Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
The following discussion, which focuses on our results
of operations, contains forward-looking information and statements. Actual events or results may differ materially from those indicated
or anticipated, as discussed in the section entitled “Forward Looking Statements.” The following discussion of our financial
condition and results of operations should also be read in conjunction with our financial statements and notes to financial statements
contained elsewhere in this Annual Report.
Company 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 19 gas-powered models in production ranging in size from our 22-foot monohull 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. We have additionally, launched the AquaSport line
of monohull boats which are expected to appeal to first-time boat buyers,
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the freshwater market, and consumers that prefer a monohull
boat, increasing our potential customer base across the nation and moving us outside on the niche catamaran market. 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 employe
approximately 90 employees.
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 controlling interest subsidiary, 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 43 independent boat dealers in 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, Forza, is designing and developing a line of electric-powered
boats. Forza’s electric boats are being designed as fully integrated electric boats including the hull, outboard motor and control
system. To date, Forza X1 has built-out and tested multiple Forza company units, including: three offshore-style catamarans, two bay boat-style
catamarans, one deck boat and three 22-foot center console (F22) monohulls. In addition, Forza has also electrified a pontoon boat for
a major national pontoon manufacturer. Forza is in the process of an additional pontoon electrification project and are building an additional
five monohulls. Each build cycle includes improvements and involves extensive duration and performance testing. The engine design and
lower units and the control systems are continuously improved with each iteration. Cooling system improvements have also been prioritized
and have yielded a myriad of benefits to runtime, speed, and range. Forza continues to iterate the engine design, including value engineering
of parts and lightweighting of engine components. Forza is experimenting with our first 300 HP stacked motor design. Forza is uncertain
as to when it will obtain revenues from the sale of these fully integrated electric boats. Forza will continue to build and test prototype
engines and boats for the next six to nine months.
During the year ended December31, 2023, we saw a small
increase in revenue. 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. The average selling price of our units did
decrease by 16%, for the year ended December 31, 2023, to approximately $137,692. This is due to the inclusion of our monohull boats which
have an average selling price of approximately $62,000 per unit. The addition of the monohull boat accounted for 18% of our total sales
for the year ended December 31, 2023.
Recent Developments
On April 20, 2023 we incorporated AquaSport Co., a
wholly owned subsidiary, in the state of Florida in connection with our plan to lease the AQUASPORT™ boat brand and manufacturing
facility in White Bluff, TN. On May 5, 2023, we and AquaSport Co. entered into an agreement with Ebbtide Corporation (“Ebbtide”)
providing AquaSport Co. with the right to acquire assets, AQUASPORT™ boat brand, trademarks, 150,000-square-foot manufacturing facility
situated on 18.5 acres in White Bluff, TN, related tooling, molds, and equipment to build five AquaSport models ranging in size from 21
to 25-foot boats (the “AquaSport Assets”).
Under the agreement, AquaSport Co. has the right to
purchase the AquaSport assets from Ebbtide for $3,100,000 during the five-year term of the Agreement (or extension period), less credit
for a $300,000 security deposit paid by us and $16,000 a month for any rent paid under the Agreement by AquaSport Co. to Ebbtide. AquaSport
Co. will lease the AquaSport assets from Ebbtide under the agreement at a monthly rent of $22,000 pending AquaSport Co.’s acquisition
of the AquaSport assets. The lease is for a term of five years, commencing June 1, 2023, with one option to renew the lease for an additional
five years.
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The White Bluff, TN, AquaSport facility was opened
to produce the AquaSport legacy line of monohull boats. While there was interest in the legacy models, we’ve seen light demand for
these models from our dealer network and customers. We’ve seen much higher demand for the newly designed AquaSport models currently
manufactured in our Fort Pierce, FL, facility.
Lower demand for these legacy models, coupled with
the current economic headwinds in the boating industry, led us to close the Tennessee facility in November 2023, and to consolidate its
manufacturing operations in our Florida facility. We remain dedicated to the AquaSport brand and will continue to design and produce new
models, including the 240 CC which is now available for sale, and the 280 CC, which will be available over the next quarter.
In late December 2023, One Water informed us that they were going to discontinue some of their relationships with
manufactures, and Twin Vee was one of those relationships. We have found that One Water struggled to achieve sales of our Twin Vee production
line due to their unfamiliarity with powered catamarans. We continue to work with OneWater to help them connect and sell units to end
users. We have also started working with dealers that are experienced with our products and have proven to be successful in understanding
the benefits of our products and how to achieve sales.
