Twin Vee PowerCats, Co.

Investing in our securities involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, ”Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2025. Except as disclosed below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

** Risks Related to Our Business**

For the year ended December 31, 2025, we incurred a loss from operations of $8,781,299 and a net loss of $8,607,273. For the nine months ended September 30, 2026, we incurred a loss from operations of $8,266,347 and a net loss of $8,005,342. As of September 30, 2026, we had accumulated deficits of $42,005,570. To address these conditions:

Despite our ongoing efforts to mitigate these conditions, there can be no assurance that our expenses will not increase in future periods or that the cash generated from operations in future periods will be sufficient to satisfy our operating needs. If we need to raise additional capital to fund our continued operations, there can be no assurance that funding will be available on acceptable terms on a timely basis, or at all. The various ways that we could raise capital carry potential risks. Any additional sources of financing will likely involve the issuance of our equity securities, which will have a dilutive effect on our stockholders. Any debt financing, if available, may involve restrictive covenants that may impact our ability to conduct our business. If we do not succeed in raising additional funds on acceptable terms or at all, we may be unable to fill new orders and develop new products. As such, we cannot conclude that such plans will be effectively implemented within one year after the date that the financial statements included in this Report are filed with the SEC, and there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unable to generate sufficient revenue from operations and/or raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate efforts to expand our dealer network or develop new models and may be forced to cease operations or liquidate assets.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting.

As of September 30, 2026, we do not yet have effective disclosure controls and procedures, or internal controls over all aspects of our financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and in accordance with GAAP. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. We will be required to expend time and resources to further improve our internal controls over financial reporting, including by expanding our staff. However, we cannot assure you that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.

Management has developed and is executing a remediation plan to address the previously disclosed material weaknesses, due to inadequate staffing levels. We have retained a full-time controller and are utilizing the services of experienced SEC reporting consultants as necessary. We have recently hired our former CFO to act as Interim CFO. We have also selected and implemented a robust operating system and we are utilizing the assistance of outside advisors where appropriate. We cannot assure you that management will be successful in locating and retaining appropriate candidates; that newly engaged staff or outside consultants will be successful in remedying material weaknesses thus far identified or identifying material weaknesses in the future; or that appropriate candidates will be located and retained prior to these deficiencies resulting in material and adverse effects on our business.

Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results and cause a decline in the market price of our common stock.

We are currently, and may in the future be, subject to substantial litigation, regulatory actions, government investigations, proceedings and similar actions that could cause us to incur significant legal expenses and which could have a material adverse effect on our business, operating results or financial condition.

In light of the Company’s defective reincorporation from the State of Delaware to the State of Nevada, we sought and received stockholder approval to ratify the 1-for-37 reverse stock split purportedly effectuated under Nevada law. The defective reincorporation and the associated ratification (and any failure of the stockholders to approve such ratification) exposes the Company to risk of litigation and regulatory actions, any of which may have a material adverse impact on the Company’s business, financial condition and results of operation, and may impact the Company’s ability to consummate the USFM Merger.

On August 4, 2026, our Board of Directors authorized the Company to seek stockholder approval to ratify certain actions pursuant to Section 204 (“Section 204”) of the Delaware General Corporation Law, which, in certain circumstances, allows a Delaware corporation to ratify a defective corporate act retroactive to the date the corporate act was originally taken. The ratification is being sought for a 1-for-37 stock split (the “Reverse Stock Split”) reflected in a Certificate of Change Pursuant to NRS 78.209 (the “NV Charter Amendment”), which was improperly filed by the Company with the Secretary of State of the State of Nevada (the “NV Secretary of State”) on April 30, 2026, with a stated effective time of 12:01 am ET on May 4, 2026. The NV Charter Amendment was filed with the NV Secretary of State following the prior improper filings of (a) Articles of Conversion/Exchange/Merger with the NV Secretary of State on April 9, 2026 (the “NV Conversion Filing), (b) Articles of Incorporation with the NV Secretary of State on April 9, 2026 (the “NV Articles”), and (c) a Certificate of Conversion with the Secretary of State of the State of Delaware (the “DE Secretary of State”) on April 7, 2026 (the “DE Conversion Filing”). On August 4, 2026, the Company submitted for filing (x) a Certificate of Correction with the NV Secretary of State to revoke the NV Conversion Filing (the “NV Certificate of Correction”) and (y) a Certificate of Correction with the DE Secretary of State to revoke the DE Conversion Filing (the “DE Certificate of Correction” and, together with the NV Certificate of Correction, the “Certificates of Correction”).

