NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
1. Organization and Summary of Significant
Accounting Policies
Organization
Twin Vee PowerCats Co. (“Twin Vee”
or the “Company”) 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. Fix My Boat has been inactive for the majority of 2022 and the three months ended
March 31, 2023, however we anticipate focusing resources on this entity by the end of 2023.
Forza X1, Inc. was initially incorporated as
Electra Power Sports, Inc. on October 15, 2021, and subsequently changed the name to Forza X1, Inc. (“Forza X1” or
“Forza”) 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).
On April 20, 2023, the Company formed AquaSport
Co., a wholly owned subsidiary in the state of Florida in connection with the Company’s plan to lease the assets of former
AQUASPORT™ boat brand and manufacturing facility in White Bluff Tennessee.
Merger
On December 5, 2022, pursuant to the terms
of the Agreement and Plan of Merger, dated as of September 8, 2022 (the “Merger Agreement”), by and between Twin Vee
PowerCats Co. and Twin Vee PowerCats, Inc., a Florida corporation (“TVPC”), was merged with and into the Company (the
“Merger”).
As TVPC did not meet the definition of a business
under ASC 805, the merger was not accounted for as a business combination. The merger was accounted for as a recapitalization of
Twin Vee PowerCats, Co., effected through the exchange of TVPC shares for Twin Vee PowerCats, Co. shares, and the cancellation
of Twin Vee PowerCats, Co. shares held by Twin Vee Inc. Upon the effective date of the Merger, December 5, 2022, Twin Vee Co. accounted
for the merger by assuming TVPC’s net liabilities. Twin Vee PowerCats, Co.’s financial statements reflect the operations
of TVPC. prospectively and will not be restated retroactively to reflect the historical financial position or results of operations
of TVPC.
Principles of Consolidation
The condensed consolidated
financial statements include the accounts of Twin Vee and its wholly owned subsidiary Fix My Boat, Inc., (“Fix My Boat”)
and majority owned subsidiary, Forza X1, Inc. (“Forza X1” “Forza”), collectively referred to as the “Company”.
The Company’s net loss excludes losses attributable to noncontrolling interests. The Company reports noncontrolling interests
in consolidated entities as a component of equity separate from the Company’s equity. All inter-company balances and transactions
are eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of
the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and
footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management,
the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of
normal recurring accruals) to present the financial position of the Company as of March 31, 2023 and the results of operations
and cash flows for the periods presented. The results of operations for the three months ended March 31, 2023 is 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,
2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2023.
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 liabilities in the accompanying consolidated balance sheets.
Payment received for the future sale of a boat
to a customer is recognized as a customer deposit. Customer deposits are recognized as revenue when control over promised goods
is transferred to the customer. At March 31, 2023 and December 31, 2022, the Company had customer deposits of $5,800 and $5,300,
respectively, which is recorded as contract liabilities on the consolidated balance sheets. 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.
Use of Estimates
The preparation of condensed consolidated 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.
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 March 31, 2023
and December 31, 2022, the Company had $19,916,065 and $22,666,301, respectively, in excess of FDIC insured limits.
Cash, Cash Equivalents and restricted cash
Cash, cash equivalents and restricted cash
include all highly liquid investments with original maturities of three months or less at the time of purchase. On March 31, 2023
and December 31, 2022, the Company had cash, cash equivalents and restricted cash of $21,022,515 and $23,501,007, respectively.
Included within restricted cash on the Company’s condensed consolidated balance sheets is an irrevocable letter of credit
for $200,000, which is being held by a third party bank as collateral.
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.
Fair Value of Financial Instruments
The Company follows accounting guidelines on
fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities
that are initially recorded at their estimated fair values. Fair Value is defined as the exit price, or the amount that would be
received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as the measurement
date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of
unobservable inputs to value its financial instruments:
|
● |
Level
1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments. |
|
● |
Level
2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace. |
|
● |
Level
3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments
whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments
for which the determination of fair value requires a significant judgment or estimation. |
Financial instruments measured as fair value
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value measurement in its entirety requires it to make judgments
and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have
a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded may not
be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.
