Twin Vee PowerCats Co. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Twin Vee designs, manufactures and sells powercat boats, with developing electric-boat and boat-service franchise businesses. The filing covers its gas-powered boats, Forza X1 electric-boat development and Fix My Boat franchise operations.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $5.886 million | $3.208 million |
| Gross profit / gross margin | $2.434 million / 41% | $1.488 million / 46% |
| Operating expenses | $3.483 million | $1.333 million |
| Operating income (loss) | ($1.048 million) | $0.155 million |
| Net income (loss) | ($1.191 million) | $0.132 million |
| Basic and diluted earnings (loss) per share | ($0.17) | $0.03 |
| Operating cash flow | ($1.150 million) | $0.190 million |
| Capital expenditures, net of asset-sale proceeds | $0.648 million | $0.443 million |
Sales grew 83%, attributed to a 48% increase in boats produced and sold and approximately 21% higher average revenue per unit from price increases and a richer product mix. Cost of products sold rose 101%, and gross margin fell five percentage points, primarily due to higher raw-material and component costs. Operating expenses rose 161%, reflecting production hiring and compensation, public-company costs, and electric-boat research and development.
Financial position and liquidity
- At March 31, cash and cash equivalents were $5.061 million; marketable securities were $5.978 million; and management reported cash, cash equivalents and marketable securities of $11.039 million.
- Current assets were $12.606 million and current liabilities $3.123 million, leaving working capital of $9.484 million, down from $10.918 million at December 31, 2021.
- Total assets were $20.502 million; total liabilities were $4.769 million. Debt included a $499,900 SBA EIDL loan at 3.75%; operating lease liabilities totaled $1.524 million. The EIDL is secured by substantially all tangible and intangible personal property.
- Cash declined $1.914 million during the quarter. Operating cash use reflected a $1.413 million inventory build, partly offset by higher accounts payable and accrued liabilities. Investing cash use included $728,371 of property and equipment purchases, chiefly molds, facility improvements and production equipment. Financing cash use was $116,394 for deferred offering costs.
Material changes, outlook and risks
- The company increased production to an average of four boats per week and stated a goal of five per week. Management expected Q2 2022 operating income for the core gas-powered segment to be around breakeven, while the electric division would continue to incur losses. No quantified full-year guidance was provided.
- Management expected Forza to begin producing and selling its integrated electric boat and motor in Q2 2023. It had completed hull and control-system design and was developing the motor; it also said it was seeking a new factory site after terminating an option to acquire 14.5 acres because development costs were prohibitive.
- Management cited supply-chain delays, parts availability and price inflation as constraints; it increased inventory early to support production. The company purchased all boat engines from one supplier in Q1, totaling $1.250 million.
- Three customers each accounted for more than 10% of Q1 sales and together represented 62%, up from 41% in Q1 2021. Dealer floor-plan repurchase obligations were approximately $5.361 million at quarter-end; no repurchase events occurred in the quarter.
- Management said cash resources were sufficient for at least 12 months from the filing date. This is a forward-looking assessment; the quarter had an operating loss and negative operating cash flow.
- Disclosure controls and procedures were deemed ineffective due to unremediated material weaknesses in internal control over financial reporting. Management said it was recruiting a full-time controller and using outside advisers.
- The company disclosed the CEO-owned landlord as the lessor of its facilities, at a base rent of $30,000 per month, subject to annual increases. It reported ordinary-course civil litigation that it did not consider material.
- Other risks include economic and geopolitical uncertainty, including the Russia-Ukraine conflict, continued losses, public-company compliance costs and supplier dependence. The filing identifies forward-looking statements as subject to risk and uncertainty.
Important facts for investors to verify
- Whether production increases and sales growth can translate into improved operating results despite rising input costs and labor expenses.
- Whether inventory levels, supplier lead times and reliance on a single engine supplier affect production, margins or cash needs.
- Progress, timing, costs and funding for Forza’s electric-boat launch and the replacement factory site.
- Customer concentration and potential exposure under the approximately $5.361 million dealer floor-plan repurchase commitments.
- Remediation and testing of the disclosed material weaknesses in financial reporting controls.
- The filing gives differing stock-based compensation figures: $224,832 in the cash-flow statement and equity statement, versus $320,505 in a note. Verify the correct expense amount and related disclosures.