Item 1. Business
Item 1.
Business.
General
Twin
Vee PowerCats Co. (“Twin Vee” “we”, ‘us” or the “Company”) is a designer, manufacturer
and marketer of recreational and commercial power catamaran boats. We believe our company, founded in 1996, has been an innovator in
the recreational and commercial power catamaran industry. 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 currently employ approximately 143 people.
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 19 independent boat dealers in 23 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, 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. Both FX1 models are being designed with advanced high-powered, liquid-cooled
battery packs that will be provided by the third-party supplier with whom we have entered into a five year supply agreement and a vehicle
control unit with proprietary control software all integrated into a 22” master control touch screen that will be used to control
most functions of the boat. 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.
Information
about Twin Vee can be found on our website, http://www.twinvee.com/. Information on our website is not incorporated by reference into
this Annual Report and you should not consider any information that is contained on or can be accessed through our website as part of
this Annual Report. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The Exchange Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange
Commission (“SEC”). The SEC maintains a website that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s
website at http://www.sec.gov.
Business
of Our Segments
Gas-powered
Boats
Our
gas-powered boat segment, which accounted for 99% of our net revenue in the 2021 fiscal year and 100% of our net revenue in the 2020
fiscal year, is located in Fort Pierce, Florida. We believe our company has been an innovator in the recreational and commercial power
catamaran industry. We currently have 14 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 currently
employ approximately 143 people.
During
the 2021 fiscal year, we brought our new 280 GFX and our new 340 GFX models to market. To further the development of our gas-powered
boat segment, we have also designed a new 260 GFX and a 400 GFX. With the design complete we are now developing our tooling so we can
begin production in 2022.
4
Table of Contents
Twin
Vee’s Hull Shape
Twin
Vee boats are designed for a dry and smooth ride. As a Twin Vee moves through the water, the boat hull has lifting strakes on the side
of each hull. Lifting strakes are known to produce lift at the bow of a boat by displacing water, allowing
the boat to, in essence, glide above the water rather than lumber through it. Twin Vee’s lifting strakes work to not only create
lift, but also to make the ride smoother. The forward motion of a catamaran boat lifts water up towards the top of the tunnel
while pushing the water inward to form two counter-flowing vortexes. As these vortexes are being formed, the Twin Vee hull design aerates
these vortexes with small air bubbles, which are then compressed at an increasing rate as the vortexes move down the tunnel. It is the
kinetic energy stored in these compressed air bubbles, which creates \ a smooth and stable ride. As speed increases, the kinetic energy
increases at a non-linear rate as more and more air is induced into the increasingly faster flowing vortexes. The trailing surfaces the
Twin Vee hulls are specifically designed to facilitate propulsion efficiency by discharging the kinetic energy and air bubbles from the
counter-flowing vortexes upon exiting astern, thus providing the propellers with a steady flow of super clean and highly ordered water.
This
fact, combined with a catamaran’s soft ride, results in Twin Vee’s renowned efficiency and smooth, seaworthy safety. At speed,
the Twin Vee’s displacement hull slices through the water, traveling with the shape of the seas rather than flying over them and
experiencing reentry shock. This results in a stable and smooth ride. The following are some benefits of the catamaran, or Twin Vee’s,
hull shape.
Power
Catamaran Hull Benefits
●
Catamaran
stability. Catamarans have parallel hulls on the outer edges of the boat rather than in the middle, providing superior
stability. Twin Vee hulls travel with the wave shapes because the buoyancy is to the outside, resisting the snap roll pendulum motion
of deep vee monohulls. A Twin Vee wider footprint negates the effects of rolling seas, making them less likely to capsize and reduce
seasickness.
●
Shallow
draft for travelling in “skinny” waters . The weight of the boat is distributed to two hulls for a shallower draft.
The shallow draft of the Twin Vee design provides access to areas that conventional hulls cannot reach. With a Twin Vee, you can enjoy
the beach and not have to wade in the water to get there.
●
More
usable deck space . The relatively rectangular design of the Twin Vee expanded deck area allows for more usable deck space than
monohulls. Twin Vee boats are wider in the bows providing more open area in open models and bigger berths in cabins. Lounge in the
front of a Twin Vee dual console and then jump into a similar-sized monohull.
●
Single
engine get home capability . Twin Vee catamaran hulls do not need planning speed power to travel rapidly on a single engine.
Minimum bow rise for greater visibility, a Twin Vee deck is parallel to the water at all speeds allowing you to maintain your line
of sight and giving you greater fuel efficiency.
●
Docking
and maneuverability . With the extra separation between the motors, over most mono hull boats, you can cross-clutch the motors
and turn or spin the boat up to its own length.
●
Maintains
a plane at lower speed for fuel efficiency . The catamaran hull can maintain a plane at lower speeds and catamaran boats create
less drag in turn offering better fuel efficiency and a more economical boat to maintain.
●
Fish
one side of a Twin Vee . Enjoy fishing without the extreme listing of a monohull.