The carrying amounts of cash equivalents approximate
their fair value due to their liquid or short-term nature, such as accounts receivable and payable, and other financial instruments
in current assets or current liabilities.
Inventories
Inventories are valued at the lower of cost
and net realizable value, with cost determined using the average cost 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.
Property and Equipment
Property and equipment is stated at cost, net
of accumulated depreciation and amortization, using the straight-line method over the assets’ useful life. Leasehold improvements
are amortized over the shorter of the assets’ useful life or the lease term. The estimated useful lives of property and equipment
range from three to five years. Upon sale or retirement, the cost and related accumulated depreciation is eliminated from their
respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which
do not increase the useful lives of the assets, are charged to operations as incurred.
Impairment of Long-Lived Assets
Management assesses the recoverability of its
long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is
determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets’
net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted
to their fair value, based on appraisal or the present value of the undiscounted net cash flows.
Advertising
Advertising and marketing costs are expensed
as incurred. During the three months ended March 31, 2023 and 2022, advertising costs incurred by the Company totaled $125,039 and
$14,927, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements
of operations.
Research and Development
The Company expenses research and development
costs relating to new product development as incurred. For the three months ended March 31, 2023 and 2022, research and development
costs amounted to $702,648 and $221,545, respectively.
Shipping and Handling Costs
Shipping and handling costs include those costs
incurred to transport product to customers and internal handling costs, which relate to activities to prepare goods for shipment.
The Company has elected to account for shipping and handling costs associated with outbound freight after control over a product
has been transferred to a customer as a fulfillment cost. The Company includes shipping and handling costs, including cost billed
to customers, in cost of sales in the statements of operations. All manufactured boats are free on board (FOB), from the Fort Pierce
manufacturing plant. Dealers are required to either pick up the boats themselves or contract with a transporter. For the three
months ended March 31, 2023, and 2022, shipping and handling costs amounted to $185,532 and $27,051, respectively. These costs
have increased by $158,451, due to adding dealers in the New England stated and Michigan, compared to the prior year, when all
of the boats were shipped to the states in the south east portion of the United States.
Leases
The Company determines if an arrangement is
a lease at inception. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement
date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit
rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present
value of lease payments. The Company calculates the associated lease liability and corresponding ROU asset upon lease commencement
using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The operating
lease ROU asset also includes any lease payments made and is reduced by lease incentives. The Company’s lease terms may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses
for lease payments is recognized on a straight-line basis over the lease term.
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 three
months ended March 31, 2023, the Company purchased all engines for its boats under supplier agreements with two vendors. During
the three months ended March 31, 2022, the Company purchased all engines for its boats under supplier agreements with one vendor.
For the three months ended March 31, 2023 and 2022, total purchases to these vendors were $1,870,425 and $1,250,003, respectively.
Employee Retention Credit
On Mach 27, 2020, the Coronavirus Aid, Relief,
and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures,
including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability
of the ERC.
Pursuant to the employee retention credit,
eligible employers could receive a 50% - 70% credit on qualified wages against their employment taxes each quarter during the eligible
period in 2020 and 2021, respectively, with any excess credits eligible for refunds. During the three months ended March 31, 2023,
the Company recognized income related to the employee retention credit of $329,573 upon completion of an analysis providing
reasonable assurance that the Company met the conditions set forth in the CARES Act. The employee retention credit was recorded
no the condensed consolidated statement of operations for the three months ended March 31, 2023 and for the year ended December
31, 2022.
Stock-Based Compensation
The Company recognizes stock-based compensation
costs for its restricted stock measured at the fair value of each award at the time of grant, as an expense over the period during
which an employee is required to provide service. Compensation cost is recognized over the service period for the fair value of
awards that vest.
