ITEM 1. FINANCIAL STATEMENTS
TWIN VEE POWERCATS CO, INC.
(F/K/A TWIN VEE CATAMARANS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| |
| | | |
| | |
| |
June 30, | |
December 31, |
| |
2022 | |
2021 |
| |
| |
|
ASSETS | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 5,910,533 | | |
$ | 6,975,302 | |
Accounts receivable | |
| — | | |
| 5,137 | |
Marketable securities | |
| 997,925 | | |
| 2,996,960 | |
Inventories | |
| 4,369,549 | | |
| 1,799,769 | |
Deferred offering costs | |
| 247,129 | | |
| 105,500 | |
Due from affiliated companies | |
| 286,922 | | |
| 286,922 | |
Prepaid expenses and other current assets | |
| 508,203 | | |
| 903,756 | |
Total Current Assets | |
| 12,320,261 | | |
| 13,073,346 | |
| |
| | | |
| | |
Marketable securities - non current | |
| 2,951,005 | | |
| 3,067,137 | |
Property and equipment, net | |
| 4,362,758 | | |
| 2,883,171 | |
Operating lease right of use asset | |
| 1,360,883 | | |
| 1,550,530 | |
Security deposit | |
| 25,000 | | |
| 25,000 | |
Total Assets | |
$ | 21,019,907 | | |
$ | 20,599,184 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 2,262,434 | | |
$ | 1,200,861 | |
Accrued liabilities | |
| 683,351 | | |
| 456,814 | |
Contract liability | |
| 532,127 | | |
| 14,100 | |
Due to affiliated companies | |
| 115,043 | | |
| 115,043 | |
Operating lease right of use liability | |
| 382,922 | | |
| 368,602 | |
Total Current Liabilities | |
| 3,975,877 | | |
| 2,155,420 | |
| |
| | | |
| | |
Economic Injury Disaster Loan | |
| 499,900 | | |
| 499,900 | |
Operating lease liability - noncurrent | |
| 1,047,806 | | |
| 1,244,164 | |
Total Liabilities | |
| 5,523,583 | | |
| 3,899,484 | |
| |
| | | |
| | |
Commitments and contingencies (Note 9) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock: 10,000,000 authorized; $0.001 par value; no shares issued and outstanding | |
| — | | |
| — | |
Common stock: 50,000,000 authorized; $0.001 par value; 7,000,000 shares issued and outstanding | |
| 7,000 | | |
| 7,000 | |
Additional paid-in capital | |
| 19,236,979 | | |
| 18,710,256 | |
Accumulated deficit | |
| (3,747,655 | ) | |
| (2,017,556 | ) |
Total stockholders’ equity | |
| 15,496,324 | | |
| 16,699,700 | |
| |
| | | |
| | |
Total liabilities and stockholders’ equity | |
$ | 21,019,907 | | |
$ | 20,599,184 | |
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO, INC.
(F/K/A TWIN VEE CATAMARANS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | |
Six Months Ended |
| |
June 30, | |
June 30, |
| |
2022 | |
2021 | |
2022 | |
2021 |
| |
| |
| |
| |
|
Net sales | |
$ | 8,519,613 | | |
$ | 3,297,571 | | |
$ | 14,405,613 | | |
$ | 6,505,214 | |
Cost of products sold | |
| 5,072,401 | | |
| 1,981,427 | | |
| 8,524,047 | | |
| 3,701,164 | |
Gross profit | |
| 3,447,212 | | |
| 1,316,144 | | |
| 5,881,566 | | |
| 2,804,050 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 637,744 | | |
| 278,176 | | |
| 1,320,065 | | |
| 577,601 | |
Salaries and wages | |
| 2,793,281 | | |
| 1,047,244 | | |
| 5,047,091 | | |
| 1,975,414 | |
Professional fees | |
| 193,542 | | |
| 53,182 | | |
| 438,281 | | |
| 112,208 | |
Depreciation | |
| 119,817 | | |
| 54,475 | | |
| 199,909 | | |
| 100,998 | |
Research and design | |
| 174,807 | | |
| — | | |
| 396,352 | | |
| — | |
Total operating expenses | |
| 3,919,191 | | |
| 1,433,077 | | |
| 7,401,698 | | |
| 2,766,221 | |
| |
| | | |
| | | |
| | | |
| | |
(Loss) Income from operations | |
| (471,979 | ) | |
| (116,933 | ) | |
| (1,520,132 | ) | |
| 37,829 | |
| |
| | | |
| | | |
| | | |
| | |
Other (expense) income: | |
| | | |
| | | |
| | | |
| | |
Other income | |
| 2,632 | | |
| — | | |
| 3,230 | | |
| — | |
Interest expense | |
| (43,716 | ) | |
| (17,441 | ) | |
| (83,556 | ) | |
| (35,153 | ) |
Interest income | |
| 32,901 | | |
| — | | |
| 32,925 | | |
| — | |
Loss on disposal of assets | |
| (31,582 | ) | |
| (249,499 | ) | |
| (49,990 | ) | |
| (254,600 | ) |
Gain from insurance recovery | |
| — | | |
| 434,724 | | |
| — | | |
| 434,724 | |
Net change in fair value of marketable securities | |
| (27,038 | ) | |
| — | | |
| (112,576 | ) | |
| — | |
Total other (expenses) income | |
| (66,803 | ) | |
| 167,784 | | |
| (209,967 | ) | |
| 144,971 | |
| |
| | | |
| | | |
| | | |
| | |
Net (loss) income | |
$ | (538,782 | ) | |
$ | 50,851 | | |
$ | (1,730,099 | ) | |
$ | 182,800 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and dilutive (loss) income per share of common stock | |
$ | (0.08 | ) | |
$ | 0.01 | | |
$ | (0.25 | ) | |
$ | 0.05 | |
Weighted average number of shares of common stock outstanding | |
| 7,000,000 | | |
| 4,000,000 | | |
| 7,000,000 | | |
| 4,000,000 | |
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO, INC.
(F/K/A TWIN VEE CATAMARANS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(Unaudited)
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
For the Three and Six Months ended June 30, 2021 Additional Total |
|
| |
Preferred Stock | |
Common Stock | |
Paid-in | |
Accumulated | |
Stockholders’ |
| |
Shares | |
Amount | |
Shares | |
Amount | |
Capital | |
Deficit | |
Equity |
| |
| |
| |
| |
| |
| |
| |
|
Balance at December 31, 2020 | |
| — | | |
$ | — | | |
| 4,000,000 | | |
$ | 4,000 | | |
$ | 2,551,387 | | |
$ | (1,006,547 | ) | |
$ | 1,548,840 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 131,949 | | |
| 131,949 | |
Balance at March 31, 2021 | |
| — | | |
$ | — | | |
| 4,000,000 | | |
$ | 4,000 | | |
$ | 2,551,387 | | |
$ | (874,598 | ) | |
$ | 1,680,789 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 50,851 | | |
| 50,851 | |
Balance at June 30, 2021 | |
| — | | |
$ | — | | |
| 4,000,000 | | |
$ | 4,000 | | |
$ | 2,551,387 | | |
$ | (823,747 | ) | |
$ | 1,731,640 | |
For the Three and Six Months ended June 30, 2022 |
|
| |
| |
| |
| |
| |
Additional | |
| |
Total |
| |
Preferred Stock | |
Common Stock | |
Paid-in | |
Accumulated | |
Stockholders’ |
| |
Shares | |
Amount | |
Shares | |
Amount | |
Capital | |
Deficit | |
Equity |
| |
| |
| |
| |
| |
| |
| |
|
Balance at December 31, 2021 | |
| — | | |
$ | — | | |
| 7,000,000 | | |
$ | 7,000 | | |
$ | 18,710,256 | | |
$ | (2,017,556 | ) | |
$ | 16,699,700 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 224,832 | | |
| — | | |
| 224,832 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,191,317 | ) | |
| (1,191,317 | ) |
Balance at March 31, 2022 | |
| — | | |
$ | — | | |
| 7,000,000 | | |
$ | 7,000 | | |
$ | 18,935,088 | | |
$ | (3,208,873 | ) | |
$ | 15,733,215 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 301,891 | | |
| — | | |
| 301,891 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (538,782 | ) | |
| (538,782 | ) |
Balance at June 30, 2022 | |
| — | | |
$ | — | | |
| 7,000,000 | | |
$ | 7,000 | | |
$ | 19,236,979 | | |
$ | (3,747,655 | ) | |
$ | 15,496,324 | |
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO, INC.
