Velan Inc. Reports its 2nd Quarter 2008/2009 Financial Results

• Press Release
• Source: VELAN Inc.
• On 3:00 pm EST, Thursday January 8, 2009

MONTREAL, QUEBEC--(MARKET WIRE)--Jan 8, 2009 -- Velan Inc. (Toronto:VLN.TO - News)

The net earnings for the quarter of $7.6 million, or $0.34 per share, compare to a net loss of $0.3 million, or $0.01 per share, in the prior year. For the six months ended November 30, 2008, net earnings amounted to $45.5 million, or $2.04 per share, versus net earnings of $1.1 million, or $0.05 per share, in the prior year. This is the first quarter that the Company no longer consolidated the Italian joint venture company which was sold during the first quarter. Revenues for the second quarter reached $109.9 million, compared to the same quarter last year when the company recorded sales of $120.9 million. Adjusting for the impact of this sale, sales for the quarter increased $18.6 million, or 20.4%, attributable mainly to the North American and Korean operations. The 2009 results include a net gain of $36.6 million, or $1.64 per share, on the disposal of the Company's 50% interest in an Italian joint venture company.

The gross profit of the second quarter amounted to $27.4 million, or 24.9% of sales, compared to $28.4 million, or 20.7% of sales, recorded last year adjusting for the Italian operations. The increase in margin % is due primarily to the rapid weakening of the Canadian dollar versus the US dollar during the quarter, which went from 94.2 cents at August 31, 2008, to 80.8 cents at November 30, 2008. Although the Company reports in Canadian dollars, a majority of its sales is in US dollars. Based on average exchange rates the Canadian dollar weakened against the US dollar 14.3% and 6.2% for the three and six months respectively. This positively impacted its sales as reported in Canadian dollars, as well as gross margin as the inventory related to the sales had been purchased when the Canadian dollar was stronger. The gross profit for the six months amounted to $47.1 million, or 23.9% of sales, this year compared to the $51.8 million, or 24.1% of sales, recorded last year, which included the gross margin of the Italian joint venture referred to above.

The rapid weakening of the Canadian dollar during the second quarter resulted in the Company recording an unrealized foreign exchange gain of $2.3 million on the translation of its integrated foreign subsidiaries compared to an unrealized loss of $2.2 million for the same quarter last year. For the six months, the Company recorded an unrealized gain of $4.3 million versus a loss of $3.0 million for last year. Based on period ending rates, the Canadian dollar weakened by 19.2% from November 30, 2007, by 19.7% from May 31, 2008, and by 14.2% from August 31, 2008.

Net order bookings during the quarter amounted to $147.7 million, representing an 81.2% increase from the comparative quarter last year, adjusting for the disposal of the Italian joint venture. The reported order bookings would have been approximately 26.2% lower for the quarter if the Canadian dollar and the Euro had not weakened against the US dollar. The record order backlog of $577.3 million as at November 30, 2008 is 77.5% higher than the adjusted November 30, 2007 backlog. The order backlog as of November 30, 2008 includes $156 million of orders scheduled for delivery after November 30, 2009.

The Company ended the quarter with shareholders' equity of $ 311.9 million, or $13.98 per share. The Company's net cash, defined as cash and cash equivalents plus short-term investments less bank indebtedness and short-term bank loans, amounted to $61.0 million as at November 30, 2008, a decrease of $25.7 million from August 31, 2008, and an increase of $35.0 million from May 31, 2008. The fluctuations in net cash are primarily due to the disposal of the Italian joint venture operation offset by investments in working capital, primarily inventory, and capital assets required in light of the higher order backlog.

The Company announced that it has changed its fiscal year end from May 31 to the last day of February, effective this fiscal year.

The Company's president, Tom Velan, said, "We are fortunate to have a large backlog and a weaker Canadian dollar entering into this period of global uncertainty. Many of our customers and markets have been negatively impacted by the fall in the oil price, lower commodity prices, falling demand and the global financial crisis. Some customers are making significant layoffs and closing plants while asking us to reduce our prices. Most of our plants are operating with very large order backlogs so it is an important priority for us to focus on better execution by improving the efficiency, productivity competitiveness, and profitability of our global operations. At the same time, we are concerned about the impact of the turmoil in financial markets on our customers and in particular the capital-intensive project market. Although we have encountered some order cancellations, delays, and orders put on hold these have not been significant to date. Although there is a lot of uncertainty in this tough financial environment, our large backlog of orders and strong balance sheet put us in a good position to weather this current economic storm."

