TWIN VEE POWERCATS CO. 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 16 gas-powered models in production ranging in size from our 24-foot, dual engine, center console to our newly designed 40-foot offshore 400 GFX. Our twin-hull catamaran running surface, known as a symmetrical catamaran hull design, adds to the Twin Vee ride quality by reducing drag, increasing fuel efficiency, and offering users a stable riding boat. We have additionally, launched the LFG Marine 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 significantly across the nation and moving us outside on the niche catamaran market. Twin Vee's home base operations inFort Pierce Florida is a 7.5-acre facility with several buildings totaling over 75,000 square feet. We currently employe approximately 170 employees, 2022, some of whom have been with our company for over twenty years. 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 majority held subsidiary, Forza and (iii) our franchise segment which is developing a standard product offering and will be selling franchises acrossthe United States through our wholly owned subsidiary, Fix My Boat,
Inc., aDelaware corporation. 51 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 20 independent boat dealers in 27 locations acrossNorth America and theCaribbean 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. We believe that the boating industry will follow in the footsteps of the electrification of the automotive industry by creating electric boats that meet or exceed the traditional boating consumer's expectations of price, value and run times. In other words, electric boats must offer a similar experience when compared to traditional gas-powered boats in terms of size, capability, and price point. To date, we have completed the design of the 25-foot FX dual console model, including hull, deck and small parts. This design has gone from an intellectual concept in CAD to fiberglass and foam plugs, fiberglass molds and, finally, working boat parts in just over one year. OnOctober 28, 2022 , the running surface of the boat and all major components were tested successfully for several hours on theIndian River Lagoon inFort Pierce, Florida . While the motor and control systems have been successfully trialed previously, this was the first voyage including all major components, production batteries, fully functioning "alpha" engine design, control system - including 22" Garmin screen, and Osmosis telematics unit. The performance of the boat exceeded all expectations and will provide a great baseline for improvements, iterations, and design enhancements. We ultimately reached over thirty miles per hour. Subsequent to the initial prototype boat, we have built four more prototypes: two more FX-style catamarans, one deck boat and one 22-foot center console monohull. The engine design and lower units and the control system cabling have been revamped and improved in each iteration. The monohull will feature a single battery and the deck boat will, like the FX, utilize a two-battery system. The batteries and engines are liquid-cooled and unique improvements to the heat exchanges have improved performance. We have now completed our telematics unit design and we have a beta app on the Apple app store. This will allow for remote monitoring of all of the parameters of the battery and engine for both the end user and the factory. Additionally, we have improved our user interface through the Garmin control screen to provide well-designed pages showing operating characteristics and conformance to control parameters.
We continue to anticipate revenues from the sale of these fully integrated electric boats and motors to commence in late 2023. Forza will continue to build prototype engines and boats for the next six to nine months.
In September of 2021 launched our wholly owned subsidiary,Fix My Boat Inc. Fix My Boat, will be the first nationally branded, mobile marine service company utilizing a franchise model for marine mechanics across the country. We have not experienced material adverse effects on our business due to increasing inflation, it has raised operating costs for many businesses and, in the future, could impact demand for our products, foreign exchange rates or employee wages. Inflation rates, particularly inthe United States , have increased recently to levels not seen in years, and increased inflation may result in increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital. In addition, theFederal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty may impact consumer spending for products like our. Financial Condition
Our consolidated balance sheet indicates a strong financial position as ofDecember 31, 2022 . We finished the year with revenue up 103% over the prior year. Our cash, cash equivalents and marketable securities were$26.4 million atDecember 31, 2022 . 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. 52
While we have largely returned to normal operations, the COVID-19 pandemic continues to cause challenges. During fiscal 2022, we experienced supply chain disruptions and an overall increase in the price of raw materials and other components used in our production. We also incurred higher labor costs and challenges to fill open positions due to a highly competitive job market. Additionally, we experienced periodic operational disruptions as our employees contracted or were potentially exposed to COVID-19 pandemic, we are unable to predict the impact the pandemic may have on our future results of operations or financial condition. Results of Operations
Comparison of the Years Ended
The following table provides certain selected financial information for the
years presented:
Year Ended
December 31,
2022 2021 Change % Change
Net sales $ 31,987,724 $ 15,774,170 $ 16,213,554 103 %
Cost of products sold $ 21,330,918 $ 9,498,384 $ 11,832,534 125 %
Gross profit $ 10,656,806 $ 6,275,786 $ 4,381,020 70 %
Operating expenses $ 16,678,514 $ 7,906,507 $ 8,772,007 111 %
Loss from operations $ (6,021,708 ) $ (1,630,721 ) $ (4,390,987 ) 269 %
Other income $ 228,294 $ 619,712 $ (391,418 ) (63 %)
Net loss $ (5,793,414 ) $ (1,011,009 ) $ (4,782,405 ) 473 %
Basic and dilutive loss per
share of common stock $ (0.76 ) $ (0.19 ) $ (0.57 ) 301 %
Weighted average number of
shares of common stock
outstanding 7,624,938 5,331,400
Net Sales and Cost Sales
Our net sales increased $16,213,554 , or 103% to $31,987,724 for the year ended
December 31, 2022 from $15,774,170 for the year ended December 31, 2021 . We
attribute the large increase in net sales to a continued strong economy during
2022, along with our investment in the growth of our sales and marketing assets
throughout 2022. That paired with our ability to increase our production
capacity by over 100% year over year. The number of boats sold during fiscal
year ended December 31, 2022 increased 59% over the number of our boats sold
during the fiscal year ended December 31, 2021 . Additionally, we have increased
our sale prices to help offset the increases in operating expenses, which
includes increased labor cost, in addition to increased inventory levels due to
the additional models we now produce and to protect against supply chain
shortages. Our average revenue per unit for the year ended December 31, 2022 is
up approximately 31% over revenue per unit for the year ended December 31, 2021 .