(F/K/A TWIN VEE CATAMARANS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
| | | |
| | |
| |
Six months Ended |
| |
June 30, |
| |
2022 | |
2021 |
Cash Flows From Operating Activities | |
| | | |
| | |
Net (loss) income | |
$ | (1,730,099 | ) | |
$ | 182,800 | |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |
| | | |
| | |
Stock based compensation | |
| 526,723 | | |
| — | |
Depreciation and amortization | |
| 199,909 | | |
| 100,998 | |
Loss on disposal of asset | |
| 49,990 | | |
| 224,037 | |
Change of right-of-use asset and lease liabilities | |
| 189,647 | | |
| 192,531 | |
Net change in fair value of marketable securities | |
| 112,576 | | |
| — | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 5,137 | | |
| (20,540 | ) |
Inventories | |
| (2,569,780 | ) | |
| (602,838 | ) |
Prepaid expenses and other current assets | |
| 395,553 | | |
| (438,892 | ) |
Accounts payable | |
| 1,061,573 | | |
| 390,867 | |
Accrued liabilities | |
| 226,537 | | |
| (28,928 | ) |
Operating lease liabilities | |
| (182,038 | ) | |
| (177,184 | ) |
Contract liabilities | |
| 518,027 | | |
| 182,194 | |
Net cash (used in) provided by operating activities | |
| (1,196,245 | ) | |
| 5,045 | |
| |
| | | |
| | |
Cash Flows From Investing Activities | |
| | | |
| | |
Net sale of investment in trading marketable securities | |
| 2,002,591 | | |
| — | |
Proceeds from sale of property and equipment | |
| 80,000 | | |
| — | |
Purchase of property and equipment | |
| (1,809,486 | ) | |
| (604,990 | ) |
Net cash provided by (used in) investing activities | |
| 273,105 | | |
| (604,990 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities | |
| | | |
| | |
Deferred offering costs | |
| (141,629 | ) | |
| (206,293 | ) |
Proceeds from Paycheck Protection Program loan | |
| — | | |
| 608,224 | |
Advances from related parties | |
| — | | |
| 24,300 | |
Repayment to related parties | |
| — | | |
| (311,460 | ) |
Net cash (used in) provided by financing activities | |
| (141,629 | ) | |
| 114,771 | |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| (1,064,769 | ) | |
| (485,174 | ) |
Cash at beginning of period | |
| 6,975,302 | | |
| 891,816 | |
Cash and cash equivalents at end of period | |
$ | 5,910,533 | | |
$ | 406,642 | |
| |
| | | |
| | |
Supplemental Cash Flow Information | |
| | | |
| | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Cash paid for interest | |
$ | 73,471 | | |
$ | 97,470 | |
| |
| | | |
| | |
Non Cash Investing and Financing Activities | |
| | | |
| | |
Increase in the right-of-use asset and lease liability | |
$ | — | | |
$ | 655,726 | |
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO.
(F/K/A TWIN VEE CATAMARANS, INC.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
1. Organization and Summary of Significant
Accounting Policies
Organization
Twin Vee PowerCats Co. (“Twin Vee”) was
incorporated as Twin Vee Catamarans, Inc., in the state of Florida, on December 1, 2009. On April 7, 2021, the Company filed a Certificate
of Conversion to register and incorporate in the state of Delaware and changed the company name to Twin Vee PowerCats Co. The Certificate
of Incorporation for Twin Vee PowerCats Co. was also filed on April 7, 2021.
On September 1, 2021, the Company formed Fix My Boat,
Inc., (“Fix My Boat”), a wholly-owned subsidiary. Fix My Boat will utilize a franchise model for marine mechanics across the
country.
On October 15, 2021, the Company formed Electra Power
Sports, Inc., a wholly-owned subsidiary. Electra Power Sports, Inc. subsequently changed its name to Forza X1, Inc. on October 29, 2021.
Principles of Consolidation
The consolidated financial statements include
the accounts of Twin Vee and its wholly owned subsidiaries Fix My Boat, Inc., (“Fix My Boat”) and Forza X1, Inc. (“Forza
X1” “Forza), collectively referred to as the “Company”. All inter-company balances and transactions are eliminated
in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the United States Securities
and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles
generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management,
the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal
recurring accruals) to present the financial position of the Company as of June 30, 2022 and the results of operations and cash flows
for the periods presented. The results of operations for the three months ended June 30, 2022 are not necessarily indicative of the operating
results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction
with the financial statements and related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report
on Form 10-K filed with the SEC on June 30, 2022.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting
period. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid
investments with original maturities of three months or less at the time of purchase. On June 30, 2022 and December 31, 2021, the Company
had cash and cash equivalents of $5,910,533 and $6,975,302, respectively.
Concentrations of Credit and Business Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk primarily consist of trade receivables. Credit risk on trade receivables is mitigated as a result
of the Company’s use of trade letters of credit, dealer floor plan financing arrangements, and the geographically diversified nature
of the Company’s customer base. The Company minimizes the concentration of credit risk associated with its cash by maintaining its
cash with high quality federally insured financial institutions. However, cash balances in excess of the Federal Deposit Insurance Corporation
(“FDIC”) insured limit of $250,000 are at risk. As of June 30, 2022 and December 31, 2021, the Company had $4,850,528 and
$6,725,302, respectively, in excess of FDIC insured limits.
Marketable Securities
Our investments in debt securities are carried at
either amortized cost or fair value. Investments in debt securities that the Company has the positive intent and ability to hold to maturity
are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity
are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading
debt securities as well as realized gains and losses on available-for-sale debt securities are included in net income.
Revenue Recognition
The Company’s revenue is derived primarily from
the sale of boats, motors and trailers to its independent dealers. The Company recognizes revenue when obligations under the terms of
a contract are satisfied and control over promised goods is transferred to the dealer. For the majority of sales, this occurs when the
product is released to the carrier responsible for transporting it to a dealer. The Company typically receives payment within five business
days of shipment. Revenue is measured as the amount of consideration it expects to receive in exchange for a product. The Company offers
dealer incentives that include wholesale rebates, retail rebates and promotions, floor plan reimbursement or cash discounts, and other
allowances that are recorded as reductions of revenues in net sales in the statements of operations. The consideration recognized represents
the amount specified in a contract with a customer, net of estimated incentives the Company reasonably expects to pay. The estimated liability
and reduction in revenue for dealer incentives is recorded at the time of sale. Subsequent adjustments to incentive estimates are possible
because actual results may differ from these estimates if conditions dictate the need to enhance or reduce sales promotion and incentive
programs or if dealer achievement or other items vary from historical trends. Accrued dealer incentives are included in accrued expenses
and other current liabilities in the accompanying consolidated balance sheets.
Payment received for the future sale of a boat to
a customer is recognized as a customer deposit, which is included in contract liabilities on the consolidated balance sheet. Customer
deposits are recognized as revenue when control over promised goods is transferred to the customer. At June 30, 2022 and December 31,
2021, the Company had customer deposits of $532,127 and $14,100, respectively, which is recorded as contract liabilities. These deposits
are expected to be recognized as revenue within a one-year period.
Rebates and Discounts
Dealers earn wholesale rebates based on purchase volume
commitments and achievement of certain performance metrics. The Company estimates the amount of wholesale rebates based on historical
achievement, forecasted volume, and assumptions regarding dealer behavior. Rebates that apply to boats already in dealer inventory are
referred to as retail rebates. The Company estimates the amount of retail rebates based on historical data for specific boat models adjusted
for forecasted sales volume, product mix, dealer and consumer behavior, and assumptions concerning market conditions. The Company also
utilizes various programs whereby it offers cash discounts or agrees to reimburse its dealers for certain floor plan interest costs incurred
by dealers for limited periods of time, generally ranging up to nine months.
Other Revenue Recognition Matters
Dealers generally have no right to return unsold boats.
Occasionally, the Company may accept returns in limited circumstances and at the Company’s discretion under its warranty policy.
The Company may be obligated, in the event of default by a dealer, to accept returns of unsold boats under its repurchase commitment to
floor financing providers, who are able to obtain such boats through foreclosure. The repurchase commitment is on an individual unit basis
with a term from the date it is financed by the lending institution through the payment date by the dealer, generally not exceeding 30
months.
