Twin Vee PowerCats (VEEE) - 2024 Q3 - Quarterly Report

Report Overview This section outlines the Form 10-Q filing details and includes cautionary statements regarding forward-looking information Form 10-Q Filing Information This document is a Quarterly Report on Form 10-Q for Twin Vee PowerCats Co. for the period ended September 30, 2024, registered in Delaware, trading on Nasdaq under VEEE, and classified as a smaller reporting and emerging growth company - The registrant is Twin Vee PowerCats Co., incorporated in Delaware, with Commission File Number 001-40623[1] | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.001 per share | VEEE | The Nasdaq Stock Market, LLC (The Nasdaq Capital Market) | - The company is a Smaller reporting company and an Emerging growth company[3] - As of November xx, 2024, there were 9,520,000 shares of Common Stock, $0.001 par value per share, outstanding[4] Forward-Looking Statements This section highlights that the report contains forward-looking statements regarding strategy, future operations, financial position, revenues, costs, and objectives, which are based on assumptions and involve risks and uncertainties - The report contains forward-looking statements about strategy, future operations, financial position, revenues, costs, prospects, plans, and objectives[8] - These statements are based on assumptions and involve risks, uncertainties, and assumptions, and actual operating and financial performance may differ materially[9] - The company does not assume any obligation to update forward-looking statements, except as required by law[10] PART I—FINANCIAL INFORMATION This part presents unaudited consolidated financial statements and management's analysis of financial condition and results Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $39.85 million to $30.14 million, driven by reductions in cash, marketable securities, and inventories, with corresponding declines in liabilities and equity | Metric | September 30, 2024 (Unaudited) ($) | December 31, 2023 ($) | | :-------------------------------- | :----------------------------- | :------------------ | | Cash and cash equivalents | $11,144,929 | $16,497,703 | | Marketable securities - available for sale | — | $4,462,942 | | Inventories, net | $3,343,468 | $4,884,761 | | Total current assets | $15,378,981 | $26,646,318 | | Total Assets | $30,140,476 | $39,846,713 | | Total current liabilities | $3,843,294 | $4,216,345 | | Total Liabilities | $6,932,265 | $7,797,098 | | Total stockholders' equity | $23,208,211 | $32,049,615 | Condensed Consolidated Statements of Operations The company experienced significant declines in net sales and gross profit for both the three and nine months ended September 30, 2024, leading to increased net losses Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended Sep 30, 2024 ($) | Three Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2024 ($) | Nine Months Ended Sep 30, 2023 ($) | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $2,901,318 | $8,076,545 | $12,504,482 | $24,980,902 | | Cost of products sold | $3,046,975 | $7,471,034 | $12,170,486 | $21,928,093 | | Gross (loss) profit | $(145,657) | $605,511 | $333,996 | $3,052,809 | | Total operating expenses | $2,843,573 | $3,384,934 | $10,525,509 | $11,245,982 | | Loss from operations | $(2,989,230) | $(2,779,423) | $(10,191,513) | $(8,193,173) | | Net loss | $(3,009,907) | $(2,444,009) | $(9,864,298) | $(6,176,217) | | Basic and dilutive loss per share | $(0.26) | $(0.20) | $(0.75) | $(0.46) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $32.05 million to $23.21 million due to accumulated net losses attributable to both Twin Vee and noncontrolling interests, partially offset by stock-based compensation Changes in Stockholders' Equity (Nine Months Ended September 30, 2024) | Metric | December 31, 2023 ($) | September 30, 2024 ($) | | :-------------------------------- | :------------------ | :------------------- | | Balance, December 31, 2023 | $32,049,615 | | | Stock-based compensation | | $1,022,894 | | Net loss attributable to Twin Vee PowerCats Co, Inc. | | $(7,144,094) | | Net loss attributable to noncontrolling interests | | $(2,720,204) | | Balance, September 30, 2024 | | $23,208,211 | Condensed Consolidated Statements of Cash Flows Operating cash flow usage decreased, investing activities shifted to net sales of marketable securities, and financing activities saw a significant reduction in cash provided compared to the prior year Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 ($) | Nine Months Ended Sep 30, 2023 ($) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(4,638,887) | $(6,930,130) | | Net cash used in investing activities | $(567,889) | $(11,061,664) | | Net cash (used in) provided by financing activities | $(190,565) | $6,892,338 | | Net change in cash, cash equivalents and restricted cash | $(5,397,341) | $(11,099,456) | | Cash, cash equivalents and restricted cash at end of the period | $11,357,892 | $12,401,551 | Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies, organizational changes including Forza's electric boat discontinuation and mergers, an impairment charge, and specifics on revenue, inventory, property, leases, and equity compensation - Forza X1, Inc. discontinued its electric