Following our stockholders approval of the ratification referred to above at the special meeting of stockholders held on September 8, 2026, the Company filed a Certificate of Validation with the DE Secretary of State (the “DE Certificate of Validation”) promptly following receipt of such stockholder approval, which will include an amendment to the Company’s Delaware certificate of incorporation reflecting the Reverse Stock Split, effective as of 12:01 am ET on May 4, 2026. The ratification of the Reverse Stock Split would remove uncertainty regarding the validity of the Reverse Stock Split and confirm the effectiveness of the Reverse Stock Split in the State of Delaware, effective as of 12:01 am ET on May 4, 2026.

Under Section 155 of the DGCL, when an act or transaction would result in fractional shares outstanding and the corporation determines not to issue fractions of shares, the corporation may (i) arrange for the disposition of fractional interests by those entitled thereto, (ii) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined or (iii) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. As originally approved and effected, the Reverse Stock Split involved rounding up fractional shares into whole shares, a practice not permitted under Delaware law. Because of the complexity required to unwind any rounded-up shares, on August 4, 2026, the Board of Directors determined, with the advice of counsel, to provide in the Certificate of Amendment that will be attached to the DE Certificate of Validation and as part of the ratification of the Reverse Stock Split that, with respect to any holder who would have been entitled to receive a fraction of a share as a result of the Reverse Stock Split, the 1-for-37 exchange ratio applicable to the Reverse Stock Split would be automatically adjusted solely with respect to such holder so that at the effective time of the Reverse Stock Split, such holder would receive the next higher whole number of shares. This design will replicate the rounding-up of shares contemplated by the Nevada filings that purportedly effected the Reverse Stock Split while complying with the technical requirements of Delaware law.

Furthermore, in accordance with Section 204, on August 4, 2026, our Board of Directors ratified the Reverse Stock Split and approved (a) the submission to the stockholders of the Company a proposal for ratification and approval of the Reverse Stock Split; and (b) the filing with the DE Secretary of State of the DE Certificate of Validation following stockholder approval (which was received on September 8, 2026). On August 17, 2026, the Company filed with the SEC a definitive proxy statement related to the special meeting of stockholders that was called for purposes of, among other things, stockholder approval of the ratification of the Reverse Stock Split. Such special meeting was held on September 8, 2026, at which time, the Company’s stockholders approved the ratification and approval of the Reverse Stock Split referred to above. Please review the definitive proxy statement and the other documents that the Company has filed with the SEC for more information regarding the defective reincorporation and Reverse Stock Split.

Although we believe we have fully complied with the procedures and requirements of Section 204 as of the date of this Quarterly Report on Form 10-Q, there can be no assurance that (a) there will be no claims that the Reverse Stock Split, the NV Charter Amendment, the NV Articles, the NV Conversion Filing, the DE Conversion Filing, the Certificates of Correction, the purported reincorporation of the Company in Nevada, and/or all subsequent or related defective or noncompliant corporate acts (including the Reverse Stock Split) are void or voidable due to the failures to comply with applicable law, (b) the Delaware Court of Chancery will not declare in its discretion that the ratification pursuant to Section 204 is not effective or is effective only on certain conditions, or (c) the Company and its officers and directors will not face other claims or liabilities related to any of the foregoing matters or, if asserted, such claims will not be successful. Under Section 204, claims opposing the ratification of a defective corporate act must be brought within 120 days after the filing of the applicable Certificate of Validation. If the ratification pursuant to Section 204 is ultimately not effective, then the Reverse Stock Split would be invalid and the Company and its officers and directors could have liability to holders of our common stock, the Nasdaq Stock Market, other regulators, and other third parties related to the Reverse Stock Split, the invalid Nevada reincorporation, and/or any of the aforementioned matters. The outcome of any such claims or regulatory actions is impossible to predict, however, any such claims or actions would likely have a material and adverse impact on the Company and its business, financial condition, and results of operation and any such claims or actions would significantly divert attention of the Company’s management.