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.

T.C. Velan

President

CERTIFIED TO ISO 9001 QUALITY STANDARDS

 

Consolidated Statements of Earnings and Retained Earnings

                                         Unaudited             Unaudited
                                Three months ended      Six months ended
                                       November 30           November 30
(in thousands of dollars,
excluding per share amounts)       2008       2007       2008       2007
------------------------------------------------------------------------

Sales (note 3)                 $109,851   $120,865   $196,712   $214,941
Cost of sales (notes 1 and 3)    82,416     92,426    149,636    163,101
------------------------------------------------------------------------
Gross profit                     27,435     28,439     47,076     51,840
------------------------------------------------------------------------

Expenses (other income)
 Engineering, selling,
  general and administrative
  and research (note 4)          18,724     19,036     36,068     36,174
 Interest
  Long-term debt                     32        276        237        345
  Other                              85        350        310        590
 Amortization of property,
  plant and equipment             2,025      2,173      4,011      4,226
 Net gain on disposition of
  business (note 6)                   -          -    (36,595)         -
 Other expense (income)            (458)      (108)      (931)      (576)
 Non-controlling interest          (239)     1,695        470      2,130
 Foreign exchange loss (gain)
  on translation of
  integrated subsidiaries        (2,255)     2,192     (4,300)     2,971
------------------------------------------------------------------------
                                 17,914     25,614       (730)    45,860
------------------------------------------------------------------------

Earnings (loss) before
 income taxes                     9,521      2,825     47,806      5,980

Provision for income taxes        1,971      3,136      2,319      4,893
------------------------------------------------------------------------
Net earnings (loss)              $7,550      $(311)   $45,487     $1,087
------------------------------------------------------------------------
------------------------------------------------------------------------

Retained earnings - beginning  $197,025   $149,791   $160,873   $148,245
Transition adjustment on
 adoption of financial
 instrument standards, net
 of tax                               -          -          -        148
Net earnings (loss)               7,550       (311)    45,487      1,087
Dividends
 Multiple Voting Shares           1,245          -      2,490          -
 Subordinate Voting Shares          540          -      1,080          -
------------------------------------------------------------------------
Retained earnings - ending     $202,790   $149,480   $202,790   $149,480
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings (loss) per
 share (note 2)
  Basic                           $0.34     $(0.01)     $2.04      $0.05
  Diluted                         $0.34     $(0.01)     $2.04      $0.05




Consolidated Balance Sheets

                                                  Unaudited    Unaudited
                                                November 30       May 31
(in thousands of dollars)                              2008         2008
------------------------------------------------------------------------


ASSETS
Current assets
 Cash and cash equivalents                          $64,172      $38,831
 Short-term investments                                 735          937
 Accounts receivable                                122,939      155,956
 Income taxes recoverable                             8,012        4,173
 Inventories                                        201,755      184,697
 Deposits and prepaid expenses                        9,492        3,283
 Future income taxes                                  3,287        3,747
------------------------------------------------------------------------
                                                    410,392      391,624

Future income taxes                                   1,864        2,009
Property, plant and equipment                        66,160       62,852
Goodwill                                             12,502       12,502
Other assets                                          1,600        1,481
------------------------------------------------------------------------
                                                   $492,518     $470,468
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES
Current liabilities
 Bank indebtedness                                   $2,913       $4,220
 Short-term bank loans                                  979        9,519
 Accounts payable and accrued liabilities            93,514       97,933
 Income taxes payable                                 2,054        3,509
 Dividend payable                                     1,786            -
 Customers' deposits                                 52,618       32,713
 Provision for performance guarantees                 6,917        8,591
 Future income taxes                                  1,822        2,044
 Current portion of long-term debt                    2,155        5,990
------------------------------------------------------------------------
                                                    164,758      164,519
Future income taxes                                   3,672        2,825
Long-term debt                                        3,062       13,755
Non-controlling interest (note 6)                     2,049        9,869
Other long-term liabilities                           7,057        7,471
------------------------------------------------------------------------
                                                    180,598      198,439
------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Capital stock (note 5)                              109,326      109,390
Contributed surplus (note 5)                          1,557        1,502
Retained earnings                                   202,790      160,873
Accumulated other comprehensive income (loss)        (1,753)         264
------------------------------------------------------------------------
                                                    311,920      272,029
------------------------------------------------------------------------
                                                   $492,518     $470,468
------------------------------------------------------------------------
------------------------------------------------------------------------