boat development and sales business on July 11, 2024, resulting in a $1,674,000 impairment charge against its partially constructed building[21] - Fix My Boat, Inc. and AquaSport Co. were merged into Twin Vee PowerCats Co. on July 23, 2024, and July 30, 2024, respectively[19][22] - The company changed the classification of production labor and related benefit costs to cost of sales from operating expenses in Q1 2024, retroactively adjusting 2023 statements[29] Inventories (Net) | Category | September 30, 2024 ($) | December 31, 2023 ($) | | :------------------------ | :------------------- | :------------------ | | Raw Materials | $3,206,838 | $5,001,512 | | Work in Process | $119,339 | $96,721 | | Finished Product | $143,848 | $206,144 | | Total Inventory | $3,470,025 | $5,304,377 | | Reserve for Excess and Obsolete | $(126,557) | $(419,616) | | Net inventory | $3,343,468 | $4,884,761 | Property and Equipment (Net) | Category | September 30, 2024 ($) | December 31, 2023 ($) | | :------------------------ | :------------------- | :------------------ | | Total Property and Equipment (Gross) | $17,841,637 | $14,676,820 | | Less accumulated depreciation and amortization | $(3,624,596) | $(2,382,832) | | Net Property and Equipment | $14,217,041 | $12,293,988 | - The company has significant customer concentration, with four dealers representing 67% of total sales for the three months ended September 30, 2024, and three dealers representing 38% for the nine months ended September 30, 2024[121] - The company's stockholders approved the issuance of common stock to Forza stockholders for the merger on November 11, 2024[130] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results, detailing reduced demand, the discontinuation of the electric boat segment, and the ongoing merger Overview Twin Vee designs and markets gas-powered boats, discontinuing its electric boat segment (Forza X1) due to reduced demand, and experienced a 70% reduction in units sold in Q3 2024 - Twin Vee PowerCats Co. is a designer, manufacturer, and marketer of recreational and commercial power boats, including gas-powered catamarans and mono hulls[134] - The company has discontinued its electric-powered boat segment (Forza X1) due to a significant reduction in demand for electric recreational marine vehicles and broader economic uncertainties[135][140] - Total units sold in Q3 2024 were 20, a 70% reduction compared to 66 units in Q3 2023, with revenue decreasing by 64% over the same period[138] - The average selling price per unit increased to approximately $145,065 in Q3 2024 from $122,371 in Q3 2023, reflecting a focus on larger boats[138] Recent Developments Karl Zimmer was appointed President, and Twin Vee entered a merger agreement with Forza X1, Inc., where Forza stockholders will receive 0.61166627 shares of Twin Vee common stock per share, with the merger expected to close soon - Karl Zimmer was appointed President on July 12, 2024[141] - Twin Vee entered into a Merger Agreement with Forza X1, Inc. on August 12, 2024, for Forza to merge into a Twin Vee subsidiary[142] - Forza stockholders will receive 0.61166627 shares of Twin Vee common stock for each Forza share[142] - Twin Vee stockholders approved the issuance of shares for the merger on November 11, 2024, and the merger is expected to close soon[145] Results of Operations The company experienced significant financial deterioration, with net sales decreasing by 64% and 50% for the three and nine months ended September 30, 2024, respectively, leading to a gross loss and widened net losses Financial Performance Comparison (Three Months Ended September 30) | Metric | 2024 ($) | 2023 ($) | $ Change | % Change | | :-------------------------------- | :--------- | :--------- | :----------- | :--------- | | Net sales | $2,901,318 | $8,076,545 | $(5,175,227) | (64%) | | Gross (loss) profit | $(145,657) | $605,511 | $(751,168) | (124%) | | Operating expenses | $2,843,573 | $3,384,934 | $(541,361) | (16%) | | Loss from operations | $(2,989,230) | $(2,779,423) | $(209,807) | (8%) | | Net loss | $(3,009,907) | $(2,444,009) | $(565,898) | (23%) | Financial Performance Comparison (Nine Months Ended September 30) | Metric | 2024 ($) | 2023 ($) | $ Change | % Change | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Net sales | $12,504,482 | $24,980,902 | $(12,476,420) | (50%) | | Gross profit | $333,996 | $3,052,809 | $(2,718,813) | (89%) | | Operating expenses | $10,525,509 | $11,245,982 | $(720,473) | (6%) | | Loss from operations | $(10,191,513) | $(8,193,173) | $(1,998,340) | (24%) | | Net loss | $(9,864,298) | $(6,176,217) | $(3,688,081) | (60%) | - Operating expenses for the nine months ended September 30, 2024, included a $1,674,000 impairment charge related to Forza's property and equipment[162] - Other income decreased significantly by $1,689,741 for the nine months ended September 30, 2024, primarily due to the absence of the $1,267,055 Employee Retention Credit recognized in 2023[168] Liquidity and Capital Resources Working capital decreased by $10.89 million to $11.54 million, and cash and cash equivalents declined by 32.4%, though management anticipates sufficient resources for the next 24 months Liquidity and Capital Resources (Selected Data) | Metric | September 30, 2024 ($) | December 31, 2023 ($) | Change ($) | % Change | | :-------------------------------- | :------------------- | :------------------- | :----------- | :--------- | | Cash and cash equivalents | $11,144,929 | $16,497,703 | $(5,352,774) | (32.4%) | | Current assets | $15,378,981 | $26,646,318 | $(11,267,337) | (42.3%) | | Current liabilities | $3,843,294 | $4,216,345 | $(373,051) | (8.8%) | | Working capital | $11,535,687 | $22,429,973 | $(10,894,286) | (48.6%) | - The decrease in working capital is primarily due to Forza's development efforts, new manufacturing facility construction, and investments in new boat molds[175] - Management believes current cash and cash equivalents will provide sufficient resources for the next 24 months[176] Cash Flow Operating cash flow usage decreased by 33%, investing activities saw a 95% reduction in cash used due to marketable securities sales, and financing activities shifted from providing $6.89 million to using $0.19 million Cash Flow Summary (Nine Months Ended September 30) | Cash Flow Activity | 2024 ($) | 2023 ($) | Change ($) | % Change | | :-------------------------------- | :------------ | :------------ | :----------- | :--------- | | Cash used in operating activities | $(4,638,887) | $(6,930,130) | $2,291,243 | 33% | | Cash provided by (used in) investing activities | $(567,889) | $(11,061,664) | $10,493,775 | 95% | | Cash provided by (used in) financing activities | $(190,565) | $6,892,338 | $(7,082,903) | (103%) | | Net Change in Cash | $(5,397,341) | $(11,099,456) | $5,702,115 | 51% | - Operating cash flow improved due to a $1.59 million reduction in net inventory levels and non-cash adjustments like depreciation and impairment[179] - Investing cash flow shifted due to net sales of marketable securities, offsetting property and equipment investments[180] - Financing cash flow decreased significantly as the prior year included proceeds from Forza's common stock issuance[181] Critical Accounting Estimates The company's financial statements rely on critical accounting estimates for revenue recognition, inventory valuation, impairment of long-lived assets, product warranty costs, lease accounting, and deferred income taxes - Revenue recognition involves estimating dealer incentives (wholesale/retail rebates, floor plan reimbursement) as reductions of net sales[185] - Key estimates include allowances for inventory obsolescence, useful life of fixed assets, warranty reserves, and bad-debt reserves[187] - Inventories are valued at the lower of cost and net realizable value using the FIFO method, with provisions for excess or obsolete items[188] - Impairment of long-lived assets is assessed when indicators are present, comparing undiscounted net cash flows to carrying amounts[189] - Warranty costs are accrued based on expected material and labor costs, using historical information and experience[191] - Leases are classified as finance or operating, with ROU assets and lease liabilities recognized at commencement based on present value of payments[192] - Deferred tax assets and liabilities are recognized for temporary differences, with a valuation allowance provided if realization is not more likely than not[193] OFF-BALANCE SHEET ARRANGEMENTS The company did not have any off-balance sheet arrangements during the periods presented and does not currently have any, as defined under SEC rules - The company did not have any off-balance sheet arrangements during the periods presented and does not currently have any[194] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Twin Vee PowerCats Co. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[195] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2024, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - As of September 30, 2024, disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[197] - The material weaknesses are related to not having sufficient staff or outside consultants with appropriate experience in GAAP presentation, especially for complex instruments[197] - A remediation plan is being executed, including retaining a full-time Senior Staff Accountant, a part-time staff accountant, and implementing a robust ERP system[198] - Remediation efforts require additional time to demonstrate effectiveness through testing[199] PART II—OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other disclosures Legal Proceedings The company is involved in various civil litigation in the normal course of business, none of which are considered material, though litigation can still adversely impact the company - The company is involved in various civil litigation in the normal course of business, none of which is considered material[100][202] - Litigation can have an adverse impact due to defense and settlement costs, and diversion of management resources[202] Risk Factors Investing in Twin Vee securities involves high risk, including potential Nasdaq de-listing, historical losses, dependence on dealers, internal control weaknesses, and risks related to the proposed merger with Forza Nasdaq Listing Compliance Risk The company received a Nasdaq notice for not maintaining a $1.00 minimum bid price, with an extension until May 6, 2025, to regain compliance, and is considering a reverse stock split - The company received a Nasdaq