In addition, if the ratification referred to above is challenged or invalidated by the Delaware Court of Chancery, the ratification of the Reverse Stock Split will not become effective in accordance with Section 204, which provides for a non-exclusive method to ratify an act or transaction. The DGCL specifically states that compliance with Section 204 is not the exclusive means of ratifying any transaction or act. Any successful challenge to the ratification may leave us exposed to potential claims that (i) the Reverse Stock Split did not receive requisite stockholder approval, (ii) the Reverse Stock Split therefore was not validly adopted, (iii) as a result, the Company’s outstanding stock should revert to the pre-split share numbers, (iv) issuances of common stock or warrants, options, or other equity grants subsequent to the Reverse Stock Split may not be valid, and (v) we would not be able to validate our total outstanding shares of common stock in connection with any strategic transaction that our Board of Directors may determine is advisable, including, without limitation, the sale of the Company pursuant to the USFM Merger Agreement, any other business combination, merger or reverse merger, or a license or other disposition of corporate assets of the Company, or in connection with potential future transactions, including, without limitation, capital-raising transactions, exchanges of outstanding warrants, options, or other derivative securities, and other strategic transactions. Any inability to issue common stock in the future and any invalidity of past issuances of common stock could expose us to significant claims and have a material adverse effect on our operations and liquidity, which could result in material business interruptions and our filing for bankruptcy or an involuntary petition for bankruptcy being filed against us. Among other things, the Company avoided having its shares delisted from Nasdaq, in part, based on assertions the Company made to Nasdaq that it had legally consummated a reverse stock split. Furthermore, we face claims from USFM that the Company has breached its representations and other obligations under the USFM Merger Agreement. Any such claims could have a material adverse effect on our financial condition and results of operations.

Risks Related to the USFM Merger

Failure to complete, or delays in completing, the pending USFM Merger could materially and adversely affect the Company’s results of operations, business, financial results, and/or stock price.

On October 7, 2026, the Company, USFM, Twin Vee Holdco Inc., a Texas corporation and a wholly owned subsidiary of the Company (“Pubco”), Twin Vee Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Pubco (“Merger Sub I”), and USFM Merger Sub Inc., a Colorado corporation and wholly-owned subsidiary of Pubco (“Merger Sub II”), entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth in the A&R Merger Agreement, (a) Merger Sub I will merge with and into the Company (the “First Merger”), with the Company continuing as the surviving corporation in the First Merger (the “Surviving Company”) as a wholly owned subsidiary of Pubco and (b) Merger Sub II will merge with and into USFM (the “Second Merger” and, together with the First Merger, the “Mergers”), with USFM continuing as the surviving corporation in the Second Merger (the “Surviving Corporation”) as a wholly owned subsidiary of Pubco. The A&R Merger Agreement amends and restates that certain Agreement and Plan of Merger, dated as of July 12, 2026, by and among the Company, USFM, and USFM Merger Sub Inc., a Nevada corporation and wholly-owned subsidiary of USFM. Consummation of the Mergers is subject to certain closing conditions, a number of which are not within the Company’s control. Any failure to satisfy these required conditions to closing may prevent, delay or otherwise materially adversely affect the completion of the Mergers. The Company cannot predict with certainty whether or when any of the required closing conditions will be satisfied or if another uncertainty may arise and cannot assure you that it will be able to successfully consummate the Mergers as currently contemplated under the A&R Merger Agreement or at all.