5
Table of Contents
Franchise
Our
franchise segment is being developed and we plan to utilize a franchise model for marine mechanics across the country.
Electric-Powered
Boats
The
mission of Forza is to inspire the adoption of sustainable recreational boating by producing stylish electric sport boats. Forza is focused
on the creation, implementation and sale of electric boats utilizing our electric vehicle (“EV”) technology to control and
power its boats and proprietary outboard electric motor. Forza’s electric boats are being designed as fully integrated electric
boats including the hull, outboard motor and control system.
We
believe traditional marine manufacturers are at a crossroads and face significant industry-wide challenges. Much like in the automotive
industry, the reliance on the gasoline-powered internal combustion engine as the principal marine powertrain technology has raised environmental
concerns, created dependence among industrialized and developing nations on oil-primarily imported from foreign countries, exposed consumers
to volatile fuel prices, and inhibited innovation in alternative fuel powertrain technologies.
To
date, Forza has completed the design of two electric boat models and has begun tooling the molds which are required to build the physical
fiberglass boat. In addition, Forza has completed the design and prototyping of the electric outboard motor that will be used as the
initial propulsion source for its two models. Forza has completed the design and prototyping and has begun testing the boats’ integrated
control system. It has also entered into a supply agreement for the supply of the lithium battery packs that it plans to use to power
the electric boats. We expect to begin production of the two FX1 electric boats and commence selling to end user customers by the second
quarter of 2023. Forza is currently sharing our factory for its production needs and is seeking to raise money in a public offering to
invest in building a factory solely for the manufacture of Forza’s fully integrated electric boats.
We
believe that the boating industry will follow in the footsteps of the electrification of the automotive industry by creating electric
boats that meet or exceed the traditional boating consumer’s expectations of price, value and run times. In other words, electric
boats must offer a similar experience when compared to traditional gas-powered boat in terms of size, capability and price point.
Our
Strategy
Overall
Strategy
We
intend to capitalize on the thriving broader marine industry through the following strategies:
Develop
New and Innovative Products in Our Core Market. As an innovator, designer, manufacturer, and marketer of catamaran powerboats,
we strive to design new and inventive products that appeal to a broad customer base. We intend to launch a number of new products and
features with best-in-class quality, with the goal of increasing sales and significant margin expansion. For example, w e
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. Furthermore, our unique new
product development process enables us to renew our product portfolio with innovative offerings at a rate that we believe will be difficult
for our competitors to match without significant additional capital investments. We intend to release new products and features multiple
times during the year, which we believe enhances our reputation as a cutting-edge boat manufacturer and will drive consumer interest
in our products.
Increase
the Catamaran Power Boat Category Segment. Our near-term product development strategy is to expand our product line to reach
underserved segments of the catamaran powerboat category that are distinct from our traditional customer base. With our existing supplier
relationships, material agreements, and manufacturing processes, should allow us to offer this product line at an attractive price point
for the consumer while sustaining our gross margins and the product attributes critical to the Twin Vee brand.
Capture
Additional Share from Adjacent Boating Categories. Another focus is to grow our market share is to enhance our ability to
introduce new products with increased versatility, functionality, and performance to a more expansive customer base that values boats
for both water sports and general recreational boating purposes. We intend to launch several marketing campaigns that will focus on new
product launches and help to educate the market on our value proposition to customers.
Effectively
Manage Dealer Inventory and Further Strengthen Our Dealer Network . We view our dealers as our partners and product champions.
Therefore, we will continue to devote significant time and resources to finding high quality dealers and developing and improving their
performance over time. We believe the quality and trust in our dealer relationships are more beneficial to our long-term success than
the quantity of dealers. We currently have a network of 19 independent boat dealers in 23 locations across North America, the Caribbean
and Central America.
6
Table of Contents
Increase
Our Sales in International Markets . We believe we have a brand that will have natural growth in international markets. Catamaran
powerboats have already been accepted as the norm in many international markets. For example, with catamaran powerboats currently being
5% of the US market, catamaran powerboats make up over 30%, as of 2020, of the Bahamian market. Based on our brand and product offering,
as well as out potential distribution strengths, we believe we are well positioned to leverage our reputation and capture additional
international sales. We believe that we will increase our international sales by promoting our products in developed markets where we
have a dealer base and in international markets where rising consumer incomes are expected to increase demand for recreational products,
such as Australia, Europe, Israel, Dubai, and Brazil. We are also developing new product offerings that will specifically target certain
product demand from our international consumers and that we believe will drive further sales growth in international markets.
EV/Forza
Specific Strategy
Forza
plans to operate in a fundamentally different manner and structure than traditional marine manufacturers and boat dealers by adopting
a direct-to-consumer sales and delivery model. Forza has commenced the design of a dedicated web-based platform and intends to commence
the design of a web-based app for sales, deliveries, and service operations to change the personal boat buying and marine service experience
through technological innovation, ease of use, and flexibility. Forza plans to utilize the web-based and app platform to connect with
customers for an end-to-end experience encompassing everything from buying, financing, delivery, servicing, and training Forza intends
to employ an integrated, digital-first strategy that is convenient and transparent for our customers and efficient and scalable to support
its growth. Forza believed its approach will enable it to operate more cost effectively, provide a better customer experience and incorporate
customer feedback more quickly into our product development and manufacturing processes. Forza believes this strategy will allow it to
deliver uncompromised and premium experiences well beyond what is available through the standard dealership model.
