on EURIBOR, KORIBOR, EONIA or prime rate. The borrowing rates listed above are the rates in effect as at February 28, 2026. The terms of the above facilities range from annual renewal to an indefinite term. The aggregate net book value of the assets pledged under the above credit facilities amounted to $1,629 (2025 – $1,621).
An amount of $15,804 (2025 – $18,197) was drawn against these secured credit facilities in the form of letters of credit and letters of guarantee.
13 Account payable and accrued liabilities
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| $ | $ | |
| Trade accounts payable | 47,206 | 30,066 |
| Goods and services taxes payable | 4,368 | 3,774 |
| Commissions payable | 2,407 | 1,573 |
| Accrued liabilities | 15,107 | 24,529 |
| Accrued payroll expenses | 15,249 | 17,775 |
| Other | 757 | 1,059 |
| 85,094 | 78,776 |
VELAN
14 Provision
| (thousands) | Provision for performance guarantees (note a) $ | Warranty provision (note b) $ | Asbestos provision (note c) $ | Other provision $ | Total $ |
|---|---|---|---|---|---|
| Balance – February 29, 2024 | 2,705 | 4,882 | 78,200 | 2,400 | 86,309 |
| Additions | 3,782 | 810 | 28,260 | - | 32,852 |
| Accretion | - | - | 47,951 | - | 47,951 |
| Payments | (1,012) | (151) | (9,404) | - | (10,567) |
| Reversals | (697) | (447) | - | - | (1,144) |
| Liabilities held for sale | (959) | (2,145) | - | - | (3,104) |
| Exchange differences | (135) | (83) | - | - | (218) |
| Balance – February 28, 2025 | 3,684 | 2,866 | 145,007 | 2,400 | 153,957 |
| Less: Current provision | 3,684 | 2,866 | 145,007 | 2,400 | 153,957 |
| Long-term provision | - | - | - | - | - |
| Balance – February 28, 2025 | 3,684 | 2,866 | 145,007 | 2,400 | 153,957 |
| Additions | 2,072 | 1,772 | - | 2,600 | 6,444 |
| Payments | (1,362) | (2,106) | (145,007) | - | (148,475) |
| Reversals | (2,033) | (347) | - | - | (2,380) |
| Exchange differences | 428 | 253 | - | - | 681 |
| Balance – February 28, 2026 | 2,789 | 2,438 | - | 5,000 | 10,227 |
| Less: Current provision | 2,789 | 2,438 | - | 5,000 | 10,227 |
| Long-term provision | - | - | - | - | - |
a) The Company's provision for performance guarantees consists of possible late delivery and other contractual noncompliance penalties or liquidated damages. Management's best estimates consider the specific contractual terms, past experience and a probability of potential cash outflows.
b) The Company offers various warranties to its customers. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. Factors that could impact the estimated claim information include the success of the Company's productivity and quality initiatives, as well as parts and labour costs.
c) Two of the Company's U.S. subsidiaries were named as defendants in a number of pending lawsuits that seek to recover damages for personal injury allegedly caused by exposure to asbestos containing products manufactured and sold in the past. The asbestos provision estimates the potential liability related to all future settlement costs taking into consideration, among other factors, past settlement experience and a projection of future claims. At the same time of the disposal of Velan S.A.S. and Segault S.A.S. (the disposal, note 5), the Company sold the two U. S. subsidiaries to an affiliate of Global Risk Capital, thereby permanently removing its exposure to Asbestos-related litigation in the United States. Part of the proceed received in March 2025 from the disposal was used in April 3, 2025, to pay an amount of $143 million for this settlement. At that time, the Company reclassified the non-current provision to current provision and accelerated the accretion expense for an impact of $47,951.
