UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| (Mark One) |
|
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended | |
| OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _______________ to _______________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| The (The Nasdaq Capital Market) |
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 14, 2024, there were shares of Common Stock, $0.001 par value per share, outstanding.
FORZA X1, INC.
TABLE OF CONTENTS
2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments, and other factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control), and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.
As a result of these and other factors, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “Forza,” “the Company,” “we” and “our” refer to Forza X1, Inc.
3
FORZA X1, INC.
Condensed Balance Sheets
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Marketable securities - available for sale | ||||||||
| Inventories, net | ||||||||
| Due from affiliated companies, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Operating lease right of use asset | ||||||||
| Security deposit | ||||||||
| Property and equipment, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Due to affiliated companies, net | ||||||||
| Finance leases - current portion | ||||||||
| Operating lease right of use liability | ||||||||
| Contract liabilities - customer deposits | ||||||||
| Total Current Liabilities | ||||||||
| Finance leases - noncurrent | ||||||||
| Total Liabilities | ||||||||
| Commitments (Note 9) | ||||||||
| Stockholders' Equity: | ||||||||
| Common stock: authorized; $ par value; shares issued and shares outstanding | ||||||||
| Treasury stock, shares | ( | ) | ( | ) | ||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
4
FORZA X1, INC.
Condensed Statements of Operations
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net sales - related party | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross (loss) profit | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Research and development | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Impairment of property & equipment | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Dividend income | ||||||||||||||||
| Unrealized gain (loss) on marketable securities | ( | ) | ||||||||||||||
| Realized gain (loss) on marketable securities | ||||||||||||||||
| Loss on the disposal of property & equipment | ( | ) | ( | ) | ||||||||||||
| Gain on sale of R&D assets | ||||||||||||||||
| Total other income (expense) | ( | ) | ||||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes provision | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
5
FORZA X1, INC.
Condensed Statements of Stockholders’ Equity
(Unaudited)
For the Three and Nine Months Ended September 30, 2024 and 2023
| Additional | Total | |||||||||||||||||||||||
| Common Stock | Treasury | Paid-in | (Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit) | Equity | |||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, January 1, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
6
FORZA X1, INC.
Condensed Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss: | ||||||||
| Depreciation | ||||||||
| Change in fair value of marketable securities, available for sale | ( | ) | ||||||
| Impairment of property & equipment | ||||||||
| Stock based compensation | ||||||||
| Change of right-of-use asset | ||||||||
| Gain on sale of R&D assets | ( | ) | ||||||
| Loss on disposal of property & equipment | ||||||||
| Change in inventory reserve | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Contract liabilities - customer deposits | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Net redemptions (purchase) of marketable securities | ( | ) | ||||||
| Realized gain on sale of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from disposition of property & equipment | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Deferred offering costs | ( | ) | ||||||
| Repayments of finance lease | ( | ) | ( | ) | ||||
| Repayments of advances from affiliates | ( | ) | ( | ) | ||||
| Advances from affiliates | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non Cash Investing and Financing Activities | ||||||||
| Right of use asset - finance leases | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
7
FORZA X1, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2024
1. Organization and Summary of Significant Accounting Policies
Organization
Forza X1, Inc. (“Forza” or the “Company”) 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”).
In an effort to retain cash and reduce expenditures
and as a result of current market conditions, on July 11, 2024, the Company’s Board of Directors determined to discontinue and wind
down the Company’s business related to the development and sale of electric boats utilizing its proprietary outboard electric motor.
On August 12, 2024, the Company entered into a Merger Agreement with Twin Vee PowerCats Co. As part of this decision, the Company obtained
an appraisal of its partially constructed facility in Monroe, NC and evaluated the carrying costs of its assets, primarily its inventory
and fixed assets. Based on this analysis, the Company has recorded an impairment charge of $
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 condensed financial statements and with the instructions to Quarterly Report on 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 September 30, 2024 and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2024 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, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2024.
Revenue Recognition
The Company recognizes revenue when obligations under the terms of a contract are satisfied and control over promised goods is transferred to the dealer. Revenue is measured as the amount of consideration it expects to receive in exchange for a product.
Payment received for the future
sale of a boat to a customer is recognized as a customer deposit. Customer deposits are recognized as revenue when control over promised
goods is transferred to the customer. At September 30, 2024 and December 31, 2023, the Company had customer deposits of $
8
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 September 30, 2024 and
December 31, 2023, the Company had cash and cash equivalents of $
Marketable Securities
The Company’s investments in debt securities are carried at either amortized cost or fair value. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading debt securities as well as realized gains and losses on available-for-sale debt securities are included in net income.
Fair Value of Financial Instruments
The Company follows accounting guidelines on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair Value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:
●Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments.
●Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace.
●Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires a significant judgment or estimation.
Financial instruments measured as fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires it to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.
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 $
9
Inventories
Inventories, which are raw materials
for upcoming production, are valued at the lower of cost and net realizable value, with cost determined using the weighted average cost
method using a first-in, first-out basis. Net realizable value is defined as sales price less cost of completion, disposable and transportation
and a normal profit margin. Production costs, consisting of labor and overhead, are applied to ending finished goods inventories at a
rate based on estimated production capacity. Excess production costs are charged to Cost of Goods Sold. Provisions have been made to reduce
excess or obsolete inventories to their net realizable value. Provisions for excess and obsolete inventories at September 30, 2024 and
December 31, 2023, were $
2. Liquidity
As of September 30, 2024, the
Company had cash and cash equivalents and working capital of $
The Company has no current source of revenue and has discontinued and winded down its business and therefore is not anticipated to generate revenue.
