FORZA
X1, INC. |
Condensed
Balance Sheets |
(Unaudited) |
| |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
| |
| |
|
ASSETS | |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 10,683,000 | | |
$ | 12,767,199 | |
Inventories | |
| 42,829 | | |
| — | |
Due from Twin Vee | |
| 129,371 | | |
| — | |
Prepaid expenses and other current assets | |
| 366,983 | | |
| 519,735 | |
Total Current Assets | |
| 11,222,183 | | |
| 13,286,934 | |
| |
| | | |
| | |
Operating lease right of use asset | |
| 140,658 | | |
| 162,069 | |
Security deposit | |
| 7,517 | | |
| 7,517 | |
Property and equipment, net | |
| 1,021,674 | | |
| 765,406 | |
Total Assets | |
$ | 12,392,032 | | |
$ | 14,221,926 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 49,555 | | |
$ | 99,028 | |
Accrued liabilities | |
| 77,169 | | |
| 92,767 | |
Finance leases - current portion | |
| 16,830 | | |
| — | |
Operating lease right of use liability | |
| 87,789 | | |
| 86,245 | |
Contract liabilities - customer deposits | |
| 5,800 | | |
| 5,300 | |
Due to Twin Vee | |
| — | | |
| 169,851 | |
Total Current Liabilities | |
| 237,143 | | |
| 453,191 | |
| |
| | | |
| | |
Finance leases - noncurrent | |
| 72,739 | | |
| — | |
Operating lease liability - noncurrent | |
| 45,916 | | |
| 68,532 | |
Total Liabilities | |
| 355,798 | | |
| 521,723 | |
| |
| | | |
| | |
Commitments and contingencies (Note 7) | |
| — | | |
| — | |
| |
| | | |
| | |
Stockholders’ Equity: | |
| | | |
| | |
Common stock: 25,000,000 authorized; $0.001 par value; 10,450,000 shares issued and outstanding | |
| 10,450 | | |
| 10,450 | |
Additional paid in capital | |
| 18,118,548 | | |
| 17,777,385 | |
Accumulated deficit | |
| (6,092,764 | ) | |
| (4,087,632 | ) |
Total Stockholders’ Equity | |
| 12,036,234 | | |
| 13,700,203 | |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Equity | |
$ | 12,392,032 | | |
$ | 14,221,926 | |
The accompanying notes are an integral part
of these unaudited condensed financial statements
FORZA
X1, INC. |
Condensed
Statements of Operations |
(Unaudited) |
| |
| | | |
| | |
| |
Three months ended March 31, |
| |
2023 | |
2022 |
| |
| |
|
Net sales | |
$ | — | | |
$ | — | |
Cost of products sold | |
| 49,941 | | |
| 11,078 | |
Gross loss | |
| (49,941 | ) | |
| (11,078 | ) |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative | |
| 354,662 | | |
| 77,865 | |
Salaries and wages | |
| 862,764 | | |
| 182,286 | |
Research and development | |
| 702,648 | | |
| 215,670 | |
Professional fees | |
| 124,040 | | |
| 19,078 | |
Depreciation | |
| 35,696 | | |
| 7,737 | |
Total operating expenses | |
| 2,079,810 | | |
| 502,636 | |
| |
| | | |
| | |
Loss from operations | |
| (2,129,751 | ) | |
| (513,714 | ) |
| |
| | | |
| | |
Other income (expense): | |
| | | |
| | |
Interest expense | |
| (291 | ) | |
| (601 | ) |
Interest income | |
| — | | |
| 23 | |
Dividend income | |
| 124,910 | | |
| — | |
Total other income (expense) | |
| 124,619 | | |
| (578 | ) |
| |
| | | |
| | |
Income before income tax | |
| (2,005,132 | ) | |
| (514,292 | ) |
Income taxes provision | |
| — | | |
| — | |
Net loss | |
$ | (2,005,132 | ) | |
$ | (514,292 | ) |
| |
| | | |
| | |
Basic and diluted (loss) per common share | |
$ | (0.19 | ) | |
$ | (0.07 | ) |
| |
| | | |
| | |
Weighted average common shares outstanding basic and diluted | |
| 10,450,000 | | |
| 7,000,000 | |
The accompanying notes are an integral part
