Twin Vee PowerCats Co. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Twin Vee designs, manufactures and sells recreational and commercial boats. Its reported segments are gas-powered boats, electric-boat development through majority-owned Forza X1, and franchise development through Fix My Boat. The filing is unaudited.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $8.12 million | $8.52 million | $17.00 million | $14.41 million |
| Gross profit | $2.26 million | $3.45 million | $5.48 million | $5.88 million |
| Gross margin | 28% | 40% | 32% | 41% |
| Operating loss | $3.04 million | $0.47 million | $5.41 million | $1.52 million |
| Net loss | $1.90 million | $0.54 million | $3.73 million | $1.73 million |
| Loss per share | $0.14 | $0.08 | $0.26 | $0.25 |
Q2 sales declined 5%, while six-month sales rose 18%. Management attributed the first-half sales increase to a 34% rise in boats sold (129 versus 96); the newer, lower-priced monohull models contributed to weaker average selling prices and margins. Operating expenses rose 35% in Q2 and 47% for the first half, including higher staffing, Forza development, public-company costs, marketing and depreciation.
For the six months, cash used in operations was $3.43 million, cash used in investing was $0.66 million, and financing provided $6.92 million, primarily from Forza’s June offering. Cash, cash equivalents and restricted cash were $26.34 million at June 30. Marketable securities totaled approximately $1.95 million. Working capital was $29.43 million.
Total liabilities were $8.39 million, including $2.89 million of finance-lease liabilities and a $0.50 million SBA EIDL loan. The EIDL bears 3.75% interest and is secured by substantially all company property. The balance sheet reports total assets of $45.58 million and stockholders’ equity of $37.19 million.
Material changes and significant items
- Q2 gross margin fell to 28% from 40%; management cited the shift toward monohulls, increased dealer discounts and rebates, and a competitive monohull market.
- Forza generated no revenue and recorded a $3.49 million segment loss for the first half, principally associated with development. Twin Vee recognized $1.27 million of employee retention credit income in the first half and $0.94 million in Q2; dividend income was also material.
- Forza’s June secondary offering generated approximately $7.00 million in net proceeds, contributing to higher cash and noncontrolling-interest equity. Common shares outstanding at June 30 were 9.52 million, compared with 7.00 million a year earlier.
- In June, AquaSport began a five-year lease of the former AQUASPORT brand and Tennessee manufacturing assets at $22,000 per month, with a purchase option at $3.1 million, subject to specified credits. The company guarantees AquaSport’s obligations. Finance-lease liabilities were $2.89 million at quarter-end.
- Gas-boat production was described as near current Fort Pierce facility capacity. Forza plans a manufacturing facility in North Carolina; a state grant of up to $1.37 million depends on investment and job-creation conditions.
Outlook, risks and controls
Management said cash and cash equivalents should fund operations for at least 12 months from the filing date. It expects the core gas-powered segment to reach operating breakeven as the Tennessee facility comes online, while Forza is expected to continue incurring development losses. Management anticipated electric-boat and motor revenues beginning in late 2023; this is a forward-looking expectation, not reported revenue or formal quantified guidance. It also expects Forza expenses to increase as it develops its planned factory.
Key risks include continued losses, constrained manufacturing capacity, dependence on independent dealers and suppliers, customer concentration, uncertain commercialization of Forza’s electric boats, and the conditions attached to North Carolina grant funding. One dealer represented 20% of first-half sales; the top three represented approximately 36%. Potential dealer-floorplan repurchase obligations were approximately $10.22 million for 54 units; no repurchase events occurred in the first half.
Management concluded disclosure controls and procedures were not effective as of June 30 because of material weaknesses related to inadequate staffing and expertise in GAAP reporting, particularly complex instruments. The company had hired finance staff, implemented an operating system and used outside advisers, but remediation testing was ongoing. The company also leases its Fort Pierce facilities from an entity owned by its CEO.
Unusual filing considerations: The filing contains inconsistent figures in narrative sections. The financial statements report first-half net loss of $3.73 million and operating loss of $5.41 million, while the Risk Factors text cites $3.70 million and $5.38 million, respectively. The balance sheet reports total assets of $45.58 million, whereas MD&A gives $45.53 million. Investors should confirm the controlling values in the financial statements and any subsequent filings.
Investor verification checklist
- Reconcile the conflicting loss and total-asset figures in the filing narrative against the financial statements.
- Track whether monohull sales and dealer incentives continue to pressure margins, and whether the gas segment achieves management’s breakeven expectation.
- Assess Forza’s development spending, commercialization timeline, factory plans, financing needs and eligibility for the North Carolina grant.
- Monitor dealer concentration, inventory growth and the potential $10.22 million floorplan repurchase exposure.
- Check progress in remediating the disclosed material weaknesses in internal controls and disclosure controls.
- Review the AquaSport lease, purchase-option terms, company guarantee and related-party facility lease arrangements.