Item 1. Business.
About Forza X1
Our mission is to inspire the adoption of sustainable
recreational boating by producing stylish electric sport boats. We are 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. Our electric boats are being designed as fully integrated electric boats including the hull, outboard motor and
control system.
The three main components of our electric boats
are: (1) the fiberglass part of the boat, (2) the motor that propels the boat and (3) the control system. To date, we have completed
the design of two electric boat models and have completed tooling the molds which are required to build the physical fiberglass
boat. To date, we have completed the design and prototyping of the electric outboard motor that will be used as the initial propulsion
source for all electric models. We have also completed the design and prototyping and have begun testing the boats’ integrated
control system. We have also entered into a supply agreement for the supply of the lithium battery packs that we plan to use to
power the electric boats. We expect to begin production of our two FX1 electric boats and commence selling to end user customers
by the end of 2023.
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 boat in terms of size, capability and price point.
We were initially a wholly owned subsidiary
of Twin Vee PowerCats Co. (“Twin Vee”). Prior to our incorporation on October 15, 2021, we operated as the Electra
Power Sports™ Division of Twin Vee. Following the Twin Vee initial public offering that closed on July 23, 2021 (the “Twin
Vee IPO”), Twin Vee determined in October 2021 that for several reasons that include, but are not limited to, avoiding confusion
in the marketplace between its legacy Twin Vee gas-powered line of boats, that the company would market its new independent line
of electric boats under a new brand name (and new subsidiary) separate and apart from Twin Vee. Twin Vee and Forza X1 brands are
unique in their own way, including (i) the profile of the targeted Forza X1 customer who is environmentally conscious and would
purchase an electric boat versus gas-powered model, (ii) the marketing and sales strategy of each company, and (iii) Twin Vee’s
use of a third-party dealer network whereas Forza X1 plans on implementing a digital direct to consumer model. In addition, electric
powered boats will require a specific and unique level of training and knowledge for supporting and servicing the technical and
warranty claims that might arise. The service and support of gas and electric powered boats are very different, and it became clear
to us that Forza required its own unique brand. As a result, on October 15, 2021, we were incorporated as a wholly owned subsidiary
of Twin Vee and Twin Vee transferred the entirety of its electric boat business to us pursuant to an assignment of assets agreement
and other agreements. Our majority shareholder, Twin Vee, developed and tested the Twin Vee 280 Electric – 2.0 Prototype,
which was a Twin Vee 28-foot gas-powered catamaran boat retrofitted with an electric propulsion system. After the successful sea
trial of the Twin Vee 280 Electric – 2.0 Prototype in November 2021, Twin Vee decided to develop a new multi-hull, catamaran
design for its electric boats and not seek to retrofit an electric propulsion system into a boat originally designed for a gas-engine.
Originally, Twin Vee anticipated it would use
the same factory and many of the same employees to manufacture both its gas-powered boats and its electric boats. Twin Vee also
initially anticipated that its electric boats would be similar to the initial prototype, a retrofitted Twin Vee catamaran boat
with an electric motor added to the boat. However, after the test run of the initial prototype and Twin Vee’s reassessment
of the market demand, Twin Vee determined that the electric boat should be a newly designed boat with an integrated electric motor,
as opposed to a retrofitted Twin Vee boat with an electric motor added to the boat, making it less cost effective to use the current
Twin Vee factory for its electric boat manufacturing. In addition, with the increase in Twin Vee’s production since the Twin
Vee IPO from one gas-powered boat per week, to an average of 4 gas-powered boats per week in 2022, and our view that the demand
for fully integrated electric boats has increased significantly since the Twin Vee IPO (which view is based on, among other things,
verbal feedback that we have received from boat distributors and potential consumers), there is limited additional manufacturing
capacity at Twin Vee’s current facility for the manufacture of the electric boats. Furthermore, it became apparent that a
dedicated facility for manufacturing electric boats would be more efficient given that different equipment, design specifications
and personnel is required for the production of electric boats compared to gas-powered boats. For example, a cleanroom, which
is a controlled environment that has a low level of pollutants such as dust, is required for the manufacture of our electric boats
but not for Twin Vee’s gas-powered boats. Therefore, in November 2021 Twin Vee decided to build a second factory for
the manufacture of the electric boats and to hire a separate, second set of employees focused solely on manufacturing fully integrated
electric boats.
