FORZA X1, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that involve risks and uncertainties. This discussion may contain forward-looking statements that involve risks and uncertainties. See "Forward-Looking Statements." Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with the accompanying unaudited condensed financial statements and notes thereto. You should also review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Overview Forza X1 BusinessForza X1, Inc. aims to be among the first to develop and manufacture electric boats targeting the recreational market. Our mission is to inspire the adoption of sustainable recreational boating by producing stylish electric sport boats. We are focused on the creation and implementation of marine electric vehicle ("EV") technology to control and power our electric boats utilizing our proprietary outboard electric motor. Our electric boats are being designed as fully integrated electric boats including the hull, outboard motor and control system. To date, we have completed the design of the 25-foot FX1 dual console model, including hull, deck and small parts. This design has gone from an intellectual concept in CAD to fiberglass and foam plugs, fiberglass molds and, finally, working boat parts in just over one year. On October the 28th, the running surface of the boat and all major components were tested successfully for several hours on theIndian River Lagoon inFort Pierce, Florida . While the motor and control systems have been successfully trialed previously, this was the first voyage including all major components, production batteries, fully functioning "alpha" engine design, control system - including 22" Garmin screen, and Osmosis telematics unit. The performance of the boat exceeded all expectations and will provide a great baseline for improvements, iterations, and design enhancements. We anticipate revenues from the sale of these fully integrated electric boats and motors to commence in late 2023.Forza X1 will continue to build prototype engines and boats for the next six to nine months. We believe that the boating industry will follow in the footsteps of the electrification of the automotive industry by creating electric boats that meet or exceed the traditional boating consumer's expectations of price, value and run times. In other words, electric boats must offer a similar experience when compared to traditional gas-powered boats in terms of size, capability and
price
point.
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Our initial two models, the FX1 Dual Console and FX1 Center Console, are being
designed to be 25-foot in length, have an 8' beam or width and utilize a
catamaran hull surface to reduce drag and increase run times. The initial launch
of FX1 will include our proprietary designed single electric outboard motor.
Both FX1 models will have high-powered, liquid-cooled battery packs and a
vehicle control unit with our proprietary control software all integrated into a
22-inch master control touch screen that will be used to control most functions
of the boat. We have also filed three design and four utility patent
applications with the U.S. Patent and Trademark Office relating to, among other
things, our propulsion system being developed and boat design.
We plan to operate in a fundamentally different manner and structure than
traditional marine manufacturers and boat dealers by adopting a
direct-to-consumer sales model. We are building a dedicated web and app-based
platform for sales, deliveries, and service operations to change the personal
boat buying and marine service experience through technological innovation, ease
of use, and flexibility. We intend to employ an integrated, digital-first
strategy that is convenient and transparent for our customers and efficient and
scalable to support our growth. We believe our approach will enable us to
operate more cost-effectively, provide a better customer experience and
incorporate customer feedback more quickly into our product development and
manufacturing processes. We believe this strategy will allow us to deliver
uncompromised and premium experiences well beyond what is available throughthe standard dealership model.
Results of Operations and Known Trends or Future Events
The accompanying financial data includes the historical accounts ofForza X1, Inc. and its predecessor, the carve-out of the electric segment business of Twin Vee. Forza is in the business of design and development of electric boats. Forza has aDecember 31st fiscal year-end. Forza succeeded to substantially all of the business of the electric segment of Twin Vee and Forza's own operations before the succession,October 15, 2021 , were non-existent. Accordingly, the carve-out financial statements of the electric segment of Twin Vee are included as Predecessor herein. Management has reached this conclusion based upon an evaluation of the requirements and the facts and circumstances, including the historical life of the electric segment, the historical level of operations of the electric segment, and the fact that Forza's operations, prior to the succession were non-existent. To date much of our operational activity has been related to the design and build of prototype, as such we do not have any sales or cost of goods sold. The design of our new electric boat shell has been completed and we are now preparing to begin our production process by securing molds for the FX1 line. The design on the control system, has been completed, and we are now in the testing phase. To date we have not generated any revenues. Other than designing and building