The Company’s efforts to complete the Mergers could cause substantial disruptions in, and create uncertainty surrounding, its business, which may materially adversely affect its results of operation and its business. This uncertainty has been compounded due to the Section 204 defective corporate act ratification and defective Nevada reincorporation matter described more fully elsewhere in this Quarterly Report. Uncertainty as to whether the Mergers will be completed in a timely manner or at all may affect the Company’s ability to retain and motivate existing employees. Uncertainty as to whether the Mergers will be completed in a timely manner or at all could adversely affect the Company’s business and its relationship with dealers, financing sources, suppliers, vendors, regulators, and other business partners. The adverse effects of the pendency of the Mergers could be exacerbated by any delays in completion of the Mergers or termination of the A&R Merger Agreement.

If the conditions to the Mergers are not satisfied or waived, the Mergers may not occur.

Even if the Mergers are approved by the stockholders of the Company and USFM, specified conditions must be satisfied or, to the extent permitted by applicable law, waived to complete the Mergers. These conditions are set forth in the A&R Merger Agreement and described further in note 15 “Subsequent Events” to the condensed consolidated financial statements set forth elsewhere in this Quarterly Report on Form 10-Q, in a Current Report on Form 8-K that we filed on October 8, 2026, and in other documents the Company, Pubco and USFM has filed and will file with the SEC (including a registration statement on Form S-4 to be filed by Pubco). The Company cannot assure you that all of the conditions to the consummation of the Mergers will be satisfied or waived. If the conditions are not satisfied or waived, the Mergers may not occur or the closing may be delayed. Furthermore, unless such breaches of the A&R Merger Agreement are waived by USFM, USFM may have claims against the Company for breach of its representations and other obligations set forth in the A&R Merger Agreement resulting from the defective corporate acts referred to above.

The Company and USFM Corporation may mutually agree to waive the condition to the Mergers requiring approval for listing of Pubco’s common stock on NYSE American or another national securities exchange, and if such condition is waived, Pubco’s stock may not be listed on NYSE American or another national securities exchange following completion of the Mergers.

Pursuant to the A&R Merger Agreement, each of the Company’s and USFM’s obligation to complete the Mergers is subject to the satisfaction or waiver by each of the parties of various conditions, including that the shares of Pubco common stock to be issued to the Company’s stockholders in the First Merger have been approved for listing on NYSE American or certain other national securities exchanges as of the closing of the First Merger. In the event that the shares of Pubco’s common stock to be issued in the First Merger are not approved for listing on NYSE American or such other national securities exchange, it is possible that the Company and USFM may mutually agree to waive the applicable condition and nonetheless proceed with completing the First Merger. If such condition is waived, neither the Company nor USFM will recirculate an updated proxy statement/prospectus, nor will it solicit a new vote of the Company’s stockholders prior to proceeding with the First Merger. If the Company proceeds with the First Merger in these circumstances, the Pubco stock issued to the Company’s stockholders may not be listed on NYSE American, Nasdaq, or any other national securities exchange.

If the Pubco stock is not listed on NYSE American or another national securities exchange following completion of the USFM Merger, trading of the shares of Pubco capital stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it is likely that there would be significantly less liquidity in the trading of the Pubco common stock; decreases in institutional and other investor demand for such shares, coverage by securities analysts, market making activity and information available concerning trading prices and volume; and fewer broker dealers willing to execute trades in the Pubco common stock. Also, it may be difficult for Pubco to raise additional capital if the Pubco common stock is not listed on a major securities exchange. The occurrence of any of these events could result in a further decline in the market price of the Pubco common stock and could have a material adverse effect on Pubco and the trading price of the shares of Pubco issued to the Company’s stockholders upon consummation of the First Merger.

The exchange ratio for the First Merger will not change or otherwise be adjusted based on the market price of the Company’s common stock.

The Company’s stockholders are entitled to receive a fixed 7% of the issued and outstanding Pubco common stock immediately following the Second Effective Time (calculated on a fully diluted basis). Any changes in the market price of the Company’s common stock before the completion of the First Merger will not affect the number of shares Pubco common stock that the Company’s stockholders will be entitled to receive pursuant to the A&R Merger Agreement. The A&R Merger Agreement does not include a price-based termination right. Therefore, the value of the Pubco common stock issued to the Company’s stockholders will fluctuate, possibly materially, based on market conditions.