Income Taxes
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating losses. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recover or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is entirely dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred
tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
The Company files income tax returns in the
U.S. federal jurisdiction and various states.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments Credit Losses —Measurement of Credit Losses on Financial Instruments.” ASU 2016-13
requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected
to be collected, which includes the Company’s accounts receivable. This ASU is effective for the Company for reporting periods
beginning after December 15, 2022. The Company does not anticipate this to be material, as the Company does not typically extend
credit to its dealers or customers.
The Company has considered all other recently
issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial
statements.
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 March 31, 2023 and December 31, 2022 are
as follows:
Schedule of fair value marketable securities | |
| | | |
| | | |
| | | |
| | |
| |
| |
Fair Value Measurements Using | |
|
| |
Balance as of March 31, 2023 | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | |
Significant Other Observable Inputs (Level 2) | |
Significant Nonobservable Inputs (Level 3) |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Corporate Bonds | |
$ | 1,939,636 | | |
$ | — | | |
$ | 1,939,636 | | |
$ | — | |
Certificates of Deposits | |
| 494,915 | | |
| — | | |
| 494,915 | | |
| — | |
Total marketable securities | |
$ | 2,434,551 | | |
$ | — | | |
$ | 2,434,551 | | |
$ | — | |
| |
| |
Fair Value Measurements Using | |
|
| |
Balance as of December 31, 2022 | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | |
Significant Other Observable Inputs (Level 2) | |
Significant Nonobservable Inputs (Level 3) |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Corporate Bonds | |
$ | 2,436,333 | | |
$ | — | | |
$ | 2,436,333 | | |
$ | — | |
Certificates of Deposits | |
| 491,185 | | |
| — | | |
| 491,185 | | |
| — | |
Total marketable securities | |
$ | 2,927,518 | | |
$ | — | | |
$ | 2,927,518 | | |
$ | — | |
The Company’s investments in US government
bonds are measured based on publicly available quoted market prices for identical securities as of March 31, 2023 and December
31, 2022. The Company’s investments in corporate bonds, commercial paper and certificates of deposits are measured based
on quotes from market makers for similar items in active markets.
3. Inventories
At March 31, 2023 and December 31, 2022 inventories
consisted of the following:
Schedule of inventories | |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Raw Materials | |
$ | 4,421,539 | | |
$ | 3,406,371 | |
Inventory in transit | |
| — | | |
| 222,607 | |
Work in Process | |
| 375,248 | | |
| 246,734 | |
Finished Product | |
| — | | |
| 132,620 | |
Total Inventory | |
$ | 4,796,787 | | |
$ | 4,008,332 | |
4. Property and Equipment
At March 31, 2023 and December 31, 2022, property
and equipment consisted of the following:
Schedule of property and equipment | |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Machinery and equipment | |
$ | 2,204,715 | | |
$ | 2,018,203 | |
Furniture and fixtures | |
| 37,087 | | |
| 23,211 | |
Leasehold improvements | |
| 1,094,081 | | |
| 979,549 | |
Software and website development | |
| 263,342 | | |
| 204,279 | |
Computer hardware and software | |
| 135,508 | | |
| 123,088 | |
Boat molds | |
| 3,410,087 | | |
| 3,007,903 | |
Vehicles | |
| 143,360 | | |
| 95,534 | |
Electric prototypes and tooling | |
| 142,526 | | |
| 142,526 | |
| |
| 7,430,706 | | |
| 6,594,293 | |
Less accumulated depreciation and amortization | |
| (1,276,667 | ) | |
| (1,058,391 | ) |
| |
$ | 6,154,039 | | |
$ | 5,535,902 | |
Depreciation and amortization expense of property
and equipment for the three months ended March 31, 2023 and 2022 are $218,276 and $80,092, respectively.
