Twin Vee PowerCats Co. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; financial statements are unaudited. Twin Vee designs, manufactures and sells recreational and commercial powercat boats, primarily through independent dealers. The company became subject to SEC reporting requirements on July 20, 2021.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $3.30 million | $1.72 million | $6.51 million | $4.39 million |
| Gross profit / margin | $1.32 million / 40% | $0.70 million / 40% | $2.80 million / 43% | $1.86 million / 43% |
| Operating income (loss) | ($116,933) | ($824) | $37,829 | $138,212 |
| Net income (loss) | $50,851 | ($23,524) | $182,800 | $55,132 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $5,045 | ($314,367) |
- Q2 sales rose 92%; first-half sales rose 48%. Gross margins were unchanged year over year for both comparison periods. Operating expenses increased 106% in Q2 and 60% for the first half, including higher payroll and IPO-related professional costs.
- Q2 net income included $434,724 of insurance recovery income and a $249,499 loss on disposal of an asset. These unusual items relate to a May fire at an outer storage building and damage to an electric-boat prototype.
- At June 30, cash was $406,642, working capital was $855,620, total assets were $6.31 million, and total liabilities were $4.58 million. Cash declined $485,174 from year-end 2020. Current assets were $2.90 million and current liabilities $2.04 million.
- First-half capital expenditures were $604,990, primarily for boat molds and facility roof repairs. Inventory increased to $1.54 million from $936,676 at year-end, contributing to the near break-even operating cash flow.
- Borrowings included a $608,224 PPP loan at 1% and a $499,900 EIDL loan at 3.75%; PPP forgiveness had not been approved. Operating lease liabilities totaled $1.79 million. The company also disclosed a maximum dealer inventory repurchase exposure of approximately $2.28 million; no repurchases occurred in the period.
Business changes, outlook and risks
- Management attributed sales growth to a stronger economy and demand compared with the COVID-affected first half of 2020. It reported production had increased to about 2.5 boats per week from about one per week during the 2020 slowdown, while component shortages—especially motors—continued to constrain sales.
- Management anticipated continued year-over-year revenue strengthening and a production ramp-up, while warning that related costs could affect operating cash flow. The 400 GFX was expected to enter production in late Q4 2021 or Q1 2022; electric 240 and 280 models were targeted for launch in the first half of 2022. These are forward-looking plans, not guarantees.
- After quarter-end, the company completed an IPO of 3 million shares at $6 per share, generating approximately $16.43 million in net proceeds. Planned uses included larger boats, electric boats and propulsion systems, a waterfront testing center, and working capital. As of the filing, the underwriters’ over-allotment option had not been exercised.
- Five customers represented 64% of first-half sales, versus three customers representing 35% in the comparable 2020 period. The company also depended on one engine supplier and reported shortages in certain engines and broader supply-chain cost and availability pressures.
- Management concluded disclosure controls were not effective because of material weaknesses, including inadequate segregation of duties and review of internally prepared financial statements. The filing describes prior inventory and other account-reconciliation errors; remediation efforts, including hiring a full-time controller and using outside advisers, were ongoing.
- Other notable risks include seasonality and economic sensitivity of boat demand, dependence on independent dealers and their financing, workforce availability, fixed costs, product liability and warranty exposure, and related-party arrangements. The company leases its facilities from an entity owned by its CEO; the lease’s base rent was $30,000 per month. The filing says ordinary-course civil litigation was not considered material.
Important facts for investors to verify
- Confirm the actual timing and results of production expansion, the 400 GFX launch, and development and commercialization of the electric models and propulsion system.
- Track engine and other component availability, production capacity, inventory growth, and whether the production ramp converts demand into sales and operating cash flow.
- Verify PPP loan forgiveness status and monitor debt service, lease obligations, and the use of IPO proceeds against the stated allocation.
- Assess customer and dealer concentration, supplier dependence, and potential exposure under the approximately $2.28 million floor-plan repurchase commitments.
- Monitor remediation and testing of internal-control weaknesses. Also reconcile the filing’s share data: the June 30 balance sheet reports 4 million shares outstanding, while the cover reports 7 million as of August 24 after the IPO.
- Review the unusual insurance recovery and asset-disposal accounting. The filing reports a $434,724 recovery, including $428,865 recorded in prepaid expenses and other current assets pending receipt after quarter-end.