Twin Vee PowerCats (VEEE) - 2021 Q2 - Quarterly Report

Part I Financial Statements The company's financial statements for the period ended June 30, 2021, show significant revenue growth, improved net income, and positive cash flow from operations Condensed Balance Sheets As of June 30, 2021, total assets increased to $6.31 million, driven by inventories and property, while liabilities grew due to a PPP loan and accounts payable Condensed Balance Sheet Data (in USD) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $2,899,841 | $1,834,942 | | Inventories | $1,539,514 | $936,676 | | Cash | $406,642 | $891,816 | | Total Assets | $6,312,615 | $4,504,566 | | Total Current Liabilities | $2,044,221 | $1,440,067 | | Accounts Payable | $1,190,147 | $799,280 | | Paycheck Protection Program Loan | $608,224 | $0 | | Total Liabilities | $4,580,975 | $2,955,726 | | Total Stockholders' Equity | $1,731,640 | $1,548,840 | Condensed Statements of Operations Net sales grew significantly for both three and six-month periods ended June 30, 2021, leading to a positive net income for the three-month period and substantial growth for the six-month period Operating Results (in USD) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $3,297,571 | $1,720,604 | $6,505,214 | $4,387,461 | | Gross Profit | $1,316,144 | $695,448 | $2,804,050 | $1,864,682 | | (Loss) Income from Operations | ($116,933) | ($824) | $37,829 | $138,212 | | Net Income (Loss) | $50,851 | ($23,524) | $182,800 | $55,132 | | Basic and Dilutive EPS | $0.01 | ($0.01) | $0.05 | $0.01 | Condensed Statements of Cash Flows For the six months ended June 30, 2021, operating cash flow turned positive, while investing activities increased, and financing activities were primarily from a PPP loan Cash Flow Summary (in USD) | Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,045 | ($314,367) | | Net cash used in investing activities | ($604,990) | ($119,692) | | Net cash provided by financing activities | $114,771 | $586,044 | | Net change in cash | ($485,174) | $151,985 | | Cash at end of period | $406,642 | $367,559 | Notes to Financial Statements Key notes highlight single vendor reliance, related-party leases, significant customer concentration, and the completion of an $18 million IPO in July 2021 - The company is dependent on a single vendor for all engines, with purchases totaling $1.31 million in the first six months of 2021[45] - The company leases its office and warehouse facilities from an LLC whose sole member is the company's CEO, Joseph C. Visconti[51] - In July 2021, the company completed its Initial Public Offering (IPO), selling 3,000,000 shares at $6.00 per share for gross proceeds of $18,000,000[69] - Customer concentration is significant, with five customers representing 64% of total sales during the first six months of 2021[67] Management's Discussion and Analysis (MD&A) Management attributes sales growth to economic recovery despite component shortages, with stable gross margins, increased operating expenses, and improved liquidity post-IPO Business Overview Twin Vee designs and manufactures power catamaran boats, increasing production and developing new emission-free electric propulsion models - The company is developing emission-free 240 and 280 electric propulsion models, intended for launch in the first half of 2022[77] - Production has increased from one boat per week during the COVID-19 slowdown in early 2020 to two and a half boats per week as of Q2 2021[77] - The company sells its boats through a network of 10 independent dealers in 14 locations across North America and the Caribbean[76] Results of Operations For the first six months of 2021, net sales and gross profit increased significantly, with net income rising 232% despite higher operating expenses Comparison of Six Months Ended June 30, 2021 and 2020 (in USD) | Metric | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,505,214 | $4,387,461 | $2,117,753 | 48% | | Gross Profit | $2,804,050 | $1,864,682 | $939,368 | 50% | | Operating Expenses | $2,766,221 | $1,726,470 | $1,039,751 | 60% | | Net Income | $182,800 | $55,132 | $127,668 | 232% | - The increase in operating expenses is attributed to a higher headcount in 2021 compared to 2020 (when headcount was reduced due to COVID-19) and a doubling of professional services fees in preparation for the IPO[83] Liquidity and Capital Resources Cash decreased as of June 30, 2021, but working capital significantly improved, with the July 2021 IPO providing substantial additional capital Liquidity Data (in USD) | Metric | June 30, 2021 | December 31, 2020 | % Change | | :--- | :--- | :--- | :--- | | Cash | $406,642 | $891,816 | (54.4%) | | Current Assets | $2,899,841 | $1,834,942 | 58.0% | | Current Liabilities | $2,044,221 | $1,440,067 | 42.0% | | Working Capital | $855,620 | $394,875 | 116.7% | - Cash flow from operations turned positive to approximately $5,000 for the first six months of 2021, compared to a use of ($314,000) in the prior year period, driven by net income offset by increased inventory[92] Critical Accounting Policies Critical accounting policies include revenue recognition, inventory valuation, and the treatment of the PPP loan as an in-substance government grant - Revenue is recognized when the product is released to the carrier for transport to a dealer, with dealer incentives recorded as a reduction of revenue[36][99] - The company accounts for its Paycheck Protection Program (PPP) loan as an in-substance government grant, recognizing it in other income as the related costs are incurred[108] - Inventories are stated at the lower of cost (using FIFO) or net realizable value, requiring estimates for inventory obsolescence[102] Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2021, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2021[113] - Material weaknesses were identified relating to (i) lack of segregation of duties and (ii) insufficient level of review of internally prepared financial statements[115] - These control deficiencies resulted in an inventory error of approximately $227,000 and other errors in balances for inventory, property and equipment, and accounts payable[115] - A remediation plan is being executed, including the retention of a full-time controller, but the weaknesses are not yet considered remediated[116][117] Part II Risk Factors The company faces significant risks including dependence on dealers and a single engine supplier, supply chain disruptions, internal control weaknesses, and concentrated ownership influence Business and Operational Risks Operational risks include reliance on independent dealers and a single engine supplier, potential supply chain disruptions, and a large fixed cost base - The company depends on its network of independent dealers, with the top five dealers accounting for 33% of boats sold in fiscal 2020[132] - The company relies on a single manufacturer, Suzuki Motor of America, Inc., for its engines and has experienced shortages of 150-horsepower motors due to the COVID-19 pandemic[139] - The company may be required to repurchase inventory from dealers who default on their floor plan financing arrangements[136] Product and Market Risks The company faces risks from intense competition, volatile demand, and the need for successful new product introductions, particularly electric models - The powerboat industry is highly competitive and cyclical, with demand highly sensitive to general economic conditions and consumer discretionary spending[149][175] - Future success depends on the successful introduction of new products, including the development of the Twin 240E, a fully electric boat with a proprietary powertrain system[153][154] Public Company and Ownership Risks Risks include material weaknesses in internal controls, significant influence by the CEO and parent company, and reduced reporting requirements as an emerging growth company - The company has identified material weaknesses in its internal control over financial reporting, including lack of segregation of duties and insufficient review, which could result in a material misstatement of financial statements[182][185] - The parent company owns approximately 57.14% of the outstanding common stock, and the CEO has significant influence over management and corporate matters[165] - As an "emerging growth company," the company is exempt from certain reporting requirements, including the auditor attestation of internal controls required by Section 404(b) of the Sarbanes-Oxley Act[194] Use of Proceeds from Initial Public Offering The company closed its IPO in July 2021, raising $16.4 million net, with proceeds allocated for electric boat development, larger boat production, and a new testing center - The company closed its IPO on July 22, 2021, raising approximately $16.4 million in net proceeds[211] Planned Use of IPO Net Proceeds (in USD) | Use of Proceeds | Allocated Amount | | :--- | :--- | | Production & marketing of larger boats | ~$1,500,000 | | Design & development of electric boats | ~$2,500,000 | | Design & development of electric propulsion system | ~$6,000,000 | | Acquisition & development of waterfront testing center | ~$3,500,000 | | Working capital | Balance | Other Disclosures The company is not currently involved in any material legal proceedings, and other disclosures are not applicable - The company is not presently a party to any material legal proceedings[120]