5. Leases – Related Party
Operating right of use (“ROU”)
assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the
present value of lease payments not yet paid. Operating right of use assets represent our right to use an underlying asset and
is based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease
incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company
estimates incremental secured borrowing rates corresponding to the maturities of the leases. We used the U.S. Treasury rate of 0.36%
at March 31, 2023 and December 31, 2022.
The Company’s office lease contains rent
escalations over the lease term. The Company recognizes expense for this office lease on a straight-line basis over the lease
term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s
right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease
term.
The Company leases its office and warehouse
facilities, and the land which are located at 3101 S US-1, Fort Pierce, Florida (the “Property”) from Visconti Holdings,
LLC. Visconti Holdings, LLC is a single member LLC that holds the ownership of the property, and its sole member is Joseph C. Visconti,
the CEO of the Company and the CEO and majority shareholder of the Company’s parent company. The Company entered into the
lease on January 1, 2020, and as amended January 1, 2021, the lease has a term of five 5 years. The current base rent payment
is $30,000 per month including property taxes and the lease required a $25,000 security deposit. The base rent will increase
five percent (5%) on the anniversary of each annual term.
At March 31, 2023 and December 31, 2022, supplemental
balance sheet information related to leases were as follows:
| |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Operating lease liabilities: | |
| | | |
| | |
Current portion | |
$ | 394,910 | | |
$ | 393,069 | |
Non-current portion | |
| 751,119 | | |
| 851,096 | |
Total | |
$ | 1,146,029 | | |
$ | 1,244,165 | |
At March 31, 2023, future minimum lease payments
under the non-cancelable operating leases are as follows:
Schedule of maturities of lease liabilities | | |
| | |
Year Ending December 31, | |
|
2023 (excluding the three months ended March 31, 2023) | | |
$ | 297,675 | |
2024 | | |
| 416,745 | |
2025 | | |
| 437,582 | |
2025 | | |
| — | |
Total lease payment | | |
| 1,152,002 | |
Less imputed interest | | |
| (5,973 | ) |
Total | | |
$ | 1,146,029 | |
The following summarizes other supplemental information about the
Company’s operating lease:
Schedule of operating lease cost | |
| | |
| |
March 31, |
| |
2023 |
Weighted average discount rate | |
| 0.36 | % |
Weighted average remaining lease term (years) | |
| 2.67 | |
6. Leases
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 the Company’s right to use an underlying
asset and is based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct
costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid,
the Company estimates incremental secured borrowing rates corresponding to the maturities of the leases. We used the U.S. Treasury
rate of 4.% at December 31, 2022.
The Company leases a warehouse facility, and
the land which are located at 150 Commerce Street, Old Fort, North Carolina (the “Property”) from NC Limited Liability
Company. The Company entered into the lease on October 7, 2022, the lease has a term of two 2 years. The current base rent payment
is $7,517 per month including property taxes, insurance, and common area maintenance. The lease required a $7,517 security
deposit. The base rent will increase three percent (3%) on October 15, 2023.
At March 31, 2023 and December 31, 2022, supplemental
balance sheet information related to leases were as follows:
| |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Operating lease liabilities: | |
| | | |
| | |
Current portion | |
$ | 87,788 | | |
$ | 86,245 | |
Non-current portion | |
| 45,916 | | |
| 68,532 | |
Total | |
$ | 133,704 | | |
$ | 154,777 | |
At March 31, 2023, future minimum lease payments
under the non-cancelable operating leases are as follows:
Schedule of future minimum lease payments | |
| | |
Year Ending December 31, | |
|
2023 (excluding the three months ended March 31, 2023) | |
$ | 68,326 | |
2024 | |
| 69,680 | |
Total lease payment | |
$ | 138,006 | |
Total imputed interest | |
| 4,302 | |
Total | |
$ | 133,704 | |
The following summarizes other supplemental information about the
Company’s operating lease:
Schedule of operating lease cost | |
| | |
| |
March 31, |
| |
2023 |
Weighted average discount rate | |
| 4 | % |
Weighted average remaining lease term (years) | |
| 1.58 | |
Schedule of
operating lease | |
| | |
| |
Three Months Ended March 31, 2023 |
Operating lease cost | |
$ | 22,550 | |
Total lease cost | |
$ | 22,550 | |
7. Finance Leases
The Company has finance leases for a vehicle
and a forklift. The Company entered into the forklift lease in January of 2023, it is a 60-month lease at a 7.5% interest rate.