- 26 -
VELAN
15 Long-term debt
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| $ | $ | |
| Canadian entity | ||
| Secured bank loan ($CAD 17,358; February 28, 2025 - $CAD 18,460) (note a) | 12,720 | 12,760 |
| Italian subsidiary | ||
| Unsecured bank loan (€2,611; February 28, 2025 - €1,631) (note b) | 3,084 | 1,692 |
| Unsecured state bank loan (€68; February 28, 2025 - €333) (note c) | 81 | 346 |
| Gulf Subsidiary | ||
| Unsecured third-party loan (note d) | 440 | 200 |
| Other (note e) | 1,900 | 1,205 |
| 18,225 | 16,203 | |
| Less: current portion | 3,737 | 2,096 |
| 14,488 | 14,107 |
a) The secured mortgage bank loan of $12,720 ($CAD 17,358) bears interest at 3.55% with principal repayments of $65 repayable over 16 years
b) The unsecured mini loans total $3,084 (€2,611) bears interest at a range of [Euribor + 0.40% - Euribor + 0.55%]. Repayments include monthly payments of $525 and quarterly payments of $62. These loans expire in 2026.
c) The unsecured bank loan of $81 (€68) bears interest of Euribor + 1% and is repayable in monthly payments of $19. The loan expires in 2026.
d) The unsecured third-party loan of $440 bears interest 3.00% and is repayable at maturity. The loan expires in 2027.
e) Included in Other is an amount of $1,900 (¥12,945) (February 28, 2025 – $1,205 (¥8,776)) related to an unconditional put option held by a minority shareholder in one of the Company's subsidiary companies. This is recognized as a liability instead of non-controlling interest.
The aggregate net book value of the assets pledged as collateral under long-term debt agreements amounted to $12,720 (2025 – $12,759)
The carrying value of long-term debt approximates its fair value.
16 Share capital
a) Authorized – in unlimited number
Preferred Shares, issuable in series
Subordinate Voting Shares
Multiple Voting Shares (five votes per share), convertible into Subordinate Voting Shares
- 27 -
VELAN
b) Issued
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| 6,019,068 Subordinate Voting Shares | 65,569 | 65,569 |
| 15,566,567 Multiple Voting Shares | 7,126 | 7,126 |
| 72,695 | 72,695 |
c) The Company has a DSU plan allowing the Board of Directors, through its CGHR Committee, to grant DSUs to certain of its independent directors and full-time employees. A DSU is a notional unit whose value is based on the volume weighted average price of the Company's Subordinate Voting Shares on the Toronto Stock Exchange for the 20 trading days immediately preceding the grant date. The DSU plan is non-dilutive since vested DSUs shall be settled solely in cash.
Each DSU grant shall vest at the earlier of:
- the sixth anniversary of its grant date; or
- the day the holder of the DSU attains the retirement age, which, unless otherwise determined by the CGHR Committee, is the earliest of age 65, or the age at which the combination of years of service at the Company plus his or her age is equal to 75, being understood that the retirement age shall not be less than 55 years old.
Additionally, a grant made to an independent director will be deemed immediately vested.
In the event of a change of control, the Committee as constituted immediately prior to the change in control shall determine in its sole discretion the appropriate conversion, mitigation or redemption of DSUs taking into account the terms and conditions of the change of control.
