Twin Vee PowerCats Co. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited. Twin Vee designs, manufactures and sells recreational and commercial power catamaran boats primarily through independent dealers. The company completed its IPO in July 2021 and shifted focus toward expanding production.
Financial performance
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Net sales | $4.12 million; +65% year over year | $10.62 million; +54% |
| Gross profit / margin | $1.61 million / 39%, versus $0.70 million / 28% | $4.41 million / 42%, versus $2.56 million / 37% |
| Operating expenses | $1.93 million; +104% | $4.70 million; +76% |
| Operating loss | $323,000, versus $248,000 loss | $285,000, versus $109,000 loss |
| Net loss | $383,000, versus $201,000 loss; loss per share $0.06 | $200,000, versus $145,000 loss; loss per share $0.04 |
| Cash flow from operations | $743,000 used in the nine-month period, versus $291,000 used in 2020 |
Management attributed sales growth to more boats sold, higher production and pricing. Boat units sold increased 33% in the quarter and 37% year to date; average revenue per unit rose approximately 12% year to date. Higher production costs, hiring, bonuses, public-company costs and investment in new models contributed to higher operating expenses. Operating expenses were 47% of quarterly sales and 44% of nine-month sales, compared with 38% and 39%, respectively.
Financial position and liquidity
- At September 30, cash and cash equivalents were $8.98 million; marketable securities totaled $6.09 million ($3.00 million current and $3.09 million noncurrent). Current assets were $15.63 million and current liabilities $2.90 million. Reported working capital was $12.77 million.
- Cash rose by $8.09 million during the nine months. Financing provided $16.15 million, principally $15.85 million of net IPO proceeds; investing used $7.32 million, including $6.10 million for marketable securities and $1.22 million for property and equipment.
- Operating cash use reflected inventory growth of $1.52 million and prepaid expenses and other current assets growth of $685,000, partly offset by increases in accounts payable and accrued liabilities.
- Debt included a $608,224 PPP loan at 1% and a $499,900 SBA EIDL loan at 3.75%. The company had applied for PPP forgiveness, which was not assured. Operating lease liabilities totaled $1.70 million.
- The company reported a maximum dealer floor-plan repurchase exposure of approximately $2.84 million; it reported no repurchase events in the period. Cash balances exceeded FDIC-insured limits by $8.73 million.
Management said available cash and expected operating cash would fund operations for at least twelve months from the filing date. The CEO’s affiliated entity leases the company’s facilities for $30,000 per month, with annual rent increases.
Changes, outlook and notable items
- Quarterly and year-to-date revenue and gross margin improved, but operating losses widened as expenses rose faster than sales. Nine-month net loss also included a reported $434,724 insurance recovery and a $254,600 loss on asset disposal; management described their net effect as approximately $180,000 of income.
- The IPO issued 3 million shares at $6.00 each for $18 million gross proceeds and approximately $15.85 million net proceeds. Stated uses included larger boats, electric boats and propulsion development, a proposed waterfront innovation and testing center, and working capital.
- Management targeted increasing production from about one boat per week during the 2020 slowdown to four per week. It said molds for 28-, 34- and 40-foot models were progressing, with the 34-foot molds completed in early October. No formal financial guidance was provided.
- The company formed Fix My Boat, a planned marine-service franchise business; it had no activity through September 30. A land purchase agreement for a 14.5-acre Fort Pierce site was signed in October, subject to due diligence and approvals. The filing also describes an electric-boat development program.
- COVID-related supply constraints, higher component costs and shortages of Suzuki 150-horsepower engines may limit production. Other disclosed risks include dependence on a single engine supplier, seasonal and volatile boat demand, dealer concentration and financing, workforce availability, fixed costs, and product warranty or liability claims.
- Disclosure controls were not effective at the reasonable-assurance level. Material weaknesses included insufficient segregation of duties and inadequate review and reconciliation of financial statements. A prior inventory error of approximately $227,000 and other ledger-to-supporting-record discrepancies were noted; remediation was ongoing.
Key facts for investors to verify
- Reconcile the balance-sheet figures with the MD&A: the balance sheet reports total liabilities of $5.34 million and stockholders’ equity of $17.29 million, while MD&A gives $5.31 million and $17.32 million, respectively. The filing text does not explain these differences.
- Confirm the status and accounting treatment of PPP loan forgiveness, and assess repayment obligations if forgiveness is denied.
- Track whether production targets and new-model launches are achieved despite labor, supplier and engine constraints, and whether growth improves operating profitability and cash generation.
- Assess the concentration of revenue: five customers represented 67% of nine-month sales; the filing separately states two dealers represented 23%.
- Monitor dealer repurchase exposure, related-party facility lease terms, cash and securities deployment, and potential dilution from 3 million IPO-related warrants and 592,500 outstanding options.
- Evaluate progress in remediating the disclosed material weaknesses and review financial-statement consistency, given the identified prior-period errors.