Vision Marine Technologies(VMAR) - 2024 Q3 - Quarterly Report

Condensed Interim Consolidated Financial Statements Consolidated Statements of Financial Position As of February 29, 2024, the company's total assets decreased to $21.3 million from $24.0 million at August 31, 2023, primarily due to a significant goodwill impairment and a reduction in cash. Total liabilities increased to $14.9 million from $12.5 million, driven by a rise in derivative liabilities. Consequently, total shareholders' equity fell sharply to $6.4 million from $11.6 million, reflecting a growing deficit Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items | As at Feb 29, 2024 ($) | As at Aug 31, 2023 ($) | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash | 1,185,083 | 3,359,257 | ▼ | | Inventories | 4,781,765 | 2,445,554 | ▲ | | Goodwill | 5,431,975 | 9,680,941 | ▼ | | Total Assets | 21,333,492 | 24,046,512 | ▼ | | Liabilities | | | | | Total current liabilities | 5,022,253 | 4,850,177 | ▲ | | Derivative liabilities | 7,992,930 | 5,558,822 | ▲ | | Total Liabilities | 14,935,965 | 12,482,075 | ▲ | | Shareholders' Equity | | | | | Deficit | (58,930,757) | (51,548,737) | ▼ | | Total Shareholders' Equity | 6,397,527 | 11,564,437 | ▼ | Consolidated Statements of Changes in Equity (Deficit) For the six months ended February 29, 2024, total shareholders' equity decreased from $11.6 million to $6.4 million. This was primarily driven by a net loss of $7.4 million, which was partially offset by $1.8 million raised from share issuances and $0.3 million from share-based compensation Changes in Equity for the Six-Month Period Ended Feb 29, 2024 (Unaudited) | Item | Amount ($) | | :--- | :--- | | Equity at Aug 31, 2023 | 11,564,437 | | Total comprehensive loss | (7,360,939) | | Share issuance | 1,777,819 | | Preferred Shares converted | 94,622 | | Share-based compensation | 321,588 | | Equity at Feb 29, 2024 | 6,397,527 | Consolidated Statements of Comprehensive Income (Loss) For the six months ended February 29, 2024, the company reported a net loss of $7.4 million, an improvement from a $13.5 million loss in the prior-year period. The result was significantly impacted by a $4.3 million goodwill impairment loss and a net finance income of $4.4 million, which included a large gain on derivative liabilities. Revenues decreased to $1.7 million from $2.2 million year-over-year, while gross profit increased substantially to $655,611 from $153,600 due to lower cost of sales Six-Month Period Performance (Unaudited) | Metric | Six Months Ended Feb 29, 2024 ($) | Six Months Ended Feb 28, 2023 ($) | Change | | :--- | :--- | :--- | :--- | | Revenues | 1,715,003 | 2,230,955 | ▼ | | Gross Profit | 655,611 | 153,600 | ▲ | | Goodwill impairment loss | 4,274,000 | - | N/A | | Net finance (income) expense | (4,362,403) | 2,938,590 | Favorable | | Net Loss | (7,382,020) | (13,487,720) | Improved | | Basic and Diluted Loss Per Share | (0.63) | (1.57) | Improved | Consolidated Statements of Cash Flows For the six months ended February 29, 2024, the company experienced a net cash decrease of $2.2 million. Cash used in operating activities was $10.0 million, driven by the net loss and an increase in inventories. Cash used in investing activities was minimal at $0.2 million. Financing activities provided $8.0 million in cash, primarily from the issuance of preferred shares, common shares, and warrants. The period ended with a cash balance of $1.2 million Cash Flow Summary for the Six-Month Period (Unaudited) | Cash Flow Activity | Ended Feb 29, 2024 ($) | Ended Feb 28, 2023 ($) | | :--- | :--- | :--- | | Cash used in operating activities | (9,957,547) | (7,212,655) | | Cash used in investing activities | (247,130) | (210,960) | | Cash provided by financing activities | 8,030,503 | 5,714,551 | | Net decrease in cash | (2,174,174) | (1,709,064) | | Cash, end of period | 1,185,083 | 4,115,652 | Notes to the Condensed Interim Consolidated Financial Statements Note 1: Incorporation and Nature of Business Vision Marine Technologies Inc., a Canadian company listed on Nasdaq (VMAR), primarily manufactures and sells or rents electric boats. The company's operations are seasonal, with electric boat sales peaking in the fourth quarter (summer) and rentals being highest from May to August - The company's principal business is the manufacture and sale or rental of electric boats[11] - Operations are seasonal: boat sales are highest in the fourth quarter (June-August), and boat rentals are