the prototype our only other activities for the three and nine months endedSeptember 30, 2022 and 2021, periodsOctober 15, 2021 throughDecember 31, 2021 (Successor),January 1, 2021 throughOctober 14, 2021 (Predecessor), and year endedDecember 31, 2020 (Predecessor), have been organizational and activities and those necessary to prepare for our initial public offering. We do not expect to generate any operating revenues until we complete the design and build of our EV boats and commercialize them. We will generate non-operating income in the form of interest income on cash and cash equivalents until such time as we generate operating revenue. We expect to incur increased expenses after the closing of the IPO as a result of being a public company (for legal, financial reporting, accounting and auditing compliance). In addition, we expect our expenses to increase substantially for expenses associated with building a new manufacturing facility. 16 Results of Operations
Comparison of the Three Months Ended
The following table provides certain selected financial information for the
periods presented:
Successor Company Predecessor Company
Three Months Ended Three Months Ended
September 30, September 30,
2022 2021 Change % Change
Net sales $ - $ - - -
Cost of products sold $ 66,543 $ - 66,543 -
Gross loss $ (66,543 ) $ - (66,543 ) -
Operating expenses $ 979,585 $ 82,230 897,355 1,091 %
Loss from operations $ (1,046,128 ) $ (82,230 ) (963,898 ) 1,172 %
Other income (expense) $ 3,465 $ (3,291 ) 6,756 (205 %)
Net loss $ (1,042,663 ) $ (85,521 ) (957,142 ) 1,119 %
Net loss per common share: Basic
and Diluted $ (0.12 ) $ (0.01 ) (0.11 ) 866 %
Weighted average number of
common shares outstanding: Basic
and diluted 8,837,470 7,000,000
Operating Expenses
Operating expenses for the quarter ended September 30, 2022 increased by
$897,355 to $979,585 (Successor) as compared to $82,230 (Predecessor) for the
quarter ended September 30, 2021 . Operating expenses include salaries, selling
and general and administrative, research and development, professional fees and
depreciation. Research and development fees for the quarter ended September 30,
2022 were $283,936 (Successor) compared to $61,091 (Predecessor) for the quarter
ended September 30, 2021 . Salaries and wages for the quarter ended September 30,
2022 were $515,833 (Successor) compared to $0 (Predecessor) for the quarter
ended September 30, 2021 , and were related to the design of our fully electric
motor, control system and boat. For the quarter ended September 30, 2022
salaries and wages included $158,705 (Successor) of stock option expense,
compared to $0 (Predecessor) for the quarter ended September 30, 2021 . Our
expenses for selling, general and administrative for quarters ended September
30, 2022 , were $125,851 (Successor) and $21,006 (Predecessor) for the quarter
ended September 30, 2021 . Professional fees for the quarter ended September 30,
2022 were $35,221 (Successor), and $0 (Predecessor) for the quarter ended
September 30, 2021 . Depreciation for the quarter ended September 30, 2022 was
$18,744 (Successor) compared to $133 (Predecessor) for the quarter ended
September 30, 2022 , this is due to the addition of assets throughout 2022, we
would anticipate continued increases as we purchase equipment and molds.
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Other expense and income
Interest expense was
Interest income was
Comparison of the Nine Months Ended
The following table provides certain selected financial information for the
periods presented:
Successor Company Nine Predecessor Company
Months Ended September Nine Months Ended
30, September 30,
2022 2021 Change % Change
Net sales $ - $ - - -
Cost of products sold $ 90,633 $ - 90,633 -
Gross (loss) profit $ (90,633 ) $ - (90,633 ) -
Operating expenses $ 2,089,661 $ 117,330 1,972,331 1,681 %
Loss from operations $ (2,180,294 ) $ (117,330 ) (2,062,964 ) 1,758 %
Other expense $ (28,944 ) $ (68,740 ) 39,796 (58 %)
Net loss $ (2,209,238 ) $ (186,070 ) (2,023,168 ) 1,087 %
Basic and dilutive loss per
share of common stock (0.29 ) (0.03 ) (0.26 ) 991 %
Weighted average number of
shares of common stock
outstanding 7,619,275 7,000,000
Operating Expenses
Operating expenses for the nine months ended September 30, 2022 increased by
$1,972,331 to $2,089,661 (Successor) as compared to $117,330 (Predecessor) for
the nine months ended September 30, 2021 . Operating expenses include salaries,
selling and general and administrative, research and development, professional
fees and depreciation. Research and development fees for the nine months ended
September 30, 2022 were $718,375 (Successor) compared to $61,091 (Predecessor)
for the nine months ended September 30, 2021 . Salaries and wages for the nine
months ended September 30, 2022 were $994,982 (Successor) compared to $0
(Predecessor) for the nine months ended September 30, 2021 . Included in salaries
and wages for the nine months ended September 30, 2022 was $158,705 (Successor)
of stock option expense, compared to $0 (Predecessor) for the nine months ended
September 30, 2021 . Our expenses for selling, general and administrative for the
nine months ended September 30, 2022 , were $267,657 (Successor) and $56,106
(Predecessor) for the nine months ended September 30, 2021 . Professional fee for
the nine months ended September 30, 2022 were $70,831 (Successor), and $0
(Predecessor) for the nine months ended September 30, 2021 . Depreciation for the
nine months ended September 30, 2022 was $37,816 (Successor) compared to $133
(Predecessor) for the nine months ended September 30, 2022 .