Forza’s
plans for its electric boats include the following strategies:
●
Successfully
Launch the FX1 . Forza believes the successful launch of its first commercially available electric boat is critical to its
ability to capitalize on the marine electric vehicle market opportunity and establish itself as leaders in the industry. Forza plans
to complete the initial prototype boat by Q2 2022 and to commence commercial scale production in Q2 2023. Forza is currently executing
a detailed plan to design, component source, engineer, and manufacture the FX1 and obtain the equipment to support its production.
●
Invest
in Our Infrastructure. Forza is seeking to raise money in a public offering to invest in building a factory solely for the manufacture
of Forza’s fully integrated electric boats.
●
Use
a Common Platform to Introduce New Models . Forza intends to design the FX1 with an adaptable platform architecture and common
electric powertrain to provide the flexibility to use the FX1 platform to launch subsequent electric boat models cost-efficiently.
●
Focus
on Technological Advancements and Cost Improvement . Forza intends to constantly look for ways to improve upon and further develop
our proprietary electric powertrain system while reducing its manufacturing cost.
●
Build
Forza’s Company-Owned Sales and Service Network . Forza X1 is programming and building its expansive and vertically
integrated customer-centric web and app platform to connect with customers for an end-to-end experience encompassing everything
from buying, financing, delivery, servicing, and training. This customer-centric approach to sales and service will simplify accessing
necessary information for potential buyers and current owners in an easily accessible and streamlined online space.
●
Leverage
Industry Advancements in Battery Cells . Forza intends to leverage the substantial investments made globally by battery cell manufacturers
to improve power and capacity.
●
Build
and Leverage Strategic Relationships . Forza intends to establish and develop strategic relationships with industry leaders to
launch our planned electric boats and sell its electric boat powertrain components. Forza envisions significant inroads with boat manufacturers
to retrofit various hull configurations, replacing traditional gas outboard motors and existing boat owners who could retrofit their
boats with Forza X1’s outboard motors, controller, and battery packs.
7
Table of Contents
Our
Strengths and Competitive Advantages
We
believe that the following are the key investment attributes of our company:
Recognized
Brand. We believe the Twin Vee brand is well-known among boating enthusiasts for performance, quality, and value, and that the
market recognizes Twin Vee as a brand in the twin hull sport boat category due to the value proposition that our boats deliver.
Diverse
Product Offering . We are able to attract consumers across multiple categories within the recreational powerboat industry.
We currently have eight (8) different catamaran models in production that range from 24-feet to 40-feet long offered at retail prices
that start at approximately $65,000 and go up to $860,000.
Focus
on Innovative Product Offerings. We are currently designing numerous new boat models to meet market demand and grow our business.
We are also developing a large off-shore power catamarans with traditional gas-powered engines, the largest Twin Vee to date, the 400
GFX. The 400 GFX is being designed to have a range of over 800 miles and will have the option of being powered by dual or quad engines.
In addition, our subsidiary is also designing and engineering an all-electric outboard propulsion system under the name “ELECTRA”
for other makes and models of boats.
Price
Point. Twin Vee has also made investments in infrastructure, and engineering. These investments have resulted in lower material
waste, reduced labor hours per boat, reduced re-work, and increased production efficiencies. Therefore, we are able to offer favorable
pricing while increasing margins by controlling costs through disciplined engineering and manufacturing processes.
Our
Markets
According
to the National Marine Manufacturer’s Association, or NMMA, more than 325,000 new powerboats were sold in 2021, levels the recreational
boating industry has not seen since before the Great Recession in 2008. Our core market corresponds most directly to the outboard, twin
hull, catamaran and open fisherman category, which we refer to as the sport powerboats category. We believe our addressable market also
includes similar and adjacent powerboat categories identified by the NMMA, including center console boats, outboard boats, and all open
sport fishing boats. For 2021, US sales of boats, marine products, and services are estimated to total $49 billion, up seven percent
from 2020. Retail unit sales of new powerboats specifically increased last year by an estimated 7% compared to 2020. As a result, we
believe that total annual addressable market for our products in the US alone is greater than $4.7 billion.
In
North America, 100 million people go boating every year, according to the U.S. Coast Guard, with 11.9 million recreational vessels registered
with the U.S. Coast Guard in 2019. The worldwide recreational boating market size is set to surpass $63 billion by 2026, according
to a research report by Global Market Insights, Inc. Within the boating market, there is an outboard motor market and an electric boat
market. Our products, including those of our subsidiaries, fall into each of those categories.