highest from May to August[13][14] Note 2: Basis of Preparation and Going Concern Uncertainty The financial statements are prepared under the assumption of a going concern, but there is substantial doubt about the company's ability to continue. As of February 29, 2024, the company had only $1.2 million in cash, an accumulated deficit of $58.9 million, and recurring negative cash flows. Management is pursuing additional financing and cost savings, having raised $8.3 million in the six-month period, but cannot guarantee success. The financial statements do not include adjustments that would be necessary if the company could not continue as a going concern - A material uncertainty exists that raises substantial doubt about the Company's ability to continue as a going concern for at least 12 months[20] Key Going Concern Indicators as of Feb 29, 2024 | Indicator | Value ($) | | :--- | :--- | | Cash | 1,185,083 | | Working Capital | 5,271,607 | | Accumulated Deficit | 58,930,757 | - Management's plans include pursuing cost savings, seeking additional financing from public and private markets, and potentially selling non-core assets. The company raised net proceeds of $8,326,492 in the six months ended Feb 29, 2024[21] Note 9: Goodwill During the three months ended February 29, 2024, the company recorded a goodwill impairment loss of $4.3 million. This was related to the boat rental operation cash-generating unit (CGU). The impairment was triggered by continued unfavorable weather, a general downturn in the boating industry, and unsuccessful attempts to sell the operation, leading to revised, lower expectations for future revenue and EBITDA. The carrying amount of goodwill for this CGU was reduced to $5.4 million - A goodwill impairment loss of $4,274,000 was recorded for the three-month period ended February 29, 2024, related to the boat rental operation CGU[52] - The impairment was triggered by a downturn in the boating industry, unfavorable weather, and unsuccessful attempts to sell the boat rental operation[56] - The recoverable amount was determined using a discounted cash flow model with a post-tax discount rate of 28.0% and a terminal growth rate of 2%[53][55] Note 15: Derivative Liabilities Derivative liabilities totaled $8.0 million as of February 29, 2024, a significant increase from $5.6 million at August 31, 2023. This balance is composed of warrants issued to common shareholders ($1.1 million), Series A Convertible Preferred Shares and related instruments ($2.5 million), and Series B Convertible Preferred Shares and related instruments ($4.3 million). These instruments are recorded at fair value, with changes recognized in net finance income/expense. During the period, the company repriced previously issued warrants and issued new Series A and B convertible preferred shares, leading to complex fair value adjustments Warrants Issued to Common Shareholders The derivative liability for warrants issued to common shareholders decreased to $1.1 million from $5.6 million. This was mainly due to a significant change in the fair value estimate, resulting in a $7.1 million reduction. On December 13, 2023, the company reduced the exercise price of 2,771,135 previously issued warrants to US$1.05, which caused an initial $1.9 million increase in the liability's fair value - On December 13, 2023, the exercise price of 2,771,135 previously issued warrants was reduced to US$1.05[69] Movement in Warrant Derivative Liability | Description | Amount ($) | | :--- | :--- | | Opening balance (Aug 31, 2023) | 5,558,822 | | Additions | 765,733 | | Effect on fair value of repricing | 1,871,499 | | Change in estimate of fair value | (7,090,926) | | Closing balance (Feb 29, 2024) | 1,105,128 | Series A Convertible Preferred Shares On December 21, 2023, the company issued 3,000 Series A Convertible Preferred Shares for $4.0 million (US$3.0 million). These instruments, including associated warrants and options, are treated as derivative liabilities. The initial fair value was $12.0 million, significantly higher than the cash received, resulting in a deferred loss. As of February 29, 2024, the carrying value of this liability was $2.5 million after revaluations and conversions of 139 shares into common stock - Issued 3,000 Series A Convertible Preferred Shares and 2,857,142 warrants for $4,036,025 (US$3,000,000) on December 21, 2023[74] - The closing balance of the derivative liability for Series A shares as of Feb 29, 2024 was $2,541,445[79] Series B