The Company entered into the vehicle lease in February of 2023, it is a 60-month lease at a 3% interest rate. The current portion
of the lease liabilities was $16,831 for the three months ended March 31, 2023, and the non-current portion was $72,739.
8. Accrued Liabilities
At March 31, 2023 and December 31, 2022, accrued
liabilities consisted of the following:
Schedule of accrued liabilities | |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Accrued wages and benefits | |
$ | 242,001 | | |
$ | 333,976 | |
Accrued Interest | |
| 40,076 | | |
| 47,607 | |
Accrued bonus | |
| 130,825 | | |
| 20,000 | |
Accrued rebates | |
| — | | |
| 15,000 | |
Accrued professional fees | |
| 73,300 | | |
| 89,500 | |
Accrued operating expense | |
| 32,799 | | |
| 64,601 | |
Accrued inventory | |
| — | | |
| 577,712 | |
Warranty reserve | |
| 110,215 | | |
| 92,373 | |
Total accrued liabilities | |
$ | 629,216 | | |
$ | 1,240,769 | |
9. Notes Payable – SBA EIDL Loan
On April 22, 2020, the Company received an
SBA Economic Injury Disaster Loan (“EIDL”) in the amount of $499,900. The loan is in response to the COVID-19
pandemic. The loan is a 30-year loan with an interest rate of 3.75%, monthly payments of $2,437 to begin October
22, 2022, under the EIDL program, which is administered through the SBA. Under the guidelines of the EIDL, the maximum term is
30 years; however, terms are determined on a case-by-case basis based on each borrower’s ability to repay and carry an interest
rate of 3.75%. The EIDL loan has an initial deferment period wherein no payments are due for thirty months from the date of disbursement. The
EIDL loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from this loan
must be used solely as working capital to alleviate economic injury caused by the COVID-19 pandemic.
As part
of the EIDL loan, the Company granted the SBA a continuing security interest in and to any and all collateral to secure payment
and performance of all debts, liabilities and obligations of the Company to the SBA under the EIDL loan. The collateral includes
substantially all tangible and intangible personal property of the Company.
A summary of the minimum maturities of term
debt follows for the years set forth below.
Schedule of minimum maturities | | |
| | |
Year | |
|
2023 | | |
$ | — | |
2024 | | |
| — | |
2025 | | |
| — | |
2026 | | |
| — | |
2027 and thereafter | | |
| 499,900 | |
Total | | |
$ | 499,900 | |
10. Related Party Transactions
As discussed in note 5, the Company has leased
its facilities from a company owned by its CEO.
During the three months ended March 31, 2023,
and 2022, the Company recorded management fees of $0 and $13,500, respectively, paid to its shareholder parent company.
During the three months ended March 31, 2023,
Twin Vee received a monthly fee of $6,800 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.
11. 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 $12,519,000 or 69 units, and
$10,693,000 or 67 units, as of March 31, 2023, and December 31, 2022, respectively. The Company incurred no impact from
repurchase events during the three months ended March 31, 2023 and year ended December 31, 2022.
Short-term lease
In August of 2022, Forza signed a six-month
lease for a duplex, to be used by its employees to minimize travel expenses as it started construction on its new manufacturing
facility, for $2,200 per month, on a property in Black Mountain, North Carolina. During the three months ended March 31, 2023,
the lease expense was $2,200.
Litigation
The Company is currently involved in various
civil litigation in the normal course of business none of which is considered material.