of these unaudited condensed financial statements
FORZA
X1, INC. |
Condensed
Statements of Stockholders’ Equity |
(Unaudited) |
For
the Three months end March 31, 2023 and 2022
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Common
Stock | |
Additional
Paid-in | |
(Accumulated | |
Total
Stockholders’ |
| |
Shares | |
Amount | |
Capital | |
Deficit) | |
Equity |
Balance,
January 1, 2022 | |
| 700,000 | | |
$ | 7,000 | | |
$ | 1,993,500 | | |
$ | (457,551 | ) | |
$ | 1,542,949 | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| (514,292 | ) | |
| (514,292 | ) |
Balance,
March 31, 2022 | |
| 700,000 | | |
$ | 7,000 | | |
$ | 1,993,500 | | |
$ | (971,843 | ) | |
$ | 1,028,657 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
January 1, 2023 | |
| 10,450,000 | | |
$ | 10,450 | | |
$ | 17,777,385 | | |
$ | (4,087,632 | ) | |
$ | 13,700,203 | |
Stock-based
compensation | |
| — | | |
| — | | |
| 341,163 | | |
| — | | |
| 341,163 | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| (2,005,132 | ) | |
| (2,005,132 | ) |
Balance,
March 31, 2023 | |
| 10,450,000 | | |
| 10,450 | | |
$ | 18,118,548 | | |
$ | (6,092,764 | ) | |
$ | 12,036,234 | |
The accompanying notes are an integral part
of these unaudited condensed financial statements
FORZA
X1, INC. |
Condensed
Statements of Cash Flows |
(Unaudited) |
| |
| | | |
| | |
| |
Three months ended |
| |
March 31, 2023 | |
March 31, 2022 |
| |
| |
|
Cash Flows From Operating Activities | |
| | | |
| | |
Net loss | |
$ | (2,005,132 | ) | |
$ | (514,292 | ) |
Adjustments to reconcile net loss: | |
| | | |
| | |
Depreciation | |
| 35,696 | | |
| 7,737 | |
Stock based compensation | |
| 341,163 | | |
| — | |
Change of right-of-use asset | |
| 21,411 | | |
| — | |
Inventories | |
| (42,829 | ) | |
| — | |
Prepaid expenses and other current assets | |
| 152,752 | | |
| 68,602 | |
Accounts payable | |
| (49,473 | ) | |
| 23,645 | |
Contract liabilities - customer deposits | |
| 500 | | |
| (11,229 | ) |
Accrued liabilities | |
| (15,598 | ) | |
| — | |
Operating lease liabilities | |
| (21,072 | ) | |
| — | |
Net cash used in operating activities | |
| (1,582,582 | ) | |
| (425,537 | ) |
| |
| | | |
| | |
Cash Flows From Investing Activities | |
| | | |
| | |
Purchase of property and equipment | |
| (199,599 | ) | |
| (39,870 | ) |
Net cash used in investing activities | |
| (199,559 | ) | |
| (39,870 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities | |
| | | |
| | |
Deferred offering costs | |
| — | | |
| (116,394 | ) |
Finance lease liabilities | |
| (2,836 | ) | |
| — | |
Repayments of advances from parent | |
| (409,505 | ) | |
| (600,557 | ) |
Advances from parent | |
| 110,283 | | |
| 18,151 | |
Net cash used in financing activities | |
| (302,058 | ) | |
| (698,800 | ) |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| (2,084,199 | ) | |
| (1,164,207 | ) |
Cash and cash equivalents at beginning of period | |
| 12,767,199 | | |
| 1,803,285 | |
Cash and cash equivalents at end of period | |
$ | 10,683,000 | | |
$ | 639,078 | |
| |
| | | |
| | |
Supplemental Cash Flow Information | |
| | | |
| | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Cash paid for interest | |
$ | 291 | | |
$ | 601 | |
| |
| | | |
| | |
Non Cash Financing Activities | |
| | | |
| | |
Finance lease | |
$ | 92,405 | | |
$ | — | |
The accompanying notes are an integral part
of these unaudited condensed financial statements.