The Company has excluded sales and other taxes assessed
by a governmental authority in connection with revenue-producing activities from the determination of the transaction price for all contracts.
The Company has not adjusted net sales for the effects of a significant financing component because the period between the transfer of
the promised goods and the customer’s payment is expected to be one year or less.
Supplier Concentrations
The Company is dependent on the ability of its suppliers
to provide products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction
in product availability from principal suppliers could have a material adverse effect on the Company. Business risk insurance is in place
to mitigate the business risk associated with sole suppliers for sudden disruptions such as those caused by natural disasters.
The Company is dependent on third-party equipment
manufacturers, distributors, and dealers for certain parts and materials utilized in the manufacturing process. During the six months
ended June 30, 2022, the Company purchased all engines for its boats under a supply agreement with a single vendor. For the six months
ended June 30, 2022 and 2021, total purchases to this vendor were $2,702,733 and $1,285,116, respectively.
2. Marketable securities
Assets and liabilities measured at fair value on a
recurring basis based on Level 1 and Level 2 fair value measurement criteria as of June 30, 2022 and December 31, 2021 are as follows:
Schedule of Fair value Marketable Securities | |
| | | |
| | | |
| | |
| |
Fair
Value Measurements Using |
| |
Balance
as of June 30, 2022 | |
Quoted
Prices in Active Markets for Identical Assets (Level 1) | |
Significant
Other Observable Inputs (Level 2) |
Marketable
securities: | |
| | | |
| | | |
| | |
Corporate
bonds | |
$ | 3,453,873 | | |
$ | — | | |
$ | 3,453,873 | |
Certificates
of Deposits | |
| 495,057 | | |
| — | | |
| 495,057 | |
Total
marketable securities | |
$ | 3,948,930 | | |
$ | — | | |
$ | 3,948,930 | |
| |
| |
Fair Value Measurements Using |
| |
Balance as of December 31, 2021 | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | |
Significant Other Observable Inputs (Level 2) |
Marketable securities: | |
| | | |
| | | |
| | |
Corporate bonds | |
$ | 5,549,670 | | |
$ | — | | |
$ | 5,549,670 | |
Certificates of Deposits | |
| 514,427 | | |
| — | | |
| 514,427 | |
Total marketable securities | |
$ | 6,064,097 | | |
$ | — | | |
$ | 6,064,097 | |
The Company’s investments in US government bonds
are measured based on publicly available quoted market prices for identical securities as of June 30, 2022 and December 31, 2021. The
Company’s investments in corporate bonds, commercial paper and certificated of deposits are measured based on quotes from market
makers for similar items in active markets.
3. Inventories
At June 30, 2022 and December 31, 2021 inventories
consisted of the following:
Schedule of Inventories | |
| | | |
| | |
| |
June 30, | |
December 31, |
| |
2022 | |
2021 |
Raw Materials | |
$ | 3,997,257 | | |
$ | 1,518,947 | |
Work in Process | |
| 372,292 | | |
| 240,256 | |
Finished Product | |
| — | | |
| 40,566 | |
Total Inventory | |
$ | 4,369,549 | | |
$ | 1,799,769 | |
4. Property and Equipment
At June 30, 2022 and December 31, 2021, property and
equipment consisted of the following:
Schedule of property and equipment | |
| | | |
| | |
| |
June 30, | |
December 31, |
| |
2022 | |
2021 |
Machinery and equipment | |
$ | 1,775,241 | | |
$ | 1,343,797 | |
Furniture and fixtures | |
| 9,636 | | |
| 1,850 | |
Leasehold improvements | |
| 901,107 | | |
| 786,199 | |
Software and website development | |
| 147,334 | | |
| 113,120 | |
Computer hardware and software | |
| 94,009 | | |
| 76,598 | |
Boat molds | |
| 1,854,833 | | |
| 778,229 | |
Vehicles | |
| 95,536 | | |
| 101,984 | |
Electric prototypes and tooling | |
| 142,526 | | |
| 142,526 | |
| |
| 5,020,222 | | |
| 3,344,303 | |
Less accumulated depreciation and amortization | |
| (657,464 | ) | |
| (461,132 | ) |
Total Property and Equipment | |
$ | 4,362,758 | | |
$ | 2,883,171 | |
Depreciation and amortization expense of property
and equipment for the six months ended June 30, 2022 and 2021 is $199,909 and $100,998, respectively.
5. Leases – Related Party
Operating right of use (“ROU”) assets
and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value
of lease payments not yet paid. Operating right of use assets represent our right to use an underlying asset and is based upon the
operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment
of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates
corresponding to the maturities of the leases. We used the U.S. Treasury rate of 0.36% at June 30, 2022 and December 31, 2021.
The Company’s office lease contains rent escalations
over the lease term. The Company recognizes expense for this office lease on a straight-line basis over the lease term. Additionally,
tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s right-of-use asset related
to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.
The Company leases its office and warehouse
facilities, and the land which are located at 3101 S US-1, Fort Pierce, Florida (the “Property”) from Visconti Holdings,
LLC. Visconti Holdings, LLC is a single member LLC that holds the ownership of the property, and its sole member is Joseph C.
Visconti, the CEO of the Company and the CEO and majority shareholder of the Company’s parent company. The Company entered
into the lease on January 1, 2020, and as amended January 1, 2021, the lease has a term of five 5 years. The current base rent
payment is $30,000 per month including property taxes and the lease required a $25,000 security deposit. The base rent
will increase five percent (5%) on the anniversary of each annual term.
At June 30, 2022 and December 31, 2021, supplemental
balance sheet information related to leases were as follows:
| |
| | | |
| | |
| |
June 30, | |
December 31, |
| |
2022 | |
2021 |
Operating lease liabilities: | |
| | | |
| | |
Current portion | |
$ | 382,922 | | |
$ | 368,602 | |
Non-current portion | |
| 1,047,806 | | |
| 1,244,164 | |
Total | |
$ | 1,430,728 | | |
$ | 1,612,766 | |
At June 30, 2022, future minimum lease payments under
the non-cancelable operating leases are as follows:
Schedule of maturities of lease liabilities |
|
|
|
|
Year Ending December 31, |
|
|
2022 (excluding the six months ended June 30, 2022) |
|
$ |
189,000 |
|
2023 |
|
|
396,900 |
|
2024 |
|
|
416,745 |
|
2025 |
|
|
437,582 |
|
Total lease payment |
|
|
1,440,227 |
|
Less imputed interest |
|
|
(9,499 |
) |
Total |
|
$ |
1,430,728 |
|
The following summarizes other supplemental information about the Company’s
operating lease:
Schedule of operating lease cost | |
| | |
| |
June 30, |
| |
2022 |
Weighted average discount rate | |
| 0.36 | % |
Weighted average remaining lease term (years) | |
| 3.42 | |
| |
| | | |
| | |
| |
Six Months Ended |
| |
June 30, |
| |
2022 | |
2021 |
Operating lease cost | |
$ | 195,348 | | |
$ | 195,348 | |
Total lease cost | |
$ | 195,348 | | |
$ | 195,348 | |
6. Accrued Liabilities
At June 30, 2022 and December 31, 2021, accrued liabilities
consisted of the following:
Accrued Liabilities | |
| | | |
| | |
| |
June 30, | |
December 31, |
| |
2022 | |
2021 |
Accrued wages and benefits | |
$ | 319,619 | | |
$ | 185,402 | |
Accrued bonus | |
| 84,976 | | |
| 30,000 | |
Accrued warranty | |
| 92,990 | | |
| 75,000 | |
Accrued rebates | |
| — | | |
| 60,000 | |
Accrued interest | |
| 43,938 | | |
| 33,852 | |
Accrued professional fees | |
| 81,800 | | |
| 10,225 | |
Accrued operating expense | |
| 60,028 | | |
| 62,335 | |
Total | |
$ | 683,351 | | |
$ | 456,814 | |
7. Notes Payable – SBA EIDL Loan
On April 22, 2020, the Company received an SBA Economic
Injury Disaster Loan (“EIDL”) in the amount of $499,900. The loan is in response to the COVID-19
pandemic. The loan is a 30-year loan with an interest rate of 3.75%, monthly payments of $2,437 to begin October 22, 2022,
under the EIDL program, which is administered through the SBA. Under the guidelines of the EIDL, the maximum term is 30 years; however,
terms are determined on a case-by-case basis based on each borrower’s ability to repay and carry an interest rate of 3.75%. The
EIDL loan has an initial deferment period wherein no payments are due for thirty months from the date of disbursement. The
EIDL loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from this loan must be
used solely as working capital to alleviate economic injury caused by the COVID-19 pandemic.