Outboard
Motor Market
An
outboard motor is a propulsion system for boats, consisting of a self-contained unit that includes engine, gearbox and propeller or jet
drive, designed to be affixed to the outside of the boat. As well as providing propulsion, outboards provide steering control, as they
are designed to pivot over their mountings and thus control the direction of thrust. Outboard motors tend to be found on smaller watercraft
as it is more efficient for larger boats to have an inboard system. Although outboard engines powered by fossil fuels have traditionally
dominated this market and continue to do so, electric outboard motors are a relatively new phenomenon that have been growing in step
with the growth in the electric boat market. The boats that we sell and manufacture all have outboard motors.
According
to the NMMA, sales of outboard engines in the United States (which includes outboard motors) increased to a twenty-year high of 329,500
units representing sales market of US $3.4 billion in 2020. Consumer demand for higher-performance engines continued to trend upward
in 2020, with double digit gains in sales for engines with 200 and greater horsepower. Engines with over 200 horsepower accounted for
a rise in 17.6% compared to 2019, amounting to over 89,000 units sold. Overall, the average horsepower of all outboard engines sold in
2020 reached 126.3 hp, up 48% from the average in 2010 of 85.1 horsepower according to the NMMA.
Although
many recreational boats can be powered by outboard or inboard motors, many consumers prefer outboard motors. Among the reasons for their
preference are that, unlike inboard motors, outboard motors can be easily removed for storage or repairs, they provide more room in the
boat as they are attached to the transom outside of the boat, they tend to have a shallower draft and they can be more easily replaced
in the event the motor no longer works or a desire to upgrade to a higher horsepower.
8
Table of Contents
Electric
Boat Market
Although
electric boats have been available for over 100 years, interest in them was minimal until the 1990s when the first studies were conducted
in the United States following the suspicion that motorboats contaminate aquatic environments significantly through loss of gas and lubrication
oil. According to Andre Mele, recreational boats pollute as much as cars and trucks in the United States. In the early 2000’s,
8 million speedboats in the United States released 15 times more pollutants annually into the environment than the oil spill produced
by the oil tanker Exxon Valdez in 1989. The sinking of this tanker in Alaska had released 11 million U.S. gallons of hydrocarbons into
the environment. After conversion, this means that each boat releases an average of 78 L of hydrocarbons into aquatic environments each
year. If that average is still current, we estimate that in 2019 oil losses in the environment via motorboats equaled 150,000 tons of
hydrocarbon scaly leaks in Canada (based on 2 million vessels), 750,000 tons of hydrocarbon scaly leaks in the United States (based on
10 million vessels) and 450,000 tons of hydrocarbon scaly leaks in Europe (based on 6 million vessels).
This
explains why some lakes and bodies of water have recently banned motorboats. The total elimination of gas immediately reduces a very
large source of marine pollution, with immediate results that would impact beaches, swimming and the reduction of BOD (biochemical oxygen
demand) and DCO (direct chemical oxidation) of ambient water. Specifically, hydrocarbons, similar to the dirt that clings to the walls
of a bathtub, contaminate the shores and banks of lakes, rivers and bodies of water, where the development of many living organisms takes
place. The ecosystem is then modified with the scarcity or disappearance of certain species.
In
an effort to tackle air pollution, cities around the world are beginning to ban all gas and diesel fuel powered boats from the center
of the city. One of the first cities to implement this change is Amsterdam, Netherlands. This movement to electrically powered boats
has been implemented in Venice, where the city has restricted the movement of gas and diesel fuel powered boats, while exempting electrically
powered boats.
We
expect that shifting consumer preferences will result in significant growth in the market for electric boats, especially as the demand
for recreational powerboats, in general, remains strong. We estimate many consumers are increasingly willing to consider buying electric-powered
boats due to the environmental and economic consequences of using gasoline-powered vehicles, as demonstrated by the increased sales of
hybrid and electric automobiles in recent years. In its Electric Vehicle Outlook 2021, Bloomberg NEF estimated that there are currently
12 million passenger electric vehicles on the road. The prevalence of electric-powered boats is likely to follow suit. In an August 2020
Boating Industry online article, the marine-focused magazine indicated that electric boat drives represented about 2% of the market,
but hybrid and pure electric boats sales were expected to rise rapidly in the coming years. Specifically, the article cites a report
from independent market research company IDTechEx where it examined the electric boat and ship sector. The report estimates that the
market for hybrid and pure electric boats and ships would be greater than $20 billion worldwide by 2027, finding that recreational boats
is the largest and fastest growing electric marine market in sales number.
Our
initiative into sustainable marine technologies and products is well-timed. The prevalence of batteries necessary to sustain a marine
EV model line is expected to rise and become cheaper. Bloomberg NEF’s Long-Term Electric Vehicle Outlook reports that annual lithium-battery
demand has proliferated in recent years and meeting the demand will require unprecedented but achievable increases in materials, components,
and cell production. Battery production capacity is expanding as more factories are brought online. Moreover, battery technology that
improves power and capacity is being designed, developed, and adopted regularly. According to Bloomberg NEF’s report, it found
that the volume-weighted average price of a lithium-ion battery pack fell 13% from 2019 to $137/kWh (kilowatt-hour) in 2020. The report
estimates the volume-weighted average cost of battery packs will drop below $100/kW in 2024. The Company is establishing itself in the
market at the right time to help keep production costs as low as possible and make our boats affordable for our customers.
