Twin Vee PowerCats Co. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Comparisons are with the three months ended March 31, 2023 unless otherwise noted. Twin Vee designs, manufactures, and sells recreational and commercial boats. Its segments are gas-powered boats, electric-boat development through publicly traded subsidiary Forza X1, and a franchise business that was largely inactive.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $5.28 million | $8.88 million |
| Gross profit / margin | $277,000 / 5% | $1.61 million / 18% |
| Operating expenses | $2.82 million | $3.98 million |
| Operating loss | $2.54 million | $2.37 million |
| Net loss | $2.34 million | $1.83 million |
| Net loss attributable to Twin Vee shareholders | $1.69 million | $1.17 million |
| Loss per share | $0.18 | $0.12 |
| Cash used in operating activities | $1.75 million | $2.23 million |
- Cash and liquidity at March 31: Cash and cash equivalents were $16.14 million, restricted cash was $0.26 million, and marketable securities were $0.98 million. Current assets were $21.78 million and current liabilities $2.90 million, yielding working capital of $18.88 million.
- Debt and leases: Total liabilities were $6.31 million. The balance sheet included a $499,900 SBA EIDL loan and $2.81 million of finance lease liabilities. Approximately $186,600 drawn on Wells Fargo and Yamaha credit lines was included in accounts payable. The Company also has operating lease liabilities.
- Investing and cash movement: Investing activities provided $1.48 million, including $3.50 million of net sales of trading securities, partly offset by $1.99 million of property and equipment purchases. Cash, cash equivalents, and restricted cash declined $0.36 million during the quarter.
Material changes and business developments
- Sales declined 41%; management attributed the decrease to lower boat volumes and product mix. The filing reports 32 boats sold versus 54 a year earlier and describes the unit decline as both 39% and 41% in different sections.
- Gross profit fell 83%, and gross margin contracted to 5% from 18%. Management cited a shift toward the newer, lower-priced 220 monohull and competitive pressure in the monohull market. Reduced production labor and discretionary spending partly offset the effect.
- Operating expenses decreased 29%, reflecting lower selling and administrative costs, staffing, and research and development. Depreciation and amortization increased to $425,000 from $218,000, mainly due to fixed-asset additions, including molds.
- The 2023 comparison was reclassified: production labor and related benefits were moved from operating expenses to cost of sales, increasing reported 2023 cost of sales by $1.61 million and reducing operating expenses by the same amount.
- Q1 2023 included $330,000 of Employee Retention Credit income; no such income was recorded in Q1 2024. Forza generated no revenue and recorded a $1.17 million segment loss in Q1 2024.
Outlook, risks, and unusual items
- Management believes available cash, cash equivalents, and marketable securities will fund operations for 24 months from the filing date. It expects Forza expenses to increase over the next two years as it develops a manufacturing facility; planned funding includes public-offering proceeds and grant funding, subject to conditions and with no assurance of receipt. The Company also plans further investment in Twin Vee GFX 2 molds and machinery. No specific revenue or earnings guidance was provided.
- Management cited weaker boating demand, economic uncertainty, slower-than-expected adoption of electric vehicles and boats, and established competitors in electric outboards. Additional risks include dealer dependence, supplier availability and pricing, and execution of new-product and facility plans.
- Three dealers accounted for 49% of Q1 sales. Floor-plan repurchase commitments covered up to 84 units, with a maximum obligation of $13.18 million; no repurchase events occurred in the quarter.
- On May 10, 2024, Nasdaq notified the Company that its share price had fallen below the $1 minimum bid requirement for 30 consecutive business days. The compliance deadline is November 6, 2024; management said it may consider a reverse stock split.
- Management concluded disclosure controls and procedures were ineffective as of March 31 because of material weaknesses related to staffing and GAAP expertise. Remediation is underway, but testing continues. The CFO had announced a resignation effective May 31, and Forza’s CEO resigned effective immediately in March. Michael P. Dickerson was appointed to Twin Vee’s finance leadership role in April.
- The Company disclosed a related-party lease of its Florida facilities from an entity owned by its CEO. It reported no material litigation and no material subsequent events requiring disclosure, apart from the personnel changes noted above.
Important facts for investors to verify
- Confirm the actual unit-sales decline: the filing cites 32 versus 54 boats, but gives inconsistent percentage descriptions (39% and 41%).
- Review the reported loss figures against the financial statements: one MD&A passage states net loss of $2.355 million, while the statements report $2.335 million.
- Assess whether the decline in demand, lower-margin monohull mix, dealer concentration, and continued Forza spending affect the stated 24-month liquidity outlook.
- Monitor progress toward Nasdaq bid-price compliance by November 6, 2024, and remediation and testing of internal-control weaknesses.
- Evaluate the scale of floor-plan repurchase exposure, related-party lease terms, and whether anticipated grant funding for Forza is obtained.