As part of the
EIDL loan, the Company granted the SBA a continuing security interest in and to any and all collateral to secure payment and performance
of all debts, liabilities and obligations of the Company to the SBA under the EIDL loan. The collateral includes substantially all tangible
and intangible personal property of the Company.
A summary of the minimum maturities of term debt follows
for the years set forth below.
Schedule of Minimum Maturities |
|
|
|
|
Year |
|
|
2022 |
|
$ |
2,171 |
|
2023 |
|
|
8,892 |
|
2024 |
|
|
9,231 |
|
2025 |
|
|
9,583 |
|
2026 and thereafter |
|
|
470,023 |
|
Total |
|
$ |
499,900 |
|
8. Related Party Transactions
As discussed in note 5, the Company has leased its
facilities from a company owned by its CEO.
During the six months ended June 30, 2022, and 2021,
the Company received cash of $0 and $24,300 from its affiliate companies and paid $0 and $311,460 to its affiliate
companies, respectively.
During the six months ended June 30, 2022, and 2021,
the Company recorded management fees of $27,000 and $21,000, respectively, paid to its shareholder parent company.
During the year ended December 31 2021, the Company
paid bills on behalf of our parent company. At June 30, 2022 and December 31, 2021, due from affiliated companies was $286,622. During
the year ended December 31, 2021, our parent company funded certain expenditures which resulted in advances from affiliated companies.
At June 30, 2022 and December 31, 2021, advances from affiliated companies included in due to affiliated companies was $115,043. Approximately
$93,000 of the balance is related to an equipment purchase, the remaining balance was related to startup costs for our franchise business.
During the six months ended June 30,2022, Twin Vee
received a monthly fee of $5,850 to provide management services and facility utilization to Forza. This income for Twin Vee, and expense
for Forza, has been eliminated in the condensed consolidated financial statements.
9. Commitments and Contingencies
Repurchase Obligations
Under certain conditions, the Company is
obligated to repurchase new inventory repossessed from dealerships by financial institutions that provide credit to the
Company’s dealers. The maximum obligation of the Company under such floor plan agreements totaled approximately $6,922,000 or
39 units, and $4,273,000 or 24 units, as
of June 30, 2022, and December 31, 2021, respectively. The Company incurred no impact from repurchase events during the six months
ended June 30, 2022 and year ended December 31, 2021.
Litigation
The Company is currently involved in various civil
litigation in the normal course of business none of which is considered material.
10. Stockholder’s Equity
Common Stock Warrants
As of June 30, 2022, the Company had outstanding warrants
to purchase 150,000 shares of common stock issuable at a weighted-average exercise price of $7.50 per share that were issued
to the representative of the underwriters on July 23, 2021 in connection with the Company’s initial public offering that closed
on July 23, 2021 (the “IPO”). The representative’s warrants are exercisable at any time and from time to time, in whole
or in part, and expire on July 20, 2026. There was no warrant activity during the six months ended June 30, 2022.
Equity Compensation Plan
The Company maintains an
equity compensation plan (the “Plan’) under which it may award employees, directors and consultants’ incentive and non-qualified
stock options, restricted stock, stock appreciation rights and other stock-based awards with terms established by the Compensation Committee
of the Board of Directors which has been appointed by the Board of Directors to administer the plan. The number of awards under the Plan
automatically increased on January 1, 2022. As of June 30, 2022, there were 377,090 shares remaining available for grant under this plan.
Accounting for Stock -Based Compensation
Stock Compensation Expense - For
the six months ended June 30, 2022 and 2021, the Company recorded $526,723 and $0, respectively, of stock-based compensation expense.
Stock Options.
Under the Company’s 2021 Stock Incentive Plan the Company has issued stock options. A stock option grant gives the holder the right,
but not the obligation to purchase a certain number of shares at a predetermined price for a specific period of time. The Company typically
issues options that vest pro rata on a monthly basis over various periods. Under the terms of the Plan, the contractual life of the option
grants may not exceed ten years.
The Company utilizes the
Black-Scholes model to determine fair value of stock option awards on the date of grant. The Company utilized the following assumptions for
option grants during the six months ended June 30, 2022:
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions |
|
|
|
|
|
|
Six months Ended |
|
|
June 30, |
|
|
2022 |
Expected term |
|
|
5 years |
|
Expected average volatility |
|
|
49-50 |
% |
Expected dividend yield |
|
|
— |
|
Risk-free interest rate |
|
|
1.50 – 2.66 |
% |
The expected volatility of the option is determined
using historical volatilities based on historical stock price of comparable boat manufacturing companies. The Company estimated the expected
life of the options granted based upon historical weighted average of comparable boat manufacturing companies. The risk-free interest
rate is determined using the U.S. Department of the Treasury yield curve rates with a remaining term equal to the expected life of the
option. The Company has never paid a dividend, and as such the dividend yield is 0.0%
Schedule of Expected Volatility Of Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding |
|
Weighted Average |
|
|
Number of |
|
Weighted Average |
|
Remaining life |
|
|
Options |
|
Exercise
Price |
|
(years) |
|
|
|
|
|
|
|
Outstanding,
December 31, 2021 |
|
|
713,612 |
|
|
$ |
5.13 |
|
|
|
9.54 |
|
Granted |
|
|
272,000 |
|
|
|
3.86 |
|
|
|
10.00 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited/canceled |
|
|
(3,657 |
) |
|
|
(4.10 |
) |
|
|
(9.32 |
) |
Outstanding,
June 30, 2022 |
|
|
981,955 |
|
|
$ |
4.82 |
|
|
|
9.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
options, June 30, 2022 |
|
|
328,573 |
|
|
$ |
4.93 |
|
|
|
9.21 |
|
At June 30, 2022, 663,427 options are unvested and
expected to vest over the next five years.
11. Major Customers
During the six months ended June 30, 2022, three individual
customers had sales of over 10% of our total sales, and combined these three customers represented 46%
of total sales. During the six months end June 30, 2021, five individual customers had sales of over 10% of our total sales, and combined
these five customers represented 64% of total sales.
12. Net (Loss) Income Per Share
Basic net loss per share has been computed on the
basis of the weighted average number of shares of common stock outstanding. Diluted net loss per share of common stock has been computed
on the basis of the weighted average number of shares outstanding plus equivalent shares of common stock assuming exercise of stock options.
Potential shares of common stock that have an anti-dilutive effect (i.e., those that share or decrease loss per share) are excluded from
the calculation of diluted net loss per share of common stock.
Basic and diluted loss per common share have been
computed based on the following for the periods ending June 30, 2022 and June 30, 2021:
Schedule of Basic and diluted loss | |
| | | |
| | |
| |
June
30, | |
June
30, |
| |
2022 | |
2021 |
Numerator
for basic and diluted net (loss) income per share: | |
| | | |
| | |
| |
| | | |
| | |
Net
(loss) income | |
$ | (1,730,099 | ) | |
$ | 182,800 | |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
For
basic net (loss) income per share - weighted average common shares outstanding | |
| 7,000,000 | | |
| 4,000,000 | |
Effect
of dilutive stock options | |
| — | | |
| — | |
For
diluted net (loss) income per share - weighted average common shares outstanding | |
| 7,000,000 | | |
| 4,000,000 | |
| |
| | | |
| | |
Net
(loss) income per share -Basic: | |
| | | |
| | |
Net
(loss) income per share | |
$ | (0.25 | ) | |
$ | 0.05 | |
| |
| | | |
| | |
Net
(loss) income per share - Diluted: | |
| | | |
| | |
Net
(loss) income per share | |
$ | (0.25 | ) | |
$ | 0.05 | |
For the periods ending June 30, 2022 and June 30,
2021, all potentially dilutive securities were antidilutive.
13. Segment
The Company reports segment information based on the
“management” approach. The management approach designates the internal reporting used by management for making decisions and
assessing performance as the source of the Company’s reportable segments.
The Company reported its financial performance based
on the following segments: Gas-powered Boats, Franchise and Electric Boats.
