Finance fishing boats

TWIN VEE POWERCATS, CO. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS. (Form 10-Q)

You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes included in this Quarterly Report on Form 10-Q. The following discussion
contains forward-looking statements that involve risks and uncertainties. See
"Forward-Looking Statements." Our actual results and the timing of certain
events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those discussed below and
elsewhere in this Quarterly Report on Form 10-Q. This discussion should be read
in conjunction with the accompanying unaudited condensed consolidated financial
statements and notes thereto. You should also review the disclosure under the
heading "Risk Factors" in this Quarterly Report on Form 10-Q and under Part 1,
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021
for a discussion of important factors that could cause our actual results to
differ materially from those anticipated in these forward-looking statements.



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 8
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. Twin Vee's home base operations in Fort
Pierce Florida is a 7.5-acre facility with several buildings totaling over
75,000 square feet. We employed approximately 140 people on March 31, 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 wholly owned subsidiary, Forza X1, Inc., a Delaware corporation
("Forza") and (iii) our franchise segment which is developing a standard product
offering and will be selling franchises across the United States through our
wholly owned subsidiary, Fix My Boat, Inc., a Delaware corporation.



Our gas-powered boats allow consumers to use them for a wide range of
recreational activities including fishing, diving and water skiing and
commercial activities including transportation, eco tours, fishing and diving
expeditions. We believe that the performance, quality and value of our boats
position us to achieve our goal of increasing our market share and expanding the
power catamaran boating market. We currently primarily sell our boats through a
current network of 20 independent boat dealers in 25 locations across North
America and the Caribbean who resell our boats to the end user Twin Vee
customers. We continue recruiting efforts for high quality boat dealers and seek
to establish new dealers and distributors domestically and internationally to
distribute our boats as we grow our production and introduce new models. Our
gas-powered boats are currently outfitted with gas-powered outboard combustion
engines.



Due to the growing demand for sustainable, environmentally friendly electric and
alternative fuel commercial and recreational vehicles, our wholly owned
subsidiary, Forza X1, Inc., is designing and developing a line of
electric-powered catamaran boats ranging in size from 18-feet to 28-feet.
Forza's initial two models, the FX1 Dual Console and FX1 Center Console, are
being designed to be 24-foot in length, have an 8' beam or width and utilize a
catamaran hull surface to reduce drag and increase run times. The initial launch
of FX1 will include our proprietary single electric outboard motor. Our electric
boats are being designed as fully integrated electric boats including the hull,
outboard motor and control system. To date, we have completed the design of the
hull and running surface of the boat and have begun tooling the molds which are
required to build the physical fiberglass boat, we have entered into a supply
agreement for the supply of the lithium battery packs that we plan to use to
power the electric boats, completed the design and prototyping of the boat
control system, and completed the design and are more than halfway through
prototyping of the electric outboard motor. We expect to begin production of our
FX1 fully integrated electric boat and motor and commence selling to end user
customers by the second quarter of 2023. We have also filed three design and
four utility patent applications with the U.S. Patent and Trademark Office
relating to, among other things, our propulsion system being developed and
boat
design.



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Through the first quarter of 2022, we continue to experience strong demand for
our products. Our company objective is to add new, larger boat models to our GFX
lineup, expand our dealers and distribution network, and increase unit
production to fulfill our customer and dealer orders. For the first three months
ended March 31, 2022, we increased our manufacturing throughput to an average of
4 boats a week. The increase in production drove our net revenue up 83% compared
to 19% for the three months ended March 31, 2021. While driving our top line net
sales growth, we are also experiencing increased labor costs. Our manufacturing
process is labor intensive, and with the addition of new models to our
production line we have added staff and expanded our training program.



Our goal continues to increase production to 5 boats per week which has resulted
in an increase in operating expenses. More specifically, our headcount has
increased and is expected to further increase as we hired additional production
employees and midlevel managers resulting in higher salaries and wages. We
continue focus on hiring highly qualified production and administrative staff to
order to increase our productivity, drive efficiencies, and improve product
quality. To help meet our production objectives we have also invested
approximately $2.5 million in facility upgrades, capital equipment and molds.



As we move forward into the second quarter of 2022, we anticipate our operating
income to be moderate toward breakeven for our core gas powered boat segment,
however our electric boat division will continue to incur losses as we continue
our research and development efforts.



Results of Operations


Comparison of the three months ended March 31, 2022 and 2021



The following table provides certain selected financial information for the
periods presented:



                                          Three months ended
                                               March 31,
                                         2022             2021             Change          % Change
Net sales                           $  5,886,000      $ 3,207,643      $  2,678,357              83 %
Cost of products sold               $  3,451,646      $ 1,719,737      $  1,731,909             101 %
Gross profit                        $  2,434,354      $ 1,487,906      $    946,448              64 %
Operating expenses                  $  3,482,507      $ 1,333,144      $  2,149,363             161 %
(Loss) income from operations       $ (1,048,153 )    $   154,762      $ (1,202,915 )          (777 %)
Other expense                       $   (143,164 )    $   (22,813 )    $    120,351             528 %
Net (loss) income                   $ (1,191,317 )    $   131,949      $ (1,323,266 )        (1,003 %)
Basic and dilutive income per
share of common stock               $      (0.17 )    $      0.03      $      (0.20 )          (616 %)
Weighted average number of
shares of common stock
outstanding                            7,000,000        4,000,000




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Net Sales and Cost Sales



Our net sales increased $2,678,357, or 83% to $5,886,000 for the three months
ended March 31, 2022 from $3,207,643 for the three months ended March 31, 2021.
This increase was due to an increase in the number of boats sold during the
three months ended March 31, 2022. The number of our boats produced and sold
during the three months ended March 31, 2022 increased 48% over the three months
ended March 31, 2021, due to our production plan, which we continue to implement
and refine, enabling us to produce more boats during the quarter. Additionally,
we have increased our sale prices to help offset the increases in operating
expenses, which includes increased labor cost, described below, as well as
increased costs of production supplies. Our average revenue per unit for the
three months ended March 31, 2022 is up approximately 21% over revenue per unit
for the three months ended March 31, 2021. The average revenue per unit increase
is due to an increase in boat pricing and a shift in product mix with higher
margins. We discontinued our classic models and replaced them with our GFX
models which generate more revenue per unit.



Gross Profit



Gross profits increased by $946,448, or 64% to $2,434,354 for the three months
ended March 31, 2022 from $1,487,906 for the three months ended March 31, 2021.
Gross profit as a percentage of sales for the three months ended March 31, 2022
and 2021 was 41% and 46% respectively. We attribute the decline in gross profit
percentage to increased cost of raw materials and purchased components. We
anticipate continued pressure on our gross profit percentage due to price
increases on raw materials and purchased components.



Total Operating Expenses


Our total operating expenses for the three months ended March 31, 2022 and 2021
were $3,482,507 and $1,333,144 respectively. Operating expenses as a percentage
of sales were 59% compared to 42% in the prior year.



Selling, general and administrative expenses increased by approximately 128%, or
$382,896 to $682,321 for the three months ended March 31, 2022, compared to
$299,425 for the three months ended March 31, 2021. The large portion of the
increase resulted from expenses totaling $236,896 incurred from being publicly
traded company, which we did not incur in the prior year including, directors
and officers insurance, filing fees, legal expenses and investor relations
costs. We incurred significant increases in our liability insurance and workers
compensation insurance totaling $51,498, an increase of 142%, due to our
increased revenue levels and increased wages. Office related expenses increased
$39,435 or 125%, due to increased staffing levels and work volume. We also saw
an increase in travel related expenses of $26,674 or 449%, due to our Forza
segment for research and design efforts. Other miscellaneous items make up the
remaining $28,393 of increased selling, general and administrative expense.



Salaries, wages and other compensation expenses increased by approximately 143%,
or $1,325,640 to $2,253,810 for the three months ended March 31, 2022, compared
to $928,170 for the three months ended March 31, 2021. Total salaries and wages
increased by $888,933 as a result of aggressively ramping up of production,
which required increasing our production and mid-level staff. Included in
salaries and wages for the three months ended March 31, 2022 was a charge for
non-cash stock-based compensation expense of $224,832 due to the issuance of
options to employees and consultants. As we have grown as an organization, we
have added benefits to maintain a competitive workforce by adding paid time off,
a 401K program, paid holidays and health insurance, which resulted in increased
expenses of $92,601. We have also incurred production and executive bonus
expense of $68,419 for the three months ended March 31, 2021 compared to $21,600
for the three months ended March 31, 2021, an increase of $46,819, as a result
of meeting our production first quarter production objectives. Our compensation
to the Board of Directors for the three months ended March 31, 2022 and 2021 was
$20,750 and $0, respectively. During the first half of 2021 we were not required
to have a Board and did not incur the related expense. The remaining increase,
approximately $63,300 of salaries and wages during the three months ended March
31, 2022 was associated with payroll taxes.



Professional fees increased by 315%, or $185,713 to $244,739 for the three
months ended March 31, 2022, compared to $59,026 for the year ended 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 in order to fulfill our public company SEC reporting
obligations.



Depreciation expense for the three months ended March 31, 2022 increased by 72%,
or $33,569 to $80,092 for the three months ended March 31, 2022, compared to
$46,523 for the three months ended March 31, 2021. Over the past year we made
significant investments in equipment, leasehold improvements and boat molds that
resulted in an increased our depreciation expense.



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Research and design costs for the three months ended March 31, 2022been
$221,545 compared to $0for the three months ended March 31, 2021. These expenses are primarily associated with the development of our electric propulsion system for Forza X1.

Other expense increased by $120,351 to $143,164 for the three months ended March
31, 2022, compared to $22,813 for the three months ended, 2021. The increase in
other expense is primarily the result of $85,538 in net change in fair value of
marketable securities. Interest expense increased $22,128 to $39,840, and we
incurred a net of loss on disposal of assets of $18,408.



Net Loss


Net loss for the three months ended March 31, 2022 was $1,191,317, compared to
net income of $131,949 for the three months ended March 31, 2021. While our
revenue levels increased, our expenses also increased as we continue to invest
in our operations to improve production levels. 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 the three
months ended March 31, 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 for the three months ended March 31, 2022, ($0.17)
compared to basic and dilutive income per share of common stock for the three
months ended March 31, 2021, $0.03.



Cash and capital resources



A primary source of funds for the three months ended March 31, 2022 was from
cash from operation and use of proceeds from our IPO. Our primary use of cash
was related to increasing inventory levels to meet the high level of demand
coupled with the current supply chain challenges. With uncertainty on component
availability, prolonged lead time and rising prices, we have been bringing in
inventory far earlier than in previous years.



The following table provides selected financial data about us at March 31, 2022 and December 31, 2021.


                              March 31,       December 31,
                                 2022             2021
Cash and cash equivalents   $  5,061,380     $  6,975,302
Marketable securities       $  5,978,043     $  6,064,097
Current assets              $ 12,606,264     $ 13,073,346
Current liabilities         $  3,122,630     $  2,155,420
Working capital             $  9,483,634     $ 10,917,926




As of March 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
Quarterly Report on Form 10-Q. As of March 31, 2022, we had $11,039,423 of cash,
cash equivalents and marketable securities, total current assets of $12,606,264,
and total assets of $20,501,774. Our total liabilities were $4,768,559. Our
total liabilities were comprised of current liabilities of $3,122,630 which
included accounts payable and accrued liabilities of $2,629,731, due to
affiliated companies of $115,043 and current portion of operating lease right of
use liability of $377,856, and long-term liabilities of $1,645,929. As of
December 31, 2021, we had $13,039,399 of cash, cash equivalents and marketable
securities, total current assets of $13,073,346 and total assets of
$20,5995,184. 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.



The accumulated deficit was $3,208,873 from March 31, 2022 compared to the accumulated deficit of $2,017,556 from December 31, 2021.

Our working capital has decreased by $1,434,292 for $9,483,634 from March 31, 2022compared to $10,917,926 on December 31, 2021mainly due to the increase in accounts payable and accrued liabilities.