The average revenue per unit increase, is not only due to our increase in sales
prices, but we also attribute this increase to a shift in our model mix. In 2021
our sales were spread evenly across our 26 and 31 Classics and our 24 and 28 GFX
models. In 2022, we discontinued the remaining Twin Vee Classic lines and made
the 260 and 340 GFX models available. We saw sales across all models increase in
2022. We did see a shift back to sales on our smallest unit, the 240 GFX, which
accounted for approximately 40% of our total sales, compared to 25% in 2021. The
260 GFX, went from approximately 27% of our total sales, down to 18% in 2022.
The 280 GFX remained consistent with 2021, while the 340 GFX increased from3% in 2021 to 12% in 2022. Gross Profit Gross profits increased by$4,381,020 , or 70% to$10,656,806 for the year endedDecember 31, 2022 from$6,275,786 for the year endedDecember 31, 2021 . Gross profit as a percentage of sales, for the year endedDecember 31, 2022 and 2021 was 33% and 40% respectively. We attribute the 7% decline in gross profit percentage to increased cost of raw materials and purchased components, as well as a onetime cycle count adjustment in the fourth quarter of 2022. As we prepared to go live on our new ERP system, we have been reviewing on hand inventory, and making corrections. As we have brought all new models to the market over the last 2 years, we had been left with noncurrent inventory. The cycle count adjustment for the year endedDecember 31,2022 was approximately$1,459,650 , compared to$608,728 for the prior year, accounting for 3% of the overall decline. We anticipate continued pressure on our gross profit percentage due to price increases on raw materials and purchased components. 53 Total Operating Expenses
Our total operating expenses for the year endedDecember 31, 2022 and 2021 were$16,678,514 and$7,906,507 respectively. Operating expenses as a percentage of sales were 52% compared to 50% in the prior year. Selling, general and administrative expenses increased by approximately 60%, or$1,033,279 to$2,759,624 for the year endedDecember 31, 2022 , compared to$1,726,345 for the year endedDecember 31, 2021 . The large portion of the increase resulted from expenses totaling$422,776 , incurred from being publicly traded company, which Twin Vee only incurred for a portion of 2021, and we did not incur in 2021 for Forza, directors and officers insurance, filing fees, legal expenses and investor relations costs. We also incurred significant increases to our liability insurance and workers compensation insurance totaling$275,416 , due to our increased revenue levels and increased wages. Travel and meals expense increased$115,277 , many of Forza's employees work remotely and those employees needed to be on site to build our prototypes. OurDelaware state tax attributed to$95,122 of the increase. Numerous other items make up the remaining$124,689 of increased selling, general and administrative expense increase. Salaries and wage related expenses increased by approximately 113%, or$6,067,970 to$11,457,569 for the year endedDecember 31, 2022 , compared to$5,389,599 for the year endedDecember 31, 2021 . The increase in salaries and wages of$4,263,341 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 endedDecember 31, 2022 was a non-cash stock-based compensation expense of$1,448,751 , which was an increase of$1,138,920 from the prior year, due to the issuance of options to employees. We have also incurred production and executive bonus expense increase of$39,083 for the year endedDecember 31, 2022 . Our cost of benefits, primarily health insurance and 401K, increased by approximately$235,144 , due to our increase in headcount. Expenses for board fees increased by$95,792 in 2022, during the year endedDecember 31, 2021 we only incurred board fees for a portion of the year for Twin Vee, and we did not incur any board fees for Forza. The remaining increase of salaries and wages during the year endedDecember 31, 2021 was associated with payroll taxes and benefits. Professional fees increased by 154%, or$585,108 to$966,037 for the year endedDecember 31, 2022 , compared to$380,928 for the year endedDecember 31, 2021 . This increase was primarily due to the additional costs we incurred associated with being a public company and included an increase in audit, legal and related consulting fees to fulfill our public companySEC reporting obligations, as well as preparation for our merger withTwin Vee PowerCats, Inc. Depreciation expense for the year endedDecember 31, 2022 increased by 179%, or$355,227 to$553,750 for the year endedDecember 31, 2022 compared to$198,523 inDecember 31, 2021 . 