FORZA X1, INC.
NOTES TO THE UNAUDITED CONDENSED
FINANCIAL STATEMENTS
MARCH 31, 2023
1. |
Organization and Summary of Significant Accounting Policies |
Organization
Forza X1, Inc. (“Forza”) was initially incorporated
as Electra Power Sports, Inc. on October 15, 2021, but subsequently changed its name to Forza X1, Inc. on October 29, 2021. The
Company’s parent company was incorporated in the State of Florida as Twin Vee Catamarans, Inc. on December 1, 2009, and reincorporated
in Delaware on April 7, 2021, as Twin Vee PowerCats Co. (“Twin Vee”).
Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the United States Securities
and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting
principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management,
the accompanying unaudited condensed financial statements contain all the adjustments necessary (consisting only of normal recurring
accruals) to present the financial position of the Company as of March 31, 2023 and the results of operations and cash flows for
the periods presented. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the
operating results for the full fiscal year or any future period. These unaudited condensed financial statements should be read
in conjunction with the financial statements and related notes thereto for the year ended December 31, 2022 included in the Company’s
10-K filed with the SEC on March 28, 2023.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States “U.S. GAAP” requires 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 the purchase. On March 31, 2023 and December
31, 2022, the Company had cash and cash equivalents of $10,683,000 and $12,767,199, respectively.
Concentrations of Credit and Business Risk
The Company minimizes the concentration of
credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However,
cash balances in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000 are at risk.
As of March 31, 2023 and December 31, 2022, the Company had $10,271,464 and $12,446,216, respectively, in excess of FDIC insured
limits.
2. |
Property and Equipment |
At March 31, 2023 and December 31, 2022, property
and equipment consisted of the following:
Schedule of property and equipment | |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Building - construction in progress | |
| 25,071 | | |
| 10,031 | |
Equipment | |
| 195,148 | | |
| 59,806 | |
Computer hardware and software | |
| 38,847 | | |
| 37,016 | |
Software and website development | |
| 90,396 | | |
| 35,572 | |
Furniture and fixtures | |
| 2,152 | | |
| — | |
Vehicles | |
| 48,825 | | |
| — | |
Prototype | |
| 142,526 | | |
| 142,526 | |
Molds and fixtures | |
| 562,916 | | |
| 528,966 | |
| |
| 1,105,881 | | |
| 813,917 | |
Less accumulated depreciation | |
| (84,207 | ) | |
| (48,511 | ) |
| |
$ | 1,021,674 | | |
$ | 765,406 | |
Depreciation expense of property and equipment
of $35,696 and $7,737 for the three months ended March 31, 2023 and 2022, respectively.
3. Leases
Operating right of use (“ROU”)
assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the
present value of lease payments not yet paid. Operating right of use assets represent the Company’s right to use an underlying
asset and is based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct
costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid,
the Company estimates incremental secured borrowing rates corresponding to the maturities of the leases. We used the U.S. Treasury
rate of 0.33% at December 31, 2022.
The Company leases a warehouse facility, and the
land upon which the warehouse is located which are located at 150 Commerce Street, Old Fort, North Carolina (the
“Property”) from NC Limited Liability Company. The Company entered into the lease on October 7, 2022, the lease has a
term of 2 two
years. The current base rent payment is $7,517 per
month including property taxes, insurance, and common area maintenance. The lease required a $7,517 security
deposit. The base rent will increase three percent (3%) on October 15, 2023.
