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. Additionally, we have launched the AquaSport line
of monohull boats which are expected to appeal to first-time boat buyers,
the freshwater market, and consumers that prefer a
monohull boat, increasing our potential customer base across the nation and beyond the catamaran market. Twin Vee’s home base operations
in Fort Pierce Florida is a 7.5-acre facility with several buildings totaling approximately 100,000 square feet. We currently employe
approximately 65 employees.
Consumers can use our boats 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 boats are currently outfitted with gas-powered outboard combustion
engines.
57
During the year ended December31, 2024, we experienced
a dramatic decrease in revenue. Our objectives have been to assist dealers with selling through field inventory, add new models like the
GFX2 model line introduced in 2024, expand our dealer and distribution network, and increase unit production to fulfill our customer and
dealer orders. The average selling price of our units increased by 19%, for the year ended December 31, 2024, to approximately $167,096.
This is due to the higher proportion of larger Twin Vee models sold versus smaller Aquasport models.
Recent Developments
Merger
On November 26, 2024 (the
“Closing Date”), pursuant to the terms of the Merger Agreement, by and between us, Twin Vee Merger Sub, Inc. and Forza, Merger
Sub was merged with and into Forza (the “Merger”), with Forza surviving the Merger as our wholly-owned subsidiary. At the
effective time of the Merger, (a) each outstanding share of common stock of Forza , par value $0.001 per share of Forza (the “Forza
Common Stock”) (other than any shares held by Twin Vee) was converted into the right to receive 0.611666275 shares of Twin Vee common
stock, par value $0.001 per share for an aggregate of 5,355,000 shares of our common stock (the “Twin Vee Common Stock”),
(b) each outstanding Forza stock option, whether vested or unvested, that had not previously been exercised prior to such time was converted
into an option to purchase 0.611666275 shares of Twin Vee Common Stock for each share of Forza Common Stock covered by such option, (c)
each outstanding warrant to purchase shares of Forza Common Stock was assumed by Twin Vee and converted into a warrant to purchase 0.611666275
shares of Twin Vee Common Stock for each share of Forza Common Stock for which such warrant was exercisable for prior to the Effective
Time, and (d) the 7,000,000 shares of Forza Common Stock held by Twin Vee were cancelled.
The issuance of shares of
Twin Vee Common Stock to the former shareholders of Forza was registered under the Securities Act of 1933, as amended, pursuant to a registration
statement on Form S-4 (File No. 333-281788), as amended, filed by Twin Vee with the Securities and Exchange Commission (the “SEC”)
and declared effective on October 10, 2024 (the “Registration Statement”).
At the effective time of
the Merger, in accordance with the terms of the Merger Agreement, the size of Twin Vee’s board of directors (the “Board”)
was set at five, Joseph Visconti, Preston Yarborough, Neil Ross and Kevin Schuyler remained as directors of Twin Vee and Marcia Kull was
appointed as a director of Twin Vee. Effective as of the effective time of the Merger, Bard Rockenbach and James Melvin resigned as directors
of Twin Vee and any committees thereof.
58
Nasdaq Compliance
On November 7, 2024, we received written notification
from The Nasdaq Stock Market LLC (“Nasdaq”) granting our request for a 180-day extension to regain compliance with Nasdaq
Listing Rule 5550(a)(2). Compliance may be achieved automatically and without further action if the closing bid price of our common stock
is at or above $1.00 for a minimum of ten consecutive business days at any time prior to May 5, 2025, Nasdaq will notify us when it determines
that we have regained compliance with the Minimum Bid Price Requirement and the matter will be closed.
On November 11, 2024, we held the 2024 Annual Meeting.
At the 2024 Annual Meeting, our stockholders approved the issuance of shares of common stock to Forza stockholders pursuant to the terms
of the Merger Agreement and an amendment to our Certificate of Incorporation to effect a reverse stock split at a ratio within the range
of 1-for-2 to 1-for-20.