3. Marketable Securities
As of September 30, 2024, the Company had no marketable securities. The Company’s investments in debt securities are carried at either amortized cost or fair value. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading debt securities as well as realized gains and losses on available-for-sale debt securities are included in net income.
| As of December 31, 2023 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Marketable Securities | ||||||||||||||||
| Corporate Bonds | $ | $ | $ | $ | ||||||||||||
| Total marketable securities | $ | $ | $ | $ | ||||||||||||
Assets and liabilities measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of December 31, 2023 are as follows:
| Fair Value Based On | ||||||||||||||||
| Balance as of December 31, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Non- observable Inputs (Level 3) | |||||||||||||
| Marketable Securities: | ||||||||||||||||
| Corporate Bonds | $ | |||||||||||||||
| Total Marketable Securities | $ | $ | $ | $ | ||||||||||||
10
The Company’s investments in corporate bonds are measured based on quotes from market makers for similar items in active markets.
4. Property and Equipment
At September 30, 2024 and December 31, 2023, property and equipment consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Building - construction in progress | ||||||||
| Land | ||||||||
| Equipment | ||||||||
| Computer hardware and software | ||||||||
| Software and website development | ||||||||
| Furniture and fixtures | ||||||||
| Vehicles | ||||||||
| Prototype | ||||||||
| Molds and Fixtures | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
For the three months ended September
30, 2024 and 2023 depreciation expense was $
5. 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. The Company used the U.S. Treasury rate of
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 two years. The current
base rent payment is $
At September 30, 2024 and December 31, 2023, supplemental balance sheet information related to leases were as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Operating lease ROU asset | $ | $ | ||||||
| Operating lease liabilities: | ||||||||
| Current portion | $ | $ | ||||||
| $ | $ | |||||||
11
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
6. Finance Leases
The Company has finance leases
for a vehicle and two forklifts. The Company entered into the vehicle lease in February of 2023, with a recorded value of $
At September 30, 2024, future minimum payments under the non-cancelable finance leases are as follows:
Years Ending December 31,
| 2024 (excluding the nine months ended September 30, 2024) | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Total lease payment | $ | ||||
| Total Imputed interest | ( | ) | |||
| Total | $ |
7. Related Party Transactions
As of September 30, 2024, the
Company had $
During the nine months ended
September 30, 2024 and 2023, the Company repaid advancements from Twin Vee of $
Pursuant to a management agreement
dated September 2022, for various management services,
12
For the three months ended September 30, 2024 and
2023, the Company recorded rent expense of approximately $
In August of 2022, the Company
signed a six-month lease for a duplex on a property in Black Mountain, NC, to be used by its traveling employees during the construction
of its new manufacturing facility, for $
On August 12, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Twin Vee and Twin Vee Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Twin Vee (“Twin Vee Merger Sub”), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, the Company will merge with and into Twin Vee Merger Sub, with the Company surviving the merger (the “Merger”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of the Company’s common stock (other than any shares held by Twin Vee), will be converted into the right to receive 0.61166627 of a share (the “Exchange Ratio”) of Twin Vee common stock, any fractional shares to be rounded down to the nearest whole share of Twin Vee common stock, for an aggregate of shares of Twin Vee common stock (the “Share Issuance”). Each outstanding stock option exercisable for shares of the Company’s common stock that is outstanding at the Effective Time, whether vested or unvested, will be assumed by Twin Vee and converted into a stock option to purchase the number of shares of Twin Vee common stock that the holder would have received if such holder had exercised such stock option for shares of our common stock prior to the Merger and exchanged such shares for Twin Vee common stock in accordance with the Exchange Ratio. Each outstanding warrant to purchase shares of the Company’s common stock will be assumed by Twin Vee and converted into a warrant to purchase the number of shares of Twin Vee common stock that the holder would have received if such holder had exercised such warrant for shares of the Company’s common stock prior to the Merger and exchanged such shares for Twin Vee common stock in accordance with the Exchange Ratio, subject to adjustment for any reverse stock split. In addition, at the Effective Time the shares of the Company’s common stock held by Twin Vee will be cancelled.
The completion of the Merger by each of Twin Vee and the Company is subject to customary conditions, including (1) (A) adoption of the Merger Agreement by the Company’s stockholders (which approval shall include a majority of the shares present in person or by proxy at the Company’s annual meeting excluding shares held by Twin Vee)(the approval of the Company’s stockholders was obtained on November 11, 2024) and (B) approval of the Share Issuance by Twin Vee’s shareholders (the approval of the Share Issuance by Twin Vee’s shareholders was obtained on November 11, 2024), (2) authorization for listing on the Nasdaq Capital Market of the shares of Twin Vee’s common stock to be issued in the Merger, subject to official notice of issuance, (3) effectiveness of the registration statement on Form S-4 for Twin Vee’s common stock to be issued in the Merger, (the registration statement was declared effective on October 10, 2024) and (4) the absence of any order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including subject to certain exceptions, the accuracy of the representations and warranties of the other party and performance in all material respects by the other party of its obligations under the Merger Agreement. Twin Vee, in its capacity as our principal stockholder, has agreed to vote the shares of the Company’s common stock held by it for the approval and adoption of the Merger only if a majority of the Company’s other stockholders present in person or by proxy at the Company’s annual meeting vote to approve and adopt the Merger.