Movements in outstanding DSUs and related expense were as follow:
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| In numbers of DSUs | ||
| Opening balance | 306,409 | 151,049 |
| Issued | 83,896 | 155,722 |
| Settled | (22,839) | - |
| Forfeited | (11,799) | (362) |
| Closing balance | 355,667 | 306,409 |
| DSU expense for the years | ($714) | ($1,944) |
| Fair value of vested outstanding DSUs, end of years | $2,623 | $2,059 |
VELAN
17 Cost of sales
| For the years ended | ||
|---|---|---|
| (thousands) | February 28 | |
| 2026 | February 28 | |
| 2025 | ||
| $ | $ | |
| Change in inventories of finished goods and work in progress | 8,897 | (12,079) |
| Raw materials and consumables used | 128,766 | 142,728 |
| Employee expenses, excluding scientific research investments tax credits | 49,689 | 48,334 |
| Depreciation and amortization | 5,572 | 5,615 |
| Movement in inventory provisions – net | 402 | 10,593 |
| Foreign exchange loss | (1,078) | (1,292) |
| Other production overheads costs | 23,065 | 16,380 |
| 215,313 | 210,279 |
18 Administration costs
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, | |
| 2026 | February 28, | |
| 2025 | ||
| $ | $ | |
| Employee expenses, excluding scientific research investments tax credits expenses | 38,681 | 43,610 |
| Scientific research investment tax credits | (391) | (469) |
| Commissions | 2,840 | 3,839 |
| Freight to customers | 3,230 | 3,180 |
| Professional fees | 7,925 | 6,139 |
| Movement in loss allowance | 224 | 163 |
| Depreciation and amortization | 2,738 | 2,698 |
| Other | 13,756 | 9,443 |
| 69,003 | 68,603 |
VELAN
19 Employee expense
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| Wages and salaries | 61,200 | 62,247 |
| Social security costs | 20,711 | 20,656 |
| Scientific research investment tax credits | (391) | (469) |
| Share-based compensation | 933 | 2,154 |
| Other | 5,526 | 4,573 |
| 87,979 | 89,161 |
Compensation for executive and non-executive directors and certain members of senior management, including salaries and other short-term benefits and share-based compensation in the form of DSUs amounted to $8,089 (2025 - $8,005).
20 Restructuring expenses
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| Transaction costs | 9,614 | 24,201 |
| Asbestos-related costs (note 14) | - | 76,211 |
| 9,614 | 100,412 |
21 Research and development expenses
Research and development expenses are included in administration costs and consist of the following:
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| Research and development expenditures | 3,002 | 2,828 |
| Less: Scientific research investment tax credits | (391) | (469) |
| 2,611 | 2,359 |
VELAN
22 Income taxes
In connection with the disposal of Velan S.A.S. and Segault S.A.S. in March 2025, the Company recognized in its results from continuing operations a previously unrecognized tax benefit in an amount of $23,110 ($20,242 in 2025) which was utilized to offset the income tax expense in relation to the disposal.
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Current taxes | 9,014 | 5,381 |
| Deferred income tax | (24,066) | (19,932) |
| Income tax expense(recovery) | (15,052) | (14,551) |
The taxes on the Company's income before taxes differ from the amount that would arise using the statutory tax rates applicable to income of the consolidated entities as follows:
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Income tax at statutory rate of 26.50% | 2 | (21,400) |
| Tax effects of: | ||
| Difference in statutory tax rates in foreign jurisdiction | 147 | 1,263 |
| Non-deductible (taxable) foreign exchange losses (gains) | (813) | 255 |
| Deferred tax assets not recognized (utilized) | (14,004) | 6,101 |
| Other differences | (384) | (770) |
| Income tax expense (recovery) | (15,052) | (14,551) |
VELAN
The analysis of deferred income tax assets and deferred income tax liabilities is as follows:
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Deferred income tax assets: | ||
| To be realized after more than 12 months | 5,277 | 4,812 |
| To be realized within 12 months | 6 | 20,289 |
| Deferred income taxes liabilities | ||
| To be realized after more than 12 months | (1,346) | (737) |
| To be realized within 12 months | - | - |
| Net deferred income tax asset | 3,937 | 24,364 |
The movement of the net deferred income tax asset account is as follows:
| As at | ||
|---|---|---|
| (thousands) | February 28 2026 $ | February 28 2025 $ |
| Balance – Beginning of the year | 24,364 | 1,731 |
| Transferred to assets held for sale | - | 2,454 |
| Recovery (usage) of deferred income taxes in consolidated statement of income (loss) | (20,677) | 19,932 |
| Exchange differences | 250 | 247 |
| Net deferred income tax asset | 3,937 | 24,364 |
VELAN
The significant components of the net deferred income tax asset are as follows:
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Property, plant and equipment | (248) | (261) |
| Intangible assets | - | - |
| Non-deductible provisions and reserves | 2,085 | 2,402 |
| Inventories | 1,103 | 840 |
| Non-capital loss carry forwards | 1,467 | 21,437 |
| Other | (470) | (54) |
| Net deferred income tax asset | 3,937 | 24,364 |
The Company did not recognize deferred income tax assets of $30,064 (2025 – $26,531) in respect of non-capital losses amounting to $114,859 (2025 – $101,381) that can be carried forward to reduce taxable profits in future years. These losses expire between 2038 and indefinitely.