Sale Agreement
with Revver Digital, LLC
On February 4, 2025, we entered into an agreement
(the “Sale Agreement”), effective February 4, 2025 (the “Effective Date”), with Revver Digital, LLC, a Delaware
limited liability company and wholly owned subsidiary of One Water Marine Inc. (“OWM”), providing us with the right to acquire
certain intellectual property of OWM (the “OWN Intellectual Property”) related to (a) the online marketplace, advertisement,
marketing, and sale services of yachts, boats, and yacht and boat accessories and (b) arranging of loans, insurance, and warranty services
related to yachts and boats under the brands “Yachts for Sale” and “Boats for Sale” through the websites available
at the domains (the “Domains”) “yachtsforsale.com” and “boatsforsale.com” (the “Business”).
Pending the closing of the sale to us of the OWN Intellectual Property, the Sale Agreement grants us a license to use and sublicense the
OWN Intellectual Property to conduct the Business in consideration of: (a) the payment to OWM of a monthly revenue-sharing royalty (the
“Revenue-Sharing Royalty”) of six percent (6%) of the Aggregate Subscription Revenue (as defined) of the Business; and (b)
a credit to OWM of $500 per OWM dealer who lists boats or yachts on the Domains during such period (the “Dealer Storefront Credit”).
On the date of the closing (the “Closing”) of the sale to us of the OWN Intellectual Property, the Sale Agreement provides
that in consideration of the transfer of, and as a purchase price (the “Purchase Price”) for, the OWM Intellectual Property,
we will assume certain liabilities of OWM related to the Business and pay to OWM $5,000,000 (the “Minimum Purchase Price”),
less the aggregate amount of all Revenue-Sharing Royalties paid to OWM through such date and the aggregate amount of all Dealer Storefront
Credits accrued for the benefit of OWM through such date (the “Remaining Purchase Price”).
Financial Condition
We finished the year with revenue down 57% compared
to the prior year. Our cash, cash equivalents, restricted cash and marketable securities were $7.7 million at December 31, 2024. Our property,
plant, and equipment went up as we 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 and new and expanded production facilities
59
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table provides certain selected financial information for
the years presented:
Years Ended
December 31,
2024
2023
$ Change
% Change
Net sales
$
14,388,517
$
33,425,912
$
(19,037,395
)
(57
%)
Cost of products sold
$
15,139,942
$
30,159,024
$
(15,019,082
)
(50
%)
Gross profit
$
(751,425
)
$
3,266,888
$
(4,018,313
)
(123
%)
Operating expenses
$
13,800,344
$
15,254,187
$
(1,453,843
)
(10
%)
Loss from operations
$
(14,551,769
)
$
(11,987,299
)
$
(2,564,470
)
21
%
Other expense
$
(541,863
)
$
(2,205,103
)
$
1,663,240
(75
%)
Net loss
$
(14,009,906
)
$
(9,782,196
)
$
(4,227,710
)
43
%
Basic and dilutive income per share of common stock
$
(1.10
)
$
(0.76
)
$
(0.35
)
46
%
Weighted average number of shares of common stock outstanding
10,032,040
9,520,000
Net Sales and Cost Sales
Our net sales decreased $19,037,395, or 57% to $14,388,517
for the year ended December 31, 2024 from $33,425,912 for the year ended December 31, 2023. The number of boats sold during fiscal year
ended December 31, 2024 decreased 63% compared to the number of our boats sold during the fiscal year ended December 31, 2023. However,
our average cost per unit increased approximately $27,000. The increase in average price per boat was due to the higher percentage of
Twin Vee boats compared to Aquasport boats, which have generally lower prices than Twin Vee boats.
60
Gross Profit
Gross profits decreased by $4,018,313, or 123% to
a negative $751,425 for the year ended December 31, 2024 from $3,266,888 for the year ended December 31, 2023. Gross profit as a percentage
of sales, for the year ended December 31, 2024 and 2023 was negative 5% and positive 10% respectively. We attribute the decline in gross
profit percentage to inefficiencies in production resulting from a significant drop in demand in the marine sector.