The Merger Agreement contains certain termination rights for both Twin Vee and the Company. In addition, either the Company or Twin Vee may terminate the Merger Agreement if the Merger is not consummated by December 1, 2024. The Company believes that all closing conditions will be met and anticipates consummating the Merger in the near future.
13
8. Accrued Expenses
At September 30, 2024 and December 31, 2023, accrued liabilities consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accrued wages and benefits | $ | $ | ||||||
| Accrued operating expenses | ||||||||
| Total accrues expenses | $ | $ | ||||||
9. Commitments and Contingencies
Litigation
The Company is currently involved in civil litigation in the normal course of business, the Company does not consider this to be material.
10. Stockholders’ Equity
Common Stock Warrants
The Company had outstanding warrants
to purchase
Equity Compensation Plan
The Company maintains an equity compensation plan (the “Plan”) under which it may award employees, directors and consultants’ incentive and nonqualified 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 and January 1, 2024. As of September 30, 2024, there were shares remaining available for grant under this Plan. Stock based compensation expense is included in the Condensed Statements of Operations, under salaries and wages.
Accounting for Stock -Based Compensation
Stock Compensation Expense - For the nine months ended September 30, 2024 and 2023, the Company recorded $ and $, 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. There were no options granted in the nine months ended September 30, 2024. The Company utilized the following assumptions for option grants during the nine months ended September 30, 2023:
| Nine months Ended | ||||
| September 30, | ||||
| 2023 | ||||
| Expected term | years | |||
| Expected average volatility | -% | |||
| Expected dividend yield | ||||
| Risk-free interest rate | – % |
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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%
| Options Outstanding | Weighted Average | ||||||||||||||||
| Number of | Weighted Average | Remaining life | |||||||||||||||
| Options | Exercise Price | (years) | Fair value of option | ||||||||||||||
| Outstanding, December 31, 2022 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Exercised | |||||||||||||||||
| Forfeited/canceled | ( | ) | ( | ) | |||||||||||||
| Outstanding, December 31, 2023 | $ | $ | |||||||||||||||
| Granted | 0 | ||||||||||||||||
| Exercised | 0 | ||||||||||||||||
| Forfeited/canceled | ( | ) | ( | ) | |||||||||||||
| Outstanding, September 30, 2024 | $ | $ | |||||||||||||||
| Exercisable options, September 30, 2024 | $ | ||||||||||||||||
11. Subsequent Events
As previously reported, on October 4, 2023, the Company received
written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company
that for the preceding
On October 1, 2024, the Company received written notice from the Listing Qualifications Department of Nasdaq notifying the Company that it had not regained compliance with Listing Rule 5550(a)(2) and, therefore, the Company’s common stock will be delisted from Nasdaq. The Company did not appeal Nasdaq’s delisting determination and trading of its common stock on Nasdaq has been suspended from trading on The Nasdaq Capital Market. The Company’s common stock currently trades on the OTC Markets system under the trading symbol “FRZA”.
On November 11, 2024, the Company held its 2024 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, the Company’s stockholders approved the Merger of the Company with Twin Vee Merger Sub pursuant to the terms of the Merger Agreement.
The Company has evaluated all events or transactions that occurred after September 30, 2024 through November 14, 2024, which is the date that the condensed financial statements were available to be issued. During this period, there were no additional material subsequent events.
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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, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2024 for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward looking statements.
Overview
We were founded with a mission to inspire the adoption of sustainable recreational boating by producing stylish electric sport boats designed to offer a cleaner, quieter, and more efficient alternative to traditional gasoline-powered boats. Until we decided to discontinue and wind down our business related to the development and sale of electric boats utilizing our proprietary outboard electric motor, we had been focused on the creation, implementation and sale of electric boats utilizing our electric vehicle (“EV”) technology to control and power our boats and proprietary outboard electric motor. In an effort to retain cash and reduce expenditures and as a result of current market conditions described below, on July 11, 2024, our Board of Directors determined to discontinue and wind down our business related to the development and sale of electric boats utilizing our proprietary outboard electric motor. On August 12, 2024, we entered into a Merger Agreement with our parent company, Twin Vee PowerCats Co (“Twin Vee”).
We have not completed the development of our electric boats or electric outboard motor. Three different protypes of the electric boat have been built. We have completed the design phase of our outboard motor and were in the prototype phase before the decision to wind down operations.
Industry Trends
The past year has seen a marked deceleration in the global demand for recreational marine vehicles, influenced heavily by economic uncertainties and shifting consumer priorities. This slowdown reflects broader trends affecting the recreational vehicle industries at large, including electric vehicles (EVs). Notably, the global shift towards EV adoption has been much slower than initially anticipated. Several leading automotive manufacturers have adjusted their strategies, accordingly, including halting the construction of dedicated EV factories.
The slower-than-expected adoption rates have led to cautious consumer spending and investment in EV technology, directly impacting our market. Specifically, the electric boat segment has experienced even more sluggish growth than the automotive sector. In addition, while Forza’s electric boats are still in the development stage, many of the larger players in the boat industry, such as Mercury Marine, have completed their development efforts and have brought their electric outboard motors to market.