9
Table of Contents
Our
Dealer Network
We
primarily sell our gas-powered boats through a network of 19 independent dealers in 23 locations across North America, the Caribbean
(one in the Bahamas, Puerto Rico and Cayman Islands) and Central America (Panama City, Panama). We have dealerships in Cape Canaveral,
Crystal River, Eastpoint, Fort Myers, Islamorada, Palm Bay, Palm Harbor, Palmetto, Pompano Beach and Stuart, Florida. We also have dealerships
in Gulf Shores, Alabama, Norwalk, Connecticut, Vermillion, Ohio, Grasonville, Maryland, Tuckerton, New Jersey, Cedar Point and Goldsboro,
North Carolina, San Juan, Puerto Rico, Murrells Inlet, South Carolina and Freeport, Texas. We are always seeking to recruit and establish
new dealers and distributors domestically and are striving to develop international distribution.
We
establish performance criteria that our dealers must meet in order to be part of our network to ensure our dealer network remains strong,
which include minimum annual purchase orders. As a member of our network, dealers in North America may qualify for floor plan financing
programs, rebates, seasonal discounts, promotional co-op payments and other allowances. We expect this will strengthen our dealers’
ability to sell our products.
Approximately
22% of our dealer locations have been with us, for over ten years. For the year ended December 31, 2021, our top five dealers on a consolidated
basis accounted for approximately 67% of our total units sold and each of those dealers accounted for over ten percent of the units sold.
We
consistently review our distribution network to identify opportunities to expand our geographic footprint and improve our coverage of
the market. We believe that our diverse product offering and strong market position in each region of the United States helped us capitalize
on growth opportunities as our industry recovered from the economic downturn. We have the ability to opportunistically add new dealers
and new dealer locations to previously underserved markets and use data and performance metrics to monitor dealer performance. We believe
our outstanding dealer network allows us to distribute our products more efficiently than our smaller competitors.
We
do not have written agreements with our dealers. Prior to the beginning of each year, we establish a minimum number of units that each
dealer must acquire based upon indications of interest from the dealers. Payment for the units is made by the dealer or a third-party
lender once the boat is manufactured and delivered to the dealer. Dealers are not contractually obligated to purchase any boats. Although
to date most dealers have purchased boats for which they have provided indications of interest, we could experience excess inventory
and costs if a dealer should choose not to purchase a boat for which it has provided an indication of interest.
Floor
Plan Financing
Our
North American dealers often purchase boats through floor plan financing programs with third-party floor plan financing providers. During
the year ended December 31, 2021, all of our North American shipments were made pursuant to floor plan financing programs through which
our dealers participate. These programs allow dealers across our brands to establish lines of credit with third-party lenders to purchase
inventory. Under these programs, a dealer draws on the floor plan facility upon the purchase of our boats and the lender pays the invoice
price of the boats. As is typical in our industry, we have entered into repurchase agreements with certain floor plan financing providers
to our dealers. Under the terms of these arrangements, in the event a lender repossesses a boat from a dealer that has defaulted on its
floor financing arrangement and is able to deliver the repossessed boat to us, we are obligated to repurchase the boat from the lender.
Our obligation to repurchase such repossessed products for the unpaid balance of our original invoice price for the boat is subject to
reduction or limitation based on the age and condition of the boat at the time of repurchase, and in certain cases by an aggregate cap
on repurchase obligations associated with a particular floor financing program.
Our
exposure under repurchase agreements with third-party lenders is mitigated by our ability to reposition inventory with a new dealer in
the event that a repurchase event occurs. The primary cost to us of a repurchase event is any margin loss on the resale of a repurchased
unit. To date, we have not been required to repurchase any boats under repurchase agreements.
10
Table of Contents
Competition
The
powerboat industry, including the performance sport boat category, is highly competitive for consumers and dealers. Competition affects
our ability to succeed in the markets we currently serve and new markets that we may enter in the future. We compete with several large
manufacturers that may have greater financial, marketing and other resources than we do. We compete with large manufacturers who are
represented by dealers in the markets in which we now operate and into which we plan to expand. We also compete with a wide variety of
small, independent manufactures. Competition in our industry is based primarily on brand name, price and product performance.
We
also compete with other leisure activities. Our boats are not necessities and in times of economic hardship, consumers may cease purchasing
non-essential items. Luxury items may not be used for recreational and sport purposes, and demand for our boats may be adversely affected
by competition from other activities that occupy consumers’ leisure time and by changes in consumer lifestyle, usage pattern or
taste.