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 endedDecember 31, 2022 , was$941,533 compared to$211,111 , for the year endedDecember 31, 2021 . These expenses are associated with our development of our electric propulsion system for Forza. We anticipate further increases in our research and design expense in 2023. Other income decreased by 63%, or$391,418 to$228,294 for the year endedDecember 31, 2022 , compared to$619,712 for the year endedDecember 31, 2021 . The decrease in other income is primarily the result of$608,224 in government grant income associated with our PPP loan that was recognized in 2021, this was partially offset in 2022, by the ERC credit of$355,987 we received. In 2021 we recorded a net gain from insurance recovery of$180,124 , which we did not have in 2022. We incurred an increase in net loss in fair value of our marketable securities of$133,988 , due to the poor financial market. For the year endedDecember 31, 2022 we received$165,877 in dividend income, compared to$0 in 2021, and we received interest income of$85,939 compared to$146 in 2021, and increase of$85,793 as a result of increased interest rates on our cash and marketable securities. For the year endedDecember 31, 2022 we did see an increase in interest expense of$27,446 . Our interest expense also includes finance fees, that we pay third-party finance companies on behalf of our dealers, increase sales to dealers that utilize finance companies naturally drove these fees up during 2022. 54 Net Loss
Net loss for the year endedDecember 31, 2022 , was$5,793,414 , compared to$1,011,009 for the year endedDecember 31, 2021 . We have spent much of the last two years assembling the tools and people necessary to increase production levels. While our revenue levels increased, our expenses also increased. 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 2022. 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 continue to deal with the fallout of the global pandemic, as well as the impact of additional costs of growth, but are encouraged by our continued increase in revenue. Basic and dilutive loss per share of common stock increased for the year endedDecember 31 , 2022,to ($0.76 ) compared to ($0.19 ) for the
year endedDecember 31, 2021 .
Liquidity and Capital Resources
A primary source of funds for the year endedDecember 31, 2022 was net cash received from our secondary offering, as well as Forza's initial public 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 to meet the increase in demand for our products. With uncertainty on component availability, prolonged lead time and rising prices, we have been adding to our inventory far earlier than previous years.
The following table provide selected financial data about us as of
December 31, December 31,
2022 2021
Cash and cash equivalents $ 23,501,007 $ 6,975,302
Marketable securities $ 2,927,518 $ 6,064,097
Current assets $ 29,887,529 $ 13,073,346
Current liabilities $ 3,791,063 $ 2,155,420
Working capital $ 26,096,466 $ 10,917,926
As of December 31, 2022 , 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, 2022 , we had $26,428,525 of cash, cash
equivalents and marketable securities, total current assets of $29,887,529 , and
total assets of $38,231,480 . Our total liabilities were $5,210,591 . Our total
liabilities were comprised of current liabilities of $3,791,063 which included
accounts payable of $2,065,680 and accrued liabilities of $1,240,769 , contract
liability of $5,300 due to affiliated companies of $0 and current portion of
operating lease right of use liability of $479,314 , and long-term liabilities of
$1,419,528 . As of December 31, 2021 , we had $6,975,302 of cash and cash
equivalents, marketable securities of $6,064,097 , total current assets of
$13,073,346 and total assets of $20,599,184 . Our total current liabilities were
$2,155,420 and total liabilities of $3,899,484 which included long-term
operating lease liabilities for the lease of our facility.
We believe that our cash and cash equivalents will provide sufficient resources
to finance operations for the next 12 months. In addition to cash, cash
equivalents and marketable securities, we anticipate that we will be able to
rely, in part, on cash flows from operations in order to meet our liquidity and
capital expenditure needs in the next year. We do anticipate Forza's expenses to
increase during the next two years as it constructs its planned manufacturing
facility in McDowell, North Carolina , the cost of which we expect will be paid
for through the proceeds of Forza's initial public offering, and certain grant
funding, provided the conditions to receipt of the grant funding are met, of
which there can be no assurance.