At March 31, 2023 and December 31, 2022, supplemental
balance sheet information related to leases were as follows:
Schedule of condensed balance sheet | |
| |
|
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Operating lease ROU asset | |
$ | 140,658 | | |
$ | 162,069 | |
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Operating lease liabilities: | |
| | | |
| | |
Current portion | |
$ | 87,789 | | |
$ | 86,245 | |
Non-current portion | |
| 45,916 | | |
| 68,532 | |
Total lease liabilities | |
$ | 133,705 | | |
$ | 154,777 | |
At March 31, 2023, future minimum lease payments
under the non-cancelable operating leases are as follows:
Years Ending December 31,
Schedule of future minimum lease payments | | |
| | |
2023 | | |
$ | 68,552 | |
2024 | | |
| 61,937 | |
Total lease payment | | |
$ | 130,489 | |
The following summarizes other supplemental information about the
Company’s operating lease:
Schedule of operating lease cost |
|
|
|
|
|
|
March 31, 2023 |
Weighted average discount rate |
|
|
4 |
% |
Weighted average remaining lease term (years) |
|
|
1.58 |
|
| |
Three Months Ended March 31, 2023 |
Operating lease cost | |
$ | 22,550 | |
Total lease cost | |
$ | 22,550 | |
The Company has finance leases for a vehicle
and a forklift. The Company entered into the forklift lease in January of 2023, it is a 60-month lease at a 7.5% interest rate.
The Company entered into the vehicle lease in February of 2023, it is a 60-month lease at a 3% interest rate. The current portion
of the lease liabilities was $16,830 for the three months ended March 31, 2023, and the non-current portion was $72,739.
4. |
Related Party Transaction |
As of March 31, 2023 and December 31, 2022,
the Company had current liabilities of $0 and $169,851, respectively, due to Twin Vee. Prior to the Company’s initial public
offering (“IPO”), Twin Vee funded the Company’s working capital needs, primarily for prototyping, consulting
services, rent, interest and payroll. As of March 31, 2023 and December 31, 2022 the Company had current assets of $129,371 and
$0, respectively, due from Twin Vee, due to intercompany transactions.
Associated with amounts advanced and due to
Twin Vee, for the three months ended March 31, 2023 and 2022, the Company recorded interest expense of $426 and $601,
respectively, based on a rate of 6% interest on the Company’s average monthly balance.
Pursuant to a management agreement with Twin
Vee, dated October 2021, and a subsequent agreement dated September 2022, for various management services, the Company paid $5,000
monthly through August of 2021, and $6,800 monthly thereafter for management fee associated with the use of shared management resources.
The September 2022 agreement has a term of one year and will expire on August 31, 2023. For the three months ended March 31, 2023
and 2022, the Company recorded management fees of $20,400 and $15,000, respectively, pursuant to a management agreement with Twin
Vee, for various management services.
For the three months ended March 31, 2023 and
2022 the Company recorded rent expense of approximately $10,200 and $2,550, respectively, associated with its month- to- month
arrangement to utilize certain space at Twin Vee’s facility. The Company incurred $850 per month for rent expense for approximately
1,000 square feet, from January of 2021 through August 2022, in September of 2022 the month-to-month rent was adjusted to $3,400
per month, as the number of test boats had increased from 1 to 5, and the Company required additional space, approximately 4,100
square feet. The Company’s use of Twin Vee’s facilities does vary based on the number of prototype units on property
and in process. The Company’s corporate headquarters are located at Twin Vee’s location, however a number of its employees
and consultants work remotely.
During the three months ended March 31, 2023
and 2022, the Company repaid advancements from Twin Vee of $409,505 and $600,557, respectively, and had advancements from Twin
Vee of $110,283 and $18,151, respectively.
At March 31, 2023 and December 31, 2022, accrued
liabilities consisted of the following:
Schedule of accrued liabilities | |
| |
|
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
Accrued wages and benefits | |
$ | 47,910 | | |
$ | 56,581 | |
Accrued operating expense | |
| 29,259 | | |
| 36,186 | |
Total | |
$ | 77,169 | | |
$ | 92,767 | |
As
of March 31, 2023, the Company had cash and cash equivalents and working capital of $10,683,000
and $10,985,040,
respectively, compared to $12,767,199
and
$12,833,743,
respectively, on December 31, 2022. The Company has incurred a net loss of $2,005,132 and $514,292
for
the three months ended March 31, 2023 and 2022, respectively. Losses have principally occurred as a result of the research and development
efforts coupled with no operating revenue.