The Company evaluates the performance of its reportable
segments based on net sales and operating income. Net sales for business segments are generally based on the sale of boats and the sale
of franchises. Operating income (loss) for each segment includes net sales to third parties, related cost of sales and operating expenses
directly attributable to the segment. Operating income for each segment excludes other income and expense. The Company does not include
intercompany transfers between segments for management reporting purposes.
The following table shows information by reportable
segments for the three and six months ended June 30, 2022 and 2021:
Reconciliation of Operating Profit (Loss) from Segments to Consolidated | |
| | | |
| | | |
| | | |
| | |
| |
For the Three Months Ended June 30, 2022 |
| |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 8,519,613 | | |
$ | — | | |
$ | — | | |
$ | 8,519,613 | |
Cost of products sold | |
| 5,059,389 | | |
| — | | |
| 13,012 | | |
| 5,072,401 | |
Operating expense | |
| 3,356,381 | | |
| 7,723 | | |
| 555,087 | | |
| 3,919,191 | |
(Loss) Income from operations | |
| 103,843 | | |
| (7,723 | ) | |
| (568,099 | ) | |
| (471,979 | ) |
Total Other (expenses) income | |
| (31,089 | ) | |
| (3,882 | ) | |
| (31,832 | ) | |
| (66,803 | ) |
Net income (loss) | |
$ | 72,754 | | |
$ | (11,605 | ) | |
$ | (599,931 | ) | |
$ | (538,782 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
For the Three Months Ended June 30, 2021 |
| |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 3,297,571 | | |
$ | — | | |
$ | — | | |
$ | 3,297,571 | |
Cost of products sold | |
| 1,981,427 | | |
| — | | |
| — | | |
| 1,981,427 | |
Operating expense | |
| 1,415,527 | | |
| — | | |
| 17,550 | | |
| 1,433,077 | |
Income from operations | |
| (99,383 | ) | |
| — | | |
| (17,550 | ) | |
| (116,933 | ) |
Other income | |
| 231,590 | | |
| — | | |
| (63,806 | ) | |
| 167,784 | |
Net income (loss) | |
$ | 132,207 | | |
$ | — | | |
$ | (81,356 | ) | |
$ | 50,851 | |
| |
| | | |
| | | |
| | | |
| | |
| |
For the Six Months Ended June 30, 2022 |
| |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 14,406,645 | | |
$ | (1,032 | ) | |
$ | — | | |
$ | 14,405,613 | |
Cost of products sold | |
| 8,498,930 | | |
| 1,027 | | |
| 24,090 | | |
| 8,524,047 | |
Operating expense | |
| 6,309,997 | | |
| 33,978 | | |
| 1,057,723 | | |
| 7,401,698 | |
Income from operations | |
| (402,282 | ) | |
| (36,037 | ) | |
| (1,081,813 | ) | |
| (1,520,132 | ) |
Other loss | |
| (151,442 | ) | |
| (26,116 | ) | |
| (32,409 | ) | |
| (209,967 | ) |
Net loss | |
$ | (553,724 | ) | |
$ | (62,153 | ) | |
$ | (1,114,222 | ) | |
$ | (1,730,099 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
For the Six Months Ended June 30, 2021 |
| |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 6,505,214 | | |
$ | — | | |
$ | — | | |
$ | 6,505,214 | |
Cost of products sold | |
| 3,701,164 | | |
| — | | |
| — | | |
| 3,701,164 | |
Operating expense | |
| 2,731,121 | | |
| — | | |
| 35,100 | | |
| 2,766,221 | |
Income from operations | |
| 72,929 | | |
| — | | |
| (35,100 | ) | |
| 37,829 | |
Other income | |
| 210,419 | | |
| — | | |
| (65,448 | ) | |
| 144,971 | |
Net income (loss) | |
$ | 283,348 | | |
$ | — | | |
$ | (100,548 | ) | |
$ | 182,800 | |
Property and equipment, net classified by business
were as follows:
Schedule of Segment Reporting Information, by Segment | |
| | | |
| | |
| |
June 30, | |
December 31, |
| |
2022 | |
2021 |
Gas-Powered Boats | |
$ | 3,984,376 | | |
$ | 2,547,410 | |
Franchise | |
$ | — | | |
$ | 100,196 | |
Electric-Boats | |
$ | 378,382 | | |
$ | 235,565 | |
14. Subsequent Events
The Company has evaluated all event or transactions
that occurred after June 30,2022 through August 10, 2022, which is the date that the condensed consolidated financial statements were
available to be issued. During this period, there were no material subsequent events requiring recognition or disclosure, other than the
ones described below.
On July 28, 2022, Forza X1 received notice that the
North Carolina Economic investment committee has approved a Job Development Investment Grant (“JDIG”) providing for reimbursement
to us of up to $1,367,100 over a twelve-year period of expenses we incur to establish a new manufacturing plant in McDowell County, North
Carolina. The receipt of grant funding is conditioned upon Forza X1 investing over $10.5 million in land, buildings and fixtures, infrastructure
and machinery and equipment by the end of 2025 and Forza X1 creating as many as 170 jobs. There can be no assurance that Forza X1 will
meet the conditions necessary to receive the grant funding. Forza X1 is currently in negotiations for a new site to build the Forza factory
in North Carolina. There can be no assurance that the negotiations will be successful.
On August 11, 2022, Forza X1 announced the pricing
of its initial public offering of 3,000,000 shares of its common stock at a public offering price of $5.00 per share, for aggregate gross
proceeds of $15,000,000 prior to deducting underwriting discounts and other offering expenses. In addition, Forza X1 has granted the underwriters
a 45-day option to purchase up to an additional 450,000 shares of common stock at the public offering price less discounts, to cover over-allotments.
The initial public offering is scheduled to close on August 16, 2022, subject to customary closing conditions.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis
of our financial condition and results of operations together with our financial statements and related notes included in this Quarterly
Report on Form 10-Q. The following discussion contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking
Statements.” Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q. This discussion
should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto. You should
also review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and
under Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of important factors
that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
OVERVIEW
We are a designer, manufacturer and marketer of recreational
and commercial power catamaran boats. We believe our company has been an innovator in the recreational and commercial power catamaran
industry. We currently have 8 gas-powered models in production ranging in size from our 24-foot, dual engine, center console to our newly
designed 40-foot offshore 400 GFX. Our twin-hull catamaran running surface, known as a symmetrical catamaran hull design, adds to the
Twin Vee ride quality by reducing drag, increasing fuel efficiency, and offering users a stable riding boat. Twin Vee’s home base
operations in Fort Pierce Florida is a 7.5-acre facility with several buildings totaling over 75,000 square feet. We employed approximately
160 people on June 30, 2022, some of whom have been with our company for over twenty years.
We have organized our business into three operating
segments: (i) our gas-powered boat segment which manufactures and distributes gas-powered boats; (ii) our electric-powered boat segment
which is developing fully electric boats, through our wholly owned subsidiary, Forza X1, Inc., a Delaware corporation (“Forza”)
and (iii) our franchise segment which is developing a standard product offering and will be selling franchises across the United States
through our wholly owned subsidiary, Fix My Boat, Inc., a Delaware corporation.
Our gas-powered boats allow consumers to use them
for a wide range of recreational activities including fishing, diving and water skiing and commercial activities including transportation,
eco tours, fishing and diving expeditions. We believe that the performance, quality and value of our boats position us to achieve our
goal of increasing our market share and expanding the power catamaran boating market. We currently primarily sell our boats through a
current network of 20 independent boat dealers in 25 locations across North America and the Caribbean who resell our boats to the end
user Twin Vee customers. We continue recruiting efforts for high quality boat dealers and seek to establish new dealers and distributors
domestically and internationally to distribute our boats as we grow our production and introduce new models. Our gas-powered boats are
currently outfitted with gas-powered outboard combustion engines.
Due to the growing demand for sustainable, environmentally
friendly electric and alternative fuel commercial and recreational vehicles, our wholly owned subsidiary, Forza X1, Inc., is designing
and developing a line of electric-powered catamaran boats ranging in size from 18-feet to 28-feet. Forza’s initial two models, the
FX1 Dual Console and FX1 Center Console, are being designed to be 24-foot in length, have an 8’ beam or width and utilize a catamaran
hull surface to reduce drag and increase run times. The initial launch of FX1 will include our proprietary single electric outboard motor.
