ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TWIN VEE POWERCATS CO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2022 |
|
2021 |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
19,975,562 |
|
|
$ |
6,975,302 |
|
Accounts receivable |
|
|
1,610 |
|
|
|
5,137 |
|
Marketable securities |
|
|
— |
|
|
|
2,996,960 |
|
Inventories |
|
|
4,393,238 |
|
|
|
1,799,769 |
|
Deferred offering costs |
|
|
10,000 |
|
|
|
105,500 |
|
Due from affiliated companies |
|
|
368,093 |
|
|
|
286,922 |
|
Prepaid expenses and other current assets |
|
|
1,500,153 |
|
|
|
903,756 |
|
Total current assets |
|
|
26,248,656 |
|
|
|
13,073,346 |
|
|
|
|
|
|
|
|
|
|
Marketable securities - non current |
|
|
2,910,936 |
|
|
|
3,067,137 |
|
Property and equipment, net |
|
|
4,774,839 |
|
|
|
2,883,171 |
|
Operating lease right of use asset |
|
|
1,264,259 |
|
|
|
1,550,530 |
|
Security deposit |
|
|
25,000 |
|
|
|
25,000 |
|
Total Assets |
|
$ |
35,223,690 |
|
|
$ |
20,599,184 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,927,656 |
|
|
$ |
1,200,861 |
|
Accrued liabilities |
|
|
538,312 |
|
|
|
456,814 |
|
Contract liability – customer deposits |
|
|
1,026,580 |
|
|
|
14,100 |
|
Due to affiliated companies |
|
|
115,043 |
|
|
|
115,043 |
|
Operating lease right of use liability |
|
|
387,993 |
|
|
|
368,602 |
|
Total current liabilities |
|
|
3,995,584 |
|
|
|
2,155,420 |
|
|
|
|
|
|
|
|
|
|
Paycheck Protection Program Loan |
|
|
— |
|
|
|
— |
|
Economic Injury Disaster Loan |
|
|
499,900 |
|
|
|
499,900 |
|
Operating lease liability - noncurrent |
|
|
949,495 |
|
|
|
1,244,164 |
|
Total Liabilities |
|
|
5,444,979 |
|
|
|
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; 7,020,000 and 7,000,000 shares issued and outstanding, respectively |
|
|
7,020 |
|
|
|
7,000 |
|
Additional paid-in capital |
|
|
29,165,138 |
|
|
|
18,710,256 |
|
Accumulated deficit |
|
|
(4,447,684 |
) |
|
|
(2,017,556 |
) |
Noncontrolling interest |
|
|
5,054,237 |
|
|
|
— |
|
Total stockholders’ equity |
|
|
29,778,711 |
|
|
|
16,699,700 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
35,223,690 |
|
|
$ |
20,599,184 |
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
8,812,021 |
|
|
$ |
4,118,246 |
|
|
$ |
23,217,634 |
|
|
$ |
10,623,460 |
|
Cost of products sold |
|
|
5,477,947 |
|
|
|
2,508,170 |
|
|
|
14,001,994 |
|
|
|
6,209,334 |
|
Gross profit |
|
|
3,334,074 |
|
|
|
1,610,076 |
|
|
|
9,215,640 |
|
|
|
4,414,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
707,322 |
|
|
|
512,982 |
|
|
|
2,027,387 |
|
|
|
1,090,583 |
|
Salaries and wages |
|
|
2,891,863 |
|
|
|
1,222,062 |
|
|
|
7,938,954 |
|
|
|
3,197,476 |
|
Professional fees |
|
|
135,311 |
|
|
|
105,384 |
|
|
|
573,592 |
|
|
|
217,592 |
|
Depreciation and amortization |
|
|
172,602 |
|
|
|
31,091 |
|
|
|
372,511 |
|
|
|
132,089 |
|
Research and design |
|
|
283,936 |
|
|
|
61,091 |
|
|
|
680,288 |
|
|
|
61,091 |
|
Total operating expenses |
|
|
4,191,034 |
|
|
|
1,932,610 |
|
|
|
11,592,732 |
|
|
|
4,698,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(856,960 |
) |
|
|
(322,534 |
) |
|
|
(2,377,092 |
) |
|
|
(284,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
29,764 |
|
|
|
148 |
|
|
|
32,994 |
|
|
|
148 |
|
Interest expense |
|
|
(52,878 |
) |
|
|
(50,315 |
) |
|
|
(136,434 |
) |
|
|
(85,468 |
) |
Interest income |
|
|
30,958 |
|
|
|
— |
|
|
|
63,883 |
|
|
|
— |
|
Loss on disposal of assets |
|
|
— |
|
|
|
— |
|
|
|
(49,990 |
) |
|
|
(254,600 |
) |
Gain from insurance recovery |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
434,724 |
|
Net change in fair value of marketable securities |
|
|
(37,993 |
) |
|
|
(10,576 |
) |
|
|
(150,569 |
) |
|
|
(10,576 |
) |
Total other (expenses) income |
|
|
(30,149 |
) |
|
|
(60,743 |
) |
|
|
(240,116 |
) |
|
|
84,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes provision |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
(887,109 |
) |
|
|
(383,277 |
) |
|
|
(2,617,208 |
) |
|
|
(200,477 |
) |
Less: Net loss attributable to noncontrolling interests |
|
|
(187,080 |
) |
|
|
— |
|
|
|
(187,080 |
) |
|
|
|
|
Net loss attributed to stockholders of Twin Vee PowerCats Co, Inc. |
|
$ |
(700,029 |
) |
|
$ |
(383,277 |
) |
|
$ |
(2,430,128 |
) |
|
$ |
(200,477 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive loss per share of common stock |
|
$ |
(0.10 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.04 |
) |
Weighted average number of shares of common stock outstanding |
|
|
7,013,478 |
|
|
|
6,282,700 |
|
|
|
7,004,542 |
|
|
|
4,769,200 |
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(Unaudited)
For the Three and Nine months ended September 30, 2021
| |
| |
| |
| |
| |
| |
| |
| |
|
| |
| |
| |
| |
| |
Additional | |
| |
| |
Total |
| |
Preferred Stock | |
Common
Stock | |
Paid-in | |
Accumulated | |
Noncontrolling | |
Stockholders’ |
| |
Shares | |
Amount | |
Shares | |
Amount | |
Capital | |
Deficit | |
Interests | |
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 | |
Common stock issued for
cash | |
| | | |
| | | |
| 3,000,000 | | |
| 3,000 | | |
| 15,849,037 | | |
| — | | |
| | | |
