Vision Marine Technologies(US:VMAR)2023-11-30 01:20PART I Key Information The company faces significant risks from a history of net losses, reliance on an unlaunched product, and substantial capital requirements Risks Related to Business and Industry The company's viability is threatened by growing net losses, dependency on a pre-commercial powertrain, and reliance on key suppliers Net Loss Trend (Fiscal Years 2021-2023) | Fiscal Year | Net Loss (in millions) | | :--- | :--- | | 2023 | $20.9 | | 2022 | $13.1 | | 2021 | $15.1 | - The company's primary growth strategy relies on its electric powertrain system, which is not yet launched and faces uncertain market acceptance28 - The company is highly dependent on a few key suppliers for essential components, including hulls (Aqualux, Abitibi & Co.), motors (Danfoss, E-Propulsion), and battery packs (Octillion, Neogy)37 - Revenue from the electric boat rental business (EBR) accounted for 71% of total revenues in fiscal 2023, making the company susceptible to factors affecting this specific operation40 - The company has identified a material weakness in its internal controls over financial reporting due to a lack of sufficient accounting personnel98444 Risks Related to Our Securities Securities risks include significant insider ownership, potential share dilution, high stock price volatility, and reduced investor protection as a foreign private issuer - As of November 28, 2023, executive officers and directors beneficially owned 27.6% of the company's common shares, giving them significant influence over shareholder matters101 - The company's common stock has experienced significant price volatility, with a closing price range on Nasdaq from US$16.21 to US$1.72 between its November 2020 IPO and November 28, 2023108 - The company does not intend to pay dividends in the foreseeable future, meaning any investment gain would need to come from share price appreciation112 - As a foreign private issuer, the company is exempt from certain SEC reporting and proxy solicitation rules applicable to U.S. domestic companies, potentially providing less information to shareholders116117 Information on the Company The company manufactures and rents electric boats while focusing its strategy on commercializing its new E-Motion™ electric powertrain system History and Development Founded in 2012, the company went public on Nasdaq in 2020 and expanded into the boat rental business in 2021 - The company was incorporated in 2012 and changed its name to Vision Marine Technologies Inc. on April 23, 2020124 - Completed its IPO on November 27, 2020, with net proceeds of approximately US$24.94 million and listed on Nasdaq under the symbol "VMAR"126 - Acquired an electric boat rental business in California in June 2021 for approximately $9.02 million, which generated $4.04 million in revenue in fiscal 2023127 Business Overview The business centers on the high-efficiency E-Motion™ powertrain, with key manufacturing and integration partnerships supporting its pre-commercial strategy - The company's electric outboard powertrain system has recorded efficiencies of more than 96%, significantly higher than the 54% efficiency noted for a competitor's product130139 - The company has a manufacturing and supply agreement with Linamar Corporation to mass-produce the E-Motion™ powertrain61141 - A partnership was launched with Group Beneteau to integrate Vision Marine's outboard motors, with an initial purchase order received from Wired Pontoon for 25 E-Motion™ 180E units148149 Powerboat Sales (Units) | Fiscal Year | Powerboats Sold | | :--- | :--- | | 2023 | 46 | | 2022 | 58 | | 2021 | 49 | Organizational Structure Vision Marine Technologies Inc. is a parent company with five direct and indirect wholly-owned subsidiaries - The company has two direct wholly-owned subsidiaries and three indirect wholly-owned subsidiaries124229 Property, Plant and Equipment The company leases all its properties, including its primary manufacturing facility in Quebec and rental locations in California - The main manufacturing and office space in Boisbriand, Quebec is leased from a related party, California Electric Boat Company Inc229353 - The company leases office and marina space in Newport Beach, California, and a kiosk and slips in Ventura, California, for its boat rental business230231 Operating and Financial Review and Prospects Financial performance worsened in FY2023 with a 23% revenue decrease and a wider net loss, raising material uncertainty about its going concern status Operating Results Fiscal 2023 revenue fell 23% to $5.7 million and net loss widened to $20.9 million due to lower sales and higher expenses FY 2023 vs. FY 2022 Operating Results | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $5,651,502 | $7,350,946 | (23)% | | - Sale of Electric Boats | $1,612,699 | $2,557,086 | (37)% | | - Rental of electric boats | $4,038,803 | $4,793,860 | (16)% | | Gross Profit | $1,536,426 | $3,285,565 | (53)% | | Net Loss | ($20,877,186) | ($13,111,785) | 59% | - The increase in net loss in FY2023 was driven by higher R&D expenses ($5.7M vs $2.2M), increased selling & marketing ($3.5M vs $2.0M), and a $2.6M impairment loss on the Limestone investment241243 FY 2022 vs. FY 2021 Operating Results | Metric | FY 2022 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $7,350,946 | $3,513,788 | 109% | | Gross Profit | $3,285,565 | $1,604,182 | 105% | | Net Loss | ($13,111,785) | ($15,113,907) | (14)% | Liquidity and Capital Resources The company faces significant liquidity challenges, with negative operating cash flow and a noted going concern uncertainty - The company's