The issuance of Pubco common stock to the Company’s stockholders pursuant to the A&R Merger Agreement must be approved by the Company’s stockholders, and the A&R Merger Agreement and transactions contemplated thereby must be approved by both the Company’s and USFM’s stockholders. Failure to obtain these approvals would prevent the closing of the Mergers.

Before the Mergers can be completed, the USFM stockholders must approve, among other things, the A&R Merger Agreement, and the Company’s stockholders must adopt the A&R Merger Agreement and approve the First Merger, the issuance of the Pubco shares, and the related transactions. Failure to obtain the required stockholder approvals may result in a material delay in, or the abandonment of, the Mergers. Any delay in completing the Mergers may materially adversely affect the timing and benefits that are expected to be achieved from the Mergers.

The Mergers may be completed even though a material adverse effect may result from the announcement of the Mergers, industry-wide changes or other causes.

In general, neither USFM nor the Company is obligated to complete the Mergers if there is a material adverse effect affecting the other party between October 7, 2026, the date of the A&R Merger Agreement, and the closing of the Mergers. However, certain types of causes are excluded from the concept of a “material adverse effect.” Such exclusions include, but are not limited to, changes in general economic or political conditions, industry-wide changes, changes resulting from the announcement of the Mergers, natural disasters, pandemics, other force majeure events and changes in U.S. generally accepted accounting principles. Therefore, if any of these events were to occur and adversely affect USFM, Pubco, or the Company, the other parties would still be obliged to consummate the closing of the Mergers notwithstanding such material adverse effect. If any such adverse effects occur and the parties consummate the closing of the Mergers, the Pubco stock price may suffer. This in turn may reduce the value of the Mergers to the stockholders of USFM, the Company or both.

If the Mergers are not completed, the Company’s stock price may decline significantly.

The market price of the Company’s common stock is subject to significant fluctuations. The market price of the Company’s common stock will likely be volatile based on whether stockholders and other investors believe that the Company can complete the Mergers or otherwise raise additional capital to support the Company’s operations if the Mergers are not consummated and another strategic transaction cannot be identified, negotiated and consummated in a timely manner, if at all. The volatility of the market price of the Company’s common stock has been and may be exacerbated by low trading volume and public announcement of the defective Nevada reincorporation and related matters. Additional factors that may cause the market price of the Company’s common stock to fluctuate include:

● the entry into, or termination of, key agreements;

● announcements by commercial partners or competitors of new products, significant contracts, commercial relationships or capital commitments;

● the loss of key employees;

● future sales of the Company’s common stock;

● general and industry-specific economic conditions that may affect the Company’s operating expenses; and

● period-to-period fluctuations in financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the Company’s common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies. Such litigation or other disputes may arise in connection with the Mergers and/or the defective Nevada reincorporation described more fully elsewhere in this Quarterly Report.

Pubco may need to raise additional capital by issuing equity securities or debt, which may cause significant dilution to the interests of its stockholders, including the Company’s stockholders following the consummation of the Mergers, or restrict Pubco’s operations.

Additional financing may not be available to Pubco when it is needed or may not be available on favorable terms. To the extent that Pubco raises additional capital by issuing equity securities, such financing will cause additional dilution to all securityholders of Pubco, including the Company’s pre-closing securityholders and USFM’s pre-closing securityholders. It is also possible that the terms of any new equity securities may have preferences over Pubco’s common stock. Any debt securities Pubco issues or credit agreements Pubco may enter into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of Pubco’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. The Company’s stockholders will have no veto rights with respect to any such future debt or equity issuances by Pubco.

In addition, as a result of Pubco’s assumption of the Company’s outstanding warrants and other Company Convertible Securities (as defined in the A&R Merger Agreement) in connection with the Mergers, Pubco will be obligated to issue additional shares of Pubco common stock upon exercise of any such warrants or Company Convertible Securities. Such warrants and other Company Convertible Securities assumed by Pubco will result in further dilution to all securityholders of Pubco.

Some of the Company’s and USFM’s directors and executive officers have interests in the Mergers that are different from yours.