Consolidated Statements of Cash Flows

                                          Unaudited            Unaudited
                                 Three months ended     Six months ended
                                        November 30          November 30
(in thousands of dollars)          2008        2007       2008      2007
------------------------------------------------------------------------

Cash provided from (required for):
Operating activities
 Net earnings (loss)             $7,550       $(311)   $45,487    $1,087
  Items not affecting cash -
   Amortization                   2,025       2,173      4,011     4,226
   Stock options expense             34           9         38        18
   Gain on disposal of property,
    plant and equipment             (17)        (56)       (26)     (104)
   Net gain on disposition of
    business (note 6)                 -                (36,595)        -
   Non-controlling interest        (239)      1,695        470     2,130
   Net change in other
    long-term liabilities          (264)        115        (59)      351
------------------------------------------------------------------------
                                  9,089       3,625     13,326     7,708
------------------------------------------------------------------------

Net changes in non-cash
 working capital items
  Accounts receivable           (28,578)    (26,908)    (2,509)    2,961
  Income taxes recoverable       (1,748)       (820)    (3,880)   (1,290)
  Inventories                   (19,015)      8,559    (40,382)   (2,255)
  Deposits and prepaid expenses  (6,082)        999     (6,844)      796
  Accounts payable and accrued
   liabilities                   21,491      (4,244)    20,426    (7,486)
  Income taxes payable              670         169        750       620
  Customers' deposits            11,329       7,039     22,954     8,883
  Provision for performance
   guarantees                      (507)       (331)      (826)   (1,065)
------------------------------------------------------------------------
                                (22,440)    (15,537)   (10,311)    1,164
------------------------------------------------------------------------
                                (13,351)    (11,912)     3,015     8,872
------------------------------------------------------------------------

Investing activities
  Net proceeds on disposition
   of business (note 6)               -           -     42,538         -
  Net cash paid on business
   acquisition                        -      (1,827)         -    (3,265)
  Short-term investments             22           -        202     1,012
  Additions to property, plant
   and equipment                (10,339)     (3,151)   (13,022)   (6,264)
  Proceeds on disposal of
   property, plant and equipment     13          33         22        33
  Net change in other assets        (19)         33       (120)      270
------------------------------------------------------------------------
                                (10,323)     (4,912)    29,620    (8,214)
------------------------------------------------------------------------

Financing activities
  Repurchase of Shares              (47)          -        (47)        -
  Dividends                      (1,785)          -     (1,785)        -
  Short-term bank loans              46       6,348     (2,752)    3,524
  Increase in long-term debt         26       6,399        248     7,836
  Repayment of long-term debt      (475)       (676)    (1,275)     (918)
------------------------------------------------------------------------
                                 (2,235)     12,071     (5,611)   10,442
------------------------------------------------------------------------

Effect of exchange rate
 differences on cash and
 cash equivalents                   298         596       (376)      581
------------------------------------------------------------------------

Net change in cash and cash
 equivalents                    (25,611)     (4,157)    26,648    11,681

Net cash - beginning             86,870      36,154     34,611    20,316
------------------------------------------------------------------------
Net cash - ending               $61,259     $31,997    $61,259   $31,997
------------------------------------------------------------------------
------------------------------------------------------------------------

Net cash includes cash and cash
 equivalents less bank indebtedness

Interest paid amounted to :         109         562        196       855
Income tax paid amounted to:        511       3,887      2,241     5,194




Consolidated Statements of Comprehensive Income

                                            Unaudited          Unaudited
                                   Three months ended   Six months ended
                                          November 30        November 30
(in thousands of dollars)             2008       2007     2008      2007
------------------------------------------------------------------------