| 15,852,037 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 86,571 | | |
| — | | |
| — | | |
| 86,571 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (383,277 | ) | |
| — | | |
| (383,277 | ) |
Balance at September 30,
2021 | |
| — | | |
$ | — | | |
| 7,000,000 | | |
$ | 7,000 | | |
$ | 18,486,995 | | |
$ | (1,207,024 | ) | |
$ | — | | |
$ | 17,286,971 | |
For the Three and Nine months ended September 30, 2022
| |
| |
| |
| |
| |
Additional | |
| |
| |
Total |
| |
Preferred Stock | |
Common
Stock | |
Paid-in | |
Accumulated | |
Noncontrolling | |
Stockholders’ |
| |
Shares | |
Amount | |
Shares | |
Amount | |
Capital | |
Deficit | |
Interests | |
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 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for
payment on behalf of parent | |
| — | | |
| — | | |
| 20,000 | | |
| 20 | | |
| 52,380 | | |
| — | | |
| — | | |
| 52,400 | |
Subsidiary share issuance | |
| — | | |
| — | | |
| — | | |
| — | | |
| 9,588,172 | | |
| — | | |
| 5,241,317 | | |
| 14,829,489 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 287,607 | | |
| — | | |
| — | | |
| 287,607 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (700,029 | ) | |
| (187,080 | ) | |
| (887,109 | ) |
Balance at September 30,
2022 | |
| — | | |
$ | — | | |
| 7,020,000 | | |
$ | 7,020 | | |
$ | 29,165,138 | | |
$ | (4,447,684 | ) | |
$ | 5,054,237 | | |
$ | 29,778,711 | |
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine months Ended |
|
|
September 30, |
|
|
2022 |
|
2021 |
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,617,208 |
) |
|
$ |
(200,477 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
814,330 |
|
|
|
86,571 |
|
Depreciation and amortization |
|
|
372,511 |
|
|
|
132,089 |
|
Loss on disposal of asset |
|
|
49,990 |
|
|
|
224,037 |
|
Change of right-of-use asset and lease liabilities |
|
|
286,271 |
|
|
|
288,621 |
|
Net change in fair value of marketable securities |
|
|
150,569 |
|
|
|
10,576 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
3,527 |
|
|
|
(212,908 |
) |
Inventories |
|
|
(2,593,469 |
) |
|
|
(1,515,118 |
) |
Prepaid expenses and other current assets |
|
|
(596,397 |
) |
|
|
(684,813 |
) |
Accounts payable |
|
|
726,795 |
|
|
|
888,465 |
|
Accrued liabilities |
|
|
81,498 |
|
|
|
349,269 |
|
Operating lease liabilities |
|
|
(275,278 |
) |
|
|
(265,600 |
) |
Contract liabilities – customer deposits |
|
|
1,012,480 |
|
|
|
155,853 |
|
Net cash used in operating activities |
|
|
(2,584,381 |
) |
|
|
(743,435 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Net sale of investment in trading marketable securities |
|
|
3,002,592 |
|
|
|
— |
|
Proceeds from sale of property and equipment |
|
|
80,000 |
|
|
|
— |
|
Purchase of property and equipment |
|
|
(2,394,169 |
) |
|
|
(1,221,826 |
) |
Net cash provided by (used in) investing activities |
|
|
688,423 |
|
|
|
(7,323,287 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
|
15,231,350 |
|
|
|
15,852,037 |
|
Deferred offering cost |
|
|
(306,361 |
) |
|
|
— |
|
Proceeds from Paycheck Protection Program loan |
|
|
— |
|
|
|
608,224 |
|
Advances to parent |
|
|
(28,771 |
) |
|
|
— |
|
Advances from related parties |
|
|
— |
|
|
|
33,129 |
|
Repayment to related parties |
|
|
— |
|
|
|
(339,576 |
) |
Net cash provided by financing activities |
|
|
14,896,218 |
|
|
|
16,153,814 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
13,000,260 |
|
|
|
8,087,092 |
|
Cash at beginning of period |
|
|
6,975,302 |
|
|
|
891,816 |
|
Cash and cash equivalents at end of period |
|
$ |
19,975,562 |
|
|
$ |
8,978,908 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
— |
|
|
$ |
— |
|
Cash paid for interest |
|
$ |
121,284 |
|
|
$ |
118,906 |
|
|
|
|
|
|
|
|
|
|
Non Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Increase in the right-of-use asset and lease liability |
|
$ |
— |
|
|
$ |
655,726 |
|
Common stock issued for payment on behalf of parent |
|
$ |
52,400 |
|
|
$ |
|
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
TWIN VEE POWERCATS CO.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 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. (“Forza X1”
or “Forza”) 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 majority owned subsidiary,
Forza X1, Inc. (“Forza X1” “Forza”), collectively referred to as the “Company”. The Company’s
net loss excludes losses attributable to noncontrolling interests. The Company reports noncontrolling interests in consolidated
entities as a component of equity separate from the Company’s equity. 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 September 30, 2022 and the results of operations and cash flows
for the periods presented. The results of operations for the three months ended September 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 March 31, 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 September 30, 2022 and December 31, 2021, the
Company had cash and cash equivalents of $19,975,562 and $6,975,302, respectively. Our cash and cash equivalents as of September
30, 2022, does include $13,940,706, related to Forza which was generated from their IPO.
