Twin Vee PowerCats, Co. 10-Q

ITEM 1. FINANCIAL STATEMENTS TWIN VEE POWERCATS CO, INC. (F/K/A TWIN VEE CATAMARANS, INC.) CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 2022 2021 ASSETS Current Assets Cash and cash equivalents $ 5,910,533 $ 6,975,302 Accounts receivable — 5,137 Marketable securities 997,925 2,996,960 Inventories 4,369,549 1,799,769 Deferred offering costs 247,129 105,500 Due from affiliated companies 286,922 286,922 Prepaid expenses and other current assets 508,203 903,756 Total Current Assets 12,320,261 13,073,346 Marketable securities - non current 2,951,005 3,067,137 Property and equipment, net 4,362,758 2,883,171 Operating lease right of use asset 1,360,883 1,550,530 Security deposit 25,000 25,000 Total Assets $ 21,019,907 $ 20,599,184 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 2,262,434 $ 1,200,861 Accrued liabilities 683,351 456,814 Contract liability 532,127 14,100 Due to affiliated companies 115,043 115,043 Operating lease right of use liability 382,922 368,602 Total Current Liabilities 3,975,877 2,155,420 Economic Injury Disaster Loan 499,900 499,900 Operating lease liability - noncurrent 1,047,806 1,244,164 Total Liabilities 5,523,583 3,899,484 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock: 10,000,000 authorized; $ 0.001 par value; no shares issued and outstanding — — Common stock: 50,000,000 authorized; $ 0.001 par value; 7,000,000 shares issued and outstanding 7,000 7,000 Additional paid-in capital 19,236,979 18,710,256 Accumulated deficit ( 3,747,655 ) ( 2,017,556 ) Total stockholders’ equity 15,496,324 16,699,700 Total liabilities and stockholders’ equity $ 21,019,907 $ 20,599,184 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 TWIN VEE POWERCATS CO, INC. (F/K/A TWIN VEE CATAMARANS, INC.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Net sales $ 8,519,613 $ 3,297,571 $ 14,405,613 $ 6,505,214 Cost of products sold 5,072,401 1,981,427 8,524,047 3,701,164 Gross profit 3,447,212 1,316,144 5,881,566 2,804,050 Operating expenses: Selling, general and administrative 637,744 278,176 1,320,065 577,601 Salaries and wages 2,793,281 1,047,244 5,047,091 1,975,414 Professional fees 193,542 53,182 438,281 112,208 Depreciation 119,817 54,475 199,909 100,998 Research and design 174,807 — 396,352 — Total operating expenses 3,919,191 1,433,077 7,401,698 2,766,221 (Loss) Income from operations ( 471,979 ) ( 116,933 ) ( 1,520,132 ) 37,829 Other (expense) income: Other income 2,632 — 3,230 — Interest expense ( 43,716 ) ( 17,441 ) ( 83,556 ) ( 35,153 ) Interest income 32,901 — 32,925 — Loss on disposal of assets ( 31,582 ) ( 249,499 ) ( 49,990 ) ( 254,600 ) Gain from insurance recovery — 434,724 — 434,724 Net change in fair value of marketable securities ( 27,038 ) — ( 112,576 ) — Total other (expenses) income ( 66,803 ) 167,784 ( 209,967 ) 144,971 Net (loss) income $ ( 538,782 ) $ 50,851 $ ( 1,730,099 ) $ 182,800 Basic and dilutive (loss) income per share of common stock $ ( 0.08 ) $ 0.01 $ ( 0.25 ) $ 0.05 Weighted average number of shares of common stock outstanding 7,000,000 4,000,000 7,000,000 4,000,000 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 5 TWIN VEE POWERCATS CO, INC. (F/K/A TWIN VEE CATAMARANS, INC.) CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) For the Three and Six Months ended June 30, 2021 Additional Total Preferred Stock Common Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2020 — $ — 4,000,000 $ 4,000 $ 2,551,387 $ ( 1,006,547 ) $ 1,548,840 Net income — — — — — 131,949 131,949 Balance at March 31, 2021 — $ — 4,000,000 $ 4,000 $ 2,551,387 $ ( 874,598 ) $ 1,680,789 Net income — — — — — 50,851 50,851 Balance at June 30, 2021 — $ — 4,000,000 $ 4,000 $ 2,551,387 $ ( 823,747 ) $ 1,731,640 For the Three and Six Months ended June 30, 2022 Additional Total Preferred Stock Common Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2021 — $ — 7,000,000 $ 7,000 $ 18,710,256 $ ( 2,017,556 ) $ 16,699,700 Stock-based compensation — — — — 224,832 — 224,832 Net loss — — — — — ( 1,191,317 ) ( 1,191,317 ) Balance at March 31, 2022 — $ — 7,000,000 $ 7,000 $ 18,935,088 $ ( 3,208,873 ) $ 15,733,215 Stock-based compensation — — — — 301,891 — 301,891 Net loss — — — — — ( 538,782 ) ( 538,782 ) Balance at June 30, 2022 — $ — 7,000,000 $ 7,000 $ 19,236,979 $ ( 3,747,655 ) $ 15,496,324 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 TWIN VEE POWERCATS CO, INC. (F/K/A TWIN VEE CATAMARANS, INC.