FORZA X1, INC.
The following discussion, which focuses on our results of operations, contains
forward-looking information and statements. Actual events or results may differ
materially from those indicated or anticipated, as discussed in the section
entitled "Forward Looking Statements." The following discussion of our financial
condition and results of operations should also be read in conjunction with our
financial statements and notes to financial statements contained elsewhere in
this Annual Report on Form 10-K.
Company Overview
We aim 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.
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.
To date, we have completed the design of the 25-foot FX 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, 2022, the running
surface of the boat and all major components were tested successfully on the
Indian River Lagoon in Fort 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 ultimately
reached over thirty miles per hour.
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Subsequent to the initial prototype boat, we have built six more prototypes: two
more FX-style catamarans, two baycats, one deck boat and two 22-foot center
console monohull. The engine design and lower units and the control system
cabling have been revamped and improved in each iteration. The monohull will
feature a single battery and the deck boat will, like the FX, utilize a
two-battery system. The batteries and engines are liquid-cooled and unique
improvements to the heat exchanges have improved performance. We have now
completed our telematics unit design and we have a beta app on the Apple app
store. This will allow for remote monitoring of all of the parameters of the
battery and engine for both the end user and the factory. Additionally, we have
improved our user interface through the Garmin control screen to provide
well-designed pages showing operating characteristics and conformance to control
parameters.
We continue to anticipate revenues from the sale of these fully integrated
electric boats and motors to commence in late 2023.
We plan to market and sell our model offerings in a variety of ways. One way will be 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 traditional 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. Additionally, to support those looking for a more traditional way of purchasing a boat, or to accompany trade-ins, financing needs, and training, we will also market our boats through a partnership with One Water, one of the largest dealership networks inthe United States . We believe our approach will enable us to provide the best of both worlds to prospective customers and support our mission to electrify recreational boating for mass production. Recently, we have engaged with several high-profile marine manufacturers and are offering our electrification expertise as a service. We are in the process of creating a robust Forza website and are scheduling a media day for spring of 2023.
TheNorth Carolina factory plans are proceeding apace with clearing of the land 100% complete and rough grading about 80% complete. We are in the building design phase and have chosen a design-build contractor. We have also leased factory space that we have upfitted for use as an engine and wire harness fabrication and test facility, we started engine production and wire fabrication in March of 2023.
Comparison of the Years Ended
The following table provides certain selected financial information for the
periods presented:
Successor Successor Predecessor
Company Company Company
Years Ended October 15 - January 1 -
December 31, December 31, October 14,
2022 2021 2021 Change % Change
Net sales $ - $ - $ - $ - -
Cost of products sold $ 232,744 $ - $ - $ 232,744 -
Gross loss $ (232,744 ) $ - $ - $ (232,744 ) -
Operating expenses $ 3,420,515 $ 263,349 $ 118,179 $ 3,038,987 796 %
Loss from operations $ (3,653,259 ) $ (263,349 ) $ (118,179 ) $ (3,271,731 ) 858 %
Other income (expense) $ 23,178 $ (7,281 ) $ (68,742 ) $ 99,201 (131 %)
Net loss $ (3,630,081 ) $ (270,630 ) $ (186,921 ) $ (3,172,530 ) 693 %
Net loss per common share:
Basic and Diluted $ (0.44 ) $ (0.04 ) $ (0.03 ) (0.37 ) 17 %
Weighted average number of
shares of common stock
outstanding 8,332,735 7,000,000 7,000,000
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Operating Expenses
Operating expenses for the year ended December 31, 2022 increased by $3,038,987
to $3,420,515 (Successor) as compared to $263,349 and $118,179 , respectively,
for the period October 15, 2021 through December 31, 2021 (Successor), and
January 1, 2021 through October 14, 2021 (Predecessor). Operating expenses
include salaries, selling and general and administrative, research and
development, professional fees and depreciation. All of our operating expense
increase significantly over the prior period, as we were able to get funded
through our IPO which allowed us to fully engage in our research and
development. Research and development fees for the year ended December 31, 2022
were $957,220 compared to $150,020 and $61,091 , respectively, for the period
October 15, 2021 through December 31, 2021 (Successor), and January 1, 2021
through October 14, 2021 (Predecessor). Salaries and wages for the year ended
December 31, 2022 were $1,770,126 as compared to $41,189 and $0 , respectively,
for the period October 15, 2021 through December 31, 2021 (Successor), and
January 1, 2021 through October 14, 2021 (Predecessor), and most of which was
paid to the designers of our fully electric motor, control system and boat. For
the year ended December 31, 2022 salaries and wages included $458,346 of stock
option expense, compared to $0 and $0 , respectively, for the period October 15,
2021 through December 31, 2021 (Successor), and January 1, 2021 through October
14, 2021 (Predecessor). Our expenses for selling, general and administrative for
the year ended December 31, 2022 , were $473,900 compared to $28,806 and $56,955 ,
respectively, for the period October 15, 2021 through December 31, 2021
(Successor), and January 1, 2021 through October 14, 2021 (Predecessor),
Professional fees for the year ended December 31, 2022 were $159,304 compared to
$40,259 and $0 , respectively, for the period October 15, 2021 through December
31, 2021 (Successor), and January 1, 2021 through October 14, 2021
(Predecessor). Depreciation for the year ended December 31, 2022 was $59,965
compared to $3,075 and $133 , respectively, for the period October 15, 2021
through December 31, 2021 (Successor), and January 1, 2021 through October 14,
2021 (Predecessor), this is due to the addition of assets throughout 2022, we
would anticipate continued increases as we purchase equipment and molds. We have
incurred and expect to continue to incur significant costs in pursuit of our
financing and construction of our new manufacturing facility.
