Twin Vee PowerCats Co. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; it does not provide standalone fourth-quarter results. The company designs, manufactures, and markets power catamaran boats, with gas-powered boats accounting for 99% of 2021 revenue. Its other activities—electric boats through Forza X1 and a marine-service franchise concept—were at early development stages. Financial statements were audited, and the auditor issued an unqualified opinion on them.
Financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $15.77 million | $11.06 million |
| Gross profit / gross margin | $6.28 million / 39.8% | $4.77 million / 43.2% |
| Operating expenses | $7.91 million | $4.05 million |
| Operating income (loss) | ($1.63 million) | $0.72 million |
| Net income (loss) | ($1.01 million) | $1.17 million |
| Basic and diluted earnings (loss) per share | ($0.19) | $0.29 |
| Cash from (used in) operating activities | ($1.95 million) | $0.36 million |
Revenue rose 43%; units sold increased 27%, and average revenue per unit rose approximately 12%, reflecting higher prices and a shift toward larger models. Gross margin fell about 3.4 percentage points, which management attributed mainly to higher raw-material and component costs. Operating expenses rose 95%, driven chiefly by increased production staffing, public-company costs, and investment in electric-boat development.
At year-end, cash and cash equivalents were $6.98 million and marketable securities were $6.06 million; together they totaled $13.04 million. Working capital was $10.92 million, compared with $0.39 million in 2020. Total assets were $20.60 million and total liabilities were $3.90 million. The liabilities included a $499,900 SBA EIDL loan and $1.61 million of operating lease liabilities; the EIDL is secured by substantially all tangible and intangible personal property. Management said available resources were sufficient for at least 12 months from the filing date.
Investing activities used $8.04 million, including $6.10 million invested in marketable securities and $1.94 million for property and equipment. Financing activities provided $16.07 million, principally from the July 2021 IPO, which generated approximately $15.85 million in net proceeds. The IPO issued 3 million shares at $6 per share. The company reported no off-balance-sheet arrangements.
Material changes, outlook, and commentary
- Operating results shifted from 2020 net income to a 2021 net loss despite higher sales, as expenses and production costs grew faster than revenue.
- Management reported a backlog of more than 125 boats, with current orders scheduled for delivery into the fourth quarter of 2022. It planned to expand gas-boat production and reported operating near the current facility’s capacity.
- The company brought the 280 GFX and 340 GFX to market in 2021 and planned to begin production of the 260 GFX and 400 GFX in 2022.
- Forza’s planned FX1 electric boats were targeted for prototype completion in the second quarter of 2022 and commercial-scale production in the second quarter of 2023. These are plans, not reported results. Forza shared Twin Vee’s facility and was seeking funding for a separate factory.
- The company redirected planned IPO proceeds away from developing a retrofit-focused electric propulsion system and anticipated using those funds for working capital, citing consumer preference for fully integrated electric boats.
- COVID-19-related supply constraints, including shortages of certain Suzuki engines and semiconductor chips, delayed components and increased costs. Management also cited higher labor costs and hiring challenges.
Risks, contingencies, and unusual items
- Concentration and distribution: Five dealers represented 67% of 2021 sales; the company has no written dealer purchase agreements. It had floor-plan repurchase commitments with a maximum stated obligation of approximately $4.27 million at year-end, though it reported no repurchases to date.
- Suppliers and capacity: The company relies on a single engine supplier, has no long-term commitments for most suppliers, and reported current-facility capacity constraints. Component shortages, cost increases, or production disruptions could affect deliveries and margins.
- Electric-boat execution: Forza had not yet commercialized its boats. Risks include development and production delays, consumer adoption, the planned direct-to-consumer model, battery safety and range, chip availability, and the need for additional funding and manufacturing capacity. A prototype thermal event in May 2021 delayed design work by six months.
- Unusual income and loss items: 2021 other income included $608,224 of PPP grant income and a $434,724 insurance recovery; the company also recorded a $254,600 loss on asset disposal. The insurance recovery related to a prototype thermal event and a fire at an unused storage building. A separate $609,500 PPP loan had been forgiven and recognized as income in 2020.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2021 due to material weaknesses, including inadequate segregation of duties. Remediation was ongoing and the weakness had not been remediated by year-end. The auditor did not provide an internal-control audit opinion.
- Related parties and ownership: The company leases its facility from an entity owned by its CEO. Its parent company owned 58.82% of Twin Vee’s shares at March 30, 2022. The company also reported balances due from and to affiliates.
- Potential dilution: At year-end, 3 million IPO representative warrants were outstanding at a $7.50 exercise price, along with 713,612 options. The company does not anticipate paying dividends in the foreseeable future.
Most important facts for investors to verify
- Whether the reported backlog converts to dealer purchases and deliveries, and whether planned production expansion can overcome capacity, labor, and supply constraints.
- Whether gross margins recover or remain under pressure from component, material, and labor costs, and whether operating expenses support improved profitability.
- Whether the FX1 achieves its development, safety, funding, factory, and production milestones, and whether customers adopt the direct-sales model.
- Whether the company remediates its material weaknesses in financial reporting controls and improves segregation of duties.
- The terms and current exposure of dealer repurchase commitments, the EIDL security interest, related-party lease arrangements, and potential share dilution.