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months Ended June 30, 2022 2021 Cash Flows From Operating Activities Net (loss) income $ ( 1,730,099 ) $ 182,800 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Stock based compensation 526,723 — Depreciation and amortization 199,909 100,998 Loss on disposal of asset 49,990 224,037 Change of right-of-use asset and lease liabilities 189,647 192,531 Net change in fair value of marketable securities 112,576 — Changes in operating assets and liabilities: Accounts receivable 5,137 ( 20,540 ) Inventories ( 2,569,780 ) ( 602,838 ) Prepaid expenses and other current assets 395,553 ( 438,892 ) Accounts payable 1,061,573 390,867 Accrued liabilities 226,537 ( 28,928 ) Operating lease liabilities ( 182,038 ) ( 177,184 ) Contract liabilities 518,027 182,194 Net cash (used in) provided by operating activities ( 1,196,245 ) 5,045 Cash Flows From Investing Activities Net sale of investment in trading marketable securities 2,002,591 — Proceeds from sale of property and equipment 80,000 — Purchase of property and equipment ( 1,809,486 ) ( 604,990 ) Net cash provided by (used in) investing activities 273,105 ( 604,990 ) Cash Flows From Financing Activities Deferred offering costs ( 141,629 ) ( 206,293 ) Proceeds from Paycheck Protection Program loan — 608,224 Advances from related parties — 24,300 Repayment to related parties — ( 311,460 ) Net cash (used in) provided by financing activities ( 141,629 ) 114,771 Net change in cash and cash equivalents ( 1,064,769 ) ( 485,174 ) Cash at beginning of period 6,975,302 891,816 Cash and cash equivalents at end of period $ 5,910,533 $ 406,642 Supplemental Cash Flow Information Cash paid for income taxes $ — $ — Cash paid for interest $ 73,471 $ 97,470 Non Cash Investing and Financing Activities Increase in the right-of-use asset and lease liability $ — $ 655,726 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 7 TWIN VEE POWERCATS CO. (F/K/A TWIN VEE CATAMARANS, INC.) NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2022 1. Organization and Summary of Significant Accounting Policies Organization Twin Vee PowerCats Co. (“Twin Vee”) was incorporated as Twin Vee Catamarans, Inc., in the state of Florida, on December 1, 2009. On April 7, 2021, the Company filed a Certificate of Conversion to register and incorporate in the state of Delaware and changed the company name to Twin Vee PowerCats Co. The Certificate of Incorporation for Twin Vee PowerCats Co. was also filed on April 7, 2021. On September 1, 2021, the Company formed Fix My Boat, Inc., (“Fix My Boat”), a wholly-owned subsidiary. Fix My Boat will utilize a franchise model for marine mechanics across the country. On October 15, 2021, the Company formed Electra Power Sports, Inc., a wholly-owned subsidiary. Electra Power Sports, Inc. subsequently changed its name to Forza X1, Inc. on October 29, 2021. Principles of Consolidation The consolidated financial statements include the accounts of Twin Vee and its wholly owned subsidiaries Fix My Boat, Inc., (“Fix My Boat”) and Forza X1, Inc. (“Forza X1” “Forza), collectively referred to as the “Company”. All inter-company balances and transactions are eliminated in consolidation. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2022 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended June 30, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on June 30, 2022. 8 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. On June 30, 2022 and December 31, 2021, the Company had cash and cash equivalents of $ 5,910,533 and $ 6,975,302 , respectively. Concentrations of Credit and Business Risk Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of trade receivables. Credit risk on trade receivables is mitigated as a result of the Company’s use of trade letters of credit, dealer floor plan financing arrangements, and the geographically diversified nature of the Company’s customer base. The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $ 250,000 are at risk. As of June 30, 2022 and December 31, 2021, the Company had $ 4,850,528 and $ 6,725,302 , respectively, in excess of FDIC insured limits. Marketable Securities Our investments in debt securities are carried at either amortized cost or fair value. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading debt securities as well as realized gains and losses on available-for-sale debt securities are included in net income. Revenue Recognition The Company’s revenue is derived primarily from the sale of boats, motors and trailers to its independent dealers. The Company recognizes revenue when obligations under the terms of a contract are satisfied and control over promised goods is transferred to the dealer. For the majority of sales, this occurs when the product is released to the carrier responsible for transporting it to a dealer. The Company typically receives payment within five business days of shipment. Revenue is measured as the amount of consideration it expects to receive in exchange for a product. The Company offers dealer incentives that include wholesale rebates, retail rebates and promotions, floor plan reimbursement or cash discounts, and other allowances that are recorded as reductions of revenues in net sales in the statements of operations. The consideration recognized represents the amount specified in a contract with a customer, net of estimated incentives the Company reasonably expects to pay. The estimated liability and reduction in revenue for dealer incentives is recorded at the time of sale. Subsequent adjustments to incentive estimates are possible because actual results may differ from these estimates if conditions dictate the need to enhance or reduce sales promotion and incentive programs or if dealer achievement or other items vary from historical trends. Accrued dealer incentives are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets. 9 Payment received for the future sale of a boat to a customer is recognized as a customer deposit, which is included in contract liabilities on the consolidated balance sheet. Customer deposits are recognized as revenue when control over promised goods is transferred to the customer. At June 30, 2022 and December 31, 2021, the Company had customer deposits of $ 532,127 and $ 14,100 , respectively, which is recorded as contract liabilities. These deposits are expected to be recognized as revenue within a one-year period. Rebates and Discounts Dealers earn wholesale rebates based on purchase volume commitments and achievement of certain performance metrics. The Company estimates the amount of wholesale rebates based on historical achievement, forecasted volume, and assumptions regarding dealer behavior. Rebates that apply to boats already in dealer inventory are referred to as retail rebates. The Company estimates the amount of retail rebates based on historical data for specific boat models adjusted for forecasted sales volume, product mix, dealer and consumer behavior, and assumptions concerning market conditions. The Company also utilizes various programs whereby it offers cash discounts or agrees to reimburse its dealers for certain floor plan interest costs incurred by dealers for limited periods of time, generally ranging up to nine months. Other Revenue Recognition Matters Dealers generally have no right to return unsold boats. Occasionally, the Company may accept returns in limited circumstances and at the Company’s discretion under its warranty policy. The Company may be obligated, in the event of default by a dealer, to accept returns of unsold boats under its repurchase commitment to floor financing providers, who are able to obtain such boats through foreclosure. The repurchase commitment is on an individual unit basis with a term from the date it is financed by the lending institution through the payment date by the dealer, generally not exceeding 30 months. The Company has excluded sales and other taxes assessed by a governmental authority in connection with revenue-producing activities from the determination of the transaction price for all contracts. The Company has not adjusted net sales for the effects of a significant financing component because the period between the transfer of the promised goods and the customer’s payment is expected to be one year or less. Supplier Concentrations The Company is dependent on the ability of its suppliers to provide products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Company. Business risk insurance is in place to mitigate the business risk associated with sole suppliers for sudden disruptions such as those caused by natural disasters. The Company is dependent on third-party equipment manufacturers, distributors, and dealers for certain parts and materials utilized in the manufacturing process. During the six months ended June 30, 2022, the Company purchased all engines for its boats under a supply agreement with a single vendor. For the six months ended June 30, 2022 and 2021, total purchases to this vendor were $ 2,702,733 and $ 1,285,116 , respectively. 