Total Operating Expenses
Operating expenses for the year ended December 31,
2024 and 2023 were $13,800,344 and $15,254,187, respectively, a decrease of $1,453,843 or 10%. As a percentage of revenues operating expenses
were 96% compared to 46% in the prior year, largely due to the high fixed cost nature of our business on a 57% reduction in revenues partially
offset by the benefit of significantly reduced spending at Forza throughout 2024. Operating expenses for the year ended December 31, 2024
included an impairment charge of $1,674,000 related to the impairment of the partially constructed Forza building based on an appraisal
prior to the merger of Twin Vee and Forza. Before the impact of this charge, operating expenses for the year ended December 31, 2024 and
2023 were $12,126,344 and $15,254,187, respectively, a decrease of $3,127,843 or 21%. As a percentage of revenues, before the impact of
the impairment charge, operating expenses were 84% compared to 46% in the prior year, largely due to the high fixed cost nature of our
business on a 57% reduction in revenues partially offset by the benefit of significantly reduced spending at Forza throughout 2024.
Selling, general and administrative expenses decreased
by approximately 17%, or $638,538 to $3,095,868 for the year ended December 31, 2024, compared to $3,734,406 for the year ended December
31, 2023.
Salaries and wage-related expenses decreased by approximately
34%, or $2,566,622 to $4,906,819 for the year ended December 31, 2024, compared to $7,473,441 for the year ended December 31, 2023. This
decline is primarily related to significant reductions in headcount at Forza, partially offset by $310,000 in special bonuses paid to
certain executives upon the successful merger of Twin Vee and Forza. Included in salaries and wages for the year ended December 31, 2024
was a non-cash stock-based compensation expense of $1,202,474, which represented a decrease of $700,275 from the prior year, due primarily
to the forfeiture of options following the departure of certain senior executives at both Twin Vee and Forza during 2024 partially offset
by the addition of a new executive officer at Twin Vee and further issuances of options to existing employees. Also resulting from the
reduction in headcount year over year were related reductions in the cost of benefits, primarily health insurance, holiday pay and 401K.
Professional fees increased by 34%, or $420,086 to
$1,669,474 for the year ended December 31, 2024, compared to $1,249,388 for the year ended 2023. The increase in professional fees related
primarily to the merger between Twin Vee and Forza. Costs incurred were for legal representation, auditor consents, fairness opinions,
appraisals, filings and the like.
61
Depreciation and amortization expense for the year
ended December 31, 2024 increased by 29%, or $391,834 to $1,745,217 for the year ended December 31, 2024 compared to $1,353,383 for the
year ended December 31, 2023. This increase is due to significant investments in equipment, leasehold improvements and boat molds that
resulted in an increased depreciation expense.
Research and development expenses for the year ended
December 31, 2024, was $586,378 compared to $1,443,569, for the year ended December 31, 2023. This reduction was due to the discontinuance
of the development of our electric propulsion system for Forza.
Other income decreased by 75%, or $1,663,240 to $541,863
for the year ended December 31, 2024, compared to $2,205,103 for the year ended, 2023. The decrease in other income is primarily the result
of $1,267,055 in Employee Retention Credit income received in 2023, which is not recurring in 2024, and lower overall dividends and interest
on investments resulting from the liquidation of investments to fund operations and capital investments.
Net Loss
Net loss for the year ended December 31, 2024, was
$14,009,906, compared to $9,782,196 for the year ended December 31, 2023. 2024 was a challenging year with overall boat production down
63%, which worsened throughout the year. We managed both variable and fixed operating costs, including reducing then shutting down the
Forza research and development operation. The deleveraging of our fixed costs on such a low revenue base in 2024 led to significant losses.
We have decreased our head count significantly and continue 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, 2024 to ($1.10)
compared to ($0.76) for the year ended December 31, 2023.
Liquidity and Capital Resources
A primary source of funds for the year ended December
31, 2024 was net cash received from sales of our equity securities and those of Forza during prior fiscal years and revenue generated
from operations. Our primary use of cash was related to funding the low-level revenue related cash losses from operations and capital
improvements. Our priority over the next year is to grow our revenue base while managing working capital including improving inventory
turns.