We
also face competition for employees. Competition for individuals with experience designing, manufacturing and servicing electric boats
is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure
to attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.
Raw
Materials, Principal Suppliers, and Customers
We
purchase a number of our product parts and components from third-party suppliers, including the fiberglass we use to manufacture the
fiberglass parts of our boats, hydrocarbon feedstocks and steel, as well as product parts and components, such as engines and electronic
controls, through a sales order process. The most significant component used in manufacturing our gas-powered boats, based on cost, are
engines. We maintain a strong and long-standing relationship with our sole supplier of engines, Suzuki Motor of America, Inc.
We
do not maintain long-term contracts with preferred suppliers, but instead rely on informal arrangements and off-the-shelf purchases.
Other than the 150-horsepower motors we obtain from Suzuki Motor of America, Inc., which historically have been used in approximately
15% of our boats, we have not experienced any material shortages in any of our product parts, or components. However, as a result of
the COVID-19 pandemic some of our third-party suppliers have experienced delays in delivering our product parts and components in a timely
manner and fluctuations in price for these supplies is a possibility if raw material pricing increases. Temporary shortages, when they
do occur, usually involve manufacturers of these products adjusting model mix, introducing new product lines, or limiting production
in response to an industry-wide reduction in boat demand or, as recently experienced during the COVID-19 pandemic, in finding persons
able to deliver the parts and components in a timely manner. In addition, we have experienced price increases from suppliers resulting
from these supply chain shortages.
Semiconductor
chips are a vital input component to the electrical architecture of our electric boats, controlling wide aspects of the boats’
operations. Many of the key semiconductor chips we intend to use in our boats come from limited or single sources of supply, and therefore
a disruption with any one manufacturer or supplier in our supply chain would have an adverse effect on our ability to effectively manufacture
and timely deliver our boats. We do not have any long-term supply contracts with any suppliers and purchase chips on a purchase order
basis. Due to our reliance on these semiconductor chips, we are subject to the risk of shortages and long lead times in their supply.
We are in the process of identifying alternative manufacturers for semiconductor chips. We have in the past experienced, and may in the
future experience, semiconductor chip shortages, and the availability and cost of these components would be difficult to predict. For
example, our manufacturers may experience temporary or permanent disruptions in their manufacturing operations due to equipment breakdowns,
labor strikes or shortages, natural disasters, component or material shortages, cost increases, acquisitions, insolvency, changes in
legal or regulatory requirements, or other similar problems.
Increased
demand for semiconductor chips in 2020, due in part to the COVID-19 pandemic and increased demand for consumer electronics that use these
chips, has resulted in a severe global shortage of chips in 2021. As a result, our ability to source semiconductor chips to be used in
our boats has been adversely affected. This shortage may result in increased chip delivery lead times, delays in the production of our
boats, and increased costs to source available semiconductor chips. To the extent this semiconductor chip shortage continues, and we
are unable to mitigate the effects of this shortage, our ability to deliver sufficient quantities of our boats to fulfill our preorders
and to support our growth through sales to new customers would be adversely affected.
While
we believe that our relationships with our current suppliers are sufficient to provide the materials necessary to meet present production
demand, we cannot assure you that these relationships will continue or that the quantity or quality of the materials available from these
suppliers will be sufficient to meet our future needs. We expect that our need for raw materials and supplies will increase. Our suppliers
must be prepared to ramp up operations and, in many cases, hire additional workers and/or expand capacity in order to fulfill those orders
placed by us and other customers. Operational and financial difficulties that our suppliers may face in the future could adversely affect
their ability to supply us with the parts and components we need, which could significantly disrupt our operations.
A
few customers have in the past, and may in the future, account for a significant portion of our revenues in any one year or over a period
of several consecutive years. For example, during the year end December 31, 2021 five dealers represented 67% of our sales. The loss
of business from a significant customer could have a material adverse effect on our business, financial condition, results of operations
and cash flows.
11
Table of Contents
Intellectual
Property
We
have not protected our intellectual property rights for our gas-powered motor products through patents or formal copyright registration,
and we do not currently have any patent applications pending related to our gas-powered boats.
As
development of our electric powered boats continues, we are applying for patents. We have filed applications for three design and four
utility patents with the U.S. Patent and Trademark Office relating to, among other things, our propulsion system being developed and
boat design. Below is a list of pending patent applications that Forza X1 is seeking approval from the United States Patent and Trademark
Office. There can be no assurance that any patent will issue or if issued that the patent will protect our intellectual property. As
a result, we may not be able to protect our intellectual property and trade secrets or prevent others from independently developing substantially
equivalent proprietary information and techniques or from otherwise gaining access to our intellectual property or trade secrets. In
such an instance, our competitors could produce products that are nearly identical to ours resulting in us selling less products or generating
less revenue from our sales.