Deferred income tax liabilities of $9,294 (2025 – $7,330) have not been recognized for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are not expected to reverse in the foreseeable future. Unremitted earnings as at February 28, 2026 totalled $165,589 (2025 – $253,362).
23 Income (Loss) per share
a) Basic and diluted
Basic Income (loss) per share is calculated by dividing the net income (loss) attributable to the Subordinate and Multiple Voting shareholders by the weighted average number of Subordinate and Multiple Voting Shares outstanding during the year.
| For the years ended | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Net Income (loss) attributable to Subordinate and Multiple voting shareholders | 73,909 | (75,500) |
| Weighted average number of Subordinate and Multiple voting shares outstanding. | 21,585,635 | 21,585,635 |
| Basis and diluted income (loss) per share | $3.42 | $(3.50) |
Diluted Income (loss) per share is calculated by adjusting the weighted average number of Subordinate and Multiple Voting Shares outstanding to assume conversion of all dilutive potential Subordinate and Multiple Voting Shares. The Company does not have any dilutive potential Subordinate and Multiple Voting Shares.
- 33 -
VELAN
24 Commitments
In the normal course of business, the Company issues performance bond guarantees related to product warranty and on-time as well as advance guarantees and bid bonds. As at February 28, 2026, the aggregate maximum value of these guarantees, if exercised, amounted to $15,654 (2025 - $13,285). The guarantees expire as follows:
| As at | |
|---|---|
| (thousands) | February 28, 2026 |
| $ | |
| February 28, 2027 | 7,992 |
| February 29, 2028 | 6,063 |
| February 28, 2029 | 1,580 |
| February 28, 2030 | 19 |
| February 28, 2031 | - |
| Subsequent years | - |
| 15,654 |
25 Segment reporting
The Company reflects its results under a single operating and reportable segment. The geographic distribution of its sales is as follows:
| Fiscal year ended February 28, 2026 | |||||||
|---|---|---|---|---|---|---|---|
| (thousands) | Canada $ | United States $ | France $ | Italy $ | Other $ | Consolidation adjustment $ | Consolidated $ |
| Sales | |||||||
| Customers - | |||||||
| Domestic | 30,013 | 99,427 | - | 1,008 | 21,337 | - | 151,785 |
| Export | 41,642 | 221 | - | 96,662 | 6,095 | - | 144,620 |
| Intercompany (export) | 31,325 | 7,195 | - | 3,073 | 63,947 | (105,540) | - |
| 102,980 | 106,843 | 100,743 | 91,379 | (105,540) | 296,405 | ||
| Property, plant and equipment | 27,849 | - | - | 4,872 | 18,214 | - | 50,935 |
| Intangible assets and goodwill | 5,969 | - | - | 364 | 50 | (1,906) | 4,477 |
| Other identifiable assets | 42,677 | - | - | 95,773 | 381,266 | (228,521) | 291,195 |
| Total identifiable assets | 76,495 | - | - | 101,009 | 399,530 | (230,427) | 346,607 |
VELAN
| Fiscal year ended February 28, 2025 | |||||||
|---|---|---|---|---|---|---|---|
| (thousands) | Canada $ | United States $ | France $ | Italy $ | Other $ | Consolidation adjustment $ | Consolidated $ |
| Sales | |||||||
| Customers - | |||||||
| Domestic | 24,201 | 114,665 | - | 36,453 | 18,597 | - | 193,916 |
| Export | 29,268 | 877 | - | 40,472 | 30,663 | - | 101,280 |
| Intercompany (export) | 48,771 | 10,061 | - | 158 | 57,129 | (116,119) | - |
| 102,240 | 125,603 | - | 77,083 | 106,389 | (116,119) | 295,196 | |
| Property, plant and equipment | 23,376 | 5,160 | - | 4,690 | 18,123 | - | 51,349 |
| Intangible assets and goodwill | 5,822 | - | - | 1,195 | 35 | (1,159) | 5,893 |
| Other identifiable assets | 133,868 | 66,748 | - | 71,416 | 158,642 | (162,712) | 267,962 |
| Assets held for sale | - | - | 176,762 | - | - | - | 176,762 |
| Total identifiable assets | 163,066 | 71,908 | 176,762 | 77,301 | 176,800 | (163,871) | 501,966 |