62
The following table provides selected financial data
about us as of December 31, 2024 and December 31, 2023.
December 31,
December 31,
2024
2023
Change
% Change
Cash and cash equivalents
$
7,491,123
$
16,497,703
$
(9,006,580
)
(54.6
%)
Restricted cash
$
215,117
$
257,530
$
(42,413
)
(16.5
%)
Current assets
$
10,419,141
$
26,646,318
$
(16,227,177
)
(60.9
%)
Current liabilities
$
3,747,990
$
4,216,345
$
(468,355
)
(11.1
%)
Working capital
$
6,671,151
$
22,429,973
$
(15,758,822
)
(70.3
%)
As of December 31, 2024, 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, 2024, we had $7,706,240 of cash, cash equivalents, restricted cash and marketable securities, total current assets of $10,419,141,
and total assets of $25,887,905. Our total liabilities were $6,671,055. Our total liabilities were comprised of current liabilities of
$3,747,990, which included accounts payable and accrued liabilities of $3,009,331, contract liability of $80,000, finance lease liability
of $221,929 and current portion of operating lease right of use liability of $436,730, and long-term liabilities of $2,923,065. As of
December 31, 2023, we had $16,755,233 of cash, cash equivalents, restricted cash, $4,462,942 of marketable securities, total current assets
of $26,646,318 and total assets of $39,846,713. Our total current liabilities were $4,216,345 and total liabilities of $7,797,098 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 also anticipate the sale of our partially constructed McDowell, North Carolina facility
to generate cash.
63
Cash Flow
Years Ended
December 31,
2024
2023
Change
% Change
Cash used in operating activities
$
(6,973,617
)
$
(6,934,773
)
$
(38,844
)
(1
%)
Cash used in investing activities
$
(1,861,632
)
$
(6,629,021
)
$
(4,767,389
)
(72
%)
Cash (used in) provided by financing activities
$
(213,744
)
$
6,818,020
$
(7,031,764
)
(103
%)
Cash at end of year
$
7,706,240
$
16,755,233
$
(9,048,993
)
(54
%)
Cash Flow from Operating Activities
For the year ended December 31, 2024, net cash flows
used in operating activities was $6,973,617 compared to $6,934,773 during the year ended December 31, 2023. We have decreased net inventory
levels by $2,418,098, due to managing inventory as well as other working capital items to align with the significant reduction in revenues
and production in 2024. Our net loss was $14,009,906, decreased by non-cash expenses, primarily due to stock-based compensation of $1,177,140,
depreciation and amortization of $1,745,217, impairment of property & equipment of $1,674,000, change of right-of-use asset and lease
liabilities of $464,304, and loss on disposal of property & equipment of $172,684. For the year ended December 31, 2024, our accounts
payable decreased $183,947 due to our decrease in inventory and production. For the year ended December 31, 2024, our operating lease
liabilities decreased $482,897 and our accrued liabilities decreased by $281,259.
Cash Flow from Investing Activities
During the year ended December 31, 2024, we used $1,861,632
for investment activities, compared to $6,629,021 used during the year ended December 31, 2023. We increased our property and equipment
by $6,341,675, we sold marketable securities of $4,462,942. The majority of the property and equipment purchased were molds for our boat
production, for Twin Vee, and additions to facilities in both North Carolina and Ft. Pierce Florida.
Cash Flows from Financing Activities
For the year ended December 31, 2024, net cash used
by financing activities was approximately $213,744 compared to net cash provided by financing activities of $6,818,020 for the year ended
December 31, 2023. The cash flow from financing activities for the year ended December 31, 2024 included only finance lease payments
while for the year ended December 31, 2023, cash provided by finance activities was primarily from proceeds of $6,996,015 and deferred
offering cost of $66,463 from a follow-on underwritten public offering for Forza in June 2023.
64
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,
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.
65
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.
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.