Net earnings (loss)                 $7,550      $(311) $45,487    $1,087
Other comprehensive income
 (loss), net of tax
  Foreign currency translation
   adjustment on self-sustaining
   operations (non taxable)           (871)       767   (1,338)      599
------------------------------------------------------------------------
  Comprehensive income               6,679        456   44,149     1,686
------------------------------------------------------------------------
------------------------------------------------------------------------

Accumulated other comprehensive
 income (loss), net tax
Accumulated other comprehensive
 income (loss), beginning of
 period                               (882)    (2,617)     264    (2,449)
  Other comprehensive income (loss)
   for the period                     (871)       767   (1,338)      599
  Realized translation adjustment
   on the disposition of a
   self-sustaining
   foreign operations (note 6)           -        120     (679)      120
------------------------------------------------------------------------
Accumulated other comprehensive
 income (loss), end of period       (1,753)    (1,730)  (1,753)   (1,730)
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes to Consolidated Financial Statements

November 30, 2008

(in thousands, excluding number of shares and per share amounts)

1. SUMMARY OF ACCOUNTING POLICIES

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. They do not include all of the disclosures included in the company's annual consolidated financial statements and as such should be read in conjunction with the consolidated financial statements for the year ended May 31, 2008. In addition, an auditor has not performed a review of these interim consolidated financial statements.

These interim consolidated financial statements have been prepared using the same accounting policies as outlined in Note 1 of the consolidated financial statements for the year ended May 31, 2008, except for the following:

Accounting Principles adopted during the period

Capital disclosures

On June 1, 2008, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1535, "Capital Disclosures", which requires disclosure of both qualitative and quantitative information that enables financial statement users to evaluate the entity's objectives, policies and processes for managing capital.

The adoption of this section did not have an impact on the Company's financial position, earnings or cash flows however it did result in expanded disclosure. The new disclosures are included in note 7 of these consolidated financial statements.

Financial instruments

On June 1, 2008, the Company adopted CICA Handbook Section 3862, "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation". These standards introduce disclosure and presentation requirements that will enable financial statement users to evaluate, and enhance their understanding of, the significance of financial instruments for the entity's financial position, performance and cash flows, and the nature and extent of risks arising from financial instruments to which the entity is exposed, and how those risks are managed.

The adoption of these sections did not have an impact on the Company's financial position, earnings or cash flows however it did result in expanded disclosure.

Disclosures relating to these sections are included in the section entitled "Financial Risk Management" of the Management's Discussion and Analysis for the period ended at the current balance sheet date. Accordingly, these disclosures are incorporated into these interim consolidated financial statements by cross-reference.

Inventories

On June 1, 2008, the Company adopted CICA Handbook Section 3031, "Inventories", which provides guidance on the determination of costs and their subsequent recognition as an expense, and provides guidance on the cost formulas used to assign costs to inventories. The section also requires additional disclosures related to any write-down or reversal of a previous write-down of inventories recognized during the period.

The adoption of this section did not have an impact on the Company's financial position, earnings or cash flows. During the three months ended November 30, 2008 the Company recognized an expense of $519 (November 30, 2007 - $89), net of reversals of $1,089 (November 30, 2007 - $1,429), in respect of a write-down of its inventories. During the six months ended November 30, 2008 the Company recognized an expense of $632 (November 30, 2007 - $494), net of reversals of $2,193 (November 30, 2007 - $2,615), in respect of a write-down of its inventories.

Inventory costs recorded as an expense for the three and six month periods amounted to $71,314 (November 2007 - $91,766) and $136,906 (November 2007 - $162,280), respectively.

The net book value of inventory pledged as security under the Company's credit facilities amounted to $3,647.

General standards of financial statement presentation

On June 1, 2008, the Company adopted the amended CICA Handbook Section 1400, "General Standards of Financial Statement Presentation". This section now requires that management make an assessment of an entity's ability to continue as a going concern when preparing financial statements.

The adoption of this section did not have an impact on the Company's financial position, earnings, cash flows or note disclosures.