Convertible Preferred Shares On January 17, 2024, the company issued 3,000 Series B Convertible Preferred Shares for $4.0 million (US$3.0 million). Similar to the Series A shares, these instruments and their associated warrants are treated as derivative liabilities. The initial fair value was $6.3 million, also resulting in a deferred loss. As of February 29, 2024, the carrying value of this liability was $4.3 million - Issued 3,000 Series B Convertible Preferred Shares and 2,857,142 warrants for $4,044,900 (US$3,000,000) on January 17, 2024[82] - The closing balance of the derivative liability for Series B shares as of Feb 29, 2024 was $4,346,357[84] Note 16: Related Party Transactions The company engaged in significant transactions with related parties. For the six months ended February 29, 2024, this included $1.6 million in R&D expenses paid to Mac Engineering, SASU, an entity controlled by key management. Remuneration for directors and key management totaled $1.2 million for the six-month period. The company also leases its main premises from California Electric Boat Company Inc., another related party Key Related Party Transactions (Six Months Ended Feb 29, 2024) | Transaction | Party | Amount ($) | | :--- | :--- | :--- | | Research and Development | Mac Engineering, SASU | 1,580,776 | | Remuneration of directors and key management | - | 1,195,963 | - As of Feb 29, 2024, amounts due to related parties included in trade and other payables totaled $90,744[90] Note 19: Revenues For the six months ended February 29, 2024, total revenue was $1.7 million, down from $2.2 million in the prior-year period. The decrease was driven by lower sales of boats and parts. Boat rental and club membership revenue remained the largest contributor at $1.4 million, though it also saw a decline from $1.7 million year-over-year. Revenues were primarily from the U.S Revenue Breakdown (Six-Month Period) | Revenue Source | Ended Feb 29, 2024 ($) | Ended Feb 28, 2023 ($) | Change | | :--- | :--- | :--- | :--- | | Sales of boats | 258,707 | 351,241 | ▼ | | Sales of parts and boat maintenance | 35,911 | 174,856 | ▼ | | Boat rental and boat club membership | 1,420,385 | 1,704,858 | ▼ | | Total Revenue | 1,715,003 | 2,230,955 | ▼ | Note 22: Segment Information The company operates in two segments: 'Sale of electric boats' and 'Rental of electric boats'. For the six months ended February 29, 2024, the Rental segment generated $1.4 million in external revenue and a pre-tax loss of $4.7 million, which includes the $4.3 million goodwill impairment. The Sale of electric boats segment generated $0.3 million in external revenue and a pre-tax loss of $2.7 million, which includes a $6.3 million gain on derivative liabilities and $1.9 million in transaction costs Segment Performance (Six Months Ended Feb 29, 2024) | Segment | External Revenue ($) | Segment Profit (Loss) Before Tax ($) | Key Items | | :--- | :--- | :--- | :--- | | Sale of electric boats | 294,618 | (2,741,581) | Includes $6.3M gain on derivatives | | Rental of electric boats | 1,420,385 | (4,738,734) | Includes $4.3M goodwill impairment | Segment Assets as of Feb 29, 2024 | Segment | Segment Assets ($) | | :--- | :--- | | Sale of electric boats | 22,306,514 | | Rental of electric boats | 9,354,635 | | Inter-segment eliminations | (10,327,657) | | Total | 21,333,492 | Note 24: Commitments The company has significant future financial commitments. This includes minimum purchase obligations under supply agreements amounting to $10.8 million for 2024. Additionally, there is an unrecorded lease arrangement for premises with undiscounted commitments totaling approximately $0.85 million from 2024 onwards - The company has minimum spend commitments under supply agreements of $10,824,529 for 2024[128] Note 25: Subsequent Events After the reporting period, on April 3, 2024, the company signed a letter of intent to sell 100% of its EB Rental, Ltd. subsidiary (the Newport Beach, California boat rental operation) for US$1 million to a related party, EB Strategies Inc. The company will retain its rental operations in Ventura, California, and Palm Beach, Florida. Additionally, 64,303 common shares were issued for services in March and April 2024 - On April 3, 2024, the company signed a letter of intent to sell its Newport Beach, California boat rental operation (EB Rental, Ltd.) for US$1 million to a related party[132] - In March and April 2024, the company issued 64,303 Voting Common Shares in exchange for services[131]