notice on May 10, 2024, for failing to meet the minimum $1.00 bid price requirement[206] - An extension was granted until May 6, 2025, to regain compliance[209] - Failure to comply could lead to de-listing, negatively affecting stock price and liquidity[205] - The company is considering options, including a reverse stock split, to regain compliance[209] Historical Losses and Future Profitability The company incurred significant losses from operations and net losses for 2023 and the nine months ended September 30, 2024, resulting in an accumulated deficit of $21.49 million, with no assurance of future profitability Losses Incurred | Period | Loss from Operations ($) | Net Loss ($) | Accumulated Deficit ($) | | :-------------------------------- | :------------------- | :--------- | :-------------------- | | Year ended December 31, 2023 | $11,987,299 | $9,782,196 | | | Nine months ended September 30, 2024 | $10,191,513 | $9,864,298 | $21,491,078 | - There is no assurance of future profitability or that operating needs will be met[212] Dependence on Independent Dealers The company relies heavily on independent dealers for sales, with three dealers representing 38% of total sales for the nine months ended September 30, 2024, and the loss of a significant dealer could materially impact the business - A significant portion of gas-powered boat sales are derived from independent dealers, who are not contractually obligated to purchase boats[214] - For the nine months ended September 30, 2024, three individual dealers represented 38% of total sales[214][216] - The loss of a significant dealer or increased competition for dealers could materially adversely affect the business[214][216] Internal Control Weaknesses The company identified material weaknesses in internal controls over financial reporting as of September 30, 2024, due to inadequate staffing and lack of GAAP presentation experience, with ongoing remediation efforts - As of September 30, 2024, the company does not have effective disclosure controls and procedures or internal controls over all aspects of financial reporting[220] - Weaknesses are attributed to insufficient staff and outside consultants with appropriate GAAP presentation experience[222] - Failure to develop or maintain effective controls could harm operating results, lead to reporting failures, or cause restatements[224] Risks Related to the Merger The proposed merger with Forza X1, Inc. carries risks including conflicts of interest, a non-adjustable exchange ratio, potential adverse changes post-announcement, and the possibility of not qualifying as a tax-free reorganization - Executive officers and directors of both Twin Vee and Forza have conflicts of interest due to their financial interests in both companies, potentially influencing merger approval[227] - The Exchange Ratio for Forza Common Stock is not adjustable based on market price, meaning the value of merger consideration can fluctuate[229][230] - The merger may be completed even if material adverse changes occur, potentially reducing the value for stockholders[231][233] - If the merger is not completed, both Twin Vee and Forza will incur substantial expenses and may face adverse effects on their businesses and stock prices[246][253][254] - There is a risk that the merger may not qualify as a tax-free reorganization, which could result in Forza stockholders recognizing capital gain or loss[255][256] Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities or issuer purchases of equity securities during the three months ended September 30, 2024 - No unregistered sales of equity securities occurred during the three months ended September 30, 2024[258] - There were no issuer purchases of equity securities[258] Defaults Upon Senior Securities This item is not applicable to the company - This item is not applicable[258] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[259] Other Information There were no disclosures in lieu of a Current Report on Form 8-K, no changes to board nominee procedures, and no insider trading arrangements adopted or terminated - No disclosures in lieu of a Current Report on Form 8-K[259] - No changes to procedures for recommending nominees to the Board of Directors[259] - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers[259] Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including merger agreements, corporate organizational documents, an employment agreement, and various certifications - The Exhibit Index lists various documents, including merger agreements (e.g., with Twin Vee PowerCats, Inc. and Forza X1, Inc.), corporate organizational documents (Articles of Incorporation, Bylaws), and certifications (Section 302 and 906)[262] - An Employment Agreement between Twin Vee PowerCats Co. and Karl J. Zimmer, dated July 12, 2024, is included as Exhibit 10.1[262] SIGNATURES This section contains the official signatures for the Quarterly Report on Form 10-Q Report Signatures The Quarterly Report on Form 10-Q was duly signed on November 14, 2024, by Joseph C. Visconti, Chairman and Chief Executive Officer, and Michael P. Dickerson, Chief Financial Officer - The report was signed on November 14, 2024[264] - Signatories include Joseph C. Visconti (Chairman and CEO) and Michael P. Dickerson (CFO)[264]