Consolidated Financial Statements (Q3) (Financial statement Q3 F2026 English Final)

For the Nine-month period ended November 30, 2025

In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors PricewaterhouseCoopers LLP have not reviewed the unaudited condensed interim consolidated financial statements for the Nine-month period ended November 30, 2025.

Consolidated Statements of Financial Position

(in thousands of U.S. dollars)

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

Consolidated Statements of Income (loss)

(in thousands of U.S. dollars, excluding per share amounts)

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

Consolidated Statements of Comprehensive Income (loss)

(in thousands of U.S. dollars)

Other comprehensive Income (loss) is composed solely of items that may be reclassified subsequently to the consolidated statement of Income (loss).

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

(in thousands of U.S. dollars, excluding number of shares)

Equity attributable to the Subordinate and Multiple Voting shareholders

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

6

Consolidated Statements of Cash Flow

(in thousands of U.S. dollars)

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

1. General information

   These unaudited condensed interim 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 and 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 Cote de Liesse, Montreal, Quebec, Canada, H4T 1G2. The Company's controlling shareholder is Velan Holdings Co. Ltd.

   These unaudited condensed interim consolidated financial statements were approved for issue by the Company's Board of Directors on January 14, 2026.

2. Basis of preparation

   These unaudited condensed interim consolidated financial statements for the Nine-month period ended November 30, 2025 have been prepared in accordance with International Financial Reporting Standards ("IFRS") in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. These unaudited condensed interim consolidated financial statements have been prepared using the same basis of presentation, accounting policies, and methods of computation as outlined in Note 2, Summary of significant accounting policies, in the Company's annual consolidated financial statements for the year ended February 28, 2025, which have also been prepared in accordance with IFRS. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company's annual consolidated financial statements for the year ended February 28, 2025.

3. New accounting standards and amendments issued and adopted

   In May 2024, the IASB issued amendments to IFRS 7, Financial Instruments: Disclosures and IFRS 9, Financial Instruments, following the implementation review of the requirements of IFRS 9 and related requirements of IFRS 7.

   The IASB amended IFRS 9 to clarify the timing of recognition and derecognition of certain financial assets and liabilities, with a new exception for certain financial liabilities settled in cash through an electronic payment system, and to clarify and add additional guidance for assessing whether the cash flows associated with a financial asset consist solely of repayments of principal and interest payments on the outstanding principal.

   The IASB amended IFRS 7 to add new disclosures for certain instruments whose contractual terms may modify cash flows, and to improve the presentation of information about equity instruments designated at fair value through other comprehensive income.

   The Company is currently evaluating the impact of adopting the amendments to IFRS 7 and IFRS 9, which will be effective for fiscal years beginning on or after January 1, 2026.

   In April 2024, the IASB issued IFRS 18, Presentation and Disclosures in Financial Statements, which will replace the current IAS 1, Presentation of Financial Statements.

   IFRS 18 introduces three new elements designed to improve the presentation of information in financial statements. It introduces three new categories of revenue and expense (operating, investing, and financing) to improve the comparability of income statements between companies. In addition, IFRS 18 aims to improve the transparency of

   performance indicators defined by management. Finally, IFRS 18 provides guidance on how to present information in financial statements. The Company is currently evaluating the impact of adopting IFRS 18, which will be applicable to fiscal years beginning on or after January 1, 2027.

4. Estimates

   The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

   In preparing these unaudited condensed interim consolidated financial statements, the significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements for the year ended February 28, 2025.

5. Seasonality

   The Company's sales are not subject to seasonality. Quarterly sales can vary based on the timing of revenue recognition on large orders.

6. Disposal of Velan S.A.S. and Segault S.A.S.

   On March 31, 2025, the Company announced 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 millions, for a net cash consideration of $183,143 after related finance 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 previous quarter of fiscal year 2026.

   1. 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 sales 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 sales 90,147

      Net Assets 87,319

      Net consideration received in cash 183,143

      Proft on disposal 95,824

   2. 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:

      Three-month periods ended Nine-month periods ended
      (thousands)	November 30, 2025 $	November 30, 2024 $	November 30, 2025 $	November 30, 2024 $
      Sales	-	23,381	4,764	60,934
      Cost of sales	-	14,728	3,127	38,583
      Gross profit	-	8,653	1,637	22,351
      Administration costs	-	5,241	1,782	15,852
      Gain on Disposal of SAS and Segault	-	-	(95,824)	-
      Reclassification of foreign currency translation of foreign subsidiaries from discontinued operations	-	-	12,456	-
      Other expense (income)	-	360	782	348
      Operating income (loss)	-	3,052	82,441	6,151
      Finance costs - net	-	(60)	(128)	(118)
      Income (loss) before income taxes	-	3,112	82,569	6,269
      Income tax expense	-	17,374	23,970	18,159
      Net profit (loss) for the period	-	(14,262)	58,599	(11,890)