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 September 30, 2022 and December 31, 2021, the Company had $19,023,055 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 September 30, 2022 and December
31, 2021, the Company had customer deposits of $1,026,580 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 nine months
ended September 30, 2022, the Company purchased all engines for its boats under a supply agreement with a single vendor. For the nine
months ended September 30, 2022 and 2021, total purchases to this vendor were $4,025,956 and $2,805,739, 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 September 30, 2022 and December 31, 2021 are as follows:
Schedule of fair value marketable securities | |
| | | |
| | | |
| | |
| |
| |
Fair Value Measurements Using |
| |
Balance as of September 30, 2022 | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | |
Significant Other Observable Inputs (Level 2) |
Marketable securities: | |
| | | |
| | | |
| | |
Corporate bonds | |
$ | 2,418,689 | | |
$ | — | | |
$ | 2,418,689 | |
Certificates of Deposits | |
| 492,247 | | |
| — | | |
| 492,247 | |
Total marketable securities | |
$ | 2,910,936 | | |
$ | — | | |
$ | 2,910,936 | |
| |
| |
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 September 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 September 30, 2022 and December 31, 2021 inventories
consisted of the following:
Schedule of inventories | |
| | | |
| | |
| |
September 30, | |
December 31, |
| |
2022 | |
2021 |
Raw Materials | |
$ | 4,138,044 | | |
$ | 1,518,947 | |
Work in Process | |
| 255,194 | | |
| 240,256 | |
Finished Product | |
| — | | |
| 40,566 | |
Total Inventory | |
$ | 4,393,238 | | |
$ | 1,799,769 | |
4. Property and Equipment
At September 30, 2022 and December 31, 2021, property
and equipment consisted of the following:
Schedule of property and equipment | |
| | | |
| | |
| |
September 30, | |
December 31, |
| |
2022 | |
2021 |
Machinery and equipment | |
$ | 1,934,869 | | |
$ | 1,343,797 | |
Furniture and fixtures | |
| 9,636 | | |
| 1,850 | |
Leasehold improvements | |
| 959,541 | | |
| 786,199 | |
Software and website development | |
| 147,334 | | |
| 113,120 | |
Computer hardware and software | |
| 100,113 | | |
| 76,598 | |
Boat molds | |
| 2,215,350 | | |
| 778,229 | |
Vehicles | |
| 95,536 | | |
| 101,984 | |
Electric prototypes and tooling | |
| 142,526 | | |
| 142,526 | |
| |
| 5,604,905 | | |
| 3,344,303 | |
Less accumulated depreciation and amortization | |
| (830,066 | ) | |
| (461,132 | ) |
| |
$ | 4,774,839 | | |
$ | 2,883,171 | |
Depreciation and amortization expense of property
and equipment for the nine months ended September 30, 2022 and 2021 is $372,511 and $132,089, 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, the Company estimates incremental secured borrowing
rates corresponding to the maturities of the leases. We used the U.S. Treasury rate of 0.36% at September 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 September 30, 2022 and December 31, 2021, supplemental
balance sheet information related to leases were as follows:
| |
| | | |
| | |
| |
September 30, | |
December 31, |
| |
2022 | |
2021 |
Operating lease liabilities: | |
| | | |
| | |
Current portion | |
$ | 387,993 | | |
$ | 368,602 | |
Non-current portion | |
| 949,495 | | |
| 1,244,164 | |
Total | |
$ | 1,337,488 | | |
$ | 1,612,766 | |
At September 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 nine months ended September 30, 2022) |
$ | 94,500 | |
2023 |
| 396,900 | |
2024 |
| 416,745 | |
2025 |
| 437,582 | |
Total lease payment |
| 1,345,727 | |
Less imputed interest |
| (8,239 | ) |
Total |
$ | 1,337,488 | |
The following summarizes other supplemental information about the Company’s
operating lease:
Schedule of operating lease cost |
|
|
|
|
September 30, |
|
|
2022 |
Weighted average discount rate |
|
|
0.36 |
% |
Weighted average remaining lease term (years) |
|
|
3.17 |
|
6. Accrued Liabilities
At September 30, 2022 and December 31, 2021, accrued
liabilities consisted of the following:
Accrued liabilities | |
| | | |
| | |
| |
September 30, | |
December 31, |
| |
2022 | |
2021 |
Accrued wages and benefits | |
$ | 172,485 | | |
$ | 185,402 | |
Accrued Interest | |
| 49,052 | | |
| 33,852 | |
Accrued bonus | |
| 77,000 | | |
| 30,000 | |
Accrued rebates | |
| — | | |
| 60,000 | |
Accrued professional fees | |
| 73,300 | | |
| 10,225 | |
Accrued operating expense | |
| 82,621 | | |
| 62,335 | |
Warranty reserve | |
| 83,854 | | |
| 75,000 | |
Total | |
$ | 538,312 | | |
$ | 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 nine months ended September
30, 2022, and 2021, the Company received cash of $0 and
$33,128 from
its affiliate companies, paid operating expenses of $28,771
and $0
on behalf of to its affiliate companies, and paid $0 and
$339,576 to
its affiliate companies, respectively.
During the nine months ended September 30, 2022, and
2021, the Company recorded management fees of $42,225 and $31,500, respectively, paid to its shareholder parent company.
At September 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 nine months ended September 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 $11,825,000 or 68 units, and $4,273,000 or
24 units, as of September 30, 2022, and December 31, 2021, respectively. The Company incurred no impact from repurchase events during
the nine months ended September 30, 2022 and year ended December 31, 2021.
Short-term lease
In August of 2022, Forza signed a six-month lease
for a duplex, to be used by its employees to minimize travel expense as it started construction on its new manufacturing facility, for
$2,200 per month, on a property in Black Mountain, North Carolina. During the nine months ended September 30, 2022, the lease expense
was $2,200.