10 2. Marketable securities Assets and liabilities measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of June 30, 2022 and December 31, 2021 are as follows: Schedule of Fair value Marketable Securities Fair Value Measurements Using Balance as of June 30, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Marketable securities: Corporate bonds $ 3,453,873 $ — $ 3,453,873 Certificates of Deposits 495,057 — 495,057 Total marketable securities $ 3,948,930 $ — $ 3,948,930 Fair Value Measurements Using Balance as of December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Marketable securities: Corporate bonds $ 5,549,670 $ — $ 5,549,670 Certificates of Deposits 514,427 — 514,427 Total marketable securities $ 6,064,097 $ — $ 6,064,097 The Company’s investments in US government bonds are measured based on publicly available quoted market prices for identical securities as of June 30, 2022 and December 31, 2021. The Company’s investments in corporate bonds, commercial paper and certificated of deposits are measured based on quotes from market makers for similar items in active markets. 11 3. Inventories At June 30, 2022 and December 31, 2021 inventories consisted of the following: Schedule of Inventories June 30, December 31, 2022 2021 Raw Materials $ 3,997,257 $ 1,518,947 Work in Process 372,292 240,256 Finished Product — 40,566 Total Inventory $ 4,369,549 $ 1,799,769 4. Property and Equipment At June 30, 2022 and December 31, 2021, property and equipment consisted of the following: Schedule of property and equipment June 30, December 31, 2022 2021 Machinery and equipment $ 1,775,241 $ 1,343,797 Furniture and fixtures 9,636 1,850 Leasehold improvements 901,107 786,199 Software and website development 147,334 113,120 Computer hardware and software 94,009 76,598 Boat molds 1,854,833 778,229 Vehicles 95,536 101,984 Electric prototypes and tooling 142,526 142,526 5,020,222 3,344,303 Less accumulated depreciation and amortization ( 657,464 ) ( 461,132 ) Total Property and Equipment $ 4,362,758 $ 2,883,171 Depreciation and amortization expense of property and equipment for the six months ended June 30, 2022 and 2021 is $ 199,909 and $ 100,998 , respectively. 5. Leases – Related Party Operating right of use (“ROU”) assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating right of use assets represent our right to use an underlying asset and is based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. We used the U.S. Treasury rate of 0.36 % at June 30, 2022 and December 31, 2021. The Company’s office lease contains rent escalations over the lease term. The Company recognizes expense for this office lease on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. 12 The Company leases its office and warehouse facilities, and the land which are located at 3101 S US-1, Fort Pierce, Florida (the “Property”) from Visconti Holdings, LLC. Visconti Holdings, LLC is a single member LLC that holds the ownership of the property, and its sole member is Joseph C. Visconti, the CEO of the Company and the CEO and majority shareholder of the Company’s parent company. The Company entered into the lease on January 1, 2020, and as amended January 1, 2021, the lease has a term of five 5 years. The current base rent payment is $ 30,000 per month including property taxes and the lease required a $ 25,000 security deposit. The base rent will increase five percent (5%) on the anniversary of each annual term. At June 30, 2022 and December 31, 2021, supplemental balance sheet information related to leases were as follows: Schedule of leases supplemental balance sheet information June 30, December 31, 2022 2021 Operating lease ROU asset $ 1,360,883 $ 1,550,530 June 30, December 31, 2022 2021 Operating lease liabilities: Current portion $ 382,922 $ 368,602 Non-current portion 1,047,806 1,244,164 Total $ 1,430,728 $ 1,612,766 At June 30, 2022, future minimum lease payments under the non-cancelable operating leases are as follows: Schedule of maturities of lease liabilities Year Ending December 31, 2022 (excluding the six months ended June 30, 2022) $ 189,000 2023 396,900 2024 416,745 2025 437,582 Total lease payment 1,440,227 Less imputed interest ( 9,499 ) Total $ 1,430,728 The following summarizes other supplemental information about the Company’s operating lease: Schedule of operating lease cost June 30, 2022 Weighted average discount rate 0.36 % Weighted average remaining lease term (years) 3.42 13 Six Months Ended June 30, 2022 2021 Operating lease cost $ 195,348 $ 