   3. Cash flows generated by the disposal group for the reporting periods under review until its disposal are as follows:

      Three Month period ended Nine Month period ended
      (thousands)	November 30, 2025 $	November 30, 2024 $	November 30, 2025 $	November 30, 2024 $
      Operating activities	-	8,429	(948)	3,582
      Investing activities	-	1,736	8,912	1,798
      Financing activities	-	(648)	781	(931)
      Effect of exchange rate differences on cash and cash equivalents	-	64	-	192
      Net change in cash during the period from discontinuing operations	-	9,581	8,745	4,641

7. Settlement of Asbestos liabilities

   Concurrently with the disposal of Velan S.A.S. and Segault S.A.S. (the disposal, note 6), the Company entered into an agreement to sell to an affiliate of Global Risk Capital its current and future exposure to Asbestos-related litigation in the United States. Part of the proceeds received in previous quarter from the Velan SAS and Segault SAS disposal was used on April 3, 2025, to pay an amount of $143 millions for the asbestos divestiture transaction.

8. Inventories

   As at
   (thousands)	November 30, 2025 $	February 28, 2025 $
   Raw materials	15,661	22,001
   Work in process and finished parts	99,256	77,450
   Finished goods	40,016	35,518
   	154,933	134,969

   As a result of variations in the ageing of its inventories, the Company recognized a net reduction of inventory provision for the Nine-month period ended November 30, 2025, of $32 (February 28, 2025 - addition of $10,466), including reversals of $10,750 (February 28, 2025 - $6,180).

9. Long-term debt

   As at
   (thousands)	November 30, 2025 $	February 28, 2025 $
   Canadian subsidiary
   Secured bank loan ($CAD 17,909; February 28, 2025 - $CAD 18,460)	12,611	12,760
   Italian subsidiary
   Unsecured bank loan (€832; February 28, 2025 - €1,631)	965	1,692
   Unsecured state bank loan (€2,000; February 28, 2025 - €333)	2,319	346
   Gulf subsidiary
   Unsecured third-party loan (SAR 1,200; February 28, 2025 - SAR 750)	320	200
   Other	1,474	1,205
   	17,689	16,203
   Less: current portion	3,722	2,096
   	13,967	14,107

   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 November 30, 2025, the Company had drawn down $3,830 (2025 - $Nil) on the revolving credit facility and had

   $29,948 (February 28, 2025 - $1,789) in the form of outstanding letters of credit and letters of guarantee on a total of

   $60,328 (February 28, 2025 - $35,316) borrowing availability. As at November 30, 2025, and as at February 28, 2025, the Company was in compliance of its financial covenants ratios. The next calculation for compliance of the covenant will be in February 2026.

10. 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.

    The Company does not have any financial instruments measured and recognized at fair value that are material. For other financial instruments not recognized at fair value, their fair value is approximately the carrying amount as at November 30, 2025.

11. Segment reporting

    The Company reflects its results under a single reportable operating segment. The geographic distribution of its sales by origination country is as follows:

    Three-month period ended November 30, 2025
    (thousands)	Canada $	United States Europe $ $		Consolidation Other adjustment $ $		Consolidated $
    Sales
    Customers -
    Domestic	7,316	21,641	12	3,923	-	32,892
    Export	14,459	43	23,025	1,241	-	38,768
    Intercompany (export)	9,007	1,593	349	20,300	(31,249)	-
    	30,782	23,277	23,386	25,464	(31,249)	71,660

    Three-month period ended November 30, 2024
    (thousands)	Canada $	United States Europe $ $		Consolidation Other adjustment $ $		Consolidated $
    Sales
    Customers -
    Domestic	2,451	25,923	5,791	1,834	-	35,999
    Export	13,899	116	10,798	12,592	-	37,405
    Intercompany (export)	12,992	2,411	1	15,972	(31,376)	-
    	29,342	28,450	16,590	30,398	(31,376)	73,404

    Nine-month period ended November 30, 2025
    (thousands)	Canada $	United States Europe $ $		Consolidation Other adjustment $ $		Consolidated $
    Sales
    Customers -
    Domestic	23,842	70,693	273	15,739	-	110,547
    Export	30,082	220	65,681	4,970	-	100,953
    Intercompany (export)	24,502	5,659	2,395	49,292	(81,848)	-
    	78,426	76,572	68,349	70,001	(81,848)	211,500