Twin Vee also came to believe that the current
Twin Vee business model, which primarily includes designing, manufacturing and marketing gas-powered boats that are primarily sold
through independent dealers, may not work best for Forza’s business, which includes developing fully integrated environmentally
friendly electric boats that will be sold primarily directly to the end user via our proprietary web-based and app platform. As
stated above, it was originally anticipated that Twin Vee would retrofit a gas-powered boat with an electric motor that would be
designed by Twin Vee and that Twin Vee would also sell the electric motors to other third-party boat manufacturers to retrofit
their boats. However, Twin Vee came to realize that consumer preference in the electric marine market was and is trending towards
the single purchase of a fully integrated electric boat with a technically advanced control system, electric motor and battery
pack system, rather than the purchase of a retrofitted hull configured by replacing a boat’s traditional gas and diesel fuel
powered fuel compartments with an advanced control system, electric motor and battery pack. Many companies that manufacture gas-powered
boats have not embraced the concept of retrofitting their existing gas and diesel fuel powered boats with electric outboard motors
and battery packs given that in many cases electric motors are more expensive than gas-powered motors and are generally viewed
as less powerful resulting in a more limited range. Furthermore, retrofitting an electric motor with various other boat manufacturers
would require extensive development, testing and manufacturing of multiple variations of electric motors, which are no longer required.
As a result, the decision not to design and sell a separate electric motor will, we believe, result in significant cost savings
as a separate motor would have required a new custom design for each boat retrofitted with the motor as well as a separate stand-alone
sales and marketing team. As a result of the decision to design a new boat with an integrated electric motor, Forza X1 can focus
on “integrated and factory installed” electric boats where all of the components of an integrated electric boat (i.e.,
technically advanced control system, electric motor and battery pack system) are combined under a single, stand-alone brand (and
entity) that is manufactured in its own facility, which we and Twin Vee believe will be a more successful strategy than attempting
to retrofit former gas-powered boats and sell electric motors. In light of the foregoing and the current valuations for electric
technology-based companies, such as Rivian and Lucid, it was determined that financing the new factory and developing, manufacturing
and marketing fully integrated electric boats would have the greatest chance of success if Forza X1 were to be a stand-alone, publicly
traded company.
First FX1 Models
Forza X1, working with naval architect Albert
Nazarov and his company, Albatross Marine Design, have completed the designs of Forza X1’s first boat, the FX1. Unlike the
two prototypes developed by Twin Vee, the FX1 model will not be a retrofitted Twin Vee catamaran hull with an electric propulsion
system. Instead, the FX1 model is being built based on an entirely new design that will incorporate the same control system as
the second prototype.
Our initial two models, the FX1 Dual Console
and FX1 Center Console, are being designed to be 25-foot in length, have an 8’ beam or width and utilize a catamaran hull
surface to reduce drag and increase run times. To date, we have completed the design of the 25-foot
FX dual console model, including hull, deck and small parts. This design has gone from an intellectual concept in CAD to fiberglass
and foam plugs, fiberglass molds and, finally, working boat parts in just over one year.
The initial launch of FX1
will include our proprietary single electric outboard motor. Both FX1 models are being designed with advanced high-powered, liquid-cooled
lithium battery packs that will be provided by the third party supplier with whom we have entered into a five year supply agreement
and a vehicle control unit with proprietary control software all integrated into a 22-inch master control touch screen that will
be used to control most functions of the boat.
On October 28, 2022, the running surface of
the boat and all major components were tested successfully on the Indian River Lagoon in Fort Pierce, Florida. While the motor
and control systems have been successfully trialed previously, this was the first voyage including all major components, production
batteries, fully functioning “alpha” engine design, control system - including 22” Garmin screen, and Osmosis
telematics unit. The performance of the boat exceeded all expectations and will provide a great baseline for improvements, iterations,
and design enhancements. We ultimately reached over thirty miles per hour.