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Other expense and income
Interest expense was
Interest income was
Loss on the disposal of assets was$31,582 and$190,252 , respectively for the nine months endedSeptember 30, 2022 (Successor) and 2021 (Predecessor). Our loss of$31,582 (Successor) for the nine months endedSeptember 30, 2022 related to a deposit on a land purchase agreement inSt. Lucie County . It has since been determined that the cost associated with building our factory on the that site was cost prohibitive. Our loss of$190,252 (Predecessor) for the nine months endedSeptember 30, 2021 related to the loss of an asset from fire, which was somewhat offset with a gain from insurance recover of$130,000 (Predecessor).
Liquidity and Capital Resources
The following table provide selected financial data as ofSeptember 30, 2022 andDecember 31, 2021 : September 30, December 31, 2022 2021 Change % Change Cash and cash equivalents$ 13,940,706 $ 1,803,285 12,137,421 673.1 % Current assets$ 14,387,391 $ 1,891,762 12,495,629 660.5 % Current liabilities$ 197,239 $ 690,378 (493,139 ) (71.4 %) Working capital$ 14,190,152 $ 1,201,384 12,988,768 1,081.2 % As ofSeptember 30, 2022 , we had cash and cash equivalents, and working capital of$13,940,706 and$14,190,152 , respectively, compared to$1,803,285 and$1,201,384 , respectively, onDecember 31, 2021 . In August of 2022 we completed our IPO, which increased our cash be approximately$15,231,000 . Prior to our IPO, our sole source of funding had been from Twin Vee. Twin Vee has financed our working capital needs, primarily prototyping, consulting services, rent, interest and payroll through an initial$2,000,000 equity investment. Subsequently Twin Vee invested an additional$500,000 in us onMay 25, 2022 , for ongoing operating costs. No additional shares of common stock or other rights were issued to Twin Vee for such additional investment. In addition, Twin Vee has provided management services to us for a monthly fee of$5,000 . Additionally, we are allowed to use space at its facility for a variable monthly cost. We expect to continue to rent space from Twin Vee until we have built our own manufacturing facility. Upon the completion of the IPO we transitioned the management agreement with Twin Vee from an agreement providing management services to an administrative services agreement under which Twin Vee provide us with certain administrative services, such as procurement, shipping, receiving, storage and use of Twin Vee's facility until our new planned facility is completed. We have incurred and expect to continue to incur significant costs in pursuit of our financing and construction of our new manufacturing facility. Our management plans to use the proceeds from the IPO to finance these expenses. We believe that our current capital resources, will be sufficient to fund our operations and growth initiative for at least 18 months following the date of this Quarterly Report on Form 10-Q. The Company expects to continue to incur net losses, and we anticipate that our quarterly loss rate will increase, as we move into building and testing additional prototypes, we will have significant cash outflows for at least the next 12 months. 19 Predecessor Successor Company Company Nine Months Ended September 30, 2022 2021 Change % Change Cash (used in) provided by operating activities$ (2,331,730 ) $ 13,875
(2,345,605 ) 16,905 %
Cash used in investing activities $ (465,086 )$ (362,947 ) (102,139 ) 28 % Cash provided by financing activities$ 14,934,237 $ 349,072 14,585,165 4,178 % Cash at end of period$ 13,940,706 $ - 13,940,706 -
Cash Flow from Operating Activities
During the nine months endingSeptember 30, 2022 (Successor) we generated negative cash flows from operating activities of$2,331,730 and during the nine months endingSeptember 30, 2021 (Predecessor), we generated cash flows from operating activities of$13,875 , respectively. During the nine months endingSeptember 30, 2022 (Successor) and 2021 (Predecessor), we had a net loss of$2,209,238 , and$186,070 , respectively. During the nine months endingSeptember 30, 2022 (Successor) our cash used in operating activities was impacted by an increase of prepaid expenses of$358,208 and accrued liabilities of$23,438 , During the nine months endingSeptember 30, 2022 (Successor), our cash used in operating activities was impacted by a decrease of accounts payable of$26,151 , contract liabilities - customer deposits of$4,900 and by non-cash expenses of$228,103 due to depreciation, stock option expense and a loss on the disposal of assets. During the nine months endingSeptember 30, 2021 (Predecessor) our cash provided by operating activities was impacted by a decrease of accrued liabilities of$9,560 and by non-cash expenses of$190,385 due to depreciation and a loss on the disposal of assets.