Other expense and income
Interest expense for the year ended December 31, 2022 was $3,286 compared to
$7,281 and $8,490 respectively, for the period October 15, 2021 through December
31, 2021 (Successor), and January 1, 2021 through October 14, 2021
(Predecessor).
Interest income for the year ended December 31, 2022 was $14,752 compared to $0
and $0 respectively, for the period October 15, 2021 through December 31, 2021
(Successor), and January 1, 2021 through October 14, 2021 (Predecessor).
Dividend income for the year ended December 31, 2022 was $43,294 compared to $0
and $0 respectively, for the period October 15, 2021 through December 31, 2021
(Successor), and January 1, 2021 through October 14, 2021 (Predecessor).
For the year ended December 31, 2022 , we recorded a loss on the sales of assets
of $31,582 , this was the result of expense paid to secure land in Fort Pierce,
Florida to build a new manufacturing facility. It was determined that the costs
associated with building on that lot were prohibitive, we cancelled the contract
resulting in the loss of $31,582 .
Liquidity and Capital Resources
The following table provide selected financial data as ofDecember 31, 2022 andDecember 31, 2021 : December 31, December 31, 2022 2021 Change % Change Cash and cash equivalents$ 12,767,199 $ 1,803,285 $ 10,963,914 608.0 % Current assets$ 13,286,934 $ 1,891,762 $ 11,395,172 602.4 % Current liabilities$ 453,191 $ 690,378 $ (237,187 ) (34.4 %) Working capital$ 12,833,743 $ 1,201,384 $ 11,632,359 968.2 % 58 As ofDecember 31, 2022 , we had cash and cash equivalents, and working capital of$12,767,199 and$12,833,743 , 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 by 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$5,000 . Additionally, we are allowed to use space at its facility for a variable monthly cost. We expect to continue to rent space from Twin Vee until we have built our own manufacturing facility. Upon the completion of the IPO we transitioned the management agreement with Twin Vee from an agreement providing management services to an administrative services agreement under which Twin Vee provides us with certain administrative services, such as procurement, shipping, receiving, storage and use of Twin Vee's facility until our new planned facility is completed. We have incurred and expect to continue to incur significant costs in pursuit of our financing and construction of our new manufacturing facility. Our management plans to use the proceeds from the IPO to finance these expenses. We believe that our current capital resources together with revenue we expect to receive from the sale of our fully integrated electric boats and motors, will be sufficient to fund our operations and growth initiative for at least 18 months following the date of this Annual Report on Form 10-K. The Company expects to continue to incur net losses, and we anticipate that our loss rate will increase, as we move into building and testing additional prototypes, which will require significant cash outflows for at least the next 12 months. We continue to anticipate revenues from the sale of these fully integrated electric boats and motors to commence in late 2023.Forza X1 will continue to build prototype engines and boats for the next six to nine months. Predecessor Successor Company Company Year Ended January 1- December 31, October 15 - October 14, 2022 December 31, 2021 2021 Change % Change Cash (used in) provided by operating activities$ (3,377,621 ) $ (317,131 ) $ 13,024 $ (3,073,514 ) 1,011 % Cash used in investing activities$ (606,726 ) $ (66,079 ) $ (362,946 ) $ (177,701 ) 41 % Cash provided by financing activities$ 14,948,261 $ 2,186,495 $ 349,922 $ 12,411,844 489 % Net Change in Cash$ 10,963,914 $ 1,803,285 $ -$ 9,160,629 508 %
Cash Flow from Operating Activities
During the year endedDecember 31, 2022 we generated negative cash flows from operating activities of$3,377,621 compared to$317,131 for the periodOctober 15, 2021 throughDecember 31, 2021 (Successor). During the periodJanuary 1, 2021 throughOctober 14, 2021 (Predecessor) we generated cash flows from operating activities of$13,024 . During the year endedDecember 31, 2022 , we had a net loss of$3,630,081 compared to$270,630 and$186,921 respectively, for the periodOctober 15, 2021 throughDecember 31, 2021 (Successor), andJanuary 1, 2021 throughOctober 14, 2021 (Predecessor). During the year endedDecember 31, 2022 our cash used in operating activities was impacted by an increase of prepaid expenses of$431,258 and security deposits of$7,517 . The increase in prepaid expenses relates to large deposits required to vendors for production related, long lead time items. During the year endedDecember 31, 2022 (Successor), our cash used in operating activities was impacted by an increase of accounts payable of$85,695 , contract liabilities of$5,300 , accrued liabilities of$57,639 , operating lease liabilities of$154,777 and by non-cash expenses of$373,162 due to depreciation, stock option expense, change of right-of-use asset and a loss on the disposal of assets. During the periodsOctober 15, 2021 throughDecember 31, 2021 (Successor) andJanuary 1, 2021 throughOctober 14, 2021 (Predecessor), our cash used in operating activities was increased by prepaid expense of$88,477 and$0 , respectively and decreased by non-cash expenses of$3,075 and$190,385 , respectively, due to depreciation and loss on the disposal of assets, we further had a reduction in working capital of$38,902 and$9,559 , respectively.