The
following table sets forth certain information regarding our current patent applications:
IDEA
/ CONCEPT NAME
DESCRIPTION
IP
TYPE
App
Number and Filing Date
360
Steering Lower Pod with Disconnect
For
outboard, lower pod steering mechanism using slewing bearing and spur gear mechanism allowing for a full 360-degree rotation. Also features
a pass through the center method for cooling fluid, and an easy way to interchange lower drive units with the fixed upper unit.
Utility
Patent Need to submit full application by March 2022
App
# 63,207,748 FILING DATE 03/18/21
Original
Outboard Cover Design
Original
shape of outboard cover
Design
Patent
App
# 29/818,844 FILING DATE 12/10/21
Unibody
Frame
Shape
of frame that allows vertical mounting of motor and transmission inside the outboard
Design
Patent
App
# 29/818,842 FILING DATE 12/10/21
Outboard
cover design - ALPHA 01 version
Shape
of the updated prototype cover and cowling
Design
Patent
App
# 29/819,262 FILING DATE 12/14/21
Trim
and Tilt with cable routing thru pivot axis
A
trim and tilt assembly that routes cables through the pivot axis which protects cables, keeps the bundle from excessive bending and results
in a cleaner design
Utility
Patent
App
# 63,287,740 FILING DATE 12/09/21
Jet
Drive Lower Unit for an Electric Outboard
The
design of the lower jet drive as it is configured for the integration with the electric outboard
Utility
Patent
App
# 63,293,420 FILING DATE 12/23/21
Closed
Loop Heat Exchanger Integrated in a Lower Drive Unit
Integrate
a cooling radiator inside of the lower drive propeller or jet drive unit itself. Simplify the cooling circuit by eliminating the need
for a raw sea water intake.
Utility
Patent
App
# 63,297,013 FILING DATE 1/06/22
12
Table of Contents
Insurance
and Product Warranties
We
carry various insurance policies, including policies to cover general products liability, directors and officers, workers’ compensation
and other casualty and property risks, to protect against certain risks of loss consistent with the exposures associated with the nature
and scope of our operations. Our policies are generally based on our safety record as well as market trends in the insurance industry
and are subject to certain deductibles, limits and policy terms and conditions.
We
provide limited product warranties, generally covering periods of ten years for the hull and the motors are under warranty by their manufacturer.
In
addition, we provide a three-year limited fiberglass small parts warranty on some small fiberglass parts and components, such as consoles.
Gelcoat is covered up to one year. Additionally, fiberglass lids, plastic lids, electrical panels, bilge pumps, aerator pumps or other
electrical devices (excluding stereos, depth finders, radar, chart plotters except for installation if installed by Twin Vee PowerCats
Co.), steering systems, electrical panels, and pumps are covered under a one-year basic limited systems warranty. Some materials, components
or parts of the boat that are not covered by our limited product warranties are separately warranted by their manufacturers or suppliers.
These other warranties include warranties covering engines purchased from suppliers and other components.
Environmental,
Safety and Regulatory Matters
Certain
materials used in our manufacturing, including the resins used in production of our boats, are toxic, flammable, corrosive or reactive
and are classified by the federal and state governments as “hazardous materials.” Control of these substances is regulated
by the Environmental Protection Agency (the “EPA”) and state pollution control agencies. The United States Clean Air Act
(the “CAA”) and corresponding state and provincial rules regulate emissions of air pollutants. The Occupational Safety and
Health Administration (“OSHA”) standards limit the emissions to which an employee may be exposed without the need for respiratory
protection or upgraded plant ventilation. Our facilities are regularly inspected by OSHA and by state and local inspection agencies and
departments. We believe that our facility complies in all material aspects with these regulations. Although capital expenditures related
to compliance with environmental laws are expected to increase, we do not currently anticipate any material expenditure will be required
to continue to comply with existing environmental or safety regulations in connection with our existing manufacturing facilities.
Powerboats
sold in the United States must be manufactured to meet the standards of certification required by the United States Coast Guard. In addition,
boats manufactured for sale in the European Community must be certified to meet the European Community’s imported manufactured
products standards. These certifications specify standards for the design and construction of powerboats. We believe that all of our
boats meet these standards. In addition, safety of recreational boats is subject to federal regulation under the Boat Safety Act of 1971,
which requires boat manufacturers to recall products for replacement of parts or components that have demonstrated defects affecting
safety. We have instituted recalls for defective component parts produced by certain of our third-party suppliers. None of the recalls
has had a material adverse effect on our company.
In
addition to the regulation of our manufacturing operations, the EPA has adopted regulations stipulating that many marine propulsion engines
meet certain air emission standards. The engines used in our products, all of which are manufactured by third parties, are warranted
by the manufacturers to be in compliance with the EPA’s emission standards. Furthermore, the engines used in our products must
comply with the applicable emission standards under the CEPA and corresponding provincial legislation. The additional cost of complying
with these regulations has increased our cost to purchase the engines and, accordingly, has increased the cost to manufacture our products.
If
we are not able to pass these additional costs along to our customers, it may have a negative impact on our business and financial condition.