Irrevocable line of credit
As of March of 2023, the Company had $200,000
of restricted cash included in cash, cash equivalents and restricted cash. This amount represents a deposit to secure an irrevocable
letter of credit for a supplier contract with Yamaha. These deposits are held in an interest-bearing account.
12. Stockholders’ Equity
Twin Vee
Common Stock
Issuance
On October 3, 2022, the Company issued and
sold to ThinkEquity LLC, as the underwriter in a firm commitment underwritten public offering (the “Offering”)
pursuant to the term of an underwriting agreement that the Company entered into with ThinkEquity LLC on September 28, 2022 (the
“Underwriting Agreement”),an aggregate of 2,500,000 shares of the Company’s common stock, par value
$0.001 per share, at a public offering price of $2.75 per share, for gross proceeds of $6,875,000, before deducting underwriting
discounts, commissions and offering expenses. Pursuant to the Underwriting Agreement, the Company has
also issued to the underwriter warrants to purchase up to 143,750 shares of Common Stock. The warrants will be exercisable
at a per share exercise price of $3.4375.
Common Stock Warrants
As of March 31, 2023, 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 three months
ended March 31, 2023.
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 units, 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, 2023. As of March 31, 2023, there were 75,823 shares
remaining available for grant under this Plan.
Accounting for Stock -Based Compensation
Stock Compensation Expense
For the three months ended March 31, 2023 and
2022, the Company recorded $482,964 and $224,832, respectively, of stock-based compensation expense, which is included
in salaries and wages on the accompanying condensed consolidated statement of operations. Included in the $482,964 of stock options
expense for the three months ending March 31, 2023, is Forza’s stock-based compensation expense of $341,163.
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 year ended December 31, 2022 and 2021:
Schedule of assumptions | |
| | | |
| | |
| |
| Year
ended | |
| |
| December 31, | |
| |
| 2022 | | |
| 2021 | |
Expected term | |
| 5 years | | |
| 4.94 - 5 years | |
Expected average volatility | |
| 49 - 51% | | |
| 49 - 55% | |
Expected dividend yield | |
| — | | |
| — | |
Risk-free interest rate | |
| 1.50 –4.45% | | |
| 0.72 - 1.00% | |
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) |
|
Fair value of option |
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2022 |
|
|
|
1,283,571 |
|
|
$ |
4.14 |
|
|
|
8.95 |
|
|
$ |
2,256,233 |
|
|
Granted |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Expired |
|
|
|
(44,394 |
) |
|
|
(5.40 |
) |
|
|
— |
|
|
|
(101,960 |
) |
|
Forfeited/canceled |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Outstanding, March 31, 2023 |
|
|
|
1,239,177 |
|
|
$ |
4.09 |
|
|
|
8.72 |
|
|
$ |
2,154,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options, March 31, 2023 |
|
|
|
679,279 |
|
|
$ |
4.48 |
|
|
|
8.57 |
|
|
|
|
|
At March 31, 2023, 570,292 Twin Vee options
are unvested and expected to vest over the next four years.
Forza
Common Stock Warrants
As of March 31, 2023, Forza had outstanding
warrants to purchase 172,500 shares of common stock issuable at a weighted-average exercise price of $6.25 per share
that were issued to the representative of the underwriters on August 16, 2022 in connection with Forza’s IPO. The representative’s
warrants are exercisable at any time and from time to time, in whole or in part, and expire on August 16, 2027. There was no warrant
activity during the three months ended March 31, 2023.
Equity Compensation Plan
Forza maintains an
equity compensation plan under which it may award employees, directors and consultants’ incentive and non-qualified stock
options, restricted stock, stock appreciation rights and other stock-based awards with terms established by the Compensation Committee
of the Board of Directors which has been appointed by the Board of Directors to administer the plan. The number of awards under
the Plan will automatically increase on January 1, 2023. As of March 31, 2023, there were 568,750 shares remaining available
for grant under this Plan. Stock based compensation expense is included in the Statements of Operations, under salaries and wages.