Subsequent to the initial prototype boat, we
started four more prototypes: two more FX-style catamarans, one deck boat and one 22-foot center console monohull. These prototypes
have been fully built out and were run in March of 2023. The engine design and lower units and the control system cabling have
been revamped and improved in each iteration. The monohull will feature a single battery and the deck boat will, like the FX, utilize
a two-battery system. The batteries and engines are liquid-cooled and unique improvements to the heat exchanges have improved performance.
We have also filed three design, five utility
and two full non-provisional patent applications with the U.S. Patent and Trademark Office relating to, among other things, our
propulsion system being developed and boat design.
Forza’s Marketing Plans
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 OneWater Marine, Inc. (“OneWater”), 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.
Forza X1: An All Digital, Direct-to Consumer Platform
We intend to offer our EV products, services
and support through a Web-based and mobile phone app that will be vertically integrated and a direct-to-consumer platform. Over
the last couple of years, non-contact consumerism has brought shopping and customer service experiences to a new level that will
likely remain prevalent long after the COVID-19 pandemic. We intend to create a high quality customer experience that spans the
entire life of our products through an online system that is being designed to be comprehensive, seamless, and efficient for a
customer experience. For consumers and states that require a physical location we will develop partnerships, similar to the one
we have established with One Water.
We plan to utilize a web-based and app platform
to connect with customers for an end-to-end experience encompassing everything from buying, financing, delivery, servicing, and
training. We have commenced the design of the web-based platform but have not yet commenced design of the app. This customer-centric
approach to sales and service aims at simplifying access to necessary information for potential buyers and current owners alike.
Customers will be able to communicate directly with us to ensure their questions are answered and their needs are met.
Currently, our web and app-based platform is
expected to include the following:
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Build and Price Boats. The web and app platform will offer prospective buyers a place to examine photos and videos of our boats, which will all have a single price based on the model type and a few available options. For example, the consumer would have four gel coat exterior choices, three interior upholstery choices, and an option to increase the battery pack capacity for extended run times. Other options would include charging cords and plugs, boating items such as bumpers, covers, and fun add-ons like clothing, allowing consumers to “personalize” their Forza X1 purchase. |
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Financing. Prospective customers will be able to apply for third-party consumer financing to complete or supplement their purchase through our web and app platform. |
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Delivery. Once manufactured, the boat will be delivered directly to a customer’s home, marina, or wherever they choose. The scheduling, communication, and support necessary for coordinating touchless delivery of our Forza X1 boats would all be accomplished over the website or app. |
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Servicing. We intend to offer highly tailored and differentiated services that enable intuitive experiences throughout the entire customer lifecycle, such as warranty, repair, or other service assistance for their boats. We expect this all-inclusive approach will provide higher customer satisfaction, create strong brand loyalty, and increase operational efficiency while simultaneously allowing us to capture a more significant share of the entire lifecycle value of every Forza X1 boat produced. We anticipate having internal staff with the capability to provide an OTA update to resolve the issue remotely without the boat ever leaving the customer’s sight. As part of our customer satisfaction drive, we plan for our staff to make mobile service calls to the boat docks. We also intend to enter into partnering arrangements with third parties to address service needs that require more than a mobile service visit, and we plan to arrange for the boat to be picked up and brought to one of our partnered service centers. If a service center is not available in a customer’s area, for approved warranty repairs we will permit the owners to take their boat to their local service center who will then invoice us. |
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Customer Service and Feedback. We will utilize customer insights and feedback submitted via our web and app-based platform to improve our offerings by adding new capabilities and functionality. Expanded offerings based on consumer-driven feedback and data is expected to attract more customers, deepen existing customer relationships, and allow us to innovate more quickly. |
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Training. We intend to provide a series of videos that demonstrate our boats’ safe operation and upkeep. These videos would be accessible on our web and app platform and the boat’s onboard computer for quick access. |
With respect to the foregoing, we have not
yet: (i) entered into any arrangements with third parties to provide financing services through our web and app platform, or (ii)
hired staff for our intended support and service department. We are still in the initial stages of establishing its distribution
and service plans. We expect to commence selling to end-user customers by the end of 2023. We are currently in the process of identifying
the states we will be allowed to sell direct-to-consumer. For states that have do not allow such an arrangement, we intend to make
sales through OneWater’s locations. OneWater will be able to forecast how many FX1 boats they initially require, and after
production, we will have the boats transported to the dealerships.