Cash Flows from Investing Activities
For the nine months ended
Cash Flows from Financing Activities
Prior to our IPO we had financed our operations primarily from capital provided from Twin Vee in the form of an equity investment and advances. During the nine months endedSeptember 30, 2022 (Successor) and 2021 (Predecessor), net cash provided by financing activities was$14,934,237 , and$349,072 . OnAugust 16, 2022 , we closed our initial public offering of 3,450,000 shares of our common stock at a public offering price of$5.00 per share, including 450,000 shares sold upon full exercise of the underwriter's option to purchase additional shares, for net proceeds of$15,231,350 . Additional cash from financing activities of$889,446 and$349,072 were provided from Twin Vee as an advance and a capital contribution, which was offset by repayment of advance from Twin Vee of$890,198 , and$0 , respectively. OnMay 25, 2022 , Twin Vee, invested an additional$500,000 in our company, for ongoing operating costs. No additional shares of common stock or other rights were issued to Twin Vee for such additional investment. The advances bear interest at the rate of 6% per annum and during the nine months endedSeptember 30, 2022 (Successor) and 2021 (Predecessor) we incurred$1,970 , and$8,488 in interest expense.
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based on four financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, that results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimated under different assumption or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in the Quarterly report on Form 10-Q, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving managements judgements and estimates. 20 Controls and Procedures We are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. We will be required to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act for the twelve-month period endingDecember 31, 2022 . Only in the event that we are deemed to be a large accelerated filer or an accelerated filer, and no long qualify as an emerging growth company, would we be required to comply with the independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted inthe United States ("U.S. GAAP") required management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Included in those estimates are assumptions about useful life of fixed assets. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. OnSeptember 30, 2022 , the Company had cash and cash equivalents of$13,940,706 , onDecember 31, 2021 , the Company has cash and cash equivalents of$1,803,285 . Property and Equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives of property and equipment range from three to seven years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.
Impairment of Long-lived Assets
Management assesses the recoverability of its long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets' net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value, based on appraisal or the present value of the undiscounted net cash flows. Research and Development Research and development costs are expensed when incurred. Such costs for the nine months endedSeptember 30, 2022 were$718,375 compared to$61,091 for the period endingSeptember 30, 2021 . 21 Advertising Costs Advertising and marketing costs are expensed as incurred. For the nine months endedSeptember 30, 2022 advertising and marketing costs incurred by the Company totaled$8,314 . For the periodsOctober 15, 2021 throughDecember 31, 2021 (Successor),January 1, 2021 throughOctober 14, 2021 (Predecessor), and year endedDecember 31, 2020 (Predecessor) advertising and marketing costs incurred by the Company totaled$7,130 ,$0 and$0 , respectively, and are included in selling and general and administrative expenses in the accompanying statements of operations. Income Taxes
The Company is a
All income tax amounts reflect the use of the liability method under accounting for income taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes arising primarily from differences between financial and tax reporting purposes. Deferred income taxes, net of appropriate valuation allowances, are determined using the tax rates expected to be in effect when the taxes are actually paid. Valuation allowances are recorded against deferred tax assets when it is more likely than not that such assets will not be realized. When an uncertain tax position meets the more likely than not recognition threshold, the position is measured to determine the amount of benefit or expense to recognize in the financial statements. In accordance withU.S GAAP, the Company follows the guidance in FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes. AtDecember 31, 2021 , the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.
The Company's income tax returns are subject to review and examination by federal, state and local governmental authorities.
Recent Accounting Pronouncements
All newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under
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