The sales distribution by customer geographic location is as follows:
| Fiscal year ended February 28, 2026 | ||||||
|---|---|---|---|---|---|---|
| (thousands) | Africa / Middle East $ | Europe $ | North America $ | Asia / Pacific $ | South & Central America $ | Consolidated $ |
| Sales | 18,601 | 33,831 | 145,570 | 93,256 | 5,147 | 296,405 |
| Fiscal year ended February 28, 2025 | ||||||
| (thousands) | Africa / Middle East $ | Europe $ | North America $ | Asia / Pacific $ | South & Central America $ | Consolidated $ |
| Sales | 31,103 | 37,173 | 159,400 | 64,556 | 2,964 | 295,196 |
26 Financial risk management
The Company's activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and fair value interest rate risk), credit risk and liquidity risk. The Company's overall financial risk management program focuses on mitigating unpredictable financial market risks and their potential adverse effects on the Company's financial performance.
The Company's financial risk management is generally carried out by the corporate finance team, based on policies approved by the Board of Directors. The identification, evaluation and hedging of the financial risks are the responsibility of the corporate finance team in conjunction with the finance teams of the Company's subsidiaries. The Company uses derivative financial instruments to hedge certain risk exposures. Use of derivative financial instruments is subject to a policy which requires that no derivative transaction be entered into for the purpose of
VELAN
establishing a speculative or leveraged position (the corollary being that all derivative transactions are to be entered into for risk management purposes only).
Overview
The Company's financial instruments and the nature of risks which they may be subject to are set out in the next section.
Market risk
Currency risk
Currency risk on financial instruments is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency other than a company's functional currency. The Company has operations with different functional currencies, each of which will be exposed to currency risk based on its specific functional currency.
When possible, the Company matches cash receipts in a foreign currency with cash disbursements in that same currency. The remaining anticipated net exposure to foreign currencies is hedged. To hedge this exposure, the Company uses foreign currency derivatives, primarily foreign exchange forward contracts. These derivatives are not designated as hedges for accounting purposes.
The amounts outstanding under derivatives contracts as at February 28, 2026, and February 28, 2025, are as follows:
| Range of exchange rates | Fair value (in thousands of U.S. dollars) | Notional amount (in thousands recorded currency) | ||||
|---|---|---|---|---|---|---|
| February 28, 2026 | February 28, 2025 | February 28, 2026 $ | February 28, 2025 $ | February 28, 2026 | February 28, 2025 | |
| Foreign exchange forward contracts | ||||||
| Sell US$ for CA$ - 0 to 12 months | - | - | - | - | - | - |
| Buy US$ for CA$ - 0 to 12 months | - | - | - | - | - | - |
| Sell US$ for € - 0 to 12 months | - | - | - | - | - | - |
| Buy US$ for € - 0 to 12 months | 1.04 to 1.10 | 1.04 to 1.10 | (45) | (405) | US$1,000 | US$15,005 |
Foreign exchange forward contracts are contracts whereby the Company has the obligation to sell or buy the currencies at the strike price. The fair value of the foreign currency instruments is recorded in the consolidated statement of income (loss) and reflects the estimated amounts the Company would have paid or received to settle these contracts as at the financial position date. Unrealized gains are recorded as derivative assets and unrealized losses as derivative liabilities on the consolidated statement of financial position.