Directors and executive officers of the Company and USFM have interests in the Mergers that are different from, or in addition to, the interests of other the Company’s stockholders generally. These interests with respect to the Company’s directors and executive officers may include, among others, USFM and Twin Vee stock ownership, retention bonus payments, severance payments if employment is terminated in a qualifying termination in connection with the Mergers and rights to continued indemnification, expense advancement and insurance coverage. The Registration Statement on Form S-4 which Pubco will file in connection with the Mergers, and other documents that the Company, Pubco and USFM file with the SEC from time to time, will describe these interests of the Company’s officers and directors in detail. Please review such filings for more information.

Further, certain current members of the Company’s Board of Directors may continue as directors of USFM Corporation after the closing of the Mergers and may be eligible to be compensated as non-employee directors of Pubco pursuant to Pubco’s non-employee director compensation policy that is expected to be in place following the closing of the Mergers.

The Company’s Board of Directors was aware of and considered those interests, among other matters, in reaching their decisions to approve and adopt the A&R Merger Agreement, approve the Mergers, and recommend the approval of the A&R Merger Agreement to the Company’s stockholders.

Pubco’s stockholders, including the Company’s stockholders following the Mergers, may not realize benefits from the Mergers commensurate with the ownership dilution they will experience in connection with the Mergers.

If Pubco is unable to realize the full strategic and financial benefits currently anticipated from the Mergers, USFM’s and the Company’s pre-closing stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent Pubco is able to realize only part of the strategic and financial benefits currently anticipated from the Mergers.

Pubco’s stockholders, including the Company’s stockholders following the Mergers, will generally have a reduced ownership and voting interest in, and will exercise less influence over the management of, Pubco following the completion of the Mergers as compared to their current ownership and voting interests in the respective companies.

After the completion of the Mergers, the Company’s current shareholders will own a substantially smaller percentage of Pubco than their ownership of the Company prior to the Second Merger. Immediately after the Second Merger, the Company’s stockholders as of immediately prior to the First Merger will own 7% of the outstanding shares of capital stock of Pubco (on a fully-diluted basis), and former holders of USFM’s securities will own 83% of the outstanding shares of capital stock Pubco (on a fully-diluted basis) following the Second Merger. This reduced ownership interest will make it more difficult for significant Company stockholders to approve matters that are submitted to the stockholders of Pubco for approval.

Certain provisions of the A&R Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the A&R Merger Agreement.

While the A&R Merger Agreement is in effect, the Company is generally prohibited from, among other things, soliciting, initiating or knowingly encouraging, inducing or facilitating the communication, making, submission or announcement of any acquisition proposal or acquisition inquiry. In addition, one stockholder of the Company entered into a support agreement pursuant to the terms of the A&R Merger Agreement, as an inducement to USFM’s willingness to enter into the A&R Merger Agreement, by which such stockholder agreed to vote all of its shares of the Company’s capital stock in favor of the A&R Merger Agreement and the transactions contemplated thereby and against any competing proposals, subject to certain limited exceptions. Pursuant to the terms of the A&R Merger Agreement, the Company is obligated to pay a termination fee in the amount of $800,000 in the event the A&R Merger Agreement is terminated in connection with the Company’s approval of a competing offer. These provisions could discourage a potential competing acquirer from considering or proposing an acquisition or merger, even if it were prepared to pay consideration with a higher value than that implied by the merger consideration in the A&R Merger Agreement.

Because the lack of a public market for Pubco and USFM common stock makes it difficult to evaluate the fair market value of Pubco’s capital stock, the value of Pubco common stock to be issued to the Company’s stockholders may be more or less than the fair market value of the Company’s common stock.

The outstanding capital stock of Pubco is currently not traded on any public market. The lack of a public market makes it difficult to determine the fair market value of Pubco’s capital stock. Because the percentage of Pubco’s equity to be issued to the Company’s stockholders was determined based on negotiations between the parties, it is possible that the value of the Pubco common stock to be issued to the Company’s stockholders will be more or less than the fair market value of the Company’s capital stock.