The Company has no current source of revenue
and may seek additional equity and/or debt financing. A successful transition to attaining profitable operations is dependent upon
achieving a level of positive cash flows adequate to support the Company’s cost structure.
7. |
Commitments and Contingencies |
Short-term lease
In August of 2022, the Company signed a six-month
lease for a duplex, to be used by its employees to minimize travel expense as it started construction on its new manufacturing
facility, for $2,200 per month, on a property in Black Mountain, North Carolina. During the three months ended March 31, 2023,
the lease expense was $2,200.
Litigation
The Company is currently involved in a civil
litigation in the normal course of business, the Company does not consider this to be material.
Common Stock Warrants
As of March 31, 2023, the Company had outstanding
warrants to purchase 172,500 shares of common stock issuable at a weighted-average exercise price of $6.25 per share
that were issued to the representative of the underwriters on August 16, 2022 in connection with the Company’s IPO. The representative’s
warrants are exercisable at any time and from time to time, in whole or in part, and expire on August 16, 2027. There was no warrant
activity during the three months ended March 31, 2023.
Equity Compensation Plan
The Company maintains
an equity compensation plan (the “Plan”) under which it may award employees, directors and consultants’ incentive
and non-qualified stock options, restricted stock, stock appreciation rights and other stock-based awards with terms established
by the Compensation Committee of the Board of Directors which has been appointed by the Board of Directors to administer the plan.
The number of awards under the Plan automatically increased on January 1, 2023. As of March 31, 2023, there were 568,750 shares
remaining available for grant under this Plan. Stock based compensation expense is included in the Statements of Operations, under
salaries and wages.
Accounting for Stock -Based Compensation
Stock Compensation Expense -
For the three months ended March 31, 2023 and 2022, the Company recorded $341,163 and $0, respectively, of stock-based
compensation expense which is included in salaries and wages on the accompanying condensed statement of operations.
Forza’s
2022 Stock Incentive Plan (the “Plan”)- Forza has issued stock options. A stock option grant gives the holder
the right, but not the obligation to purchase a certain number of shares at a predetermined price for a specific period of time.
Forza typically issues options that vest pro rata on a monthly basis over various periods. Under the terms of the Plan, the contractual
life of the option grants may not exceed ten years.
The Company utilizes
the Black-Scholes model to determine fair value of stock option awards on the date of grant. The Company utilized the following
assumptions for option grants during the three months ended March 31, 2023:
Schedule of assumptions |
|
|
|
|
|
|
Three months ended |
|
|
March 31, |
|
|
2023 |
Expected term |
|
|
5 years |
|
Expected average volatility |
|
|
111 - 115 |
% |
Expected dividend yield |
|
|
— |
|
Risk-free interest rate |
|
|
2.98-3.62 |
% |
The expected volatility of the option is determined
using historical volatilities based on historical stock price of comparable boat manufacturing companies. The Company estimated
the expected life of the options granted based upon historical weighted average of comparable boat manufacturing companies. The
risk-free interest rate is determined using the U.S. Department of the Treasury yield curve rates with a remaining term equal to
the expected life of the option. The Company has never paid a dividend, and as such the dividend yield is 0.0%
Schedule of stock option activity |
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Weighted Average |
|
|
|
|
Number of |
|
Weighted Average |
|
Remaining life |
|
|
|
|
Options |
|
Exercise Price |
|
(years) |
|
Fair value of option |
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2021 |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
Granted |
|
|
|
1,441,500 |
|
|
|
3.41 |
|
|
|
10.00 |
|
|
|
4,009,913 |
|
|
Exercised |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Outstanding, December 31, 2022 |
|
|
|
1,441,500 |
|
|
$ |
3.41 |
|
|
|
10.00 |
|
|
$ |
4,009,913 |
|
|
Granted |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled |
|
|
|
(36,944 |
) |
|
|
1.33 |
|
|
|
9.74 |
|
|
|
— |
|
|
Outstanding, March 31, 2023 |
|
|
|
1,404,556 |
|
|
$ |
3.46 |
|
|
|
9.51 |
|
|
$ |
4,009,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options, March 31, 2023 |
|
|
|
240,583 |
|
|
$ |
4.21 |
|
|
|
9.44 |
|
|
|
|
|
The Company has evaluated all events or transactions
that occurred after March 31, 2023 through May 9, 2023, which is the date that the condensed financial statements were available
to be issued. During this period, there were no material subsequent events requiring recognition or disclosure.