Financial Condition
We finished the year with revenue up 4% over the prior year. Our cash, cash equivalents, restricted
cash and marketable securities were $21 million at December 31, 2023. Our property, plant, and equipment along with prepaid expenses went
up notably, as we have invested in additional boat molds for new model, equipment to support our increased production levels, and leasehold
improvements to improve the quality of our products.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
The following table provides certain selected financial information for
the years presented:
Years Ended
December 31,
2023
2022
$ Change
% Change
Net sales
$ 33,425,912
$ 31,987,724
$ 1,438,188
4 %
Cost of products sold
$ 23,702,885
$ 21,330,918
$ 2,371,967
11 %
Gross profit
$ 9,723,027
$ 10,656,806
$ (933,779 )
(9 %)
Operating expenses
$ 21,710,326
$ 16,678,514
$ 5,031,812
30 %
Loss from operations
$ (11,987,299 )
$ (6,021,708 )
$ (5,965,591 )
99 %
Other income
$ (2,205,103 )
$ (228,294 )
$ (1,976,809 )
866 %
Net loss
$ (9,782,196 )
$ (5,793,414 )
$ (3,988,782 )
69 %
Basic and dilutive income per share of
common stock
$ (0.76 )
$ (0.67 )
$ (0.10 )
15 %
Weighted average number of shares of
common stock outstanding
9,520,000
7,624,938
Net Sales and Cost Sales
Our net sales increased $1,438,187, or 4% to $33,425,911
for the year ended December 31, 2023 from $31,987,724 for the year ended December 31, 2022. The number of boats sold during fiscal year
ended December 31, 2023 increased 21% over the number of our boats sold during the fiscal year ended December 31, 2022. However, our average
cost per unit decreased approximately $26,000. In 2023, we introduced our monohull line of boats. These are low-cost entry-level boats,
in a very competitive sector. We believe that adding a full line up of monohull boats will allow us to continue to increase our net sales
year over year. In 2023, 40% of our sales or approximately $6,000,000, were attributed to our 220 monohull,
Gross Profit
Gross profits decreased by $933,779, or 9% to $9,723,027 for the year ended December
31, 2023 from $10,656,806 for the year ended December 31, 2022. Gross profit as a percentage of sales, for the year ended December 31,
2023 and 2022 was 29% and 33% respectively. We attribute the 4% decline in gross profit percentage to decreased demand in the marine sector.
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Total Operating Expenses
Our total operating expenses for the year ended December 31, 2023 and 2022
were $21,710,326 and $16,678,514 respectively. Operating expenses as a percentage of sales were 65% compared to 52% in the prior year.
Selling, general and administrative expenses increased by approximately 35%, or
$974,781 to $3,734,406 for the year ended December 31, 2023, compared to $2,759,625 for the year ended December 31, 2022. Our advertising
and marketing expenses increased 296%, from $112,319 for the year ended December 31, 2022, to $331,911 for the year ended December 31,
2023. This is due to increased expenses associated with our new AquaSport line and the Forza Electrafication event. Our rent expense increased
31%, or $134,456 to $567,602 for the year ended December 31, 2023. The increase was due to Forza Tech Center being rent for a full year
compared to only 3 months in 2022, resulting in an increase of $118,900; along with a 5% increase for our rent in Fort Pierce. Hiring
expense increased $77,889, due to Forza utilizing Recruiting firs to hire two Engineers. Filing fee and investor relations fees increased
$85,286, due to Forza being public for an entire year in 2023, compared to only a partial year in 2022. Dues and subscriptions increased
$163,812 for the year ended December 31, 2023, this is due to subscriptions related to our new ERP system, training and safety, marketing
related subscriptions, option tracking and engineering related subscriptions. Expenses related to travel increased by $202,619, for the
year ended December 31, 2023, this was due to required travel for staff to go to our three different facilities as well as international
travel related to Forza. We also saw an increase of $60,341 for the year ended December 31, 2023, for our workers compensation expense
due to our increased employment levels. Numerous other items make up the remaining increase approximately $24,000 of increased selling,
general and administrative expense increase.
Salaries and wage related expenses increased by approximately
22%, or $2,472,011 to $13,929,580 for the year ended December 31, 2023, compared to $11,457,569 for the year ended December 31, 2022.