Accounting principles issued but not yet implemented

Goodwill and intangible assets

The CICA issued Section 3064, "Goodwill and Intangible Assets", which establishes standards for the recognition, measurement, presentation and disclosure of intangible assets. Standards relating to goodwill are unchanged from those included in Section 3062, "Goodwill and Other Intangible Assets".

This section must be adopted for the Company's fiscal year beginning on March 1, 2009 (note 9). The Company is currently assessing the impact of this new section on its financial statements.

Certain of the prior year's numbers have been reclassified to conform to the current year's presentation.

2. EARNINGS PER SHARE

Earnings per share are calculated using the weighted average number of shares outstanding of 22,316,659 (November 2007 - 22,318,968). The options do not have a dilutive effect.

3. FOREIGN EXCHANGE TRANSLATION

Foreign exchange gains (losses) realized on the translation of foreign currency balances and transactions and the fair value of foreign currency derivative instruments is included in sales and cost of sales and amounted to:

 

-----------------------------------------------------------------------
                                 Three months ended    Six months ended
                                        November 30         November 30
                                   2008        2007       2008     2007
                                      $           $          $        $
-----------------------------------------------------------------------
Sales                             1,983        (200)     2,950     (200)
Cost of Sales                    (8,310)        603    (10,238)     864
-----------------------------------------------------------------------
                                 (6,327)        403     (7,288)     664
-----------------------------------------------------------------------


4. RESEARCH EXPENSE

Research Expenses included the following:

-----------------------------------------------------------------------
                                   Three months ended  Six months ended
                                          November 30       November 30
                                     2008        2007    2008      2007
                                        $           $       $         $
-----------------------------------------------------------------------
Research Expenditures               1,120       1,663   3,253     2,996
Less: Scientific research
 tax credits                         (376)       (493) (1,000)     (986)
-----------------------------------------------------------------------
                                      744       1,170   2,253     2,010
-----------------------------------------------------------------------


5. CAPITAL STOCK

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



b) Issued


-----------------------------------------------------------------------
                                                   November 30   May 31
                                                          2008     2008
                                                             $        $
-----------------------------------------------------------------------
6,748,101 (May 2008 - 6,752,401) (note 5 c)
 Subordinate Voting Shares                             100,502  100,566
15,566,567 Multiple Voting Shares                        8,824    8,824
-----------------------------------------------------------------------
                                                       109,326  109,390
-----------------------------------------------------------------------

c) Pursuant to its Normal Course Issuer Bid, the company is entitled to repurchase for cancellation a maximum of 337,620 Subordinate Voting Shares during the twelve-month period ended October 20, 2009. During the quarter, 4,300 Subordinate Voting Shares were purchased for a cash consideration of $47 and cancelled. The amount by which the repurchase amount is below the stated capital of the shares has been credited to contributed surplus.

d) Stock Options

The fair value of the options is estimated as at the date of grant using an option pricing model with the following weighted average assumptions:

 

       Risk-free interest rate           3.17%
       Expected dividend yield           2.77%
       Expected life of the options      4.94 years
       Expected volatility              28.99%

The weighted average fair value at grant date of the options is $2.46 per option.

A compensation cost of $34 (November 2007 - $9) for the quarter and $38 (November 2007 - $18) year to date was recorded in the statement of earnings and credited to contributed surplus.

The table below summarizes the status of the share option plan:

 

-----------------------------------------------------------------------
                                   Three months ended November 30, 2008
-----------------------------------------------------------------------
                                             Weighted          Weighted
                                              average           average
                                 Number of   exercise       contractual
                                    Shares   price ($)             life
-----------------------------------------------------------------------
Outstanding, beginning of period    30,000      12.81       35.5 months
Granted                            170,000      11.00       60.0 months
Exercised                                -          -                 -
Expired/Forfeited                        -          -                 -

-----------------------------------------------------------------------
Outstanding, end of period         200,000      11.27       54.7 months
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Exercisable, end of period          20,000      12.81
-----------------------------------------------------------------------
-----------------------------------------------------------------------