Similarly, we are in the process of identifying
potential marine service centers and technicians we would like to form strategic relationships with to ensure that we have a comprehensive
service support system in place when our FX1 boats are sold, we will utilize OneWater dealerships and service centers where they
are available. We will also work to establish our 500-mile radius mobile service vans and trucks before selling the first Forza
X1 product so that local customers will have that option.
The OneWater Agreement
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 OneWater, 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. On August 17, 2022, we entered into a five-year agreement with OneWater to establish our customer experience
and service centers in OneWater’s current and future locations and other strategic locations across the United States pursuant
to which OneWater will be the sole dealer distributing our products and OneWater’s retail locations may be used as potential
delivery points for customers to pick up our products. We retained the right to sell our
products directly to customers. The agreement may be terminated by either party for breach
upon thirty days’ notice and without cause upon three months’ notice.
Forza X1 Purpose
According to the Environmental Energy Student
Institute, a non-profit organization originally formed by a bipartisan group of members of Congress, fossil fuels, including coal,
oil, and natural gas, have been powering economies for over 150 years and currently supply about 80 percent of the world’s
energy. When fossil fuels are burned, the stored carbon and other greenhouse gases are released into the atmosphere. The excess
buildup of greenhouse gases in the atmosphere has caused dramatic changes to Earth’s climate—a trend that will worsen
as more fossil fuels are burned. Further climate changes may cause rises in sea level, extreme weather, biodiversity loss, and
species extinction, as well as food scarcity, worsening health, and poverty for millions of people worldwide.
The world’s waterways are also in danger
from pollutants caused by gas-powered motors. In the landmark environmental study and book, “Polluting for Pleasure”,
author Andre Mele stated that recreational boats, particularly outboards, were polluting as much as all the cars and trucks in
America. At the time, Mele discovered that pleasure boats have polluted 80 times more than automobile engines and put more oil
into American waters than 15 Exxon Valdez oil spills, annually. The popularity of recreational boating has grown since then.
While headway is being made by the automotive
industry introducing more viable EV options to replace traditional automobiles, it is also vital that we look to preserve our waterways
while reducing carbon emissions. Large gas-powered engines often leak fuel and produce carbon emissions, both of which are harmful
to fragile marine ecosystems. We are a company comprised of people who are passionate to move the preservation and carbon free
marine lifestyle forward. According to the Bloomberg NEF’s 2021 Electric Vehicle Outlook, passenger automotive EV sales are
set to increase from 3.1 million units in 2020 to 14 million units in 2025.
We aim to manufacture electric boats with a
proprietary electric outboard motor that has been designed and integrated with our own control system. The Forza X1 boats are being
designed for the production of a combined boat and motor package, along with our control system that we intend to market and sell
as a single package. Our Forza X1 boat is intended to work seamlessly and offer families and water recreation enthusiasts an enjoyable
time for an affordable price.
Our core market corresponds most directly to
those who identify with environmentally friendly vehicles. Electric boats promote environmental sustainability and allow for a
much more serene and enjoyable time on the water. The adoption of electric vehicles has increased considerably over the years as
they are more environmentally friendly. As per the report by Bloomberg NEF, there are currently 12 million passenger EVs on the
road, and the prevalence of electric-powered boats is likely to follow suit. While electric boats only represented about 2% of
the market in 2020, a report by IDTechEx shows that the market for hybrid and pure electric boats is expected to rise rapidly to
greater than $20 billion worldwide by 2027, finding that recreational boats is the largest and fastest growing electric marine
market in sales number.
We plan to disrupt recreational marine customs
that rely on outdated processes and noxious engines by designing, engineering and manufacturing inspiring electric boats that operate
in a more sustainable and eco-friendly way.
240 Electric – Prototype
The first prototype of the electric boat, the
240 Electric, was developed by Twin Vee and publicly announced on December 18, 2020. Wanting to expand its offering to include
electric-powered boats, Twin Vee created its Twin Vee Electric division. Twin Vee Electric sought to retrofit a Twin Vee-branded
24-foot center console boat and enable it to run on a bank of lithium-ion batteries. The team worked almost a year designing and
developing the first prototype electric boat.