Our electric boats are being designed as fully integrated electric boats including the hull, outboard motor and control system. To date,
we have completed the design of the hull and running surface of the boat and have begun tooling the molds which are required to build
the physical fiberglass boat, we have entered into a supply agreement for the supply of the lithium battery packs that we plan to use
to power the electric boats, completed the design and prototyping of the boat control system, and completed the design and are more than
halfway through prototyping of the electric outboard motor. We expect to begin production of our FX1 fully integrated electric boat and
motor and commence selling to end user customers by the second quarter of 2023. We have also filed three design and four utility patent
applications with the U.S. Patent and Trademark Office relating to, among other things, our propulsion system being developed and boat
design.
Through the first six months of 2022, we continued
to experience strong demand for our products. Our company’s objectives have been to add new, larger boat models to our GFX lineup,
expand our dealers and distribution network, and increase unit production to fulfill our customer and dealer orders. We have made significant
progress on all fronts in the first six months ended June 30, 2022, we started production on our new 260GFX and we unveiled our 400GFX
at our dealer meeting in July of 2022, we have added 20 dealers and 26 locations to our dealer network and we have increased our manufacturing
throughput to an average of 4.75 boats a week. The increase in production drove our net revenue up 158% for the three months ended June
30, 2022 over the second quarter of 2021. While net sales growth has been significant, the investments we are making also increases our
labor, operating, sales and general administration costs. Our manufacturing process is labor intensive, and with the addition of new models
to our production line we have added staff and expanded our training program.
Our production of gas-powered boats since the closing
of our IPO in July 2021 has increased from one boat per week to the current 4.75 boats per week. Our goal is to continue to increase production
of gas-powered boats to five boats per week. This increase in production has, and will continue, to result in an increase in operating
expenses. More specifically, our headcount has increased and is expected to further increase as we hired and continue to hire additional
production employees and midlevel managers resulting in higher salaries and wages. We continue to focus on hiring highly qualified production
and administrative staff to order to increase our productivity, drive efficiencies, and improve product quality. To help meet our production
objectives we have also invested approximately $5 million in facility upgrades, capital equipment and molds.
As we move forward, we anticipate our operating income
to be moderate toward breakeven for our core gas-powered boat segment, however, our electric boat division will continue to incur losses
as we continue to develop our fully integrated electric boats, which includes research and development efforts.
Recent Developments
On July 28, 2022, Forza X1 received notice that the
North Carolina Economic investment committee has approved a Job Development Investment Grant (“JDIG”) providing for reimbursement
to Forza X1 of up to $1,367,100 over a twelve-year period of expenses Forza X1 incurs to establish a new manufacturing plant in McDowell
County, North Carolina. The receipt of grant funding is conditioned upon Forza X1 investing over $10.5 million in land, buildings and
fixtures, infrastructure and machinery and equipment by the end of 2025 and Forza X1 creating as many as 170 jobs. There can be no assurance
that Forza X1 will meet the conditions necessary to receive the grant funding. Forza X1 is currently in negotiations for a new site to
build the Forza factory in North Carolina. There can be no assurance that the negotiations will be successful.
On August 11, 2022, Forza X1 announced the pricing
of its initial public offering of 3,000,000 shares of its common stock at a public offering price of $5.00 per share, for aggregate gross
proceeds of $15,000,000 prior to deducting underwriting discounts and other offering expenses. In addition, Forza X1 has granted the underwriters
a 45-day option to purchase up to an additional 450,000 shares of common stock at the public offering price less discounts, to cover over-allotments.
The initial public offering is scheduled to close on August 16, 2022, subject to customary closing conditions.
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table provides certain selected financial information for
the periods presented:
| |
Three Months Ended | |
| |
|
| |
June 30, | |
| |
|
| |
2022 | |
2021 | |
Change | |
% Change |
Net Sales | |
$ | 8,519,613 | | |
$ | 3,297,571 | | |
$ | 5,222,042 | | |
| 158 | % |
Cost of products sold | |
$ | 5,072,401 | | |
$ | 1,981,427 | | |
$ | 3,090,974 | | |
| 156 | % |
Gross profit | |
$ | 3,447,212 | | |
$ | 1,316,144 | | |
$ | 2,131,068 | | |
| 162 | % |
Operating expenses | |
$ | 3,919,191 | | |
$ | 1,433,077 | | |
$ | 2,486,114 | | |
| 173 | % |
(Loss) Income from operations | |
$ | (471,979 | ) | |
$ | (116,933 | ) | |
$ | (355,046 | ) | |
| 304 | % |
Other (expense) income | |
$ | (66,803 | ) | |
$ | 167,784 | | |
$ | (234,587 | ) | |
| (140 | %) |
Net (loss) income | |
$ | (538,782 | ) | |
$ | 50,851 | | |
$ | (589,633 | ) | |
| (1,160 | %) |
Basic and dilutive income per share of common stock | |
$ | (0.08 | ) | |
$ | 0.01 | | |
$ | (0.09 | ) | |
| (705 | %) |
Weighted average number of shares of common stock outstanding | |
| 7,000,000 | | |
| 4,000,000 | | |
| | | |
| | |
Net Sales and Cost Sales
Our net sales increased $5,222,042, or 158% to $8,519,613 for the
three months ended June 30, 2022 from $3,297,571 for the three months ended June 30, 2021. This increase was due to an increase in the
number of boats sold during the three months ended June 30, 2022. The number of our boats sold during the three months ended June 30,2022
increased 90% over the three months ended June 30, 2021, due to our increased production plan, enabling us to produce more boats during
the quarter. Additionally, we have increased our sale prices and reduced discounts and rebates, to help offset the increases in operating
expenses described below, in addition to increased costs of product parts and components and our increased inventory that we are maintaining
to protect against supply chain shortages.
Gross Profit
Gross profits increased by $2,131,068, or 162% to
$3,447,212 for the three months ended June 30, 2022 from $1,316,144 for the three months ended June 30, 2021. Gross profit as a percentage
of sales, for the three months ended June 30, 2022 and 2021 was 41% and 40% respectively. In the second quarter of 2021, demand for our
product was just starting to strengthen after the initial impacts of COVID-19, additional discounts were offered to stimulate sales, which
impacted our gross profit in the period ending June 30, 2021.
Total Operating Expenses
Our total operating expenses for the three months
ended June 30, 2022 and 2021 were $3,919,191 and $1,433,077 respectively. Operating expenses as a percentage of sales were 46% compared
to 43% in the prior year.
Selling, general and administrative expenses increased
by approximately 126%, or $359,568 to $637,744 for the three months ended June 30, 2022, compared to $278,176 for the three months ended
June 30, 2021. The majority of that increase resulted from expenses totaling $183,043 incurred from being publicly traded company, which
we did not incur in the prior period. Directors and officers’ insurance, filing fees, board fees and investor relations are some
of these expenses. We also incurred increases in repairs and maintenance, insurance, hiring expenses, and travel totaling approximately
$120,000 along with numerous other smaller increases.
Salaries and wages related expenses increased by approximately
167%, or $1,746,037 to $2,793,281 for the three months ended June 30, 2022, compared to $1,047,244 for the three months ended June 30,
2021. The increase in salaries and wages of $1,260,339 was the result of aggressively ramping up of production, which required increasing
our production staff and adding mid-level staff. Included in salaries and wage related expenses for the three months ended June 30, 2022
was stock based compensation expense of $302,000 due to the issuance of options to employees. We have added a full package of benefits
for our employees, in order to retain our quality employees, which resulted in an increase in salaries and wages of $103,000. The remaining
increase in salaries and wages during the three months ended June 30, 2022 is associated with taxes.
Research and design expenses increased by $174,807
to $174,807 for the three months ended June 30, 2022, from $0 for the three months ended June 30, 2021. Part of the use of proceeds from
our IPO, was the development of an electric boat and an electric motor.
Professional fees increased by 264%, or $140,360 to
$193,542 for the three months ended June 30, 2022, compared to $53,182 for the three months ended 2021. This increase was also due to
the additional costs we incurred associated with being public. We engaged the services of an outside financial consultant, as well as
an audit firm for quarterly reporting and SEC legal counsel to fulfill our public company reporting obligations.
Depreciation expense increased by 120%, or $65,342
to $119,817 for the three months ended June 30, 2022, compared to $54,475 for the three months ended 2021. This increase is due to the
addition of fixed assets, primarily molds, to increase our production levels and throughput.