Litigation
The Company is currently involved in various civil
litigation in the normal course of business none of which is considered material.
10. Stockholders’ Equity
Twin Vee
Common Stock Warrants
As of September 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 nine months ended September 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 September 30, 2022, there were 377,090 shares remaining available for grant
under this Plan.
Accounting for Stock -Based Compensation
Stock Compensation Expense
For the nine months ended September 30, 2022 and 2021,
the Company recorded $814,330 and $86,571, respectively, of stock-based compensation expense, which is included in salaries
and wages on the accompanying condensed consolidated statement of operations. Included in the $814,330 of stock options expense for the nine months ending September 30, 2022,
is Forza’s stock-based compensation expense of $158,705.
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 nine months ended September 30, 2022:
Schedule of share-based payment award stock options valuation
assumptions |
|
|
|
|
|
Nine months ended |
|
|
|
September 30, |
|
|
|
2022 |
|
Expected term |
|
5 years |
|
Expected average volatility |
|
49 - 50% |
|
Expected dividend yield |
|
— |
|
Risk-free interest rate |
|
1.50 – 2.96% |
|
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 |
|
277,500 |
|
|
|
3.84 |
|
|
|
10.00 |
|
Exercised |
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited/canceled |
|
(7,624 |
) |
|
|
(4.10 |
) |
|
|
(9.10 |
) |
Outstanding, September 30, 2022 |
|
983,488 |
|
|
$ |
4.81 |
|
|
|
8.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options, September 30, 2022 |
|
463,707 |
|
|
$ |
4.81 |
|
|
|
8.93 |
|
At September 30, 2022, 519,781 Twin Vee options
are unvested and expected to vest over the next five years.
Forza
Common Stock Warrants
As of September 30, 2022, the Company had outstanding
warrants to purchase 172,500 shares of common stock issuable at a weighted-average exercise price of $6.25 per share that
were issued to the representative of the underwriters on August 16, 2022 in connection with the Company’s IPO. The representative’s
warrants are exercisable at any time and from time to time, in whole or in part, and expire on August 16, 2027. There was no warrant activity
during the nine months ended September 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
will automatically increase on January 1, 2023. As of September 30, 2022, there were 683,500 shares remaining available for
grant under this Plan. Stock based compensation expense is included in the Statements of Operations, under salaries and wages.
Accounting for Stock -Based Compensation
For the nine months ended September 30, 2022 and 2021,
Forza recorded $1,587,058 and $0, respectively, of stock-based compensation expense, which is included in salaries and wages
on the accompanying condensed consolidated statement of operations.
Stock Options
Under Forza’s 2022
Stock Incentive Plan (the “Forza Plan”), Forza 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. Forza typically
issues options that vest pro rata on a monthly basis over various periods. Under the terms of the Forza Plan, the contractual life of
the option grants may not exceed ten years.
Fprza utilizes the Black-Scholes
model to determine fair value of stock option awards on the date of grant. Forza utilized the following assumptions for option grants
during the nine months ended September 30, 2022:
Schedule of share-based payment award stock options valuation assumptions |
| | |
|
Nine months ended |
|
September 30, |
|
2022 |
Expected term |
| 5 years | |
Expected average volatility |
| 115 | % |
Expected dividend yield |
| — | |
Risk-free interest rate |
| 2.98 | % |
The expected volatility of the option is determined
using historical volatilities based on historical stock price of comparable boat manufacturing companies. Forza 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. Forza 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 | |
| — | | |
$ | 0.00 | | |
| 0.00 | |
Granted | |
| 816,500 | | |
| 5.00 | | |
| 10.00 | |
Exercised | |
| — | | |
| — | | |
| — | |
Outstanding, September 30, 2022 | |
| 816,500 | | |
$ | 5.00 | | |
| 9.87 | |
| |
| | | |
| | | |
| | |
Exercisable options, September 30, 2022 | |
| 47,194 | | |
$ | 5.00 | | |
| 9.87 | |
At September 30, 2022, 769,306 Forza options
are unvested and expected to vest over the next five years.
11. Major Customers
During the nine months ended September 30, 2022, three individual customers
had sales of over 10% of our total sales, and combined these three customers represented 37% of total sales. During the nine months
end September 30, 2021, five individual customers had sales of over 10% of our total sales and combined these five customers represented 67%
of total sales.