In early May 2021 the first prototype was tested
in the Indian River near North Hutchinson Island in Fort Pierce, Florida. The initial prototype failed during testing, resulting
in the creation of the second prototype with an improved control system.
280 Electric – 2.0 Prototype
The second prototype, which was a 28-foot Twin
Vee retrofitted catamaran was built by Twin Vee with an improved control system, which is the same control system that we intend
to install in the electric boats that we are currently designing for mass production.
The 280E electric boat consists of two (2)
in-board motors with a comprehensive system of control device, display, two lever throttle, touchscreen display, an all-new 86KWH
Battery pack, IDU J-box Micro Controller, High Power distribution unit, inverter and motor, and onboard charger as shown in figure
1 below. We intend to use a similar main console for the Forza FX1.
The main console consists of a dual lever throttle,
display and a key switch. The boat speed control function is activated by deflecting the friction throttle lever forward or reverse.
Deflecting the throttle handle sends a control signal to the Microcontroller, which sends the digital signal over CANBUS to the
inverter, which provides the energy flow path from battery pack to the motor, thus turning the propeller. The throttle function
uses a cruise control feature, which enables the system to automatically adapt to a set speed, operating the battery efficiently
as possible without manual intervention.
The key switch in the control system activates
the main electrical systems (i.e., the battery pack, Inverter, OBC) for the boat, including the accessories, such as the bilge
pump, horn, hatch control, etc.
The display is a comprehensive system (Battery
and Inverter Data) utilizing control software that goes beyond simple monitoring. With the display, the operator gets the additional
functionality of alerts. Alerts allow the boat’s operator to setup as many warnings and alarms as they may need so they can
be forewarned of potential problems. Additionally, the control functionality provides operators with the ability to manage the
electrical system.
The IDU J-box is plug and play for easy installation,
which contains the main controller connecting pumps for different cooling systems as well as the battery pack, onboard charger,
and inverter to control the boat speed. The panel is completely electrical based on 24 VDC volts from the boat’s electrical
supply. The IDU J-box is installed under the console for ease of access. The battery pack is connected over the CANBUS network
with the IDU microcontroller.
These systems were installed in the second
prototype at the end of October 2021. The boat, motors and control system were successfully tested out of the water and in Twin
Vee’s Fort Pierce facility. These tests included operating the motors through a series of increased and decreased power settings,
continuous checks for temperature fluctuations within the battery, battery management system, vehicle control unit, and glycol
cooling system. These tests were initially light load tests and once successful, allowed testing to move to medium load, and then
high load testing which included the second prototype being launched from Stan Blum Boat Ramp near North Hutchinson Island in Fort
Pierce Florida for a sea trial on November 4, 2021. The boat was successfully tested in the water and performed a series of maneuvers
and tests. All in water testing included continuous operation and monitoring of all sensors, flow temperatures, battery temperatures,
power settings and connectors and glycol flow. We concluded that our system was designed well and allowed us to move to the next
stages of our development.
As a result of the sea trial, the engineering
team identified major control system components capable of withstanding the marine environment while completing a series of maneuvers
for an extended period of time. Knowledge of these critical components, including the display, throttle with steering (0-360Deg),
onboard charging, high voltage power distribution unit, controller, cooling motors, steering feedback sensor, tilt feedback sensor,
charging CCS1 socket, inverter and electric motor, as well as the experience gained in making them work in unison allowed our engineering
team to fine tune the technical design aspects of the second prototype so that plans for our proprietary control system and outboard
electric motor could be developed.
Since the successful launch of the second prototype,
we have accomplished the mechanical design of our electric outboard motor and control system, sourcing and detailed fabrication
blueprints are completed. The electrical bills of materials, mechanical bills of materials, and assembly fixturing has been completed
that are all fundamental to the building and testing of the systems. Over 50 distinct custom parts have been designed for this
prototype using 3D modeling software. 3D CAD models, assemblies, as well as 2D fabrication drawings following ASME standards have
been completed and sent out to several machine shops, rapid prototype houses and casting suppliers in the US and overseas. At the
same time, we are working with local machine shops within a two-hour radius of Ft. Pierce to establish business relationships that
will enable future quick turn door to door parts rework and delivery.