195,348 Total lease cost $ 195,348 $ 195,348 6. Accrued Liabilities At June 30, 2022 and December 31, 2021, accrued liabilities consisted of the following: Accrued Liabilities June 30, December 31, 2022 2021 Accrued wages and benefits $ 319,619 $ 185,402 Accrued bonus 84,976 30,000 Accrued warranty 92,990 75,000 Accrued rebates — 60,000 Accrued interest 43,938 33,852 Accrued professional fees 81,800 10,225 Accrued operating expense 60,028 62,335 Total $ 683,351 $ 456,814 7. Notes Payable – SBA EIDL Loan On April 22, 2020, the Company received an SBA Economic Injury Disaster Loan (“EIDL”) in the amount of $ 499,900 . The loan is in response to the COVID - 19 pandemic. The loan is a 30 -year loan with an interest rate of 3.75 %, monthly payments of $ 2,437 to begin October 22, 2022, under the EIDL program, which is administered through the SBA. Under the guidelines of the EIDL, the maximum term is 30 years; however, terms are determined on a case-by-case basis based on each borrower’s ability to repay and carry an interest rate of 3.75%. The EIDL loan has an initial deferment period wherein no payments are due for thirty months from the date of disbursement. The EIDL loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from this loan must be used solely as working capital to alleviate economic injury caused by the COVID-19 pandemic. As part of the EIDL loan, the Company granted the SBA a continuing security interest in and to any and all collateral to secure payment and performance of all debts, liabilities and obligations of the Company to the SBA under the EIDL loan. The collateral includes substantially all tangible and intangible personal property of the Company. A summary of the minimum maturities of term debt follows for the years set forth below. 14 Schedule of Minimum Maturities Year 2022 $ 2,171 2023 8,892 2024 9,231 2025 9,583 2026 and thereafter 470,023 Total $ 499,900 8. Related Party Transactions As discussed in note 5, the Company has leased its facilities from a company owned by its CEO. During the six months ended June 30, 2022, and 2021, the Company received cash of $ 0 and $ 24,300 from its affiliate companies and paid $ 0 and $ 311,460 to its affiliate companies, respectively. During the six months ended June 30, 2022, and 2021, the Company recorded management fees of $ 27,000 and $ 21,000 , respectively, paid to its shareholder parent company. During the year ended December 31 2021, the Company paid bills on behalf of our parent company. At June 30, 2022 and December 31, 2021, due from affiliated companies was $ 286,622 . During the year ended December 31, 2021, our parent company funded certain expenditures which resulted in advances from affiliated companies. At June 30, 2022 and December 31, 2021, advances from affiliated companies included in due to affiliated companies was $ 115,043 . Approximately $ 93,000 of the balance is related to an equipment purchase, the remaining balance was related to startup costs for our franchise business. During the six months ended June 30,2022, Twin Vee received a monthly fee of $ 5,850 to provide management services and facility utilization to Forza. This income for Twin Vee, and expense for Forza, has been eliminated in the condensed consolidated financial statements. 9. Commitments and Contingencies Repurchase Obligations Under certain conditions, the Company is obligated to repurchase new inventory repossessed from dealerships by financial institutions that provide credit to the Company’s dealers. The maximum obligation of the Company under such floor plan agreements totaled approximately $ 6,922,000 or 39 units, and $ 4,273,000 or 24 units, as of June 30, 2022, and December 31, 2021, respectively. The Company incurred no impact from repurchase events during the six months ended June 30, 2022 and year ended December 31, 2021. Litigation The Company is currently involved in various civil litigation in the normal course of business none of which is considered material. 