Our other (expenses) increased by 140%, or $234,587
to an expense of $66,803 for the three months ended June 30, 2022, compared to income of $167,784 for the three months ended, 2021. In
2021 we had a net gain from insurance recoveries of $185,225, which we did not receive in 2022. Our interest expense increased by $26,275
and our net change in fair value of marketable securities was $27,038, compared to $0, in 2021.
Net Loss
Net loss for the three months ended June 30, 2022 was $538,782, compared
to net income for the three months ended June 30, 2021 of $50,851. Our electric segment, which does not generate any revenue, at this
time, incurred a loss of $599,931, for the three months ended June 30, 2022, related to research and design.. Basic and dilutive loss
per share of common stock for the three months ended June 30, 2022, was ($0.08) compared to basic and diluted income per share for the
three months ended June 30, 2021 of $0.01.
Comparison of the Six Months Ended June 30, 2022 and 2021
| |
Six Months Ended | |
| |
|
| |
June 30, | |
| |
|
| |
2022 | |
2021 | |
Change | |
% Change |
Net sales | |
$ | 14,405,613 | | |
$ | 6,505,214 | | |
$ | 7,900,399 | | |
| 121 | % |
Cost of products sold | |
$ | 8,524,047 | | |
$ | 3,701,164 | | |
$ | 4,822,883 | | |
| 130 | % |
Gross profit | |
$ | 5,881,566 | | |
$ | 2,804,050 | | |
$ | 3,077,516 | | |
| 110 | % |
Operating expenses | |
$ | 7,401,698 | | |
$ | 2,766,221 | | |
$ | 4,635,477 | | |
| 168 | % |
(Loss) income from operations | |
$ | (1,520,132 | ) | |
$ | 37,829 | | |
$ | (1,557,961 | ) | |
| (4,118 | %) |
Other (expense) income | |
$ | (209,967 | ) | |
$ | 144,971 | | |
$ | 354,938 | | |
| (245 | %) |
Net (loss) income | |
$ | (1,730,099 | ) | |
$ | 182,800 | | |
$ | (1,912,899 | ) | |
| (1,046 | %) |
Basic and dilutive income per share of common stock | |
$ | (0.25 | ) | |
$ | 0.05 | | |
$ | (0.29 | ) | |
| (641 | %) |
Weighted average number of shares of common stock outstanding | |
| 7,000,000 | | |
| 4,000,000 | | |
| | | |
| | |
Net Sales and Cost Sales
Our net sales increased by $7,900,399, or 121% to $14,405,613 for the six
months ended June 30, 2022 from $6,505,214 for the six months ended June 30, 2021. We attribute the large increase due to strong demand
for our product, coupled with our increase in production. The number of our boats sold during the six months ended June 30, 2021 increased
70% over the number of our boats sold during the six months ended June 30, 2021, due to our increased production plan that we focused
on since the third quarter of 2021. Additionally, we have increased our sale prices and reduced discounts and rebates, to help offset
the increases in operating expenses described below, in addition to increased costs of product parts and components and our increased
inventory that we are maintaining to protect against supply chain shortages. Our average revenue per unit for the six months ended June
30, 2022 is up approximately 17% over revenue per unit for the six months ended June 30, 2021.
Gross Profit
Gross profit increased by $3,077,516 or 110% to 5,881,566
for the six months ended June 30, 2022 from $2,804,050 for the six months ended June 30, 2021. Gross profit as a percentage of net sales
for the six months ended June 30, 2022, was 41% as compared to 43% for the same period in fiscal 2021.
Total Operating Expenses
Our total operating expenses increased by $4,635,477,
or 168% to $7,401,698 for the six months ended June 30, 2021 from $2,766,221 for the six months ended June 30, 2021. Operating expenses
as a percentage of sales were 51% and 43% for the six months ended June 30, 2022, and 2021, respectively.
Selling, general and administrative expenses increased
by 127% or $732,553 to $1,320,065 for the six months ended June 30, 2022, from $577,601. A significant portion of the increase, $366,600,
resulted from expenses incurred in connection with being a publicly traded company, which we did not incur in the prior period. Our insurance
increased by $111,868 over the prior period, due to our increased wages and sales level. Our Delaware state franchise taxes increased
by $74,210. Our travel expenses increased by $56,250. We also have experienced moderate increases for office supplies, hiring expenses,
computer related expenses, and several other accounts which attributed to $123,625 of the increase.
Salaries and wage related expenses increased by
155% or $3,071,678 to $5,047,091 for the six months ended June 30, 2022 from $1,975,414 for the six months ended June 30, 2021. We
have been aggressively working on increasing production, and this included increasing our production staff as well as adding
mid-level staff, resulting in an increase of $2,149,272 of additional salaries and wage expense for the six months ended June 30,
2022 as compared to for the six months ended June 30, 2021. Included in salaries and wage related expenses for the six months ended
June 30, 2022 was stock based compensation expense of $526,723 due to the issuance of options to employees. We have added a full
package of benefits for our employees, to retain our quality employees, which resulted in an increase of $181,085. The remaining
increase of salaries and wages related expenses during the six months ended June 30, 2022 is associated with taxes and benefits.
Research and design expenses for the six months ended
June 30, 2022, and 2021 were $396,352 and $0, respectively. Part of the use of proceeds from our IPO, was the development of an electric
boat and an electric motor.
Professional fees for the six months ended June 30,
2022 and 2021 were $438,281 compared to $112,208, respectively. This increase is also due to the expenses incurred from being a public
company. We engaged the services of an outside financial consultant, as well as an audit firm for quarterly reporting and SEC legal counsel
in order to fulfill our public company reporting obligations.
Depreciation expenses for the six months ended June
30, 2022 and 2021 were $199,909 and $100,998, respectively. This increase is due to the addition of fixed assets, primarily molds, to
increase our production levels and throughput.
Our other expenses increased by 245%, or $354,937
to $209,967 for the six months ended June 30, 2022, compared to other income of $144,971 for the six months ended June 30, 2021. The majority
of the increase was due to a net gain from insurance recoveries of $180,124, in 2021, which we did not receive in 2022, an increase in
interest expense of $48,403 and our net loss in fair value of marketable securities was $112,576 compared to $0, during the six months
ended June 30, 2021.
Net Loss
Net loss for the six months ended June 30, 2022 was $1,730,099, compared
to net income for the six months ended June 30, 2021 of $182,800. Our electric segment, which does not generate any revenue, at this time,
incurred a loss of $1,114,222, for the six months ended June 30, 2022, related to research and design. Our gas-powered segment incurred
a loss of $553,724, for the six months ended June 30, 2022. This loss was due to our aggressive ramp up in production. Basic and dilutive
loss per share of common stock for the six months ended June 30, 2022, was ($0.25) compared to basic and diluted income per share for
the six months ended June 30, 2021 of $0.05.
Liquidity and Capital Resources
The primary sources of funds for the six months ended
June 30, 2022 were cash from operations and proceeds from our IPO. Our primary use of cash was related to increasing inventory levels
to meet the high level of demand coupled with the current supply chain challenges and our investment into our electric boat segment. With
uncertainty on component availability, prolonged lead time and rising prices, we have been bringing in inventory far earlier than in previous
years. With our increased levels of inventory, increased revenues, and increased operating costs, we have also experienced an increase
in our accounts payable. Our electric boat segment currently does not generate revenue, and incurred a loss of $1,114,222 for the six
months ended June 30, 2022.
To date, we have spent approximately $2,500,00 on the funding of the development
on our electric boats. The proceeds expected to be derived from the initial public offering of the common stock of Forza X1, will be used
to build a manufacturing facility, purchase equipment, inventory and working capital.