The increase in salaries and wages of $1,458,260 was the result of aggressively ramping up of production, which required increasing our
production and adding mid-level staff. Included in salaries and wages for the year ended December 31, 2023 was a non-cash stock-based
compensation expense of $1,902,749, which was an increase of $453,997 from the prior year, due to the issuance of options to employees.
We have also incurred production and executive bonus expense increase of $42,300 for the year ended December 31, 2023. Our cost of benefits,
primarily health insurance, holiday pay and 401K, increased by approximately $178,996, due to our increase in headcount. Expenses for
board fees increased by $60,375 in 2023, during the year ended December 31, 2022 we only incurred board fees for a portion of the year
for Forza. During the years ended December 31, 2023 and 2022, respectively, we incurred $123,048 and $0 in commission expense. The remaining
increase of salaries and wages during the year ended December 31, 2021 was associated with payroll taxes and benefits.
Professional fees increased by 29%, or $283,351 to $1,249,388 for the year ended December
31, 2023, compared to $966,037 for the year ended 2022. Professional fees related to Forza increased $194,692 for the year ended December
31, 2023, as we carried the costs of audit and legal fees of a public organization for an entire year compared to only a partial year
in 2022. The remaining increase was due to consulting services to install and manage our new ERP
system.
Depreciation expense for the year ended December 31,
2023 increased by 144%, or $799,633 to $1,353,383 for the year ended December 31, 2023 compared to $553,750 in December 31, 2022. Since
our IPO in 2021 we have made significant investments in equipment, leasehold improvements and boat molds that resulted in an increased
our depreciation expense.
Research and design expenses for the year ended December 31, 2023, was $1,443,569
compared to $941,533, for the year ended December 31, 2022. These expenses are associated with our development of our electric propulsion
system for Forza.
Other income increased by 866%, or $1,976,809 to
$2,205,103 for the year ended December 31, 2023, compared to $228,294 for the year ended, 2022. The increase in other income is
primarily the result of $1,267,055 in Employee Retention Credit income. We incurred an increase in net gain in fair value of our
marketable securities of $191,722, compared to a net loss in fair value of our marketable securities of $133,988 in 2022, due to
improved financial market. Additionally, we recorded $909,215 in dividend income during 2023, compared to $0, in 2022. For the year
ended December 31, 2023 we did see an increase in interest expense of $57,002.
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Net Loss
Net loss for the year ended December 31, 2023, was $9,479,511, compared to
$5,793,414 for the year ended December 31, 2022. We have spent much of the last two year assembling the tools and people necessary to
increase production levels. While our revenue levels increased, our expenses also increased. Toward the end of 2023, market condition
worsened, forcing us to close the Tennessee facility and consolidate operation in Fort Pierce. That coupled with the additional expenses
associated with being a public company and our research and development efforts for our electric boat division, resulted in a net loss
for 2023. With these investments, we are building the foundation for our future, not only for our gas powered boats, but also for our
electric boat division. We have decreased our head count significantly and work to right size the business for the current state of the
economy, while keep our core strengths intact. Basic and dilutive loss per share of common stock increased for the year ended December
31, 2023 to ($0.76) compared to ($0.67) for the year ended December 31, 2022.
Liquidity and Capital Resources
A primary source of funds for the year ended December 31, 2023 was net cash
received from our secondary offering, as well as Forza’s initial public and secondary offering and revenue generated from operations.
Our primary use of cash was related to funding the expansion of our operations through capital improvements, adding staff, and increasing
inventory levels. Our priority over the next several months is to minimize new purchase orders and to deploy as much of this inventory
as possible into new production.
The following table provide selected financial data
about us as of December 31, 2023 and December 31, 2022.
December 31,
December 31,
2023
2022
Cash, cash equivalents and restricted cash
$ 16,755,233
$ 23,501,007
Marketable securities
$ 4,462,942
$ 2,927,518
Current assets
$ 26,646,318
$ 29,887,529
Current liabilities
$ 4,216,345
$ 3,791,063
Working capital
$ 22,429,973
$ 26,096,466
As of December 31, 2023, we had sufficient cash and cash equivalents to meet
ongoing expenses for at least twelve months from the date of the filing of this Annual Report. As of December 31, 2023, we had $21,218,175
of cash, cash equivalents, restricted cash and marketable securities, total current assets of $26,646,318, and total assets of $39,846,713.