The following table provides a sensitivity analysis of the Company's most significant foreign exchange exposures related to its net position in the foreign currency financial instruments, which includes cash and cash equivalents, short-term investments bank indebtedness, short-term bank loans, derivative financial instruments, accounts receivable, accounts payable and accrued liabilities, customer deposits, provision for performance guarantees and long-term debt, including interest payable. A hypothetical strengthening of 5.0% of the following currencies would have had the following impact for the fiscal years ended February 28, 2026, and February 28, 2025:
| Net income (loss) | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| $ | $ | |
| Canadian dollar strengthening against the U.S. dollar | 2,329 | (1,420) |
| Euro strengthening against the U.S. dollar | 2,283 | (4) |
| Indian rupee strengthening against the U.S. dollar | 680 | 451 |
A hypothetical weakening of 5.0% of the above currencies would have had the opposite impact for both fiscal years.
- 36 -
VELAN
For the purposes of the above analysis, foreign exchange exposure does not include the translation of subsidiaries into the Company's reporting currency. For those subsidiaries whose functional currency is other than the reporting currency (U.S. dollar) of the Company, such exposure would impact other comprehensive income or loss.
Cash flow and fair value interest rate risk
The Company's exposure to interest rate risk is related primarily to its credit facilities, long-term debt and cash and cash equivalents. Items at variable rates expose the Company to cash flow interest rate risk, and items at fixed rates expose the Company to fair value interest rate risk. The Company's long-term debt and credit facilities predominantly bear interest, and its cash and cash equivalents earn interest at variable rates. An assumed 0.5% change in interest rates would have no significant impact on the Company's net income or cash flows.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises primarily from the Company's trade accounts receivable.
The Company's credit risk related to its trade accounts receivable is concentrated. As at February 28, 2026, three (2025 – four) customers accounted for more than 5% each of its trade accounts receivable, of which one customer accounted for 17.0% (2025 – 15.8%) and the Company's ten largest customers accounted for 60.6% (2025 – 52.8%) of trade accounts receivable. In addition, one customer accounted for 12.3% of the Company's sales (2025 – 13.6%).
In order to mitigate its credit risk, the Company performs a continual evaluation of its customers' credit and performs specific evaluation procedures on all its new customers. In performing its evaluation, the Company analyzes the ageing of accounts receivable, historical payment patterns, customer creditworthiness and current economic trends. A specific credit limit is established for each customer and reviewed periodically. For some trade accounts receivable, the Company may obtain security in the form of credit insurance which can be called upon if the counterparty is in default under the terms of the agreement.
The Company applies the IFRS 9 simplified approach to measure expected credit losses using a lifetime expected credit loss allowance for trade receivables. The expected credit loss rates are based on the Company's historical credit losses experienced over the last fiscal year prior to period end. The historical rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Company's customers.
The lifetime expected loss allowance for trade receivables was determined as follows:
| As at February 28, 2026 | |||||
|---|---|---|---|---|---|
| Current | Past due more than 30 days | Past due 31 to 90 days | Past due more than 90 days | Total | |
| Expected loss rate | 0.000% | 0.000% | 0.000% | 4.011% | |
| Gross carrying amount | 40,347 | 5,107 | 8,372 | 15,482 | 69,308 |
| Loss allowance | - | - | - | 621 | 621 |
| As at February 28, 2025 | |||||
| --- | --- | --- | --- | --- | --- |
| Current | Past due more than 30 days | Past due 31 to 90 days | Past due more than 90 days | Total | |
| Expected loss rate | 0.003% | 0.009% | 0.004% | 11.533% | |
| Gross carrying amount | 34,505 | 10,866 | 5,313 | 3,286 | 53,970 |
| Loss allowance | 1 | 1 | - | 379 | 381 |
The Company is also exposed to credit risk relating to derivative financial instruments, cash and cash equivalents and short-term investments, which it manages by dealing with highly rated financial institutions. The Company's primary credit risk is limited to the carrying value of the trade accounts receivable and gains on derivative assets.
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Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continually monitoring its future cash requirements. Cash flow forecasting is performed in the operating entities and aggregated by the Company's corporate finance team. The Company's policy is to maintain sufficient cash and cash equivalents and available credit facilities in order to meet its present and future operational needs.
The following tables present the Company's financial liabilities identified by type and future contractual dates of payment based on contractual terms in place as at:
| As at February 28, 2026 | ||||||
|---|---|---|---|---|---|---|
| Carrying value $ | Less than 1 Year $ | 1 to 3 Years $ | 4 to 5 Years $ | After 5 Years $ | Total $ | |
| Long-term debt | 18,225 | 3,737 | 3,160 | 2,345 | 12,720 | 21,962 |
| Long-term lease liabilities | 5,560 | 1,725 | 2,544 | 1,162 | 455 | 5,886 |
| Accounts payable and accrued liabilities | 85,094 | 85,094 | - | - | - | 85,094 |
| Customer Deposits | 25,795 | 20,068 | 3,087 | 2,640 | - | 25,795 |
| Derivative liabilities | 130 | 130 | - | - | - | 130 |
| As at February 28, 2025 | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| Carrying value $ | Less than 1 Year $ | 1 to 3 Years $ | 4 to 5 Years $ | After 5 Years $ | Total $ | |
| Long-term debt | 16,203 | 2,096 | 3,301 | 2,275 | 10,628 | 18,300 |
| Long-term lease liabilities | 6,164 | 1,594 | 2,827 | 1,339 | 836 | 6,596 |
| Accounts payable and accrued liabilities | 78,776 | 78,776 | - | - | - | 78,776 |
| Customer Deposits | 26,214 | 22,338 | 1,597 | 2,279 | - | 26,214 |
| Derivative liabilities | 480 | 480 | - | - | - | 480 |
27 Fair value of financial instruments
The fair value hierarchy has the following levels:
- Level 1 – quoted market prices in active markets for identical assets or liabilities;
- Level 2 – inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and
- Level 3 – unobservable inputs such as inputs for the asset or liability that are not based on observable market data. The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.
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The fair value of financial assets and financial liabilities on the consolidated statements of financial position are as follows:
| As at February 28, 2026 | ||||
|---|---|---|---|---|
| (thousands) | Total $ | Level 1 $ | Level 2 $ | Level 3 $ |
| Financial position classification and nature | ||||
| Assets | ||||
| Derivative assets | 59 | - | 59 | - |
| Liabilities | ||||
| Derivative liabilities | 130 | - | 130 | - |
| As at February 28, 2025 | ||||
| --- | --- | --- | --- | --- |
| (thousands) | Total | Level 1 | Level 2 | Level 3 |
| $ | $ | $ | $ | |
| Financial position classification and nature | ||||
| Assets | ||||
| Derivative assets | 24 | - | 24 | - |
| Liabilities | ||||
| Derivative liabilities | 480 | - | 480 | - |
Fair value measurements of the Company's derivative assets and liabilities are classified under Level 2 because such measurements are determined using published market prices or estimates based on observable inputs such as interest rates, yield curves, and spot and future exchange rates. The carrying value of the Company's financial instruments is considered to approximate fair value, unless otherwise indicated.