15 10. Stockholder’s Equity Common Stock Warrants As of June 30, 2022, the Company had outstanding warrants to purchase 150,000 shares of common stock issuable at a weighted-average exercise price of $ 7.50 per share that were issued to the representative of the underwriters on July 23, 2021 in connection with the Company’s initial public offering that closed on July 23, 2021 (the “IPO”). The representative’s warrants are exercisable at any time and from time to time, in whole or in part, and expire on July 20, 2026. There was no warrant activity during the six months ended June 30, 2022. Equity Compensation Plan The Company maintains an equity compensation plan (the “Plan’) under which it may award employees, directors and consultants’ incentive and non-qualified stock options, restricted stock, stock appreciation rights and other stock-based awards with terms established by the Compensation Committee of the Board of Directors which has been appointed by the Board of Directors to administer the plan. The number of awards under the Plan automatically increased on January 1, 2022. As of June 30, 2022, there were 377,090 shares remaining available for grant under this plan. Accounting for Stock -Based Compensation Stock Compensation Expense - For the six months ended June 30, 2022 and 2021, the Company recorded $ 526,723 and $ 0 , respectively, of stock-based compensation expense. Stock Options . Under the Company’s 2021 Stock Incentive Plan the Company has issued stock options. A stock option grant gives the holder the right, but not the obligation to purchase a certain number of shares at a predetermined price for a specific period of time. The Company typically issues options that vest pro rata on a monthly basis over various periods. Under the terms of the Plan, the contractual life of the option grants may not exceed ten years. The Company utilizes the Black-Scholes model to determine fair value of stock option awards on the date of grant. The Company utilized the following assumptions for option grants during the six months ended June 30, 2022: Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions Six months Ended June 30, 2022 Expected term 5 years Expected average volatility 49 - 50 % Expected dividend yield — Risk-free interest rate 1.50 – 2.66 % 16 The expected volatility of the option is determined using historical volatilities based on historical stock price of comparable boat manufacturing companies. The Company estimated the expected life of the options granted based upon historical weighted average of comparable boat manufacturing companies. The risk-free interest rate is determined using the U.S. Department of the Treasury yield curve rates with a remaining term equal to the expected life of the option. The Company has never paid a dividend, and as such the dividend yield is 0.0 % Schedule of Expected Volatility Of Option Options Outstanding Weighted Average Number of Weighted Average Remaining life Options Exercise Price (years) Outstanding, December 31, 2021 713,612 $ 5.13 9.54 Granted 272,000 3.86 10.00 Exercised — — Forfeited/canceled ( 3,657 ) ( 4.10 ) ( 9.32 ) Outstanding, June 30, 2022 981,955 $ 4.82 9.18 Exercisable options, June 30, 2022 328,573 $ 4.93 9.21 At June 30, 2022, 663,427 options are unvested and expected to vest over the next five years. 11. Major Customers During the six months ended June 30, 2022, three individual customers had sales of over 10% of our total sales, and combined these three customers represented 46 % of total sales. During the six months end June 30, 2021, five individual customers had sales of over 10% of our total sales, and combined these five customers represented 64 % of total sales. 12. Net (Loss) Income Per Share Basic net loss per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted net loss per share of common stock has been computed on the basis of the weighted average number of shares outstanding plus equivalent shares of common stock assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that share or decrease loss per share) are excluded from the calculation of diluted net loss per share of common stock. 17 Basic and diluted loss per common share have been computed based on the following for the periods ending June 30, 2022 and June 30, 2021: Schedule of Basic and diluted loss June 30, June 30, 2022 2021 Numerator for basic and diluted net (loss) income per share: Net (loss) income $ ( 1,730,099 ) $ 182,800 Denominator: For basic net (loss) income per share - weighted average common shares outstanding 7,000,000 4,000,000 Effect of dilutive stock options — — For diluted net (loss) income per share - weighted average common shares outstanding 7,000,000 4,000,000 Net (loss) income per share -Basic: Net (loss) income per share $ ( 0.25 ) $ 0.05 Net (loss) income per share - Diluted: Net (loss) income per share $ ( 0.25 ) $ 0.0 5 For the periods ending June 30, 2022 and June 30, 2021, all potentially dilutive securities were antidilutive. 