We are in the early stage of prototyping and
testing our electric boats. The first Forza FX1 prototype outboard motor and control system was completed in Q1 2022, by March
of 2023 we had complete four other prototypes and have begun the testing phase on all of these boats. We anticipate that our prototypes
will go through additional testing, interactions and refinements before we commence production of consumer boats and thereafter
the commercialization of our products. The electric motor and control system are in working, functioning order, our team of engineers
have begun the process to build an additional six or more prototype outboard motors. These additional motors will be the same power,
shape and design of our working prototype. The additional motors are being produced for the purpose of intensive testing, destruction
testing, longevity testing with the goal of commercialization and manufacturing this motor as the original propulsion system for
our initial two models to be launched, our FX1 dual console and FX1 center console electric boats. The testing of our prototype
motor will continue on a test bed boat that was designed and built specifically for the initial testing. In a parallel path, we
have completed the design phase of our FX1 boat, this boat has begun the tooling process, which is the making of the molds required
to produce and manufacture the final fiberglass FX1 product. The tooling of the molds are estimated to be completed by Q3 2022
and our first FX1 center console boat as displayed in our graphic images should be completed and rigged with our FX1 motor and
control system by Q3 2022. We expect to begin production of our initial FX1 dual console and FX1 center console models and
commence selling to end user customers by the end of 2023.
Catamaran Technology –Reduced Drag and Extended Run Times
We plan to utilize a newly designed multi-hull,
catamaran design for our FX1 boat. There is a multitude of benefits for catamaran multi-hulled boats, including better performance,
two narrow hulls generate about one-third as much wetted-surface or drag, reduced hydrodynamic resistance allowing for more speed
or requiring less power to operate.
Catamarans also ride softer because they don’t
have a large, round bottom that slams against the waves. In other words, the reduced vertical accelerations on the water from a
multi-hull boat helps prevent slamming for a smoother ride.
Additional advantages of a multi-hull boat
are better stability and an increased level of safety, higher freeboard and flotation. Lastly, multi-hull boats provide a superior
amount of comfort for passengers. There is typically plenty of space and accommodations on deck with a catamaran that is difficult
to replicate on monohulls.
Unlike the two prototypes developed by Twin
Vee, the FX1 model we are designing will not be a retrofitted Twin Vee catamaran. Although the FXI model is being designed to incorporate
the same control system as the second prototype, the FX1 model is being built based on an entirely new design developed for us
by naval architect Albert Nazarov and his company, Albatross Marine Design.
Dimensioning of Catamarans – Parametric Approach
Naval architect Albert Nazarov and his company, Albatross Marine Design, have designed our FX1 boat with mathematical precision.
The base system of design equations describing the design can be written as following:
Where first equation is relation of sum of
required volumes vi and available volume vA; second equation is balance of craft mass M and volume displacement V; third
and fourth are comparisons of design speed vs. and range r with required speed [vs.]R and range
[r]R. Fifth equation specifies condition of seakeeping as not exceeding certain acceleration level aCG/g.
Last equation is criteria of minimization of construction cost S, though operational costs might be considered for complete analysis.
Stability condition is excluded from preliminary analysis of catamarans.
Forza X1 Outboard Motor
We have completed the design phase of our outboard
motor and which is now in the prototype phase of developing and preparing to manufacture it to power our new 24-foot FX1 boat.
The outboard motor is expected to provide the FX1 with the capacity for up to 35 knots of speed and 215HP (peak) of power, subject
to varying levels, loads, winds, currents and speeds.
Figure 3 — Current specifications of
the system
Outboard Design
The outboard system is designed with modular
sub systems. The subsystems connect to a central upper assembly in a common way so that development task management and subsequent
engineering activities can take place concurrently if needed. The subsystems include steering, cooling, lower POD drive units,
trim and tilt, and cover assemblies.