28 Capital management
The Company's capital management strategy is designed to maintain liquidity in order to pursue its organic growth strategy, undertake selective acquisitions and provide an appropriate investment return to its shareholders while taking a conservative approach to financial leveraging.
The Company's financial strategy is designed to meet the objectives stated above and to respond to changes in economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust its capital structure, the Company may issue or repurchase shares, raise or repay debt, vary the amount of dividends paid to shareholders or undertake any other activities it considers appropriate under the circumstances.
The Company monitors capital on the basis of its total debt-to-equity ratio. Total debt consists of all interest-bearing debt, and equity is defined as total equity.
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The total debt-to-equity ratio was as follows:
| As at | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| $ | $ | |
| Bank indebtedness | 11,862 | 2,508 |
| Current portion of long-term lease liabilities | 1,592 | 1,437 |
| Current portion of long-term debt | 3,737 | 2,096 |
| Long-term lease liabilities | 3,968 | 4,727 |
| Long-term debt | 14,488 | 14,107 |
| Total debt | 35,647 | 24,875 |
| Equity | 182,107 | 98,738 |
| Total debt-to-equity ratio | 19.6% | 25.2% |
The Company's objective is to conservatively manage the total debt-to-equity ratio and to maintain funding capacity for potential opportunities.
The Company's financial objectives and strategy as described above have remained unchanged since the last reporting period. These objectives and strategies are reviewed annually or more frequently if the need arises.
As at February 28, 2026, the Company was in compliance of its financial covenants ratio.
29 Adjustments to reconcile net profit (loss) to cash provided from operating activities
| Fiscal periods ended | ||
|---|---|---|
| (thousands) | February 28, 2026 | February 28, 2025 |
| $ | $ | |
| Depreciation of property, plant and equipment | 6,899 | 6,864 |
| Amortization of intangible assets | 2,276 | 2,133 |
| Amortization of financing costs | - | - |
| Deferred income taxes | (24,067) | (20,164) |
| Gain (loss) on disposal of property, plant and equipment | 26 | 42 |
| Net change in long-term provisions and customer deposits | 1,709 | 69,782 |
| Net change in derivative assets and liabilities | (437) | 568 |
| Net change in other liabilities | 139 | 928 |
| (13,455) | 60,153 |
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30 Changes in non-cash working capital items
| Fiscal periods ended | ||
|---|---|---|
| (thousands) | February 28, 2026 $ | February 28, 2025 $ |
| Accounts receivable | (9,198) | 7,739 |
| Inventories | (9,197) | (11,319) |
| Income taxes recoverable | 158 | 490 |
| Deposits and prepaid expenses | 506 | 1,865 |
| Accounts payable and accrued liabilities | 4,955 | 28,774 |
| Income taxes payable | (1,255) | 2,507 |
| Customer deposits | (3,292) | 1,203 |
| Provisions | (144,417) | 2,564 |
| (161,740) | 33,823 |
31 Debt from financing activities reconciliation
| (thousands) | Long-term lease liabilities $ | Long-term debt $ | Total $ |
|---|---|---|---|
| Balance - February 29, 2024 | 12,644 | 28,778 | 41,422 |
| Transfer to Liabilities held for sales | (6,084) | (3,501) | (9,585) |
| Cash inflows | - | 1,574 | 1,574 |
| Cash outflows | (1,606) | (8,149) | (9,755) |
| Foreign exchange adjustments | (176) | (141) | 317 |
| Other non-cash movements | 1,386 | (2,358) | (972) |
| Balance - February 28, 2025 | 6,164 | 16,203 | 22,367 |
| Cash inflows | - | 2,546 | 2,546 |
| Cash outflows | (1,668) | (2,296) | (3,964) |
| Foreign exchange adjustments | 483 | 348 | 831 |
| Other non-cash movements | 581 | 1,424 | 2,005 |
| Balance - February 28, 2026 | 5,560 | 18,225 | 23,785 |