13. Segment The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company reported its financial performance based on the following segments: Gas-powered Boats, Franchise and Electric Boats. The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for business segments are generally based on the sale of boats and the sale of franchises. Operating income (loss) for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Operating income for each segment excludes other income and expense. The Company does not include intercompany transfers between segments for management reporting purposes. 18 The following table shows information by reportable segments for the three and six months ended June 30, 2022 and 2021: Reconciliation of Operating Profit (Loss) from Segments to Consolidated For the Three Months Ended June 30, 2022 Gas-Powered Boats Franchise Electric Boat and Development Total Net sales $ 8,519,613 $ — $ — $ 8,519,613 Cost of products sold 5,059,389 — 13,012 5,072,401 Operating expense 3,356,381 7,723 555,087 3,919,191 (Loss) Income from operations 103,843 ( 7,723 ) ( 568,099 ) ( 471,979 ) Total Other (expenses) income ( 31,089 ) ( 3,882 ) ( 31,832 ) ( 66,803 ) Net income (loss) $ 72,754 $ ( 11,605 ) $ ( 599,931 ) $ ( 538,782 ) For the Three Months Ended June 30, 2021 Gas-Powered Boats Franchise Electric Boat and Development Total Net sales $ 3,297,571 $ — $ — $ 3,297,571 Cost of products sold 1,981,427 — — 1,981,427 Operating expense 1,415,527 — 17,550 1,433,077 Income from operations ( 99,383 ) — ( 17,550 ) ( 116,933 ) Other income 231,590 — ( 63,806 ) 167,784 Net income (loss) $ 132,207 $ — $ ( 81,356 ) $ 50,851 For the Six Months Ended June 30, 2022 Gas-Powered Boats Franchise Electric Boat and Development Total Net sales $ 14,406,645 $ ( 1,032 ) $ — $ 14,405,613 Cost of products sold 8,498,930 1,027 24,090 8,524,047 Operating expense 6,309,997 33,978 1,057,723 7,401,698 Income from operations ( 402,282 ) ( 36,037 ) ( 1,081,813 ) ( 1,520,132 ) Other loss ( 151,442 ) ( 26,116 ) ( 32,409 ) ( 209,967 ) Net loss $ ( 553,724 ) $ ( 62,153 ) $ ( 1,114,222 ) $ ( 1,730,099 ) 19 For the Six Months Ended June 30, 2021 Gas-Powered Boats Franchise Electric Boat and Development Total Net sales $ 6,505,214 $ — $ — $ 6,505,214 Cost of products sold 3,701,164 — — 3,701,164 Operating expense 2,731,121 — 35,100 2,766,221 Income from operations 72,929 — ( 35,100 ) 37,829 Other income 210,419 — ( 65,448 ) 144,971 Net income (loss) $ 283,348 $ — $ ( 100,548 ) $ 182,800 Property and equipment, net classified by business were as follows: Schedule of Segment Reporting Information, by Segment June 30, December 31, 2022 2021 Gas-Powered Boats $ 3,984,376 $ 2,547,410 Franchise $ — $ 100,196 Electric-Boats $ 378,382 $ 235,565 14. Subsequent Events The Company has evaluated all event or transactions that occurred after June 30,2022 through August 10, 2022, which is the date that the condensed consolidated financial statements were available to be issued. During this period, there were no material subsequent events requiring recognition or disclosure, other than the ones described below. On July 28, 2022, Forza X1 received notice that the North Carolina Economic investment committee has approved a Job Development Investment Grant (“JDIG”) providing for reimbursement to us of up to $ 1,367,100 over a twelve-year period of expenses we incur to establish a new manufacturing plant in McDowell County, North Carolina. The receipt of grant funding is conditioned upon Forza X1 investing over $ 10.5 million in land, buildings and fixtures, infrastructure and machinery and equipment by the end of 2025 and Forza X1 creating as many as 170 jobs. There can be no assurance that Forza X1 will meet the conditions necessary to receive the grant funding. Forza X1 is currently in negotiations for a new site to build the Forza factory in North Carolina. There can be no assurance that the negotiations will be successful. On August 11, 2022, Forza X1 announced the pricing of its initial public offering of 3,000,000 shares of its common stock at a public offering price of $ 5.00 per share, for aggregate gross proceeds of $ 15,000,000 prior to deducting underwriting discounts and other offering expenses. In addition, Forza X1 has granted the underwriters a 45-day option to purchase up to an additional 450,000 shares of common stock at the public offering price less discounts, to cover over-allotments. The initial public offering is scheduled to close on August 16, 2022, subject to customary closing conditions. 20