Lawsuits may be filed against Pubco, USFM, the Company, or any of the members of their respective boards of directors or officers arising out of the Mergers, which may delay or prevent the Mergers.

Putative stockholder complaints, including stockholder class action complaints, and other complaints may be filed against Pubco, the Pubco Board of Directors, USFM Corporation, the USFM Corporation Board of Directors, the Company, the Company’s Board of Directors and others in connection with the transactions contemplated by the A&R Merger Agreement. The outcome of litigation is uncertain, and Pubco, USFM Corporation or the Company may not be successful in defending against any such future claims. Lawsuits that may be filed against Pubco, the Pubco Board of Directors, USFM Corporation, the USFM Corporation Board of Directors, the Company, or the Company’s Board of Directors could delay or prevent the Mergers, divert the attention of USFM Corporation’s and the Company’s management and employees from their day-to-day business and otherwise adversely affect USFM Corporation and the Company financially.

Pubco has never paid and does not intend to pay any cash dividends in the foreseeable future.

Pubco has never paid cash dividends on any of its capital stock. Pubco does not currently anticipate declaring or paying cash dividends on its capital stock in the foreseeable future. No assurances can be provided regarding when, if ever, the shares of Pubco common stock issued to the Company’s stockholders in the First Merger will yield any dividends.

If the Company does not successfully consummate the Mergers or another strategic transaction, the Company’s Board of Directors may decide to pursue a dissolution and liquidation of the Company. In such an event, the amount of cash available for distribution to the Company’s stockholders, if any, will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities, as to which the Company can give you no assurance.

There can be no assurance that the Mergers will be completed. If the Mergers are not completed, the Company’s Board of Directors may decide to pursue a dissolution and liquidation of the Company. In such an event, the amount of cash available for distribution to the Company’s stockholders, if any, will depend heavily on the timing of such decision and, ultimately, such liquidation, since the amount of cash available for distribution continues to decrease as the Company funds its operations while pursuing the Mergers and ratification of the defective corporate acts referred to elsewhere in this Quarterly Report. In addition, if the Company’s Board of Directors were to approve and recommend, and the Company’s stockholders were to approve, a dissolution and liquidation of the Company, the Company would be required under applicable law to pay the Company’s outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to stockholders. The Company’s commitments and contingent liabilities may include obligations under the Company’s employment and related agreements with certain employees that provide for severance and other payments following a termination of employment occurring for various reasons, including a change in control of the Company, litigation against the Company, and other various claims and legal actions arising in the ordinary course of business, and other unexpected and/or contingent liabilities. As a result of this requirement, a portion of the Company’s assets would need to be reserved pending the resolution of such obligations.

In addition, the Company may be subject to litigation or other claims related to a dissolution and liquidation of the Company. If a dissolution and liquidation were to be pursued, the Company’s Board of Directors, in consultation with the Company’s advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of the Company’s common stock could lose all or a significant portion of their investment in the event of liquidation, dissolution or winding up of the Company. A liquidation would be a lengthy and uncertain process with no assurance of any value ever being returned to the Company’s stockholders.

Pubco’s stockholders, including the Company’s stockholders following the Mergers, will not have any right to make damage claims against Pubco, USFM Corporation or the Company for the breach of any representation, warranty or covenant made by the Company in the A&R Merger Agreement following the consummation of the Mergers, subject to limited exceptions.

The A&R Merger Agreement provides that all of the representations, warranties and covenants of the parties contained therein shall not survive the closing of the Mergers, with limited exceptions. Accordingly, there are no remedies available to the parties with respect to any breach of the representations, warranties, covenants or agreements of the parties to the A&R Merger Agreement after the closing of the Mergers, with limited exceptions. As a result, the parties to the A&R Merger Agreement and its stockholders will have no remedy available to them if the Mergers are consummated and it is later revealed that there was a breach of any of the representations, warranties and covenants made by Pubco, USFM Corporation or the Company at the time of the Mergers.