These challenges led to the decision to discontinue and wind down our business related to the development and sale of electric boats utilizing our proprietary outboard electric motor and enter into the Merger Agreement described in more detail below.
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Recent Developments
On September 10, 2024, we entered into a Separation Agreement with Dan Norton, our President, pursuant to which Mr. Norton and we mutually agreed to terminate his employment with the Company, effective as of September 30, 2024. Mr. Norton did not advise us of any disagreement with the Company on any matter relating to its operations, policies or practices.
On August 12, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Twin Vee and Twin Vee Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Twin Vee (“Twin Vee Merger Sub”), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, the Company will merge with and into Twin Vee Merger Sub, with the Company surviving the merger (the “Merger”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of our common stock (other than any shares held by Twin Vee), will be converted into the right to receive 0.61166627of a share (the “Exchange Ratio”) of Twin Vee common stock, any fractional shares to be rounded down to the nearest whole share of Twin Vee common stock, for an aggregate of 5,355,000 shares of Twin Vee common stock. Each outstanding stock option exercisable for shares of our common stock that is outstanding at the Effective Time, whether vested or unvested, will be assumed by Twin Vee and converted into a stock option to purchase the number of shares of Twin Vee common stock that the holder would have received if such holder had exercised such stock option for shares of our common stock prior to the Merger and exchanged such shares for Twin Vee common stock in accordance with the Exchange Ratio. Each outstanding warrant to purchase shares of our common stock will be assumed by Twin Vee and converted into a warrant to purchase the number of shares of Twin Vee common stock that the holder would have received if such holder had exercised such warrant for shares of our common stock prior to the Merger and exchanged such shares for Twin Vee common stock in accordance with the Exchange Ratio, subject to adjustment for any reverse stock split. In addition, at the Effective Time the 7,000,000 shares of our common stock held by Twin Vee will be cancelled.
The completion of the Merger by each of Twin Vee and the Company is subject to customary conditions, including (1) (A) adoption of the Merger Agreement by our stockholders (which approval shall include a majority of the shares present in person or by proxy at our annual meeting excluding shares held by us) (the approval of our stockholders was obtained on November 11, 2024) and (B) approval of the Share Issuance by Twin Vee’s shareholders(the approval of the Share Issuance by Twin Vee’s shareholders was obtained on November 11, 2024), (2) authorization for listing on the Nasdaq Capital Market of the shares of Twin Vee’s common stock to be issued in the Merger, subject to official notice of issuance, (3) effectiveness of the registration statement on Form S-4 for Twin Vee’s common stock to be issued in the Merger(the registration statement was declared effective on October 10, 2024), and (4) the absence of any order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including subject to certain exceptions, the accuracy of the representations and warranties of the other party and performance in all material respects by the other party of its obligations under the Merger Agreement. Twin Vee, in its capacity as our principal stockholder, has agreed to vote the shares of our common stock held by it for the approval and adoption of the Merger only if a majority of our other stockholders present in person or by proxy at the Forza annual meeting vote to approve and adopt the Merger.
The Merger Agreement contains certain termination rights for both Twin Vee and us. In addition, either we or Twin Vee may terminate the Merger Agreement if the Merger is not consummated by December 1, 2024. On November 11, 2024, we held our 2024 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, our stockholders approved the Merger of the Company with Twin Vee Merger Sub pursuant to the terms of the Merger Agreement. We believe that all closing conditions will be met and anticipate consummating the Merger in the near future.
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Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table provides certain selected financial information for the periods presented:
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % Change | |||||||||||||
| Net sales - related party | $ | — | $ | 18,559 | $ | (18,559 | ) | (100 | %) | |||||||
| Cost of sales | $ | 11,922 | $ | 11,621 | $ | 301 | 3 | % | ||||||||
| Gross (loss) profit | $ | (11,922 | ) | $ | 6,938 | $ | (18,860 | ) | (272 | %) | ||||||
| Operating expenses | $ | 852,451 | $ | 1,258,966 | $ | (406,515 | ) | (32 | %) | |||||||
| Loss from operations | $ | (864,373 | ) | $ | (1,252,028 | ) | $ | 387,655 | 31 | % | ||||||
| Other (expense) income | $ | (31,329 | ) | $ | 205,714 | $ | (237,043 | ) | (115 | %) | ||||||
| Net loss | $ | (895,702 | ) | $ | (1,046,314 | ) | $ | 150,612 | 14 | % | ||||||
| Net loss per common share: Basic and Diluted | $ | (0.06 | ) | $ | (0.07 | ) | $ | 0.01 | 14 | % | ||||||
| Weighted average number of shares of common stock outstanding | 15,754,774 | 15,784,000 | (29,226 | ) | ||||||||||||
Net Sales and Cost of Sales
Our net sales decreased by $18,559, or 100% to $0 for the three months ended September 30, 2024 from $18,559 for the three months ended September 30, 2023.
Operating Expenses
Operating expenses for the three months ended September 30, 2024 decreased by $406,515 to $852,451 as compared to $1,258,965 for the three months ended September 30, 2023. Operating expenses include salaries, selling, general, and administrative, research and development, professional fees, and depreciation.
Research and development costs for the three months ended September 30, 2024 were $77,494, as compared to $60,667 for the three months ended September 30, 2023.