13
Table of Contents
Employees/Human
Capital
As
of December 31, 2021, we employed approximately 120 employees in our gas-powered boat segment, all of whom are full time employees. As
of the same date, we had two full time employees in our franchise segment and Forza has five full time employees working on electric-powered
boats. None of our employees are represented by a labor union and, since our founding in 1982, we have never experienced a labor-related
work stoppage.
Competitive
Pay and Benefits
Our
compensation programs are designed to align the compensation of our employees with our performance and to provide the proper incentives
to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive
earnings for both short-term and long-term performance. Specifically:
●
we
provide employee wages and benefits that are competitive and consistent with employee positions, skill levels, experience, knowledge
and geographic location;
●
we
align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with
stock performance; and
●
all
employees are eligible for health insurance, paid and unpaid leaves, a retirement plan and life and disability/accident erage.
Health
and Safety
The
health and safety of our employees is our highest priority, and this is consistent with our operating philosophy. Accordingly, with the
global spread of the ongoing novel coronavirus pandemic, we have implemented plans designed to address and mitigate the impact of the
COVID-19 pandemic on the safety of our employees and our business, which include:
●
adding
work from home flexibility;
●
adjusting
attendance policies to encourage those who are sick to stay home;
●
increasing
cleaning protocols across all locations; and
●
initiating
regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures.
14
Table of Contents
Impact
of the COVID-19 Pandemic on Our Operations
The
COVID-19 pandemic outbreak has offered challenges for all commercial enterprises. According to a Small Business Pulse Survey, 89.9% of
businesses reported a moderate to large negative effect from COVID-19 on their business in April 2020, only reducing to approximately
75% in November 2020. Imposed restrictions, such as social distancing, regular temperature checks, enhanced cleaning measures, and the
use of personal protective equipment placed on workplaces to increase the safety of employees was something many companies have never
had to face before. Some companies and even entire industries have had to shut down due to COVID-19. Moreover, the potential collapse
of demand from consumers is an ever-present concern right now with high unemployment rates and the unpredictable nature of living during
a global pandemic.
We
have adapted to these unprecedented times and believe we have successfully navigated the issues presented to our business by the global
pandemic. Although sales decreased at the beginning of the summer and we had reduced staffing, we have operated with a full-time staff
since the middle of the summer. The demand for our Classic and GFX models have been robust, our backlog is over 125 boats. Orders currently
being placed for our boats are being scheduled for delivery into Q4 of 2022. With the influx of orders, we continue to hire seasoned
and experienced production team members with years of production and scheduling experience, the team is aiding our efforts to streamline
our manufacturing process.
Corporate
Information
Our
principal executive office is located at 3101 S. US-1, Ft. Pierce, Florida 34982 and our telephone number is (772) 429-2525. We maintain
our corporate website at www.twinvee.com. The reference to our website is an inactive textual reference only, the information that can
be accessed through our website is not part of this Annual Report, and investors should not rely on any such information in deciding
whether to purchase our common stock.
We
were incorporated in the State of Florida as Twin Vee Catamarans, Inc. on December 1, 2009 and reincorporated in Delaware on April 7,
2021. Our parent company was incorporated as ValueRich, Inc. (“ValueRich”) under the laws of the state of Florida on July
11, 2003 and reincorporated in Delaware on March 3, 2006. On February 17, 2015 ValueRich consummated the acquisition of Twin Vee Catamarans,
Inc. On April 26, 2016, ValueRich changed its name and began operating under the name Twin Vee PowerCats, Inc.
Forza
X1, Inc. was initially incorporated as Electra Power Sports, Inc. on October 15, 2021, which name was subsequently changed to Forza X1,
Inc. on October 29, 2021. Prior to Forza’s incorporation on October 15, 2021, the electric boat business was operated as our Electra
Power Sports™ Division. Following our initial public offering that closed on July 23, 2021 (the “IPO”), we determined
in October 2021 that for several reasons, that we would market our new independent line of electric boats under a new brand name (and
new subsidiary).
Fix
My Boat, Inc. was incorporated on September 21, 2021 in Delaware.
Implications
of Being an Emerging Growth Company
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and therefore we intend to take advantage of certain exemptions from various public company reporting requirements, including not being
required to have our internal controls over financial reporting audited by our independent registered public accounting firm pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote
on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an “emerging
growth company.” In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised
accounting standards until such time as those standards apply to private companies. We have elected to use the extended transition period
for complying with new or revised accounting standards under the JOBS Act. This election allows us to delay the adoption of new or revised
accounting standards that have different effective dates for public and private companies until those standards apply to private companies.
As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an “emerging growth company” until the earlier of (1) the last day of the fiscal year: (a) following the fifth
anniversary of the completion of our initial public offering; (b) in which we have total annual gross revenue of at least $1.07 billion;
or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates
exceeded $700.0 million as of the prior June 30 th , and (2) the date on which we have issued more than $1.0 billion in non-convertible
debt during the prior three-year period. References herein to “emerging growth company” have the meaning associated with
that term in the JOBS Act.
15
Table of Contents