12. 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. Income (loss) from operations 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 nine months ended September 30, 2022 and 2021:
Reconciliation of operating profit (loss) from segments to consolidated | |
| | | |
| | | |
| | | |
| | |
For the Nine Months Ended September 30, 2022 | |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 23,218,666 | | |
$ | (1,032 | ) | |
$ | — | | |
$ | 23,217,634 | |
Cost of products sold | |
| 13,910,332 | | |
| 1,027 | | |
| 90,635 | | |
| 14,001,994 | |
Operating expense
| |
| 9,468,564 | | |
| 34,507 | | |
| 2,089,661 | | |
| 11,592,732 | |
Loss from operations | |
| (160,230 | ) | |
| (36,566 | ) | |
| (2,180,296 | ) | |
| (2,377,092 | ) |
Other expense | |
| (181,113 | ) | |
| (30,059 | ) | |
| (28,944 | ) | |
| (240,116 | ) |
Net loss | |
$ | (341,343 | ) | |
$ | (66,625 | ) | |
$ | (2,209,240 | ) | |
$ | (2,617,208 | ) |
| |
| | | |
| | | |
| | | |
| | |
For the Nine Months Ended September 30, 2021 | |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 10,623,460 | | |
$ | — | | |
$ | — | | |
$ | 10,623,460 | |
Cost of products sold | |
| 6,209,334 | | |
| — | | |
| — | | |
| 6,209,334 | |
Operating expense
| |
| 4,581,634 | | |
| — | | |
| 117,197 | | |
| 4,698,831 | |
Loss from operations | |
| (167,508 | ) | |
| — | | |
| (117,197 | ) | |
| (284,705 | ) |
Other income (expense) | |
| 153,101 | | |
| — | | |
| (68,873 | ) | |
| 84,228 | |
Net loss | |
$ | (14,407 | ) | |
$ | — | | |
$ | (186,070 | ) | |
$ | (200,477 | ) |
| |
| | | |
| | | |
| | | |
| | |
For the Three Months Ended September 30, 2022 | |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 8,812,021 | | |
$ | — | | |
$ | — | | |
$ | 8,812,021 | |
Cost of products sold | |
| 5,411,404 | | |
| — | | |
| 66,543 | | |
| 5,477,947 | |
Operating expense | |
| 3,210,920 | | |
| 529 | | |
| 979,585 | | |
| 4,191,034 | |
Income (loss) from operations | |
| 189,697 | | |
| (529 | ) | |
| (1,046,128 | ) | |
| (856,960 | ) |
Other (expense) income | |
| (29,671 | ) | |
| (3,943 | ) | |
| 3,465 | | |
| (30,149 | ) |
Net income (loss) | |
$ | 160,025 | | |
$ | (4,471 | ) | |
$ | (1,042,663 | ) | |
$ | (887,109 | ) |
| |
| | | |
| | | |
| | | |
| | |
For the Three Months Ended September 30, 2021 | |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 4,118,246 | | |
$ | — | | |
$ | — | | |
$ | 4,118,246 | |
Cost of products sold | |
| 2,508,170 | | |
| — | | |
| — | | |
| 2,508,170 | |
Operating expense | |
| 1,850,380 | | |
| — | | |
| 82,230 | | |
| 1,932,610 | |
Loss from operations | |
| (240,304 | ) | |
| — | | |
| (82,230 | ) | |
| (322,534 | ) |
Other loss | |
| (57,452 | ) | |
| — | | |
| (3,291 | ) | |
| (60,743 | ) |
Net loss | |
$ | (297,756 | ) | |
$ | — | | |
$ | (85,521 | ) | |
$ | (383,277 | ) |
Property and equipment, net classified by business
were as follows:
Schedule of segment reporting information by segment |
| | | |
| | |
|
September 30, | |
December 31, |
|
2022 | |
2021 |
Gas-Powered Boats |
$ | 4,143,587 | | |
$ | 2,547,410 | |
Franchise |
$ | — | | |
$ | 100,196 | |
Electric-Boats |
$ | 631,252 | | |
$ | 235,565 | |
13. Subsequent Events
The Company has evaluated all event or transactions
that occurred after September 30, 2022 through November 7, 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 October 3, 2022, the Company issued and sold to
ThinkEquity LLC, as the underwriter in a firm commitment underwritten public offering (the “Offering”) pursuant to
the term of an underwriting agreement that the Company entered into with ThinkEquity LLC on September 28, 2022 (the “Underwriting
Agreement”) ,an aggregate of 2,500,000 shares of the Company’s common stock, par value $0.001 per share, at a public offering
price of $2.75 per share, for gross proceeds of $6,875,000, before deducting underwriting discounts, commissions and offering expenses.
Pursuant to the Underwriting Agreement, the Company has also issued to the underwriter warrants
to purchase up to 143,750 shares of Common Stock.
On October 7, 2022, Forza signed a two-year lease
agreement, on a warehouse facility to begin building out its prototype boats. The monthly rent will be $6,600 the first year and $6,798
the second year.
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 September 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 under the Twin Vee name; (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 21 independent boat dealers in 26 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
majority 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 25-foot FX1 dual console model,
including hull, deck and small parts. This design has gone from an intellectual
concept in CAD to fiberglass and foam plugs, fiberglass molds and, finally, working boat parts in just over one year. On October the 28th,
the running surface of the boat and all major components were tested successfully for several hours on the Indian River Lagoon in Fort
Pierce, Florida. While the motor and control systems have been successfully trialed previously, this was the first voyage that
included
all major components, production batteries, fully functioning “alpha”
engine design, control system - including 22”
Garmin screen, and Osmosis telematics unit. The performance of the boat exceeded
all expectations and will provide a great baseline for improvements, iterations, and design enhancements. We anticipate revenues from
the sale of these fully integrated electric boats and motors to commence in late 2023. Forza X1 will continue to build prototype engines
and boats for the next six to nine months.
Through the first nine months of 2022, we continued to experience strong sales
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 nine months ended September 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 to our dealer network, we now have 21 dealers and 26 locations. We have increased our production by 69%, for
the three months ended September 30, 2022 compared to the three months ended September 30, 2021, which has increased our net revenue up
119% for the nine months ended September 30, 2022. For the three months ended September 30, 2022, our net revenue increased 114% compared
to the three months ended September 30, 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.
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 August 16, 2022, Forza issued and sold to ThinkEquity
LLC, as the underwriter in a firm commitment underwritten initial public offering (the “Forza IPO”) pursuant to the
term of an underwriting agreement that it entered into with ThinkEquity LLC on August 11, 2022 (the “Forza Underwriting Agreement”)
,an aggregate of 3,450,000 shares of Forza’s common stock, par value $0.001 per share, at an initial public offering price of $5.00
per share, for gross proceeds of $17,250,000, before deducting underwriting discounts, commissions and offering expenses. Pursuant to
the Forza Underwriting Agreement, Forza also issued to the underwriter warrants to purchase up to
172,500 shares of Common Stock. After the Forza IPO, Forza was no longer a wholly owned subsidiary of the Company.