Salaries and wages for the three months ended September 30, 2024 were $356,650, as compared to $837,857 for the three months ended September 30, 2023, and were primarily related to reductions in staffing in engineering and design. For the three months ended September 30, 2024, salaries and wages included $174,159 of stock option expense, as compared to $332,107 for the three months ended September 30, 2023.
Our expenses for selling, general, and administrative for the three months ended September 30, 2024, were $212,753, as compared to $217,455 for the three months ended September 30, 2023, a reduction of 2.2%.
Professional fees for the three months ended September 30, 2024 were $140,865, as compared to $92,505 for the three months ended September 30, 2023, primarily due to merger related expenses incurred in the third quarter of 2024.
Depreciation and amortization for the three months ended September 30, 2024 was $64,689, as compared to $50,482 for the three months ended September 30, 2023, the increase being attributable to the addition of equipment and tooling.
Other expense and income
Interest expense was $3,424 and $1,144, respectively for the three months ended September 30, 2024 and 2023.
Because the proceeds from our IPO and secondary offering have been partly invested in money market vehicles, those monies earned dividend income. Dividend and interest income was $94,682 and $151,685, respectively, for the three months ended September 30, 2024 and 2023.
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Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table provides certain selected financial information for the periods presented:
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | $ | % Change | |||||||||||||
| Net sales - related party | $ | — | $ | 18,559 | $ | (18,559 | ) | (100 | %) | |||||||
| Cost of sales | $ | 68,335 | $ | 102,358 | $ | (34,023 | ) | (33 | %) | |||||||
| Gross loss | $ | (68,335 | ) | $ | (83,799 | ) | $ | 15,464 | 18 | % | ||||||
| Operating expenses | $ | 5,054,781 | $ | 4,917,498 | $ | 137,283 | 3 | % | ||||||||
| Loss from operations | $ | (5,123,116 | ) | $ | (5,001,297 | ) | $ | (121,819 | ) | (2 | %) | |||||
| Other income | $ | 228,023 | $ | 466,197 | $ | (238,174 | ) | (51 | %) | |||||||
| Net loss | $ | (4,895,093 | ) | $ | (4,535,100 | ) | $ | (359,993 | ) | (8 | %) | |||||
| Net loss per common share: Basic and Diluted | $ | (0.31 | ) | $ | (0.36 | ) | $ | 0.05 | 14 | % | ||||||
Net Sales and Cost of Sales
Our net sales decreased by $18,559, or 100% to $0 for the nine months ended September 30, 2024 from $18,559 for the nine months ended September 30, 2023.
Operating Expenses
Operating expenses for the nine months ended September 30, 2024 increased by $137,283 due primarily to an asset impairment charge during the second quarter of $1,674,000. Excluding the impact of this charge, operating expenses decreased by $1,536,717 to $3,380,781 as compared to $4,917,498 for the nine months ended September 30, 2023. Operating expenses include salaries, selling, general, and administrative, research and development, professional fees, and depreciation.
Research and development costs for the nine months ended September 30, 2024 were $587,599, as compared to $1,024,787 for the nine months ended September 30, 2023. Our research and development expenses declined for the quarter, due to large expenditures in 2023 when we were in the early stages of development of our prototype electric motors and control systems, partially offset by an inventory valuation charge during the first nine months of 2024 of $293,058.
Salaries and wages for the nine months ended September 30, 2024 were $1,479,501, as compared to $2,565,460 for the nine months ended September 30, 2023, and were primarily related to reductions in staffing in engineering and design. For the nine months ended September 30, 2024 salaries and wages included $651,115 of stock option expense, as compared to $1,015,087 for the nine months ended September 30, 2023.
Selling, general, and administrative expenses for the nine months ended September 30, 2024, were $737,269, as compared to $906,432 for the nine months ended September 30, 2023, as the company began winding down its operations in the third quarter of 2024.
Professional fees for the nine months ended September 30, 2024 were $391,971, as compared to $286,411 for the nine months ended September 30, 2023 primarily due to merger related expenses incurred in 2024
Depreciation and amortization for the nine months ended September 30, 2024 was $184,441, as compared to $134,408 for the nine months ended September 30, 2023, the increase being attributable to the addition of equipment and tooling.
Other expense and income
Interest expense was $7,362 and $2,928, respectively, for the nine months ended September 30, 2024 and 2023.
Because the proceeds from our IPO and secondary offering are partly invested in money market vehicles, those monies earn dividend income, interest income, and capital gains. Dividend and interest income was $339,692 and $413,952, respectively, for the nine months ended September 30, 2024 and 2023. Net realized gains were $35,210 and $23,747, respectively, for the nine months ended September 30, 2024 and 2023.
Liquidity and Capital Resources
The following table provide selected financial data as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||||||||||
| 2024 | 2023 | Change | % Change | |||||||||||||
| Cash and cash equivalents | $ | 7,200,427 | $ | 9,821,531 | $ | (2,621,104 | ) | (26.7 | %) | |||||||
| Current assets | $ | 7,554,051 | $ | 13,370,219 | $ | (5,816,168 | ) | (43.5 | %) | |||||||
| Current liabilities | $ | 113,801 | $ | 842,594 | $ | (728,793 | ) | (86.5 | %) | |||||||
| Working capital | $ | 7,440,250 | $ | 12,527,625 | $ | (5,087,375 | ) | (40.6 | %) | |||||||
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As of September 30, 2024, we had cash and cash equivalents, and working capital of $7,200,427 and $7,440,250, respectively, compared to $9,821,531 and $12,527,625, respectively, on December 31, 2023. We have incurred significant costs in pursuit of our construction of our new manufacturing facility which we have been financing. Our management planned to use the proceeds from the IPO and the secondary offering to finance the expenses related to the construction of the facility, which we are no longer pursuing. We believe that our current capital resources will be sufficient to fund our operations while we pursue the Merger and believe that our current capital resources will be sufficient for another 15 months following the date of this Quarterly Report on Form 10-Q. Inasmuch as we are no longer developing our electric vehicles and have winded down operation our cash expenditures are expected to be minimal.