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
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 and under Part 1, Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2022 filed with the SEC on March 28, 2023 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 Business
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, Forza X1 has built-out and tested
multiple units, including: three FX-style catamarans, two baycats, one deck boat and three 22-foot center console monohulls. The
engine design and lower units and the control systems are continuously improved in each iteration. The monohull has been upgraded
to a two-battery system and we have tested the system in a variety of conditions and operating environments. The batteries and
engines are liquid-cooled and unique improvements to the heat exchanges have improved performance. We continue to improve our user
interface through the Garmin control screen to provide well-designed pages showing operating characteristics and important control
parameters. Additionally, our telematics unit has been adjusted to provide a better and easier to use interface. The telematics
software is available on the Apple app store under the name Forza Connect.
We continue to anticipate revenues from the
sale of these fully integrated electric boats and motors to commence in late 2023 and early 2024. Forza X1 will continue to build
prototype engines and boats for the next six to nine months.
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 in the 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 and hardware packages as a service. We are in the design phase
to provide our solution to a nationally recognized boat manufacturer and are expected to build-out two demonstration units for
their late summer open house & dealer meeting. We are also in the process of creating a robust Forza website and a media day
has been scheduled for July 7th in West Palm Beach, Florida.
The North Carolina factory plans are proceeding
apace with clearing of the land 100% complete and rough grading about 90% 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. We have produced about ten motors
to date, including our new Alpha 2 version powered by a Cascadia Motion electric motor. We are currently developing a stacking
motor design for up to 300HP.
Results of Operations
Comparison of the Three Months Ended
March 31, 2023 and 2022
The following table provides certain selected
financial information for the periods presented:
| |
Three months ended March 31, | |
| |
|
| |
2023 | |
2022 | |
Change | |
% Change |
Net sales | |
$ | — | | |
$ | — | | |
| — | | |
| — | |
Cost of products sold | |
$ | 49,941 | | |
$ | 11,078 | | |
| 38,863 | | |
| 351 | % |
Gross loss | |
$ | (49,941 | ) | |
$ | (11,078 | ) | |
| (38,863 | ) | |
| 351 | % |
Operating expenses | |
$ | 2,079,810 | | |
$ | 502,636 | | |
| 1,577,174 | | |
| 314 | % |
Loss from operations | |
$ | (2,129,751 | ) | |
$ | (513,714 | ) | |
| (1,616,037 | ) | |
| 315 | % |
Other income (expense) | |
$ | 124,619 | | |
$ | (578 | ) | |
| 125,197 | | |
| (21,660 | %) |
Net loss | |
$ | (2,005,132 | ) | |
$ | (514,292 | ) | |
| (1,490,840 | ) | |
| 290 | % |
Net loss per common share: Basic and Diluted | |
$ | (0.19 | ) | |
$ | (0.07 | ) | |
| (0 | ) | |
| 161 | % |
Weighted average number of shares of common stock outstanding | |
| 10,450,000 | | |
| 7,000,000 | | |
| 3,450,000 | | |
| | |
Operating Expenses
Operating expenses for the three months ended
March 31, 2022 increased by $1,577,174 to $2,079,810 as compared to $502,636 for the three months ended March 31, 2022. Operating
expenses include salaries, selling and general and administrative, research and development, professional fees and depreciation.