On October 3, 2022, we issued and sold to ThinkEquity
LLC, as the underwriter in a firm commitment underwritten public offering (the “Offering”) pursuant to the term of
an underwriting agreement that we entered into with ThinkEquity LLC on September 28, 2022 (the “Underwriting Agreement”),an
aggregate of 2,500,000 shares of our Common Stock at a public offering price of $2.75 per share, for gross proceeds of $6,875,000, before
deducting underwriting discounts, commissions and offering expenses. Pursuant to the Underwriting Agreement, we
also issued to the underwriter warrants to purchase up to 143,750 shares of Common Stock.
We continue adding new models to our lineup.
We are now adding 3 new STX Sport Tournament models and 4 new, completely unique, special models that we have been designing and will
be launching under a new boat brand named LFG Marine Group. LFG Marine will be a 100% owned division within Twin Vee. These initial models
are geared more toward the freshwater market but can also be used and enjoyed in the saltwater environment.
The LFG Marine Group will have its own website, its
own marketing but the boats will be designed, manufactured, and shipped from our Twin Vee, factory in Fort Pierce, Florida to existing
and new dealers. Our initial LFG models will include a 25-foot muti hull center console, 25-foot dual console, 25-foot deck boat and a
new 22-foot single engine mono hull. All of these models are past the design stage and the tooling is being completed. The 25-foot dual
console is currently being completed in the factory and should be in the water within 2-3 weeks. We anticipate that revenue from LGF boat
sales will begin in Q1 of 2023.
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table provides certain selected financial information for
the periods presented:
| |
Three Months Ended | |
| |
|
| |
September 30, | |
| |
|
| |
2022 | |
2021 | |
Change | |
% Change |
Net sales | |
$ | 8,812,021 | | |
$ | 4,118,246 | | |
| 4,693,775 | | |
| 114 | % |
Cost of products sold | |
$ | 5,477,947 | | |
$ | 2,508,170 | | |
| 2,969,777 | | |
| 118 | % |
Gross profit | |
$ | 3,334,074 | | |
$ | 1,610,076 | | |
| 1,723,998 | | |
| 107 | % |
Operating expenses | |
$ | 4,191,034 | | |
$ | 1,932,610 | | |
| 2,258,424 | | |
| 117 | % |
Operating loss | |
$ | (856,960 | ) | |
$ | (322,534 | ) | |
| (534,426 | ) | |
| 166 | % |
Net loss | |
$ | (877,109 | ) | |
$ | (383,277 | ) | |
| (503,832 | ) | |
| 131 | % |
Net loss per common share: Basic and Diluted | |
$ | (0.10 | ) | |
$ | (0.06 | ) | |
| (0.04 | ) | |
| 64 | % |
Weighted average number of common shares outstanding: Basic and diluted | |
| 7,013,478 | | |
| 6,282,700 | | |
| | | |
| | |
Net Sales and Cost Sales
Our net sales increased $4,693,775, or 114% to $8,812,021
for the three months ended September 30, 2022 from $4,118,246 for the three months ended September 30, 2021. This increase was due to
an increase in the number of boats sold during the three months ended September 30, 2022. The number of our boats sold during the three
months ended September 30, 2022 increased 65% over the three months ended September 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 $1,723,998, or 107% to
$3,334,074 for the three months ended September 30, 2022 from $1,610,076 for the three months ended September 30, 2021. Gross profit as
a percentage of sales, for the three months ended September 30, 2022 and 2021 was 38% and 39% respectively.
Total Operating Expenses
Our total operating expenses for the three months
ended September 30, 2022 and 2021 were $4,191,034 and $1,932,610 respectively. Operating expenses as a percentage of sales were 48% compared
to 47% in the prior year. Our total operating expenses, for our gas-powered boat segment, for the three months ended September 30, 2022
and 2021 were $3,210,921 and $1,850,513 respectively. Our gas-powered segment, operating expenses as a percentage of sales were 36% compared
to 45% in the prior year, showing a 9% improvement quarter over quarter. Our total operating expenses, for Forza, our electric powered
boat and development segment, for the three months ended September 30, 2022 and 2021 were $979,584 and $0 respectively.
Selling, general and administrative expenses increased
by approximately 38%, or $194,339 to $707,321 for the three months ended September 30, 2022, compared to $512,982 for the three months
ended September 30, 2021. A significant portion of this increase, $101,724 was due increased costs in liability and workman’s compensation
insurance. These insurance charges increase based on your employment level and sales revenue, both of which, have increased significantly
quarter over quarter. Another $42,551 was due to Forza now carrying cost of being publicly traded. Our sales and marketing expenses for
the quarter increased $40,188, the majority of this increase was due to hosting a dealer meeting in 2023, which we did not due in 2022.
Our travel expense increased approximately $26,662, this is due to Forza’s remote workforce being required to travel for development
and testing.
Salaries and wages related expenses increased by approximately
137%, or $1,669,801 to $2,891,863 for the three months ended September 30, 2022, compared to $1,222,062 for the three months ended September
30, 2021. Of the increase in salaries and wages of $1,216,037 was the result of aggressively ramping up of production, which required
increasing our production staff and adding mid-level staff, as well as the staffing of our Forza segment, which account for $698,967 of
the increase. Included in salaries and wage related expenses for the three months ended September 30, 2022 was stock based compensation
expense of $287,607 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 $90,113. The remaining increase in salaries and
wages during the three months ended September 30, 2022 is associated with taxes.
Research and design expenses increased by $222,845
to $283,936 for the three months ended September 30, 2022, from $61,091 for the three months ended September 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 28%, or $29,927 to
$135,311 for the three months ended September 30, 2022, compared to $105,384 for the three months ended 2021. This increase was also due
to the additional costs we incurred associated with Forza 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 and amortization expense increased by
455%, or $141,511 to $172,602 for the three months ended September 30, 2022, compared to $31,091 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) decreased by 50%, or $30,594
to an expense of $30,149 for the three months ended September 30, 2022, compared to $60,743 for the three months ended, 2021. Our interest
income increased for the quarter by 30,958, compared to 2021, accounting for the change.
