Twin Vee PowerCats (VEEE) - 2021 Q4 - Annual Report

PART I Business The company designs, manufactures, and markets power catamaran boats through gas-powered, electric, and franchise segments - The company is organized into three operating segments: gas-powered boats, electric-powered boats (through Forza X1, Inc), and a franchise segment (through Fix My Boat, Inc)[23] - Gas-powered boats accounted for 99% of net revenue in fiscal year 2021 and 100% in 2020[27] - The company is developing a line of electric-powered catamarans through its subsidiary Forza X1, with the first two models expected to begin production by the second quarter of 2023[25][37] - Sales are primarily conducted through a network of 19 independent boat dealers in 23 locations across North America and the Caribbean[24][42] Business of Our Segments The company's core business is gas-powered boats, while developing electric models and a marine mechanic franchise - The gas-powered boat segment offers 14 models, including the new 280 GFX, 340 GFX, and the upcoming 400 GFX, which is the largest Twin Vee to date[27][28][39] - Forza X1 has completed the design of two electric boat models and the prototype of its electric outboard motor, with commercial production expected to start by Q2 2023[37] - The franchise segment is being developed to establish a franchise model for marine mechanics across the United States[34] Our Strategy The company's strategy centers on product innovation and dealer expansion, with a distinct direct-to-consumer model for its EV subsidiary - Key strategies include launching new products, increasing market share in the catamaran category, strengthening the dealer network, and expanding internationally[39][40][41][42][44] - Forza X1 plans a direct-to-consumer sales model using a dedicated web and app platform for an end-to-end customer experience, differing from the traditional dealer model[45] - Forza's specific goals include successfully launching the FX1 model, investing in a dedicated factory, using a common platform for new models, and focusing on technological advancements[46] Our Markets The company operates in a robust U.S powerboat market and is positioned to enter the growing electric boat segment - In 2021, U.S sales of boats and marine products totaled an estimated $49 billion, with new powerboat sales increasing by 7% compared to 2020[51] - The global recreational boating market is projected to surpass $63 billion by 2026[52] - The market for hybrid and pure electric boats is estimated to be greater than $20 billion worldwide by 2027, with recreational boats being the largest and fastest-growing segment[60] Our Dealer Network The company relies on a concentrated network of independent dealers without formal written agreements for its gas-powered boat sales - The company's top five dealers accounted for approximately 67% of total units sold for the year ended December 31, 2021[65] - The company does not have written agreements with its dealers and relies on non-binding indications of interest for production planning[67] - Twin Vee has repurchase agreements with third-party floor plan financing providers but has not been required to repurchase any boats to date[68][69] Risk Factors The company faces risks from dealer concentration, supply chain disruptions, new product development, and material weaknesses in internal controls - Business risks include reliance on a network of independent dealers, with the top five dealers accounting for 67% of total boats sold in fiscal 2021[115] - The company relies on a single manufacturer, Suzuki Motor of America, Inc, for outboard engines and has experienced shortages of 150-horsepower motors[122] - The planned fully electric sport boat (FX1) has not yet been fully developed, and its success depends on consumer adoption and a new direct-to-consumer distribution model[159][162][168] - The company has identified material weaknesses in its internal controls over financial reporting, specifically related to segregation of duties[208][210][212] - The parent company, Twin Vee PowerCats, Inc, owns approximately 57.14% of the outstanding common stock, giving it and its CEO significant influence over corporate decisions[152] Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - None[236] Properties The company leases its current facility from its CEO and plans to acquire land for a new manufacturing plant - The company leases its primary facility from an LLC solely owned by its CEO, Joseph C Visconti, under a five-year lease agreement with monthly rent of $31,500[237] - The current facility's capacity is not expected to be sufficient for future growth; subsidiary Forza X1 has an option to acquire 14.5 acres to build a new manufacturing plant[238] Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not presently a party to any material legal proceedings[239] Mine Safety Disclosures This section is not applicable to the company - Not applicable[240] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, and proceeds from its 2021 IPO have been partially reallocated - The company's common stock has traded on the Nasdaq under the symbol "VEEE" since July 21, 2021[241] - The company has not paid cash dividends in 2021 or 2020 and does not intend to in the foreseeable future[244] - The IPO on July 23, 2021, generated approximately $15.8 million in net proceeds[248] - The company has revised its use of IPO proceeds, reallocating funds from developing electric motors for retrofitting to general working capital[250] Management's Discussion and Analysis of Financial Condition and Results of Operations Sales grew 43% in 2021, but higher costs led to a decline in gross margin and a net loss | | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $15,774,170 | $11,063,619 | $4,710,551 | 43% | | Gross profit | $6,275,786 | $4,774,303 | $1,501,483 | 31% | | (Loss) income from operations | $(1,630,721) | $720,834 | $(2,351,555) | (326%) | | Net (loss) income | $(1,011,009) | $1,171,077 | $(2,182,086) | (186%) | | Basic and dilutive (loss) income per share | $(0.19) | $0.29 | $(0.48) | (166%) | - Net sales increased 43% YoY due to a strengthening economy, a 27% increase in the number of boats sold, and a 12% increase in average revenue per unit[267] - Gross profit margin decreased from 43% to 40% in 2021, attributed to increased costs of raw materials and purchased components[268] - Operating expenses increased 95% to $7.9 million, driven by higher salaries, public company costs, and R&D for the electric boat division[270][271][272][275] - Working capital increased by approximately $10.5 million in 2021, primarily due to the net proceeds from the IPO[264] Financial Statements and Supplementary Data The company's total assets and stockholders' equity significantly increased in 2021, driven by IPO proceeds | | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $13,073,346 | $1,834,942 | | Total Assets | $20,599,184 | $4,504,566 | | Total Current Liabilities | $2,155,420 | $1,440,067 | | Total Liabilities | $3,899,484 | $2,955,726 | | Total Stockholders' Equity | $16,699,700 | $1,548,840 | | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net sales | $15,774,170 | $11,063,619 | | Gross profit | $6,275,786 | $4,774,303 | | Net (loss) income | $(1,011,009) | $1,171,077 | | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,947,539) | $364,648 | | Net cash used in investing activities | $(8,037,264) | $(200,452) | | Net cash provided by financing activities | $16,068,289 | $512,046 | Controls and Procedures Management concluded that disclosure controls were ineffective as of year-end 2021 due to material weaknesses in internal control - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were not effective[419] - The ineffectiveness is due to material weaknesses related to a lack of segregation of duties across financially relevant functions[421] - A remediation plan is underway, which includes recruiting a full-time controller and utilizing outside advisors to improve internal controls[422][423] PART III Directors, Executive Officers and Corporate Governance The company's five-member board has a majority of independent directors and has established key governance committees - The board of directors consists of five members: Joseph C Visconti (CEO), Preston Yarborough (VP), Bard Rockenbach, James Melvin, Neil Ross, and Steven A Shallcross[432] - The board is divided into three classes with staggered three-year terms, which may delay or prevent changes in control[445][446] - The board has determined that Messrs Rockenbach, Ross, Melvin, and Shallcross are independent directors under Nasdaq rules[451] - The company has established Audit, Compensation, and Corporate Governance and Nominating committees, each composed of independent directors[454][455] Executive Compensation and Director Compensation Executive compensation is comprised of salary, bonus, and option awards, with long-term employment agreements in place | Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Joseph C. Visconti (President and CEO) | 2021 | 235,276 | 200,965 | 671,276 | 1,135,788 | | | 2020 | 171,000 | 85,000 | - | 265,500 | | Preston Yarborough (Vice President) | 2021 | 145,577 | 58,359 | 335,638 | 548,835 | | | 2020 | 135,000 | 13,500 | - | 161,200 | | Carrie Gunnerson (CFO) | 2021 | 39,088 | 16,406 | 227,617 | 283,111 | - The company has five-year employment agreements with its CEO, Vice President, and CFO, which include provisions for salary, performance bonuses, and severance[477][486][494] - Non-employee directors receive annual cash retainers ranging from $3,000 to $12,000 depending on committee roles, plus an initial grant of options to purchase 5,500 shares[527][528] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Ownership is highly concentrated, with the parent company and CEO holding a controlling interest | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned | | :--- | :--- | :--- | | Twin Vee PowerCats, Inc. | 4,000,000 | 58.82% | | Joseph Visconti | 2,321,160 | 33.16% | | Marathon Micro Fund, L.P. | 652,832 | 9.32% | | All current executive officers and directors as a group (7 persons) | 2,394,016 | 33.52% | - CEO Joseph Visconti is deemed to have control over the 4,000,000 shares owned by the parent company, Twin Vee PowerCats, Inc, due to his controlling stake in the parent[540] Certain Relationships and Related Transactions, and Director Independence The company engages in multiple related party transactions, primarily with entities controlled by its CEO - The company leases its facility from Visconti Holdings, LLC, an entity controlled by CEO Joseph Visconti, with monthly rent payments of $26,500[545] - A loan from CEO Joseph Visconti with an original principal of $525,500 was fully repaid during 2021[546][383] - The company paid its parent, Twin Vee PowerCats, Inc, $90,417 to purchase a used boat and also pays a monthly management fee of $3,500 to the parent company[547][549] Principal Accountant Fees and Services The company's audit fees increased in 2021, with all services pre-approved by the Audit Committee | | Year ended Dec 31, 2021 | Year ended Dec 31, 2020 | | :--- | :--- | :--- | | Audit fees and expenses | $115,000 | $75,000 | | Audit related fees | $9,500 | $0 | | Other fees | $8,500 | $0 | | Total | $133,000 | $75,000 | PART IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including key corporate and employment agreements - The financial statements required for this report are located in Part II, Item 8[559] - Key exhibits filed include the Underwriting Agreement, Certificate of Incorporation, Bylaws, employment agreements for executives, and the 2021 Stock Incentive Plan[561][562]