Twin Vee PowerCats (VEEE) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Unaudited H1 2022 financial statements reveal significant revenue growth, increased costs, and a net loss, alongside rising inventories and liabilities Condensed Consolidated Balance Sheets Total assets slightly increased to $21.0 million by June 30, 2022, driven by inventories and property, while liabilities rose and equity declined due to net loss Condensed Consolidated Balance Sheet Highlights (as of June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $21,019,907 | $20,599,184 | | Cash and cash equivalents | $5,910,533 | $6,975,302 | | Inventories | $4,369,549 | $1,799,769 | | Property and equipment, net | $4,362,758 | $2,883,171 | | Total Liabilities | $5,523,583 | $3,899,484 | | Accounts payable | $2,262,434 | $1,200,861 | | Total stockholders' equity | $15,496,324 | $16,699,700 | Condensed Consolidated Statements of Operations Q2 and H1 2022 saw significant revenue growth but substantial cost increases, resulting in net losses of $0.54 million and $1.73 million respectively Key Operating Results (Unaudited) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $8,519,613 | $3,297,571 | $14,405,613 | $6,505,214 | | Gross profit | $3,447,212 | $1,316,144 | $5,881,566 | $2,804,050 | | (Loss) Income from operations | ($471,979) | ($116,933) | ($1,520,132) | $37,829 | | Net (loss) income | ($538,782) | $50,851 | ($1,730,099) | $182,800 | | Basic and dilutive (loss) income per share | ($0.08) | $0.01 | ($0.25) | $0.05 | Condensed Consolidated Statements of Cash Flows H1 2022 saw $1.2 million net cash used in operations, primarily due to inventory increase and net loss, leading to a $1.06 million overall cash decrease Cash Flow Summary for the Six Months Ended June 30 | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($1,196,245) | $5,045 | | Net cash provided by (used in) investing activities | $273,105 | ($604,990) | | Net cash (used in) provided by financing activities | ($141,629) | $114,771 | | Net change in cash and cash equivalents | ($1,064,769) | ($485,174) | Notes to the Condensed Consolidated Financial Statements Notes detail company structure, significant inventory and equipment investments, segment performance, and post-quarter events including Forza X1's grant and IPO - The company operates through three segments: Gas-powered Boats, Franchise (Fix My Boat, Inc.), and Electric Boats (Forza X1, Inc.)[26][27][78] Segment Operating Loss for Six Months Ended June 30, 2022 | Segment | Operating Loss | | :--- | :--- | | Gas-Powered Boats | ($402,282) | | Franchise | ($36,037) | | Electric Boat and Development | ($1,081,813) | | Total | ($1,520,132) | - The company is dependent on a single vendor for all boat engines, with purchases totaling $2.7 million in the first six months of 2022[42] - Subsequent to the quarter, subsidiary Forza X1 received approval for a Job Development Investment Grant (JDIG) of up to $1.37 million and priced its IPO to raise gross proceeds of $15 million[89][90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 revenue growth driven by demand and production, offset by rising operating expenses and R&D for the electric boat segment, while liquidity remains sufficient - The company operates through three segments: gas-powered boats, electric-powered boats (Forza X1), and a franchise model for marine mechanics (Fix My Boat)[93] - Production of gas-powered boats has increased from one boat per week at the time of the July 2021 IPO to 4.75 boats per week, with a goal of reaching five per week[98] - The electric boat division (Forza X1) is expected to continue incurring losses due to ongoing research and development efforts, with production anticipated to begin by Q2 2023[96][99] Results of Operations Q2 2022 net sales surged 158% to $8.5 million, but operating expenses rose 173%, leading to a net loss of $0.54 million, with similar trends for the six-month period Comparison of Three Months Ended June 30, 2022 and 2021 | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $8,519,613 | $3,297,571 | 158% | | Gross Profit | $3,447,212 | $1,316,144 | 162% | | Operating Expenses | $3,919,191 | $1,433,077 | 173% | | Net (Loss) Income | ($538,782) | $50,851 | (1,160%) | Comparison of Six Months Ended June 30, 2022 and 2021 | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $14,405,613 | $6,505,214 | 121% | | Gross Profit | $5,881,566 | $2,804,050 | 110% | | Operating Expenses | $7,401,698 | $2,766,221 | 168% | | Net (Loss) Income | ($1,730,099) | $182,800 | (1,046%) | - The net loss for the first six months of 2022 included a $1,114,222 loss from the electric segment, which currently generates no revenue[126] Liquidity and Capital Resources As of June 30, 2022, cash and marketable securities totaled $9.8 million, but working capital decreased to $8.3 million due to increased liabilities and inventory, though liquidity is deemed sufficient for 12 months Liquidity Position | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,910,533 | $6,975,302 | | Marketable securities | $3,948,930 | $6,064,097 | | Working capital | $8,344,385 | $10,917,926 | - Cash used in operations for the first six months of 2022 was $1.2 million, mainly due to a $2.6 million increase in inventory to mitigate supply chain risks[135] - The company believes its cash and cash equivalents are sufficient to fund operations for the next 12 months[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative market risk disclosures - As a smaller reporting company, Twin Vee is not required to provide quantitative and qualitative disclosures about market risk[155] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective as of June 30, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts ongoing - Management concluded that disclosure controls and procedures were not effective as of June 30, 2022[156] - The ineffectiveness is due to material weaknesses related to insufficient staff with appropriate GAAP experience[156] - A remediation plan is in progress, including the hiring of a full-time controller, but the material weakness was not remediated as of the reporting date[157][158] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its operations - The company is not presently involved in any material legal proceedings[162] Item 1A. Risk Factors Key risks include geopolitical impacts, dependence on dealer network, potential inventory repurchase obligations, and un-remediated internal control weaknesses - Global economic and geopolitical conditions, such as the Russia-Ukraine conflict, could adversely impact business and operating results[164] - The company depends on its network of independent dealers, and its success is tied to their financial health and access to financing. The top five dealers accounted for 64% of boats sold as of June 30, 2022[167][168] - The company has a maximum obligation to repurchase approximately $6.9 million of dealer inventory under floor plan financing agreements if dealers default[170] - Material weaknesses in internal controls have been identified due to insufficient staffing with GAAP experience, and these weaknesses have not yet been remediated[171][175] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred; IPO proceeds of $15.8 million were reallocated from retrofittable electric propulsion to working capital due to market shift - The company received net proceeds of approximately $15.8 million from its July 2021 IPO[184] - The company has changed its use of proceeds, reallocating funds intended for a retrofittable electric motor to general working capital due to a shift in market preference towards fully integrated electric boats[187]