Accounting for
Stock -Based Compensation
For the three months ended March 31, 2023 and
2022, Forza recorded $341,163 and $0, respectively, of stock-based compensation expense, which is included in salaries
and wages on the accompanying condensed consolidated statement of operations.
Stock Options
Under Forza’s
2022 Stock Incentive Plan (the “Forza Plan”), Forza has issued stock options. A stock option grant gives the holder
the right, but not the obligation, to purchase a certain number of shares at a predetermined price for a specific period of time.
Forza typically issues options that vest pro rata on a monthly basis over various periods. Under the terms of the Forza Plan, the
contractual life of the option grants may not exceed ten years.
Forza utilizes the
Black-Scholes model to determine fair value of stock option awards on the date of grant. Forza utilized the following assumptions for
option grants during the year ended December 31, 2022:
Schedule of assumptions | |
| | |
| |
| Year ended | |
| |
| December 31, | |
| |
| 2022 | |
Expected term | |
| 5 years | |
Expected average volatility | |
| 112 - 115% | |
Expected dividend yield | |
| — | |
Risk-free interest rate | |
| 2.98 - 3.62% | |
The expected volatility of the option is determined
using historical volatilities based on historical stock price of comparable boat manufacturing companies. Forza estimated the expected
life of the options granted based upon historical weighted average of comparable boat manufacturing companies. The risk-free interest
rate is determined using the U.S. Department of the Treasury yield curve rates with a remaining term equal to the expected life
of the option. Forza has never paid a dividend, and as such the dividend yield is 0.0%
Schedule of expected volatility of option | | | |
| | | |
| | | |
| | | |
| | |
| |
Options Outstanding | |
Weighted Average | |
|
| |
Number of | |
Weighted Average | |
Remaining life | |
|
| |
Options | |
Exercise Price | |
(years) | |
Fair value of option |
| |
| |
| |
| |
|
| Outstanding, December 31, 2021 | | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
| Granted | | |
| 1,441,500 | | |
| 3.41 | | |
| 10.00 | | |
| 4,009,913 | |
| Exercised | | |
| — | | |
| — | | |
| | | |
| | |
| Forfeited/canceled | | |
| — | | |
| — | | |
| — | | |
| — | |
| Outstanding, December 31, 2022 | | |
| 1,441,500 | | |
$ | 3.41 | | |
| 10.00 | | |
$ | 4,009,913 | |
| Granted | | |
| — | | |
| — | | |
| — | | |
| — | |
| Exercised | | |
| — | | |
| — | | |
| | | |
| | |
| Forfeited/canceled | | |
| (36,944 | ) | |
| 1.33 | | |
| 9.74 | | |
| — | |
| Outstanding, March 31, 2023 | | |
| 1,404,556 | | |
$ | 3.46 | | |
| 9.51 | | |
$ | 4,009,913 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Exercisable options, March 31, 2023 | | |
| 240,583 | | |
$ | 4.21 | | |
| 9.44 | | |
| | |
13. Customer and Supplier Concentration
Significant dealers and suppliers are those
that account for greater than 10% of the Company’s revenues and purchases.
During the three months ended March 31, 2023,
two individual dealers had sales of over 10% of our total sales, and
each customer represented 33% and 11% of total sales. During the three months ended March 31, 2022, three individual customers
had sales of over 10% of our total sales, and combined these three customers represented 62% of total sales.
During
the three months ended March 31, 2023, we purchased substantial portions of materials from three third-party vendors (51%). As
of March 31, 2023, the amount due to the vendors was $1,674,884. During the three months ended March 31, 2022, we purchased substantial
portions of materials from two third-party vendors (45%). At March 31, 2022, the amount due to the vendors was $1,051,772.
14. Segment
The Company reports segment information based
on the “management” approach. The management approach designates the internal reporting used by management for making
decisions and assessing performance as the source of the Company’s reportable segments.
The Company reported its financial performance
based on the following segments: Gas-powered Boats, Franchise and Electric Boats.