financial statements include a going concern uncertainty due to recurring losses, a deficit of $51.5 million, and negative cash flow from operations238251504 Summary of Cash Flows (in $) | | Year ended August 31, 2023 | Year ended August 31, 2022 | Year ended August 31, 2021 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (14,007,923) | (10,996,819) | (8,251,438) | | Net cash used in investing activities | (537,020) | (964,503) | (9,468,395) | | Net cash provided by/(used in) financing activities | 12,079,484 | (361,783) | 34,570,833 | - Working capital surplus decreased from $8.7 million at FYE 2022 to $3.7 million at FYE 2023253 Critical Accounting Estimates Key accounting estimates involve impairment assessments using a DCF model, share-based payments, and lease term judgments - Impairment of non-financial assets, particularly goodwill, is assessed using a DCF model with a 28% post-tax discount rate and a 2% long-term growth rate268582 - The fair value of share-based payments is determined using the Black-Scholes model, which requires judgment on inputs like expected life and historical volatility277588 - Determining the lease term for right-of-use assets and liabilities requires judgment on whether extension options are reasonably certain to be exercised278589 Directors, Senior Management and Employees The company is led by an experienced management team and a seven-member board, with compensation tied to salary, bonuses, and stock options Directors and Senior Management The leadership team includes the CEO, CFO, and COO/CTO, with a seven-member board chaired by Carter Murray Key Management and Directors | Name | Position | | :--- | :--- | | Alexandre Mongeon | Chief Executive Officer and Director | | Kulwant Sandher | Chief Financial Officer | | Xavier Montagne | Chief Technology Officer and Chief Operating Officer | | Carter Murray | Chairman | | Dr. Philippe Couillard | Director | Compensation Executive compensation includes fixed salaries, discretionary bonuses, and option awards, with total FY2023 CEO compensation at $620,354 Executive Compensation Summary (FY 2023) | Named Executive Officer | Position | Total Compensation ($) | | :--- | :--- | :--- | | Alexandre Mongeon | CEO | 620,354 | | Patrick Bobby | President of Special Operations | 414,893 | | Kulwant Sandher | CFO | 395,426 | | Xavier Montagne | CTO & COO | 533,103 | - The company's 2020 Share Option Plan authorizes 1,764,952 shares, with 1,099,541 options outstanding as of August 31, 2023324325329 - Executive employment agreements for the CEO, CFO, and Head of Special Projects include provisions for severance payments equal to one year's base salary upon termination without cause298304309 Board Practices The seven-member board includes four independent directors and operates with Audit, Compensation, and Nominating committees - The Board has seven directors, four of whom are independent according to Nasdaq listing rules334 - The Board has three standing committees: Audit, Compensation, and Nominating336 - Luisa Ingargiola serves as the Audit Committee Financial Expert337451 Employees As of August 31, 2023, the company employed 46 individuals, none of whom are covered by a collective bargaining agreement Employee Count as of August 31, 2023 | Category | Number of Employees | | :--- | :--- | | Full-Time | 38 | | Part-Time | 8 | | Total | 46 | - None of the company's employees are represented by a labor union342 Major Shareholders and Related Party Transactions Directors and executives hold 27.6% of shares, and the company engages in significant related party transactions, including facility leases Major Shareholders Directors and executives beneficially own 27.6% of common shares, with the CEO and President of Special Operations as the largest holders Beneficial Ownership (as of Nov 28, 2023) | Shareholder | Percentage Owned | | :--- | :--- | | Directors and Executive Officers (as a group) | 27.6% | | Alexandre Mongeon (CEO) | 21.5% | | Patrick Bobby (President of Special Operations) | 19.1% | | Société De Placements Robert Ghetti Inc. | 9.2% | | James Stafford | 8.2% | Related Party Transactions Material related party transactions include facility leases with a CEO-affiliated entity and an IP acquisition from the CTO/COO's former company - The company leases its manufacturing and office facilities in Boisbriand, Quebec, from California Electric Boat Company Inc., an entity affiliated with the CEO, under three separate lease agreements expiring in March 2027353355 - In February 2021, the company acquired intellectual property for $1,035,070 from Mac Engineering, SASU, whose CEO subsequently became Vision Marine's CTO and later COO353607 - Prior to its acquisition, EBR, an entity affiliated with the CEO, purchased $101,684 of boats and parts from the company in fiscal 2021353 Financial Information The report includes IFRS-compliant financial statements for FY2021-2023, with no material legal proceedings or plans to pay dividends - The consolidated financial statements for the years ended August 31, 2023, 2022, and 2021 are prepared in accordance with IFRS and audited by Ernst & Young LLP357 - The company has not paid dividends since its incorporation and does not plan to pay any in the foreseeable future359 Additional Information The company's structure allows for unlimited shares, and it raised capital via multiple 2023 securities agreements while navigating Canadian regulations Memorandum and Articles of Association The company's articles authorize unlimited common and preferred shares, with a board of one to ten members elected annually - The company's authorized capital consists of an