-----------------------------------------------------------------------
                                     Six months ended November 30, 2008
-----------------------------------------------------------------------
                                             Weighted          Weighted
                                              average           average
                                 Number of   exercise       contractual
                                    Shares   price ($)             life
-----------------------------------------------------------------------
Outstanding, beginning of period    30,000      12.81       38.5 months
Granted                            170,000      11.00       60.0 months
Exercised                                -          -                 -
Expired/Forfeited                        -          -                 -
-----------------------------------------------------------------------
Outstanding, end of period         200,000      11.27       54.7 months
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Exercisable, end of period          20,000      12.81                 -
-----------------------------------------------------------------------
-----------------------------------------------------------------------

6. DISPOSITION OF BUSINESS

On July 21, 2008, the Company sold its 50% interest in an Italian joint venture company, considered a variable interest entity for which the Company was the primary beneficiary, for cash consideration of $44,088 (EUR 27,650) all of which was received at closing. The company incurred expenses related to the sale of $325 and recognized a gain of $279 on a forward foreign exchange contract related to the sale which has been included in the calculation of the gain on disposition, as outlined below.

Assets and liabilities of the joint venture company at the time of disposition were as follows:

 

                                                             $
--------------------------------------------------------------
Cash and cash equivalents                                1,504
Accounts receivable                                     35,498
Inventories                                             22,899
Property, plant and equipment                            6,462
Other assets                                             1,126
--------------------------------------------------------------
                                                        67,489
--------------------------------------------------------------

Short-term bank loans                                    5,788
Accounts payable and accrued liabilities                25,065
Customer deposits                                        3,296
Long-term Debt                                          13,661
Other liabilities                                        3,427
--------------------------------------------------------------

                                                        51,237
--------------------------------------------------------------

Net assets                                              16,252

Less: non-controlling interest's share                   8,126
--------------------------------------------------------------

Net assets sold                                          8,126

Gain on disposition of business                         35,962
--------------------------------------------------------------

Proceeds on disposition of business                     44,088
Add: gain on forward contract related to sale
 proceeds                                                  279

Less: disposition of cash                                1,504
Less: direct expenses related to the sale                  325
--------------------------------------------------------------

Net proceeds on disposition of business                 42,538
--------------------------------------------------------------


The net gain on disposition of business includes:


                                                             $
--------------------------------------------------------------
Gain on disposition of business                         35,962
Realized translation adjustment on disposition
 of self-sustaining foreign operation                      679
--------------------------------------------------------------

                                                        36,641

Add: gain on forward contract related to sale
 proceeds                                                  279

Less: direct expenses related to the sale                  325
--------------------------------------------------------------

Net gain on disposition of business                     36,595
--------------------------------------------------------------

The Company continues to have significant activity in the same market and to that end maintains an ongoing business relationship with its former joint venture.

7. CAPITAL MANAGEMENT

The Company's capital management strategy is designed to maintain strong 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 leverage.

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 shareholders' equity.

The total debt to equity ratio as at November 30, 2008 was as follows:

 

                                                             $
--------------------------------------------------------------
Bank indebtedness                                        2,913
Short-term bank loans                                      979
Current portion of long-term debt                        2,155
Long-term debt                                           3,062
--------------------------------------------------------------

Total debt                                               9,109
--------------------------------------------------------------

Shareholders' equity                                   311,920
--------------------------------------------------------------

Total debt to equity ratio                                 2.9%
--------------------------------------------------------------

As at May 31, 2008, before the sale of the Company's Italian joint venture company the debt to equity ratio was 12.3% .

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 period. These objectives and strategies are reviewed annually or more frequently if the need arises.

The Company is in compliance with all covenants related to its debt and credit facilities and is not subject to any capital requirements imposed by a regulator.

8. SEGMENT DISCLOSURE

Consistent with the prior year, the company reflects its results under a single reportable operating segment.

9. CHANGE IN FINANCIAL YEAR END

The company has decided to change its financial year end from May 31 to the last day of February, effective for this current fiscal year, so as to better match the company's business cycles.

     Contacts:
     VELAN  Inc.
     Tom Velan
     President
     514-748-7743
     514-748-8635 (FAX)
      
     VELAN  Inc.
     John D. Ball
     Chief Financial Officer
     514-748-7743
     514-748-8635 (FAX)
     http://www.velan.com