The following table provides selected financial data
about us as of June 30, 2022 and December 31, 2021.
| |
June 30, | |
December 31, | |
| |
|
| |
2022 | |
2021 | |
Change | |
% Change |
Cash and cash equivalents | |
$ | 5,910,533 | | |
$ | 6,975,302 | | |
$ | (1,064,769 | ) | |
| (15.3 | %) |
Marketable securities | |
$ | 3,948,930 | | |
$ | 6,064,097 | | |
$ | (2,115,167 | ) | |
| (34.9 | %) |
Current assets | |
$ | 12,320,261 | | |
$ | 13,073,346 | | |
$ | (753,085 | ) | |
| (5.8 | %) |
Current liabilities | |
$ | 3,975,876 | | |
$ | 2,155,420 | | |
$ | 1,820,456 | | |
| 84.5 | % |
Working capital | |
$ | 8,344,385 | | |
$ | 10,917,926 | | |
$ | (2,573,541 | ) | |
| (23.6 | %) |
As of June 30, 2022, we had sufficient cash and cash
equivalents to meet ongoing expenses for at least twelve months from the date of the filing of this Quarterly Report on Form 10-Q. As
of June 30, 2022, we had $9,859,463 of cash, cash equivalents and marketable securities, total current assets of $12,320,261, and total
assets of $21,019,907. Our total liabilities were $5,523,582. Our total liabilities were comprised of current liabilities of $3,975,876
which included accounts payable and accrued liabilities of $2,945,784, due to affiliated companies of $115,043 and current portion of
operating lease right of use liability of $382,922, and long-term liabilities of $1,547,706. As of December 31, 2021, we had $13,039,399
of cash, cash equivalents and marketable securities, total current assets of $13,073,346 and total assets of $20,5995,184. Our total current
liabilities were $2,155,420 and total liabilities of $3,899,484 which included long-term operating lease liabilities for the lease of
our facility.
Accumulated deficit was $3,747,655 as of June 30, 2022 compared to
accumulated deficit of $2,017,556 as of December 31, 2021.
Our working capital decreased by $2,573,542 to $8,344,384
as of June 30, 2022, compared to $10,917,926 on December 31, 2021, due primarily to increased accounts payable and accrued liabilities.
We believe that our cash and cash equivalents will
provide sufficient resources to finance operations for the next 12 months. In addition to cash, cash equivalents and marketable securities,
we anticipate that we will be able to rely, in part, on cash flows from operations in order to meet our liquidity and capital expenditure
needs in the next year as well as proceeds from our IPO.
Cash Flow
| |
Six Months Ended | |
| |
| |
Years Ended | |
| |
|
| |
June 30, | |
| |
| |
December 31, | |
| |
|
| |
2022 | |
2021 | |
$ Change | |
% Change | |
2021 | |
2020 | |
$ Change | |
% Change |
Cash (used in) provided by operating activities | |
$ | (1,196,245 | ) | |
$ | 5,045 | | |
| (1,201,290 | ) | |
$ | (23,812 | %) | |
$ | (1,947,539 | ) | |
$ | 364,648 | | |
$ | (2,312,187 | ) | |
| (634 | %) |
Cash provided by (used in) investing activities | |
$ | 273,105 | | |
$ | (604,990 | ) | |
| 878,095 | | |
$ | (145 | %) | |
$ | (8,037,264 | ) | |
$ | (200,452 | ) | |
$ | (7,836,812 | ) | |
| (3910 | %) |
Cash (used in) provided by financing activities | |
$ | (141,629 | ) | |
$ | 114,771 | | |
| (256,400 | ) | |
$ | (223 | %) | |
$ | 16,068,289 | | |
$ | 512,046 | | |
$ | (15,556,243 | ) | |
| 3,038 | % |
Net change in cash | |
$ | (1,064,769 | ) | |
$ | (485,174 | ) | |
| (579,595 | ) | |
$ | 119 | % | |
$ | 6,975,302 | | |
$ | 891,816 | | |
$ | 6,083,486 | | |
| 682 | % |
Cash Flow from Operating Activities
For the six months ended June 30, 2022, net cash flows
used in operating activities was $1,196,245 compared to net cash provided by operating activities of $5,045 during the six months ended
June 30, 2021. We have increased inventory levels by $2,569,780, due to supply chain delays that continue to impact lead time and parts
availability, this is further emphasized by our production ramp up. Accounts payable decreased $1,061,573. Our accrued liabilities decreased
$226,537, primarily due to accrued rebate being paid out. Our net loss from operation was $1,730,099, was decreased by non-cash expenses
of $1,078,845, primarily due to stock-based compensation of $526,723, change of right-of-use asset and lease liabilities of $189,647,
loss on disposal of assets of $49,990, net change in fair value of marketable securities of $112,576 and depreciation of $199,909.
Cash Flow from Investing Activities
During the six months ended June 30, 2022, we provided
$273,105 in investment activities, compared to $604,990 used during the six months ended June 30, 2021. We invested $1,809,486 in the
purchase of property and equipment, primarily for new model boat molds of approximately $1,076,604, leasehold improvements of approximately
$114,908, new production equipment of approximately $431,444, and new computers, software and furniture of approximately $59,411. We had
proceeds from the sale of property of approximately $80,000, and proceeds from the sale of marketable securities of $2,002,591.
Cash Flows from Financing Activities
For the six months ended June 30, 2022, net cash used by financing activities
was approximately $141,629, compared to net cash provided by financing activities of $114,771. During the six months ended June 30, 2022,
we used $141,629 for deferred offering cost relating to Forza.
CRITICAL ACCOUNTING ESTIMATES
We believe that several accounting policies are important
to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas
generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different
estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results.
Our management’s discussion and analysis of
financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates based on historical experience and make various assumptions, which management believes
to be reasonable under the circumstances, which form the basis for judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The notes to our condensed consolidated financial
statements contained herein contain a summary of our significant accounting policies. We consider the following accounting policies critical
to the understanding of the results of our operations:
Revenue Recognition
We account for revenue in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606 which was adopted at the
beginning of fiscal year 2018 using the modified retrospective method. We did not recognize any cumulative-effect adjustment to retained
earnings upon adoption as the effect was immaterial.
Payment received for the future sale of a boat to
a customer is recognized as a customer deposit, which is included in contract liabilities on the balance sheet. Customer deposits are
recognized as revenue when control over promised goods is transferred to the customer.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States “U.S. GAAP” requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Included in those estimates
are assumptions about allowances for inventory obsolescence, useful life of fixed assets, warranty reserves and bad-debt reserves.
Inventories
Inventories are stated at the lower of cost or net
realizable value using the first-in, first-out (FIFO) method. Net realizable value is defined as sales price less cost of completion,
disposable and transportation and a normal profit margin. Production costs, consisting of labor and overhead, are applied to ending finished
goods inventories at a rate based on estimated production capacity. Excess production costs are charged to cost of products sold. Provisions
have been made to reduce excess or obsolete inventories to their net realizable value.
Impairment of Long-Lived Assets
Management assesses the recoverability of its long-lived
assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing
the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets’ net carrying amounts.
If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value,
based on appraisal or the present value of the undiscounted net cash flows.
Product Warranty Costs
As required by FASB ASC Topic 460, Guarantees,
we are including the following disclosure applicable to our product warranties.
We accrue for warranty costs based on the expected
material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost
is based upon historical information and experience. Our warranty reserve is calculated as the gross sales multiplied by the historical
warranty expense return rate.
Leases
We adopted FASB Accounting Standards Update (“ASU”)
No. 2016-02, Leases (“Topic 842”), using the modified retrospective adoption method with an effective date
of January 1, 2019. This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at
the present value of the lease payments.
Under Topic 842, we applied a dual approach to all
leases whereby we are a lessee and classify leases as either finance or operating leases based on the principle of whether or not the
lease is effectively a financed purchase by us. Lease classification is evaluated at the inception of the lease agreement.
Paycheck Protection Program
U.S. GAAP does not contain authoritative accounting
standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative
guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable
alternatives. Based on the facts and circumstances, the Company determined it most appropriate to account for the Paycheck Protection
Program (“PPP”) loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 “(IAS
20)”, Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a
forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms
for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”; however, based on certain interpretations,
it is analogous to “probable” as defined in FASB ASC Subtopic 450-20-20 under U.S. GAAP, which is the definition we have applied
to our expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the
periods in which we recognize costs for which the grant is intended to compensate (i.e., qualified expenses). Further, IAS 20 permits
for the recognition in earnings either (1) separately under a general heading such as other income, or (2) as a reduction of the related
expenses. We have elected to recognize government grant income separately within other income to present a clearer distinction in its
financial statements between its operating income and the amount of net income resulting from the PPP loan and forgiveness.
Deferred Income Taxes and Valuation Allowance
We account for income taxes under ASC 740 “Income
Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets
if it is more likely than not that we will not realize tax assets through future operations.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have during the periods presented, and we do not currently have,
any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules.