Business context and reporting period
Twin Vee PowerCats Co. filed this unaudited Form 10-Q for the three months ended March 31, 2023. The company designs, manufactures and sells recreational and commercial boats, primarily through independent dealers. Its reported segments are gas-powered boats, electric boat development (Forza X1) and franchise operations (Fix My Boat). The quarter included sales of the company’s first 22-foot monohull model; electric boats were still in development and generated no revenue.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Net sales | $8.88 million | $5.89 million; up 51% |
| Gross profit / margin | $3.22 million / 36% | $2.43 million / 41% |
| Operating expenses | $5.59 million | $3.48 million; up 61% |
| Operating loss | $2.37 million | $1.05 million |
| Consolidated net loss | $1.83 million | $1.19 million |
| Net loss attributable to Twin Vee shareholders; loss per share | $1.17 million; $0.19 | $1.19 million; $0.17 |
| Cash used in operating activities | $2.23 million | $1.15 million |
Sales rose as the company shipped 54 boats versus 40 a year earlier, alongside higher selling prices and reduced discounts. Cost of products sold grew faster than sales, and gross margin declined. Salaries and wages, selling and administrative costs, research and development, and depreciation all increased. The electric boat segment recorded a $2.01 million loss; the gas-powered segment reported $181,849 of income. Consolidated results included $329,573 of employee retention credit income and $234,510 of dividend income.
At March 31, cash, cash equivalents and restricted cash were $21.02 million; marketable securities totaled $2.43 million. Working capital was $24.70 million, down from $26.10 million at year-end 2022. Total liabilities were $5.22 million. The company reported a $499,900 SBA EIDL loan, finance lease liabilities of about $89,600, and operating lease liabilities. Cash declined $2.48 million during the quarter. Investing activities used $243,007, including $744,008 of property and equipment purchases partly offset by $501,001 of investment-sale proceeds; financing activities used $2,835.
Material changes and management commentary
- Operating expenses increased 61%, driven by production staffing and compensation, Forza’s development and public-company costs, sales and marketing, professional fees, and new production assets.
- Inventory increased to $4.80 million from $4.01 million, as the company built inventory amid supply delays, longer lead times and production expansion.
- Management said it expects cash resources to fund operations for at least 12 months from the filing date. It expects Forza costs to rise over the next two years as it develops a manufacturing facility in North Carolina; grant funding is conditional and not assured.
- Management anticipates the gas-powered segment’s operating income will moderate toward breakeven. It expects continued electric-boat development losses and said sales may remain consistent until the planned Tennessee facility becomes operational. The filing provides no quantified revenue or earnings guidance.
- After quarter-end, Twin Vee and its AquaSport subsidiary agreed to lease the AQUASPORT brand and shuttered Tennessee facility beginning June 1, 2023, for $22,000 monthly, with a five-year term and renewal option. The agreement includes a right to purchase the assets for $3.1 million, subject to stated deposit and rent credits; Twin Vee guarantees AquaSport’s obligations.
Risks, contingencies and unusual items
- Management concluded disclosure controls and procedures were not effective at March 31, 2023 because of material weaknesses related to staffing and expertise in GAAP reporting. Remediation was underway, but testing continued.
- Dealer concentration is material, and the filing gives inconsistent concentration figures in different sections. The notes state two dealers represented 33% and 11% of sales; other passages cite 48% for two dealers and approximately 34% for top dealers. Dealer dependence and credit availability are risks.
- Floor-plan repurchase commitments were approximately $12.52 million, covering 69 units, though no repurchase events affected the quarter. Engine purchases relied on two vendors; three vendors represented 51% of material purchases.
- The EIDL is secured by substantially all tangible and intangible personal property. Cash balances exceeded FDIC-insured limits by approximately $19.92 million at quarter-end.
- Forza’s planned North Carolina facility and up to $1.37 million of JDIG reimbursements depend on investment and job-creation conditions; the filing says there is no assurance these conditions will be met. The company also cites production-capacity constraints, supply-chain and input-cost risks, interest rates, fuel prices and potential continued losses.
- The filing reports no material litigation and no off-balance-sheet arrangements. The employee retention credit and investment income materially supported reported other income in the quarter.
Important facts for investors to verify
- Reconcile the filing’s conflicting dealer-sales concentration disclosures and assess exposure to the largest dealers.
- Track whether higher unit sales translate into improved gross margin, particularly for the newer monohull model.
- Monitor cash burn, inventory growth and capital spending against management’s stated 12-month liquidity expectation.
- Assess Forza’s development milestones, costs, manufacturing capacity plans and eligibility for conditional grant funding.
- Review progress in remediating material weaknesses in financial reporting controls.
- Confirm the costs, funding and obligations associated with the AquaSport lease, purchase option and parent guarantee.