The Company evaluates the performance of its
reportable segments based on net sales and operating income. Net sales for business segments are generally based on the sale of
boats and the sale of franchises. Income (loss) from operations for each segment includes net sales to third parties, related cost
of sales and operating expenses directly attributable to the segment. Operating income for each segment excludes other income and
expenses. The Company does not include intercompany transfers between segments for management reporting purposes.
The following table shows information by reportable
segments for the three months ended March 31, 2023 and 2022:
For the three months ended March 31, 2023
| |
| | | |
| | | |
| | | |
| | |
| |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 8,877,215 | | |
$ | — | | |
$ | — | | |
$ | 8,877,215 | |
Cost of products sold | |
| 5,605,444 | | |
| — | | |
| 49,941 | | |
| 5,655,385 | |
Operating expense | |
| 3,510,423 | | |
| 1,121 | | |
| 2,079,809 | | |
| 5,591,353 | |
Loss from operations | |
| (238,652 | ) | |
| (1,121 | ) | |
| (2,129,750 | ) | |
| (2,369,523 | ) |
Other income (expense) | |
| 420,501 | | |
| (4,062 | ) | |
| 124,619 | | |
| 541,058 | |
Net loss | |
$ | 181,849 | | |
$ | (5,183 | ) | |
$ | (2,005,131 | ) | |
$ | (1,828,465 | ) |
For the three months ended March 31, 2022
| |
| | | |
| | | |
| | | |
| | |
| |
Gas-Powered Boats | |
Franchise | |
Electric Boat and Development | |
Total |
Net sales | |
$ | 5,887,032 | | |
$ | (1,032 | ) | |
$ | — | | |
$ | 5,886,000 | |
Cost of products sold | |
| 3,439,541 | | |
| 1,027 | | |
| 11,078 | | |
| 3,451,646 | |
Operating expense | |
| 2,953,616 | | |
| 26,255 | | |
| 502,636 | | |
| 3,482,507 | |
Loss from operations | |
| (506,125 | ) | |
| (28,314 | ) | |
| (513,714 | ) | |
| (1,048,153 | ) |
Other expenses | |
| (120,353 | ) | |
| (22,234 | ) | |
| (577 | ) | |
| (143,164 | ) |
Net loss | |
$ | (626,478 | ) | |
$ | (50,548 | ) | |
$ | (514,291 | ) | |
$ | (1,191,317 | ) |
Property and equipment, net classified by business were as follows:
| | | |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
| Gas-Powered Boats | | |
$ | 5,132,365 | | |
$ | 4,694,607 | |
| Franchise | | |
$ | — | | |
$ | — | |
| Electric-Boats | | |
$ | 1,021,674 | | |
$ | 765,406 | |
15. Subsequent Events
The Company has evaluated all event or transactions
that occurred after March 31, 2023 through May 15, 2023, which is the date that the condensed consolidated financial statements
were available to be issued. During this period, the only material subsequent events requiring recognition or disclosure are provided
below.
On May 5, 2023, the Company and AquaSport Co.
entered into an agreement with Ebbtide Corporation, a Tennessee corporation (“Ebbtide”), dated May 5, 2023 (the “Agreement”),
providing the Company with the right to lease the AQUASPORT™ boat brand inclusive of its shuttered manufacturing facility.
The potential asset purchase includes AquaSport’s trademarks, 150,000-square-foot manufacturing facility situated on 18.5
acres in White Bluff Tennessee, and 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, the Company 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 the Company 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 the Company’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. In the event AquaSport Co. commits three payment Events of Default
(as defined in the Agreement) within any consecutive two-year period or commits any other material Event of Default that is not
cured timely and remains uncured, Ebbtide may terminate the Company’s rights under the Agreement to acquire the AquaSport
Assets. In addition, Ebbtide has the right to terminate the Agreement if an Event of Default occurs.
AquaSport’s obligations under the Agreement
have been guaranteed by the Company.