unlimited number of common shares (issuable in four series) and an unlimited number of preferred shares372 - The Board of Directors is authorized to have between one and ten members370 Material Contracts The company entered into a series of securities purchase agreements in 2023 to raise capital through direct offerings and private placements - The company executed multiple securities purchase agreements in 2023 (January, February, April, June, July, September) to sell common shares and warrants, raising capital through a combination of registered direct offerings and private placements378380382383385388 Taxation This subsection summarizes U.S. federal income tax considerations for shareholders, including dividend treatment and potential PFIC classification - The company does not believe it was a PFIC in the preceding year or will be in the current or future years, but notes that this determination is complex and subject to change415 - Distributions treated as dividends are expected to be taxed at preferential rates for eligible non-corporate U.S. Holders, as the company believes it is a "qualified foreign corporation"411 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to credit, liquidity, interest rate, and foreign exchange risks, particularly from its U.S. dollar transactions - The company is exposed to liquidity risk and believes its recurring financial resources are adequate to cover expenditures424 - The company faces foreign exchange risk due to a mismatch between its Canadian dollar functional currency and its U.S. dollar-denominated transactions and balances427662 Foreign Currency Exposure (USD assets/liabilities in CAD equivalent) | As of August 31, | 2023 | 2022 | | :--- | :--- | :--- | | Cash | $3,258,419 | $5,142,703 | | Trade and other receivables | $188,001 | $103,116 | | Trade and other payables | $800,149 | $172,871 | PART II Controls and Procedures Management concluded that disclosure controls were ineffective as of August 31, 2023, due to a material weakness in financial reporting personnel - The CEO and CFO concluded that disclosure controls and procedures were not effective as of August 31, 2023442 - A material weakness was identified in internal controls over financial reporting due to a lack of sufficient accounting and finance personnel for complex and non-routine transactions444 - Management is taking steps to remediate the material weakness by hiring more personnel and designing revised controls and procedures447 Corporate Governance and Other Disclosures The company follows Canadian home country governance practices, which differ from Nasdaq rules, and paid its auditor $460,306 in FY2023 Principal Accountant Fees (Ernst & Young LLP) | Fee Type | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Audit Fees | $421,963 | $438,757 | | Tax Fees | $38,343 | $— | | Total | $460,306 | $438,757 | - The company, as a foreign private issuer, follows its home country (Canadian) governance practices, which differ from Nasdaq rules regarding executive sessions, committee charters, and shareholder quorum requirements463 - The company's quorum requirement for shareholder meetings is 50% of outstanding shares, differing from the Nasdaq minimum of 33 1/3%469 PART III Financial Statements The audited IFRS financial statements for FY2021-2023 are presented, with the auditor's report noting a material uncertainty related to going concern Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued a standard audit opinion but included an emphasis paragraph highlighting substantial doubt about the company's going concern status - The auditor's report includes a paragraph highlighting a material uncertainty that raises substantial doubt about the Company's ability to continue as a going concern due to recurring losses485 Consolidated Financial Statements Financials show a decline in assets and equity in FY2023, with a comprehensive loss of $20.5 million and increased liabilities Consolidated Statement of Financial Position (Selected Items) | As at August 31, | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Total Current Assets | 8,487,113 | 11,600,940 | | Total Assets | 24,046,512 | 29,100,209 | | Total Current Liabilities | 4,850,177 | 2,873,929 | | Total Liabilities | 12,482,075 | 5,071,613 | | Total Shareholders' Equity | 11,564,437 | 24,028,596 | Consolidated Statement of Comprehensive Loss | For the year ended August 31, | 2023 ($) | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | :--- | | Revenues | 5,651,502 | 7,350,946 | 3,513,788 | | Net loss for the period | (20,877,186) | (13,111,785) | (15,113,907) | | Total comprehensive loss | (20,542,229) | (12,802,680) | (14,725,341) | | Basic and diluted loss per share | (2.25) | (1.58) | (2.04) | Notes to the Consolidated Financial Statements Notes detail accounting policies, segment performance showing a ($20.4M) loss in the sales segment, and significant future purchase commitments - The company has two reportable segments: Sale of electric boats and Rental of electric boats; for FY2023, the sales segment had a loss before tax of ($20.4M) while the rental segment had a loss of ($0.6M)666668 - Warrants with an exercise price in U.S. dollars are classified as derivative liabilities and measured at fair value, resulting in a $5.6 million liability on the balance sheet as of August 31, 2023541624 - The company has minimum spend commitments under supply agreements totaling $10,943,420 for fiscal year 2024264671 - An impairment loss of $2,637,000 was recorded in FY2023 on the company's investment in The Limestone Boat Company debentures following the bankruptcy filing of Limestone's subsidiaries599