Our total liabilities were $7,797,098. Our total liabilities were comprised of current liabilities of $4,216,345 which included accounts
payable and accrued liabilities of $3,474,538, contract liability of $44,195, finance lease liability of $214,715 and current portion
of operating lease right of use liability of $482,897, and long-term liabilities of $3,580,753. As of December 31, 2022, we had $23,501,007
of cash, cash equivalents and restricted cash, marketable securities of $2,927,518, total current assets of $29,887,529 and total assets
of $38,231,480. Our total current liabilities were $3,791,063 and total liabilities of $5,210,591 which included long-term operating lease
liabilities for the lease of our facility.
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, restricted cash 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. We do anticipate Forza’s expenses to increase during the next year as it constructs its planned manufacturing facility
in McDowell, North Carolina, the cost of which we expect will be paid for through the proceeds of Forza’s initial public offering,
its secondary offering and certain grant funding, provided the conditions to receipt of the grant funding are met, of which there can
be no assurance.
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Cash Flow
Years Ended
December 31,
2023
2022
Change
%
Change
Cash used in operating
activities
$ (6,934,773 )
$ (4,146,031 )
(2,788,742 )
(67 %)
Cash used in investing activities
$ (6,629,021 )
$ (195,605 )
6,433,416
3,289 %
Cash provided by financing
activities
$ 6,818,020
$ 20,867,340
(14,049,320 )
(67 %)
Cash at end of year
$ 16,755,233
$ 23,501,007
(6,745,774 )
(29 %)
Cash Flow from Operating Activities
For the year ended December 31, 2023, net cash flows used in operating activities
was $6,934,773 compared to $4,146,030 during the year ended December 31, 2022. We have increased inventory levels by $1,296,045, due to
having three different manufactures for engines and to bringing inventory in for the Tennessee facility, and due to our increased product
offerings. Our net loss was $9,782,196, was decreased by non-cash expenses of approximately $4,062,597 primarily due to stock-based compensation
of $1,902,749, depreciation of $1,353,383, change of right-of-use asset and lease liabilities of $474,630, change in inventory reserve
of $419,616 and net change in fair value of marketable securities of $87,781. For the year ended December 31, 2023, our accounts payable
increased $333,346, due to our increase in inventory, prepaid expenses and other current assets decreases by $419,195, due to not being
required to prepay for incoming engines, as we were in 2022. For the year ended December 31, 2023, our operating lease liabilities decreased
$479,315 and our accrued liabilities decreased by $165,257. Contract liabilities increased by $38,895. Accounts receivable increased by $65,993.
Cash Flow from Investing Activities
During the year ended December 31, 2023, we used $6,629,021
for investment activities, compared to $195,605 used during the year ended December 31, 2022. We increased our property and equipment
by $5,162,478, we invested in marketable securities of $1,343,702 and we realized a gain on the sale of marketable securities, available
for sale of $103,941. The majority of the property and equipment purchased were molds for our boat production, for AquaSport and Twin
Vee, investing and additional $3,593,709. We further spent $1,119,758 on the land in Tennessee and in North Carolina. We also spent approximately
$714,991 on machinery and equipment.
Cash Flows from Financing Activities
For the year ended December 31, 2023, net cash provided by financing activities
was approximately $6,818,021 compared to net cash provided by financing activities of $20,867,340 for the year ended December 31, 2022. The
cash flow from financing activities for the year ended December 31, 2023 included proceeds of $6,996,015 and deferred offering cost of
$66,463 from a follow on underwritten public offering for Forza in June 2023. Additional cash
used for financing activities of $90,153 was related to equipment financing, and $21,379 was used for a Forza buy back of
stock. The cash provided by financing activities for the year ended December 31,2022, included $20,936,825 in net proceeds from the Forza offering.
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 consolidated financial statements, which have been prepared in accordance
with U.S. GAAP. The preparation of our 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,
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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 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
The Company accounts 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. The Company 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 consolidated balance sheets. 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, the 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 ,
the Company is including the following disclosure applicable to its product warranties.
The Company accrues 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. The Company’s warranty reserve is calculated as the gross sales multiplied
by the historical warranty expense return rate.
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Leases
The Company 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, the Company applied a dual approach
to all leases whereby the Company is a lessee and classifies leases as either finance or operating leases based on the principle of whether
or not the lease is effectively a financed purchase by the Company. Lease classification is evaluated at the inception of the lease agreement.
Deferred Income Taxes and Valuation Allowance
The Company accounts 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 the Company 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 SEC rules.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
Not applicable because we
are a smaller reporting company.