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2024 | 2023 | Change | % Change | |||||||||||||
| Cash used in operating activities | $ | (2,411,753 | ) | $ | (3,877,991 | ) | $ | 1,466,238 | 38 | % | ||||||
| Cash provided by (used in) investing activities | $ | 96,066 | $ | (10,193,627 | ) | $ | 10,289,693 | 101 | % | |||||||
| Cash (used in) provided by financing activities | $ | (305,417 | ) | $ | 6,743,239 | $ | (7,048,656 | ) | (105 | %) | ||||||
| Net Change in Cash | $ | (2,621,104 | ) | $ | (7,328,379 | ) | $ | 4,707,275 | 64 | % | ||||||
Cash Flow from Operating Activities
During the nine months ended September 30, 2024 and 2023, we generated negative cash flows from operating activities of $2,411,753 and $3,877,991, respectively. During the nine months ended September 30, 2024, our cash used in operating activities was primarily a result of operating losses incurred and a reduction in accrued liabilities, partially offset by a reduction in inventory since December 31, 2023.
Cash Flows from Investing Activities
For the nine months ended September 30, 2024 net cash provided by investing activities was $96,066 resulting from redemptions of marketable securities more than offsetting the purchase of property and equipment and building. This compares to a use of cash from investing activities of $10,193,627 in the nine months ended September 30, 2023 from the purchase of investments in available for sale securities following the company’s issuance of common stock.
Cash Flows from Financing Activities
During the nine months ended September 30, 2024, net cash used in financing activities was $305,417. During the nine months ended September 30, 2023, net cash provided by financing activities was $6,743,239 resulting primarily from the issuance of common stock.
Controls and Procedures
We are now currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. We are only 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 longer 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.
20
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.
Revenue Recognition
We recognize revenue when obligations under the terms of a contract are satisfied and control over promised goods is transferred to the dealer. Revenue is measured as the amount of consideration it expects to receive in exchange for a product.
Payment received for the future sale of a boat to a customer is recognized as a customer deposit. Customer deposits are recognized as revenue when control over promised goods is transferred to the customer. At September 30, 2024 and December 31, 2023, we had customer deposits of $6,175 and $5,700, respectively, which is recorded as contract liabilities on the Condensed Balance Sheet. These deposits are expected to be returned to customers within a one-year period.
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 purchase. On September 30, 2024, the Company had cash and cash equivalents of $7,200,427, and on December 31, 2023, the Company had cash and cash equivalents of $9,821,531.
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 the results of operations. Repairs and maintenance expenses, 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. An impairment charge of $1,674,000 was recorded against the building under construction in the second quarter of 2024 based on a recent third-party appraisal.
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Research and Development
Research and development costs are expensed as incurred. For the three months ended September 30, 2024 and 2023, research and development costs were $77,494 and $60,667, respectively. Such costs for the nine months ended September 30, 2024 were $587,599, as compared to $1,024,787 for the nine months ended September 30, 2023.
Advertising Costs
Advertising and marketing costs are expensed as incurred. Such costs for the three months ended September 30, 2024 were $0, as compared to $28,146 for the three months ended September 30, 2023. Such costs for the nine months ended September 30, 2024 were $5,254, as compared to $90,492 for the nine months ended September 30, 2023. Advertising and marketing costs are included in selling, general, and administrative expenses in the accompanying statements of operations.
Leases
We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We calculate the associated lease liability and corresponding ROU asset upon lease commencement using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The operating lease ROU asset also includes any lease payments made and is reduced by lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expenses for lease payments is recognized on a straight-line basis over the lease term.
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, we follow the guidance in FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes. At September 30, 2024, we do not believe we have any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.
Our 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our interim 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 September 30, 2024. 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 September 30, 2024 our interim 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, 2023, we previously identified material weaknesses in our internal control over financial reporting relating to a lack of segregation of duties. 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 had developed and is executing a remediation plan to address the previously disclosed material weaknesses and had planned to hire additional full-time accounting expertise and the utilize outside advisors where appropriate. However, due to the decisions to wind down our business related to the development and sale of electric boats utilizing our proprietary outboard electric motor and our entry into the Merger Agreement we have not implemented the remediation plan
Changes in Internal Control over Financial Reporting
Other than as discussed above, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
ITEM 1A. RISK FACTORS.
Investing in our securities involves a high degree of risk. You should consider carefully the following risks and the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, together with all the other information in this Quarterly Report on Form 10-Q, including our condensed financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2023. Except as disclosed below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
RISKS RELATED TO OUR BUSINESS
There is substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.