Research and development fees for the three months ended March 31, 2023 were $702,648 compared to $215,670 for the three months
ended March 31, 2022. As we have moved to prototype and testing of our electric motors and control systems on boats, our expense
have increase compared to the same period a year ago when we were in the early stages of development. Salaries and wages for the
three months ended March 31, 2023 were $862,764 compared to $182,286 for the three months ended March 31, 2022, and were related
to the design of our fully electric motor,
control system and boat. Our staffing has increased from 6 during the first quarter
of 2022 to 15 during the first quarter of 2023. For the three months ended March 31, 2023 salaries and wages included $341,163
of stock option expense, compared to $0 for the three months ended March 31, 2022. Our expenses for selling, general and administrative
for the months ended March 31, 2023, were $354,662 and $77,865 for the three months ended March 31, 2022. Professional fees for
the three months ended March 31, 2023 were $124,040 and $19,078 for the three months ended March 31, 2022. Now that we are publicly
traded our professional fees have significantly increased to meet the requirements or the SEC. During the three months ended March
31.2022, we did not incur the related expense, as such our professional fees were only $19,078. Depreciation for the three months
ended March 31, 2023 was $35,696 compared to $7,737 for the three months ended March 31, 2022, this is due to the addition of assets,
we would anticipate continued increases as we purchase equipment and molds.
Other expense and income
Interest expense was $291 and $601, respectively
for the three months ended March 31, 2023 and 2022.
Dividend and Interest income was $124,910 and
$23, respectively for the three months ended March 31, 2023 and 2022. These proceeds from our IPO have been invested resulting
in the increase in dividend income.
Liquidity and Capital Resources
The following table provide selected financial data as of March
31, 2023 and December 31, 2022:
| |
March 31, | |
December 31, | |
| |
|
| |
2023 | |
2022 | |
Change | |
% Change |
Cash and cash equivalents | |
$ | 10,683,000 | | |
$ | 12,767,199 | | |
| (2,084,199 | ) | |
| (16.3 | %) |
Current assets | |
$ | 11,222,183 | | |
$ | 13,286,934 | | |
| (2,064,751 | ) | |
| (15.5 | %) |
Current liabilities | |
$ | 237,143 | | |
$ | 453,191 | | |
| (216,048 | ) | |
| (47.7 | %) |
Working capital | |
$ | 10,985,040 | | |
$ | 12,833,743 | | |
| (1,848,703 | ) | |
| (14.4 | %) |
As of March 31, 2023, we had cash and cash equivalents,
and working capital of $10,683,000 and $10,985,040, respectively, compared to $12,767,199 and $12,833,743, respectively, on December
31, 2022. 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.
| |
Three Months Ended | |
| |
|
| |
March 31, | |
| |
|
| |
2023 | |
2022 | |
Change | |
% Change |
Cash used in operating activities | |
$ | (1,582,582 | ) | |
$ | (425,537 | ) | |
| (1,157,045 | ) | |
| 272 | % |
Cash used in investing activities | |
$ | (199,559 | ) | |
$ | (39,870 | ) | |
| (159,689 | ) | |
| 401 | % |
Cash used in financing activities | |
$ | (302,058 | ) | |
$ | (698,800 | ) | |
| 396,742 | | |
| -57 | % |
Net Change in Cash | |
$ | (2,084,199 | ) | |
$ | (1,164,207 | ) | |
| (919,992 | ) | |
| 79 | % |
Cash Flow from Operating Activities
During the three months ending March 31, 2023
and 2022, we generated negative cash flows from operating activities of $1,582,582 and $425,537, respectively. During the three
months ending March 31, 2023 and 2022, we had a net loss of $2,005,132, and $514,292, respectively. During the three months ending
March 31, 2023 our cash used in operating activities was impacted by an increase of inventories of $42,829 and decrease of $49,473
for accounts payable, $15,598 of accrued liabilities and $21,072 of operating lease liabilities. During the three months ending
March 31, 2023 our cash provided by operating activities was impacted by a decrease of prepaid expenses of $152,752
and an increase of $500 in contract liabilities – customer deposits and by non-cash expenses of $398,270, of which $341,163
was due to stock based compensation, $35,696 of depreciation and $21,411 for the change of right-of use asset.