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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 as well as proceeds from our initial
public offering.



 Cash Flow



                                       Three Months Ended                                                    Years Ended
                                           March 31,                                                         December 31,
                                      2022             2021           $ Change        % Change           2021             2020           $ Change        % Change
Cash provided by (used in)
operating activities             $ (1,149,673 )    $  189,898      $ (1,339,571 )        (705 %)    $ (1,947,539 )    $  364,648      $ (1,582,891 )        (634 %)
Cash used in investing
activities                       $   (647,855 )    $ (443,250 )    $   (204,605 )          46 %     $ (8,037,264 )    $ (200,452 )    $  7,836,812        (3,910 %)
Cash provided by (used in)
financing activities             $   (116,394 )    $  457,866      $   (574,260 )        (125 %)    $ 16,068,289      $  512,046      $ 15,556,243         3,038 %
Net Change in Cash               $ (1,913,922 )    $  204,514      $ (2,118,436 )      (1,036 %)    $  6,975,302      $  891,816      $  6,083,486           682 %



Cash flow from operating activities

For the three months ended March 31, 2022, net cash flows used in operating
activities was $1,149,673 compared to net cash provided by operating activities
of $189,898 during the three months ended March 31, 2021. We have increased
inventory levels by $1,413,413, due to supply chain delays that continue to
impact lead time and parts availability, this is further emphasized by our
production ramp up. Accounts payable increased $768,632, which is also
associated with our increased bring in of inventory. Our accrued liabilities
increased $203,424, primarily due to accrued rebate expense and accrued
professional fees. Our net loss from operation was $1,191,317, was decreased by
non-cash expenses of $597,649, primarily due to stock-based compensation of
$224,832, change of right-of-use asset and lease liabilities of $93,106, loss on
disposal of assets of $18,408, net change in fair value of marketable securities
of $85,538 and depreciation of $80,092.



Cash flow from investing activities



During the three months ended March 31, 2022, we used $647,855 for investment
activities, compared to $443,250 used during the three months ended March 31,
2021. We invested $728,371 in the purchase property and equipment, primarily for
new model boat molds of approximately $439,000, leasehold improvements of
approximately $142,000, new production equipment of approximately $130,000, and
new computers and furniture of approximately $16,000. We had proceeds from the
sale of property of approximately $80,000.



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Cash flow from financing activities



For the three months ended March 31, 2022, net cash used by financing activities
was approximately $116,394, compared to net cash provided by financing
activities of $457,866. During the three months ended March 31, 2022, we used
$116,394 for deferred offering cost relating to Forza.



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 condensed consolidated financial statements, which
have been prepared in accordance with U.S. GAAP. The preparation of our
condensed 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 condensed 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



We account 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. We
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 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 in the United States "U.S. GAAP" requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates. Included in those
estimates are assumptions about allowances for inventory obsolescence, useful
life of fixed assets, warranty reserves and bad-debt reserves.



Inventories



Inventories are stated at the lower of cost or net realizable value using the
first-in, first-out (FIFO) method. Net realizable value is defined as sales
price less cost of completion, disposable and transportation and a normal profit
margin. Production costs, consisting of labor and overhead, are applied to
ending finished goods inventories at a rate based on estimated production
capacity. Excess production costs are charged to cost of products sold.
Provisions have been made to reduce excess or obsolete inventories to their
net
realizable value.



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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, we include the following disclosure applicable to our product warranties.

We accrue 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.
Our warranty reserve is calculated as the gross sales multiplied by the
historical warranty expense return rate.



Leases



We 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, we applied a dual approach to all leases whereby we are a
lessee and classify leases as either finance or operating leases based on the
principle of whether or not the lease is effectively a financed purchase by us.
Lease classification is evaluated at the inception of the lease agreement.

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
we have applied to our expectations of PPP loan forgiveness. Under IAS 20,
government grants are recognized in earnings on a systematic basis over the
periods in which we recognize 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. We have 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



We account 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
we will not realize tax assets through future operations.



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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 in Security and Exchange Commission rules.

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