Net Loss
Net loss for the three months ended September
30, 2022 was $887,109, compared to $383,277 for the three months ended September 30, 2021. Our electric segment, which does not
generate any revenue, at this time, incurred a loss of $1,042,663, for the three months ended September 30, 2022, related to research
and design. Our gas-powered segment had income of $160,025 for the three months ended September 30, 2022. Basic and dilutive loss
per share of common stock for the three months ended September 30, 2022, was ($0.10) compared to ($0.06) for the three months ended
September 30, 2021.
Comparison of the Nine Months Ended September 30, 2022 and 2021
| |
Nine months Ended | |
| |
|
| |
September 30, | |
| |
|
| |
2022 | |
2021 | |
Change | |
% Change |
Net sales | |
$ | 23,217,634 | | |
$ | 10,623,460 | | |
| 12,594,174 | | |
| 119 | % |
Cost of products sold | |
$ | 14,001,994 | | |
$ | 6,209,334 | | |
| 7,792,660 | | |
| 125 | % |
Gross profit | |
$ | 9,215,640 | | |
$ | 4,414,126 | | |
| 4,801,514 | | |
| 109 | % |
Operating expenses | |
$ | 11,592,732 | | |
$ | 4,698,831 | | |
| 6,893,901 | | |
| 147 | % |
Loss from operations | |
$ | (2,377,092 | ) | |
$ | (284,705 | ) | |
| (2,092,387 | ) | |
| 735 | % |
Other income (expense) | |
$ | 240,116 | | |
$ | (84,228 | ) | |
| 324,344 | | |
| (385 | %) |
Net loss | |
$ | (2,617,208 | ) | |
$ | (200,477 | ) | |
| (2,416,731 | ) | |
| 1,205 | % |
Basic and dilutive loss per share of common stock | |
$ | (0.37 | ) | |
$ | (0.04 | ) | |
| (0.33 | ) | |
| 789 | % |
Weighted average number of shares of common stock outstanding | |
| 7,004,542 | | |
| 4,769,200 | | |
| | | |
| | |
Net Sales and Cost Sales
Our net sales increased by $12,594,174, or 119% to
$23,217,634 for the nine months ended September 30, 2022 from $10,623,460 for the nine months ended September 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
nine months ended September 30, 2021 increased 69% over the number of our boats sold during the nine months ended September 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 and introduced new larger models 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 nine months ended September 30, 2022 increased approximately 35% over revenue
per unit for the nine months ended September 30, 2021.
Gross Profit
Gross profit increased by $4,801,514 or 109% to 9,215,640
for the nine months ended September 30, 2022 from $4,414,126 for the nine months ended September 30, 2021. Gross profit as a percentage
of net sales for the nine months ended September 30, 2022, was 40% as compared to 42% for the same period in fiscal 2021.
Total Operating Expenses
Our total operating expenses for the nine months ended
September 30, 2022 and 2021 were $11,592,732 and $4,698,831 respectively. Operating expenses as a percentage of sales were 50% compared
to 44% in the prior year. Our total operating expenses, for our gas-powered boat segment, for the nine months ended September 30, 2022
and 2021 were $9,520,918 and $4,581,634 respectively. Our gas-powered segments, operating expenses as a percentage of sales were 41% compared
to 43% in the prior year, showing a 2% improvement quarter over quarter. Our total operating expenses, for Forza, our electric powered
boat and development segment, for the nine months ended September 30, 2022 and 2021 were $2,037,307 and $1,046,129 respectively. Forza
operating expenses as a percentage of consolidated sales were 9%.
Selling, general and administrative expenses increased
by 86% or $936,804 to $2,027,387 for the nine months ended September 30, 2022, from $1,090,583. A significant portion of the increase,
$405,191, resulted from expenses incurred in connection with being a publicly traded company, which we did not incur for the majority
of the prior period. Our insurance increased by $223,977 over the prior period, due to our increased wages and sales level. Our state
taxes increased by $122,769. Our advertising and marketing increased $46,527, primarily due to hosting a dealer sales meeting in 2022,
which we did not host in 2021, over concerns regarding Covid. We also have experienced moderate increases several accounts totaling $49,880
of the increase. Selling, general and administrative expenses associated specifically to Forza, our electric boat and development segment,
totaled $267,657.
Salaries and wage related expenses increased by 148%
or $4,741,478 to $7,938,954 for the nine months ended September 30, 2022 from $3,197,476 for the nine months ended September 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 $3,365,308 of additional salaries and wage expense for the nine months ended September 30, 2022 as
compared to for the nine months ended September 30, 2021, $698,967 can be directly associated with Forza, for our electric boat and development
segment. Included in salaries and wage related expenses for the nine months ended September 30, 2022 was stock based compensation expense
of $814,330 due to the issuance of options to employees, $158,705 was directly associated with Forza, for our electric boat and development
segment. We have added a full package of benefits for our employees, to retain our quality employees, which resulted in an increase of
$315,566. The remaining increase of salaries and wages related expenses during the nine months ended September 30, 2022 is associated
with taxes and benefits.
Research and design expenses, for Forza, our electric
boat and development segment, for the nine months ended September 30, 2022, and 2021 were $680,288 and $61,091, 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 nine months ended September
30, 2022 and 2021 were $573,592 compared to $217,591, 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 and amortization expenses for the nine
months ended September 30, 2022 and 2021 were $372,511 and $132,089, 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 385%, or $324,344
to $240,116 for the nine months ended September 30, 2022, compared to other income of $84,228 for the nine months ended September 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 $50,966 and our net loss in fair value of marketable securities was $150,569 compared to $10,576 during
the nine months ended September 30, 2021. The increase in expenses was also offset by an increase of interest income of $63,883, and other
income of $32,994.