Additionally, USFM Corporation cannot assure you that the due diligence conducted in relation to the Company has identified all material issues or risks associated with the Company, its business or the industry in which it competes. Furthermore, USFM Corporation cannot assure you that factors outside of its or the Company’s control will not later arise, or that any previously identified risks will not materialize in a manner inconsistent with the preliminary analysis. As a result of these factors, following the closing of the Mergers, Pubco may be exposed to liabilities and incur additional costs and expenses and it may be forced to later write-down or write off assets, restructure its operations, or incur impairment or other charges. If any such actions were to occur,

the value of the Pubco common stock issued to the Company’s stockholders pursuant to the A&R Merger Agreement may decrease, perhaps substantially. Pubco and its stockholders have no indemnification rights against the Company or its stockholders under the A&R Merger Agreement. Accordingly, stockholders of Pubco (including Company stockholders who receive shares of Pubco common stock at closing of the Mergers) could suffer a reduction in the value of their securities. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by Pubco’s, USFM Corporation’s or the Company’s directors or officers of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the registration statement or proxy statement/prospectus relating to the Mergers contained an actionable material misstatement or material omission.

The Company’s stockholders potentially may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

The A&R Merger Agreement contemplates that, prior to the closing of the Mergers, the Company, Assetco and the Trust will consummate the Pre-Closing CVR Restructuring. As part of the Pre-Closing CVR Restructuring, the Company will cause the distribution of contingent value rights interests (“CVRs”) from the Company to the Company’s pre-closing stockholders. Each CVR holder is entitled to certain rights to receive a pro rata portion of the proceeds, if any, received as a result of the disposition of the Company Assets and Liabilities (as such term is defined in the A&R Merger Agreement). Such proceeds will be subject to certain permitted deductions. The right of the Company’s pre-closing stockholders to derive any value from the CVRs will be contingent solely upon the disposition of such Company Assets and Liabilities.

The Trust and Assetco may not be able to achieve successful results from the disposition of such Company Assets and Liabilities as described above. If this is not achieved for any reason, no payments will be made under the CVRs.

USFM Corporation and the Company intend that, for U.S. federal income tax purposes (and, to the extent permitted, for applicable state and local income tax purposes), the Assetco Contribution (as defined in the A&R Merger Agreement) be treated as an exchange of the Company Assets and Liabilities for Assetco stock described in Section 1001 of the Internal Revenue Code and the CVR Interests Distribution (as defined in the USFM Merger Agreement) be treated as a distribution of property described in Section 301 of the Code. However, the U.S. federal income tax treatment of the CVRs is uncertain. There is no legal authority directly addressing the U.S. federal income tax treatment of contingent value rights with characteristics similar to the CVRs. Therefore, it is possible that the issuance of the CVRs may be treated as a distribution of equity with respect to the Company’s capital stock, as an “open transaction,” or as a “debt instrument” for U.S. federal income tax purposes, and such questions are inherently factual in nature.

The Company’s stockholders potentially may not receive any value from the Pubco common stock issued to them upon consummation of the Mergers.

The sole consideration offered to the Company’s stockholders upon consummation of the First Merger consists of shares of Pubco common stock and the contingent value rights interests to be issued to Company stockholders in connection with the Pre-Closing CVR Restructuring. The value of such Pubco common stock could decrease, possibly materially, following closing of the Mergers. The Pubco common stock may not have a liquid trading market and it may be difficult for pre-closing Company stockholders to sell shares of Pubco common stock received by them pursuant to the A&R Merger Agreement at the time or at the price desired by such Company stockholders. Pubco will be subject to various risk factors which are in addition to those stated in this Quarterly Report. It is possible that Company stockholders will receive no cash value whatsoever with respect to the shares of Pubco common stock issued to Company stockholders at the closing of the Mergers (or the CVRs issued as part of the Pre-Closing CVR Restructuring), which would result in a complete loss on such Company stockholders initial investment in the Company. Please carefully review the Pubco registration statement on Form S-4 when it is filed, together with all other documents filed by Pubco, the Company and USFM Corporation with the SEC, before making any investment decision regarding Pubco’s, the Company’s or USFM Corporation’s common stock.