    Nine-month period ended November 30, 2024
    (thousands)	Canada $	United States Europe $ $		Consolidation Other adjustment $ $		Consolidated $
    Sales
    Customers -
    Domestic	13,659	87,295	6,305	14,006	-	121,265
    Export	25,812	694	40,993	23,234	-	90,733
    Intercompany (export)	38,610	7,891	113	41,029	(87,643)	-
    	78,081	95,880	47,411	78,269	(87,643)	211,998

    The sales distribution by customer geographic location is as follows:

    Three-month period ended November 30, 2025
    (thousands)	Africa / Middle East Europe $ $		North Asia / America Pacific $ $		South & Central America $	Consolidated $
    Sales	6,770	5,457	34,232	23,362	1,779	71,660

    Three-month period ended November 30, 2024
    (thousands)	Africa / Middle East Europe $ $		North Asia / America Pacific $ $		South & Central America $	Consolidated $
    Sales	103	(323)	40,350	32,195	1,079	73,404

    Nine-month period ended November 30, 2025
    (thousands)	Africa / Middle East Europe $ $		North Asia / America Pacific $ $		South & Central America $	Consolidated $
    Sales	13,523	16,025	107,097	70,069	4,786	211,500

    Nine-month period ended November 30, 2024
    (thousands)	Africa / Middle East Europe $ $		North Asia / America Pacific $ $		South & Central America $	Consolidated $
    Sales	21,083	19,212	120,124	49,002	2,577	211,998

12. Adjustments to reconcile net loss to cash provided (used) by operating activities

    Three-month period ended Nine-month period ended
    (thousands)	November 30, 2025 $	November 30, 2024 $	November 30, 2025 $	November 30, 2024 $
    Depreciation of property, plant and equipment	1,732	1,545	5,084	5,091
    Amortization of intangible assets	595	570	1,655	1,558
    Deferred income taxes	-	(16,714)	(24,022)	(16,551)
    Loss (gain) on disposal of property, plant and equipment	-	25	25	157
    Net change in long-term provisions	-	58,176	-	55,989
    Net change in customer deposits	2,388	738	8,030	8,431
    Net change in derivative assets and liabilities	593	524	(605)	181
    Net change in other liabilities	(120)	376	295	(432)
    	5,188	45,240	(9,538)	54,424

13. Changes in non-cash working capital items

    Three-month period ended Nine-month period ended
    	November	November	November	November
    (thousands)	30, 2025	30, 2024	30, 2025	30, 2024
    	$	$	$	$
    Accounts receivable	(11,564)	2,098	(12,856)	8,522
    Inventories	(17,680)	(14,801)	(17,329)	(24,718)
    Income taxes recoverable	285	(70)	754	266
    Deposits and prepaid expenses	100	954	(327)	1,588
    Accounts payable and accrued liabilities	17,465	7,924	(4,843)	22,722
    Income taxes payable	(45)	1,178	(1,083)	1,310
    Customer deposits	(3,346)	4,766	(11,849)	3,725
    Provisions	(1,019)	598	(146,699)	2,828
    	(15,804)	2,647	(194,232)	16,243

14. Restructuring expenses

    Three-month period ended Nine-month period ended
    (thousands)	November 30, 2025 $	November 30, November 30, 2024 2025 $ $	November 30, 2024 $
    Transaction-related costs	1,305	5,404 8,123	7,556
    Asbestos-related costs	-	69,064 (754)	73,745
    	1,305	74,468 7,369	81,301

15. Subsequent event

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").

Pursuant to a pre-closing reorganization, Velan Holding will, among other things, convert 2,290,075 multiple voting shares into the same number of subordinate voting shares. Therefore, giving effect to such pre-closing reorganization, 13,276,492 multiple voting shares and 2,290,076 subordinate voting shares will be sold to Birch Hill on closing of the VH Transaction (representing approximately 72.1% of the Company's outstanding shares and 91.9% of its aggregate voting rights) (collectively the "VH Transaction Shares").

The VH Transaction is expected to close in the first half of 2026, subject to the receipt of the required regulatory approvals and other customary closing conditions. The completion of the VH Transaction is not subject to any financing condition or approval by the Company's shareholders.

The Company estimates that transaction related fees will be approximately $12 million, as well as additional change of control triggered costs of approximately $5 million relating mostly to the vesting and accelerated vesting of various incentive plans already in place at the time of the transaction. Of this total amount, $4 million has already been paid or accrued.