Cash Flow
Year Ended
December 31,
2022 2021 Change % ChangeCash used in operating activities$ (4,146,030 ) $ (1,947,539 ) $ (2,198,491 ) (113 %) Cash used in investing activities$ (195,605 ) $ (8,037,264 ) $ 7,841,659 98 % Cash provided by financing activities$ 20,867,340 $ 16,068,289
$ 4,799,051 30 % Cash at end of year$ 23,501,007 $ 6,975,302 $ 16,525,705 237 % 55
Cash Flow from Operating Activities
For the year endedDecember 31, 2022 , net cash flows used in operating activities was$4,146,030 compared to$1,947,539 during the year endedDecember 31, 2021 . We have increased inventory levels by$2,208,563 , due to supply chain delays that continue to impact lead time and parts availability, and due to our increased product offerings. Our net loss from operation was$5,793,414 , was decreased by non-cash expenses of approximately$2,593,713 , primarily due to stock-based compensation of$1,448,751 , depreciation of$553,750 , change of right-of-use asset and lease liabilities of$397,136 , net change in fair value of marketable securities of$133,988 and a loss on the disposal of assets of$60,088 . For the year endedDecember 31, 2022 , our accounts payable and accrued liabilities increased$1,648,774 , due to our increase in inventory. For the year endedDecember 31, 2022 , our operating lease liabilities decreased$390,050 . Prepaid expenses decreased by$21,339 and contract liabilities decreased by$8,800 . Accounts receivable increased by$9,030 .
Cash Flow from Investing Activities
During the year endedDecember 31, 2022 , we used$195,605 for investment activities, compared to$8,037,264 used during the year endedDecember 31, 2021 . We increased our property and equipment by$3,365,679 , this was funded through the sales of investments of$3,002,591 . The majority of the property and equipment purchased were molds for our boat production, for both Forza and Twin Vee, investing an additional$2,229,674 . We also spent approximately$531,858 on machinery and equipment, these improvements include a new CNC machine, infusion equipment, cranes, hoists, production carts and other equipment. We spend an additional$193,350 to complete the upgrade the wiring in the building so it would support our new production levels, we installed new lighting and ventilation to improve the overall quality of our product and we built of breakroom for our employees. We additionally spent approximately$284,509 on computer hardware and software. We sold a thermoform machine for$175,000 , in order to free up space for our manufacturing processes.
Cash Flows from Financing Activities
For the year endedDecember 31, 2022 , net cash provided by financing activities was$20,867,340 , compared to$16,068,289 during the year endedDecember 31, 2021 . Net cash provided by financing activities primarily came from net proceeds from Forza's initial public offering of$14,934,989 which included the noncontrolling interest of$5,241,317 and net proceeds from our secondary offering of$6,001,836 . We had repayments of debt and advancements fromTwin Vee Inc. , which was a$69,485 net payment associated with.
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 withU.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
56
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 balance sheet. 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 inthe 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, 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.
57
Paycheck Protection Program
U.S. GAAP does not contain authoritative accounting standards for forgivable
loans provided by governmental entities to a for-profit entity. Absent
authoritative accounting standards, interpretative guidance issued and commonly
applied by financial statement preparers allows for the selection of accounting
policies amongst acceptable alternatives. Based on the facts and circumstances,
the Company determined it most appropriate to account for the Paycheck
Protection Program ("PPP") loan proceeds as an in-substance government grant by
analogy to International Accounting Standards 20 "(IAS 20)", Accounting for
Government Grants and Disclosure of Government Assistance. Under the provisions
of IAS 20, "a forgivable loan from government is treated as a government grant
when there is reasonable assurance that the entity will meet the terms for
forgiveness of the loan." IAS 20 does not define "reasonable assurance";
however, based on certain interpretations, it is analogous to "probable" as
defined in FASB ASC Subtopic 450-20-20 under U.S. GAAP, which is the definition
the Company has applied to its expectations of PPP loan forgiveness. Under IAS
20, government grants are recognized in earnings on a systematic basis over the
periods in which the Company recognizes costs for which the grant is intended to
compensate (i.e., qualified expenses). Further, IAS 20 permits for the
recognition in earnings either (1) separately under a general heading such as
other income, or (2) as a reduction of the related expenses. The Company has
elected to recognize government grant income separately within other income to
present a clearer distinction in its financial statements between its operating
income and the amount of net income resulting from the PPP loan and forgiveness.
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
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