Core Motor and Gear Reducer Information
The motor is the heart of the entire outboard
drive system. Because its output RPM is up to 10,000 RPM it must be reduced to achieve the proper torque on the output propeller.
To accomplish this our team had to develop a proprietary custom gear reducer which is incorporated in the core motor. This gear
reducer features a two-stage planetary gear assembly with an overall 1.9:1 ratio. The planetary gear reducer is designed to accommodate
vertical orientation which is ideal for mounting inside the Forza X1 Outboard.
A compliant shaft coupler connects the output
shaft of the gear reducer to the lower drive unit which is illustrated in the following sections. The shaft coupler includes a
compliant membrane which is engineered to accommodate torsional continuous loads as well as sudden “shock” loads which
may occur when reversing shaft rotation. The output shaft is fed through the slewing bearing steering assembly. This is a unique
design for outboards for which we filed a design patent application on December 10, 2021, which application is currently pending
approval.
Upper Assembly
The upper assembly is the central “torso”
of the outboard structure. It houses the main core motor and gear reducer, as well as provides a modular mounting structure for
the motor controller, cooling system, steering system, trim and tilt as well as the covers.
The upper assembly is being designed to be
made from 6061-T6 aircraft grade aluminum alloys. The Trim/Tilt mount is attached to the upper frame block with 5 M12 high strength
socket head cap screws as well as 3 supporting M10 socket head cap screws. The mount features a cross pattern which will support
and distribute the load for the entire weight of the outboard, as well as transmit the static stress loads through the structure
while under operation.
The central frame design is also proprietary
in that it allows for an easy vertical mounting of the core motor assembly but also allows the entire core motor assembly to be
removed from one side of the outboard, without a complete teardown of the system. The shape of the uni-body profile includes engineered
clearance to accommodate the rare occasion of a motor needing extended service and replacement. We have filed a design patent application
for the design of the central frame, which application is currently pending approval.
The motor controller frame attaches to the
uni-body frame with a set of M8 socket head cap screws. The frame is CNC machined, like the uni-body structure, however it is designed
to be removed and replaced as needed as the design of the system matures.
Steering System
The initial version of our motor will utilize
a traditional marine steering system. We are also developing a novel steering system for our version 2.0 motor. It incorporates
slew bearing technology that is proven in heavy equipment, wind turbines, and military systems, and combines it with custom gearing,
and a coupling interface with the lower POD drive unit. This mechanical steering system in combination with electronically controlled
power steering from the helm results in up to 360-degree POD rotation for the lower unit. The upper assembly for the outboard is
fixed which is designed to keep the center of gravity stable at high-speed turning, and the 360-degree power steering is expected
to result in an un-matched user experience to make boat docking and maneuvering easier than ever before.
The slewing bearing assembly is precision engineered
with high grade 400 series stainless steel bearings, fully sealed encased pinion gear system that is modular. A slewing bearing
or slewing ring (also called a turntable bearing) is a rotational rolling-element bearing that typically supports a heavy but slow-turning
or slowly oscillating loads in combination (axial, radial and moment loads), often a horizontal platform such as a conventional
crane, a swing yarder, or the wind-facing platform of a horizontal-axis (yaw) windmill. In other orientations (e.g., a horizontal
axis of rotation) they are used in materials handling grapples, forklift attachments, welding turnover jigs and so on.
Compared to a “normal” ball bearing
the rings are quite wide and usually have holes drilled in them to provide fixation to a structure. Seals will be provided between
the rings to protect the rolling elements. Compared to other rolling-element bearings, slewing bearings are relatively thin sections
and require that the structure to which they are bolted is stiff enough so that under load predefined limits of distortion are
not exceeded.
Slewing bearing designs range from single row
ball or roller style, through double row ball or roller, triple row roller, combined (1 roller/ 1 ball) or wore guided raceways
— each design having its own special characteristics and application. The Forza X1 design features precision engineered ceramic
ball bearings which are designed to withstand the marine environment and are easily replaceable for teardown and rebuilds.