Cash Flows from Investing Activities
For the three months ended March 31, 2023 and
2022, we used $199,559, and $39,870 in investing activities for the purchase of property and equipment, primarily for molds.
Cash Flows from Financing Activities
During the three months ended March 31, 2023
and 2022, net cash used in financing activities was $302,058, and $698,800, respectively. During the three months ended March 31,
2023, we had cash advances from Twin Vee of $110,283, which were offset by repayments of advances of $409,505. Additional
cash from financing activities of $2,836 was due from equipment financing. During the three months ended March 31, 2022
we had cash advances from Twin Vee of $18,151, which were offset by repayments of advances of $600,557. Additional cash used in
financing for the three months ended March 31,2022, was $116,394 for deferred offering costs.
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 in the 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 assumptions 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.
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 ending December
31, 2023. 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 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 March 31, 2023, the Company had
cash and cash equivalents of $10,683,000 and on December 31, 2022, the Company had cash and cash equivalents of $12,767,199.
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 three months ended March 31, 2023 were $702,648 compared to $215,670 for the period ending March
31, 2022.
Advertising Costs
Advertising and marketing costs are expensed
as incurred. For the three months ended March 31, 2023 and 2022, advertising and marketing costs incurred by the Company totaled
$12,556 and $2,485, 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 C Corporation under the Internal
Revenue Code and a similar section of the state code.
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 U.S GAAP, the Company follows
the guidance in FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes. At March 31, 2022, 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 Securities and Exchange Commission rules.
ITEM 4. |
CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our
Chief Executive Officer (Principal Executive Officer) and our interim Chief Financial Officer (Principal Financial Officer),
evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We have adopted and
maintain disclosure controls and procedures (as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that
are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act,
such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods
specified in the rules of the SEC. Our disclosure controls and procedures are also designed to ensure that such information is
accumulated and communicated to management to allow timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023 our Chief Executive Officer and
our interim Chief Financial Officer concluded that, as of such a date, our disclosure controls and procedures were not effective at
the reasonable assurance level, due to the material weaknesses in our internal control over
financial reporting, as further described below.
Previously Reported
Material Weakness
As disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2022, we previously identified material weaknesses in our internal control
over financial reporting relating to lack of segregation of duties We have not yet retained sufficient staff or engaged sufficient
outside consultants with appropriate experience in GAAP presentation, especially of complex instruments, to devise and implement
effective disclosure controls and procedures, or internal controls. Significant progress has been made,
we have hired additional
staff and are in the process of training, the required procedures and controls have been implemented. We will be testing these
controls over the coming months to verify that the material weakness has been remediated. We continue to work with outside consultants
with the appropriate experience to aid in the remedy these weaknesses. As such, the auditor provided us with a letter stating that
our internal controls with respect to the financial close and financial reporting do not include a sufficient process to reconcile
the accounts to supporting records and an independent review process to ensure U.S. GAAP financial statements are free from error.
We have determined that these control deficiencies constituted material weaknesses in our
internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in our internal control
over financial reporting such that there is a reasonable possibility that a material misstatement of our condensed financial statements
would not be prevented or detected on a timely basis. These deficiencies could result in additional misstatements to our condensed
financial statements that would be material and would not be prevented or detected on a timely basis.
Remediation Plan
Management has developed
and is executing a remediation plan to address the previously disclosed material weaknesses. We are actively engaged in the remediation
of each of the outstanding material weaknesses, including the retention of a full-time controller and utilizing the assistance
of outside advisors where appropriate.
To remediate the existing
material weaknesses, additional time is required to demonstrate the effectiveness of the remediation efforts. The material weaknesses
cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has
concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial
Reporting
During the three months
ended March 31, 2023, we did experience turnover in our finance department and are working on rehiring and retraining staff. We
continue to develop and refined our controls and other producers that are designed to ensure that information required to be disclosed
by us in the reports that we file with the SEC are recorded, processed, summarized and reported within the time periods specified
in SEC rules and in accordance with GAAP.