Net Loss
Net loss for the nine months ended September 30, 2022
was $2,617,208, compared to $200,477 for the nine months ended September 30, 2021. Forza, which represents our electric boat and development
segment, which does not generate any revenue, at this time, incurred a loss of $2,156,886, for the nine months ended September 30, 2022,
related to research and design. Our gas-powered segment incurred a net loss of $393,697, or 1.7% of net sales, for the nine months ended
September 30, 2022. This loss was due to our aggressive ramp up in production. Basic and dilutive loss per share of common stock for the
nine months ended September 30, 2022, was ($0.37) compared to ($0.04) for the nine months ended September 30, 2021.
Liquidity and Capital Resources
The primary sources of funds for the nine months ended
September 30, 2022 were cash from operations and proceeds from our IPO, the Forza IPO and our follow on offering consummated in October
2022. Forza raised gross proceeds of $17,250,000 from the Forza IPO and gross proceeds of $6,875,000 from our follow on offering consummated
in October 2022. 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 $2,156,886 for the nine months ended September 30, 2022.
To date, Twin Vee has spent approximately $2,500,00
on the funding of the development on our electric boats. The proceeds raised 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 September 30, 2022 and December 31, 2021.
| |
September 30, | |
December 31, | |
| |
|
| |
2022 | |
2021 | |
Change | |
% Change |
Cash and cash equivalents | |
$ | 19,975,562 | | |
$ | 6,975,302 | | |
| 13,000,260 | | |
| 186.4 | % |
Marketable securities | |
$ | 2,910,936 | | |
$ | 6,064,097 | | |
| (3,153,161 | ) | |
| (52.0 | %) |
Current assets | |
$ | 26,248,656 | | |
$ | 13,073,346 | | |
| 13,175,310 | | |
| 100.8 | % |
Current liabilities | |
$ | 3,995,584 | | |
$ | 2,155,420 | | |
| 1,840,164 | | |
| 85.4 | % |
Working capital | |
$ | 22,253,072 | | |
$ | 10,917,926 | | |
| 11,335,146 | | |
| 103.8 | % |
As of September 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.
Included in cash and cash equivalents for the three and nine months ended September 30, 2022 is proceeds from the Forza IPO. As of September
30, 2022, we had $22,886,498 of cash, cash equivalents and marketable securities, total current assets of $26,248,656, and total assets
of $35,223,690. Our total liabilities were $5,444,979. Our total liabilities were comprised of current liabilities of $3,995,584 which
included accounts payable and accrued liabilities of $2,465,968, due to affiliated companies of $115,043 and current portion of operating
lease right of use liability of $387,993, and long-term liabilities of $1,449,395. 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 $20,599,184. 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 $4,501,181 as of September 30, 2022 compared to
accumulated deficit of $2,017,556 as of December 31, 2021.
Our working capital increased by $11,335,146 to $22,253,072
as of September 30, 2022, compared to $10,917,926 on December 31, 2021, due primarily to the Forza IPO.
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
| |
Nine Months Ended | |
| |
|
| |
September 30, | |
| |
|
| |
2022 | |
2021 | |
$ Change | |
% Change |
Cash used in operating activities | |
$ | (2,584,381 | ) | |
$ | (743,435 | ) | |
| (1,840,946 | ) | |
| 248 | % |
Cash provided by (used in) investing activities | |
$ | 688,423 | | |
$ | (7,323,287 | ) | |
| 8,011,710 | | |
| (109 | %) |
Cash provided by financing activities | |
$ | 14,896,218 | | |
$ | 16,153,814 | | |
| (1,257,596 | ) | |
| (8 | %) |
Net Change in Cash | |
$ | 13,000,260 | | |
$ | 8,087,092 | | |
| 4,913,168 | | |
| 61 | % |
| |
Years Ended | |
| |
|
| |
December 31, | |
| |
|
| |
2021 | |
2020 | |
$ Change | |
% Change |
Cash provided by (used in) operating activities | |
$ | (1,947,539 | ) | |
$ | 364,648 | | |
| (2,312,187 | ) | |
| (634 | %) |
Cash used in investing activities | |
$ | (8,037,264 | ) | |
$ | (200,452 | ) | |
| (7,836,812 | ) | |
| 3,910 | % |
Cash provided by financing activities | |
$ | 16,068,289 | | |
$ | 512,046 | | |
| 15,556,243 | | |
| 3,038 | % |
Net Change in Cash | |
$ | 6,975,302 | | |
$ | 891,816 | | |
| 6,083,486 | | |
| 682 | % |
Cash Flow from Operating Activities
For the nine months ended September 30, 2022, net
cash flows used in operating activities was $2,584,381 compared to $743,435 during the nine months ended September 30, 2021. We have increased
inventory levels by $2,593,469, 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 $726,795. Our accrued liabilities decreased $81,498, primarily due to accrued rebate
being paid out. Our net loss from operation was $2,617,208, was decreased by non-cash expenses of $1,236,831, primarily due to stock-based
compensation of $814,330, change of right-of-use asset and lease liabilities of $286,271, loss on disposal of assets of $49,990, net change
in fair value of marketable securities of $150,569 and depreciation of $372,511.
Cash Flow from Investing Activities
During the nine months ended September 30, 2022, we
provided $688,423 in investment activities, compared to $7,323,287 used during the nine months ended September 30, 2021. We invested $2,394,169
in the purchase of property and equipment, primarily for new model boat molds of approximately $1,437,000, leasehold improvements of approximately
$173,000, new production equipment of approximately $591,000, and new computers, software and furniture of approximately $66,000. We had
proceeds from the sale of property of approximately $80,000, and proceeds from the sale of marketable securities of $3,002,592.
Cash Flows from Financing Activities
For the nine months ended September 30, 2022, net
cash provided by financing activities was approximately $14,896,218, compared to $16,153,814 for the nine months ended September 30, 2021.
The cash flow from financing activities for the nine months ended September 30, 2022 included net proceeds of $15,231,350 from the Forza
IPO.
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, we 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.