The report of our independent registered public accounting firm contains a note stating that the accompanying financial statements have been prepared assuming we will continue as a going concern. During the nine months ended September 30, 2024 and 2023, we incurred a net loss of $4,895,093 and $4,535,100, respectively and used cash in operations of $2,428,683 and $3,877,991, respectively. During the year ended December 31, 2023, we incurred a net loss of $5,933,113 and used cash in operations of $4,150,280. Losses have principally occurred as the result of our research and development efforts coupled with a lack of operating revenue. Until we begin generating revenue, there is doubt about our ability to become a going concern in the future. Inasmuch as we have ceased our business related to the development and sale of electric boats utilizing our proprietary outboard electric motor, which was our only business operations, we do not anticipate generating revenue in the future.
Our failure to meet the continued listing requirements of The Nasdaq Capital Market has resulted in the suspension of trading of our common stock on The Nasdaq Capital Market.
Our shares of common stock have been suspended from trading on The Nasdaq Capital Market. The Company’s common stock currently trades on the OTC Markets system under the trading symbol “FRZA”. This suspension is likely to have a negative effect on the price of our common stock and may impair the ability of our stockholders to sell or purchase our common stock when they wish to do so.
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The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock is no longer traded on The Nasdaq Capital Market, shares of our common stock are no longer recognized as covered securities and we will be subject to regulation in each state in which we offer our securities.
If the Merger is not consummated, we may seek other business opportunities and need to raise additional capital, and we may not be able to raise capital on terms acceptable to us or at all.
On July 11, 2024, in an effort to retain cash and reduce expenditures and as a result of current market conditions, our Board of Directors determined to discontinue and wind down our business related to the development and sale of electric boats utilizing our proprietary outboard electric motor. As a result, we currently do not have an operating business. If the Merger is not consummated, we may seek other business opportunities and identifying, acquiring and operating any such new business venture is expected to require significant cash outlays and advance capital expenditures and commitments. If cash on hand and cash generated from our initial public offering and subsequent follow-on offering are not sufficient to meet our future cash requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our operations. We cannot assure you that we will be able to raise cash on terms acceptable to us or at all. Financing may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the price per share of our common stock paid by existing holders. The holders of new securities may also have rights, preferences or privileges which are senior to those of existing holders of common stock. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business.
We have identified weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.
As a public company, we are subject to the reporting requirements of the Exchange Act, and the Sarbanes-Oxley Act. The requirements of these rules and regulations continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting.
As of September 30, 2024, we do not yet have effective disclosure controls and procedures, or internal controls over all aspects of our financial reporting. We have ceased our remediation plan upon entering into the Merger Agreement. We cannot assure you that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our common stock.
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Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results and cause a decline in the market price of our common stock.
The Exchange Ratio in the Merger Agreement is not adjustable based on the market price of Twin Vee Common Stock so the Merger consideration at the closing may have a greater or lesser value than it had at the time the Merger Agreement was signed.
The parties to the Merger Agreement have set the Exchange Ratio for our common stock and the Exchange Ratio is not adjustable. Any changes in the market price of Twin Vee Common Stock or our common stock will not affect the number of shares holders of our common stock will be entitled to receive upon consummation of the Merger. Therefore, if the market price of Twin Vee Common Stock declines from the market price on the date of the Merger Agreement prior to the consummation of the Merger, Forza stockholders could receive Merger consideration with considerably less value. Similarly, if the market price of Twin Vee Common Stock increases from the market price on the date of the Merger Agreement prior to the consummation of the Merger, our stockholders could receive Merger consideration with considerably more value than their shares of our common stock and the Twin Vee stockholders immediately prior to the Merger will not be compensated for the increased market value of the Twin Vee Common Stock. If the market price of our common stock declines from the market price on the date of the Merger Agreement prior to the consummation of the Merger, our stockholders could receive Merger consideration with considerably more value. Similarly, if the market price of our common stock increases from the market price on the date of the Merger Agreement prior to the consummation of the Merger, our stockholders could receive Merger consideration with considerably less value than their shares of our common stock and our stockholders immediately prior to the Merger will not be compensated for the increased market value of our common stock. The Merger Agreement does not include a price-based termination right and the Exchange Ratio does not adjust as a result of changes in the value of Twin Vee Common Stock.
The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.
In general, either Twin Vee or we can refuse to complete the Merger if there is a material adverse change affecting the other party between August 12, 2024, the date of the Merger Agreement, and the closing. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on Twin Vee or us, including:
| ● | general business or economic conditions affecting the industries in which Twin Vee or we operate; |
| ● | acts of war, armed hostilities or terrorism; |
| ● | changes in financial, banking or securities markets; |
| ● | the taking of any action required to be taken by the Merger Agreement; | |
| ● | with respect either party, the announcement or pendency of the Merger Agreement or any related transactions; or |
| ● | with respect to either party, any change in their or the other party’s stock price or trading volume stock. |
If adverse changes occur and still complete the Merger, the combined company stock price may suffer. This in turn may reduce the value of the Merger to the stockholders of Twin Vee and us.
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The combined company’s stock price is expected to be volatile, and the market price of its common stock may drop following the Merger.
The market price of the combined company’s common stock could be subject to significant fluctuations following the Merger especially when the shareholder base is increased. Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock.
In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and reputation.
The market price of the combined company’s common stock may decline as a result of the Merger.
The market price of the combined company’s common stock may decline as a result of the Merger if the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by Twin Vee or us or investors, financial or industry analysts.
The combined company may not experience the anticipated strategic benefits of the Merger.
The respective managements of Twin Vee and us believe that the Merger would provide certain strategic benefits that may not be realized by each of the companies operating as standalones. Specifically, Twin Vee believes the Merger would enable the combined companies to take advantage of approximately $700,000 in annual cost savings. There can be no assurance that these anticipated benefits of the Merger will materialize or that if they materialize will result in increased stockholder value or revenue stream to the combined company.
Twin Vee and Forza stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.
If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, Twin Vee and our securityholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.
If the conditions to the Merger are not met, the Merger will not occur.
Even if the Merger is approved by the stockholders of Twin Vee and us, specified conditions must be satisfied or waived in order to complete the Merger, including, among others:
| ● | the filing and effectiveness of a registration statement under the Securities Act in connection with the issuance of Twin Vee Common Stock in the Merger; | |
| ● | the respective representations and warranties of Twin Vee and us, shall be true and correct in all material respects as of the date of the Merger Agreement and the closing; | |
| ● | no material adverse effect with respect to Twin Vee or us shall have occurred since the date of the Merger Agreement and the closing of the Merger; | |
| ● | performance or compliance in all material respects by Twin Vee and us with their and our respective covenants and obligations in the Merger Agreement; | |
| ● | We and Twin Vee shall have obtained any consents and waivers of approvals required in connection with the Merger, including for Twin Vee approval of its stockholders of the issuance of the Twin Vee Common Stock pursuant to the terms of the Merger Agreement and for us approval of our stockholders of the Merger and the Merger Agreement; and | |
| ● | no material adverse effect with respect to Twin Vee or us s shall have occurred since the date of the Merger Agreement. |
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These and other conditions are described in detail in the Merger Agreement. We and Twin Vee cannot assure investors that all of the conditions to the Merger will be satisfied. If the conditions to the Merger are not satisfied or waived, the Merger will not occur or will be delayed, and we and Twin Vee each may lose some or all of the intended benefits of the Merger.
Twin Vee and Forza will incur substantial expenses whether or not the Merger is completed.
Twin Vee and Forza have each incurred and will incur substantial expenses related to the Merger whether or not the Merger is completed. Twin Vee currently expects to incur approximately $400,000 in transactional expenses and wea currently expect to incur approximately $100,000 in transactional expenses.
During the pendency of the Merger, we and Twin Vee may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.
Covenants in the Merger Agreement impede the ability of Twin Vee and us to make acquisitions, subject to certain exceptions relating to fiduciary duties, or complete other transactions that are not in the ordinary course of business pending the closing of the merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third-party, subject to certain exceptions. Any such transactions could be favorable to such party’s stockholders.
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of Twin Vee and us from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in certain circumstances where the Twin Vee Board of Directors or our Board of Directors, as applicable, determines in good faith, after consultation with its financial advisor and outside legal counsel, that an unsolicited alternative takeover proposal constitutes or is reasonably likely to result in a superior takeover proposal and that failure to take such action would be reasonably likely to result in a breach of the fiduciary duties of our Board of Directors.
Should the Merger not qualify as a tax-free reorganization, our stockholders may recognize capital gain or loss with respect to the shares of Twin vee common stock received in the Merger.
The Merger is expected to be treated as a reorganization within the meaning of Section 368 of the Code, however, neither Twin Vee nor Forza has received an Internal Revenue Services ruling to that effect. The failure of the Merger to qualify as a reorganization within the meaning of Section 368 of the Code would result in a Forza stockholder recognizing capital gain or loss with respect to the shares of Forza Common Stock surrendered for Twin Vee Common Stock received in the Merger.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| (a) | Unregistered Sales of Equity Securities. |
None.
| (b) | Use of Proceeds. |
On August 16, 2022, we closed our initial public offering of 3,000,000 shares of our common stock at a public offering price of $5.00 per share and an additional 450,000 shares of common stock upon exercise of the over-allotment option, generating gross proceeds of $17,250,000 (the “IPO”) pursuant to our Registration Statement on Form S-1 (as amended) (File No. 333-261884), which was declared effective by the SEC on August 11, 2022. After deducting underwriting discounts and commissions of approximately $1.3 million, and other offering expenses payable by us of approximately $1.3 million, we received approximately $14.7 million in net proceeds from our initial public offering. ThinkEquity LLC acted as the representative of the several underwriters for the offering.
The planned use of proceeds from our initial public offering as described in our final prospectus, dated August 11, 2022, which was filed with the SEC on August 15, 2022, pursuant to Rule 424(b) under the Securities Act was expected as follows: (i) approximately $8.0 million for the acquisition of property and the development of a manufacturing plant to build, design and manufacture our new line of electric boats; (ii) approximately $2.0 million for ramp up of production and inventory; (iii) approximately $2.6 million for working capital. Since we have effectively wound down our research and development efforts, and further as a result of the planned merger with Twin Vee, we no longer expect to deploy these proceeds towards these efforts.
No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. Pending the uses described, we have invested the net proceeds in our operating cash account.
| (c) | Issuer Purchase of Equity Securities. |
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
During the three months ended September 30, 2024,
no director or officer of the Company
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ITEM 6. EXHIBITS.
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index. The Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FORZA X1, INC. | ||
| Date: November 14, 2024 | By: | /s/ Joseph Visconti |
| Joseph Visconti | ||
| Interim Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2024 | By: | /s/ Michael Dickerson |
| Michael Dickerson | ||
| Interim Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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