Cash Flows from Investing Activities
For the year endedDecember 31, 2022 , we used$606,726 in investing activities for the purchase of property and equipment, primarily for the molds for the new Forza deck and hull. We anticipate increased investing in 2023, as we start construction of our new manufacturing facility inNorth Carolina .
For the periods
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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 year endedDecember 31, 2022 and for the periodsOctober 15, 2021 throughDecember 31, 2021 (Successor) andJanuary 1, 2021 throughOctober 14, 2021 (Predecessor), net cash provided by financing activities was$14,948,261 ,$2,186,495 and$349,922 , respectively. OnAugust 16, 2022 , we closed our IPO 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, for net proceeds of$15,231,350 . Additional cash from financing activities of$612,740 and$500,000 were provided from Twin Vee as advance and as capital contributions, for the period endedDecember 31, 2022 , Twin Vee additionally contributed 690,625 in advances and 2,000,000 in capital contributions in the periodOctober 15 - December 31, 2021 . The advancements where offset by repayments to Twin Vee of$1,099,468 for the year endedDecember 31, 2022 , and$398,630 for the periodOctober 15 - December 31, 2021 . The advances bear interest at the rate of 6% per annum and during the year endedDecember 31, 2022 and for the periodsOctober 15, 2021 throughDecember 31, 2021 (Successor) andJanuary 1, 2021 throughOctober 14, 2021 (Predecessor), we incurred$3,286 ,$7,281 and$8,490 in interest expense, respectively.
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 utilizing the FX molds and by creating additional electric models, including deck boats and monohulls. The design of the motors and the motor control system is largely complete; however, the testing and iteration phase may result in significant changes, improvements, and upgrades. To date we have not generated any revenues. We will not generate any operating revenues until we complete the design and build of our EV boats and commercialize them. As stated above, however, we have engaged with several high-profile marine manufacturers and are offering our electrification expertise as a service. We will generate non-operating income in the form of interest income on cash and cash equivalents. We continue to 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. CRITICAL ACCOUNTING ESTIMATES
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as "critical" because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates-which also would have been reasonable-could have been used, which would have resulted in different financial results. Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and make various assumptions, which management believes to be reasonable under the circumstances, which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The notes to our financial statements contained herein contain a summary of our
significant accounting policies. We consider the following accounting policies
critical to the understanding of the results of our operations:
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Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the 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. On December 31, 2022
and 2021, the Company had cash and cash equivalents of $12,767,199 and
$1,803,285 , respectively.
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 year endedDecember 31, 2022 were$957,220 . Such costs for the periodsOctober 15, 2021 throughDecember 31, 2021 (Successor),January 1, 2021 throughOctober 14, 2021 (Predecessor) approximated$150,020 and$61,091 , respectively. Advertising Costs Advertising and marketing costs are expensed as incurred. For the year endedDecember 31 2022 , advertising and marketing costs incurred by the Company totaled$11,177 . For the periodsOctober 15, 2021 throughDecember 31, 2021 (Successor),January 1, 2021 throughOctober 14, 2021 (Predecessor), advertising and marketing costs incurred by the Company totaled$7,130 and$0 , respectively. Advertising and marketing costs 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 with
The Company's income tax returns are subject to review and examination by federal, state and local governmental authorities.
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Recent Accounting Pronouncements
All newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
JOBS Act The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of the extended transition period for complying with new or revised financial accounting standards. We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenues of$1.235 billion or more; (ii) the date on which we are deemed to be a "large accelerated filer" under the rules of theSEC with at least$700.0 million of outstanding equity securities held by non-affiliates; (iii) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the previous three years; or (iv) the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO.
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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