Cooling System
The cooling system consists of a raw water
circuit that feeds up from the lower pod propeller unit and into a heat exchanger. The heat exchanger passes an internal glycol
fluid over a series of interspersed tubes where heat conduction takes place to regulate the temperature of the glycol. The glycol
is circulated through the gear reducer assembly, core motor and controller/inverter. The circuit uses a glycol pump mounted on
or near the uni-body frame. The raw water exits from the heat exchanger and is released through a tube from the upper assembly.
Lower POD Propeller Assembly
The lower drive unit is a proprietary design
that includes an advanced steering system, which allows up to 360 degrees of rotation of the propeller direction. This should result
in boat owners realizing a higher level of vessel control when under speed as well as for docking and mooring maneuvers.
Furthermore, the lower drive unit is expected
to include an easy interchange mechanism. This interchange mechanism will allow for different lower drive unit configurations to
attach to a common upper motor assembly.
The propeller lower POD unit is expected to
include a primary aluminum cast housing that is specifically engineered for electric propulsion. Because of the electric drive
there is no need for the traditional reversing clutch mechanism or clutch actuation rod, or even the chambers for raw water exiting
near the rear of the unit. This results in a lighter weight design with less parts and a more efficient drivetrain.
Forza X1 Battery Details
Nowadays, the most expensive part of an electric
vehicle is the battery, which represents as much as 50% of the price of the electric propulsion system, depending on the technology
used. Lithium-ion batteries are the most used technology in EVs due to their high energy density and increased power per mass battery
unit.
The disadvantage of Lithium-ion batteries is
their high developed operational temperature, which could affect energetic performances, along with lifetime expectations. This
technology requires a battery management system (BMS) to control and monitor internal cell temperature. Apart from the disadvantages
caused by exploitation temperature, there are also problems related to high production costs, recycling capacity of batteries out
of use, and recharging infrastructure.
Our designers have the following general parameters
in mind for the outboard battery system:
1) A module size of 36”
x 12” x 4”
2) Mountable vertically
or horizontally
3) Liquid cooling.
4) An IP rating of at least
IP64, preferably IP65
5) Internal
shock absorption.
Mounting of the battery packs is a crucial
task especially for the 104kW battery range. These packs must be mounted with careful engineering for vibration isolation, cooling
systems and ease of access in order to have the proper working and successful service procedures.
We have entered into a five- year supply agreement
with a third-party lithium battery reseller to begin supplying us with a line-up of standardized high-voltage battery packs. The
battery packs are highly flexible and modular that can be scaled in series or in parallel.
The battery packs are based on the world-class
2170 cylindrical cells and have the highest energy density solution in the market with approximately 200 Wh/kg, while also allowing
advanced monitoring and diagnostic reporting. The packs contain a highly efficient, liquid cooled thermal management system and
the sealed enclosures are rated IP65, which eliminates potential for debris and weather to get inside the battery pack.
Forza X1 Battery Characteristic | |
Unit | |
Specification* |
Voltage, Nominal | |
| V | | |
| 352 | |
Voltage, Range | |
| V | | |
| 270 — 403 | |
Energy, Total | |
| kWh | | |
| 52 | |
Capacity | |
| Ah | | |
| 150 | |
Continuous Current | |
| A | | |
| 230 | |
Peak Current (10 sec) | |
| A | | |
| 440 | |
Volume | |
| L | | |
| 252 | |
Mass | |
| Kg | | |
| 247 | |
Energy Density | |
| Wh/L | | |
| 205 | |
Specific Energy | |
| Wh/kg | | |
| 200 | |
Dimensions (L x W x H) | |
| mm | | |
| 1,306 x 717 x 270 | |
Operating Temperature | |
| °C | | |
| -30 to 55 | |
Onboard Battery Charging System
We intend to utilize multiple charging options
that are currently available in the marketplace. The battery charging market has designed and commercially sold faster charging
systems for years, but along with the increased speed of charging times, the cost of the equipment also goes up in price. We intend
to offer an AC charging system that will be standard with the base boat. Additionally, we intend to offer a Direct Current or “DC”
fast charging protocol as an option or as standard equipment on larger, higher priced boats. Specifically, we will adopt the most
common connector plug for EV charging, the J1772, which was chosen by the Society of Automotive Engineers (SAE) as the standard
in North America and Japan.
We will mostly utilize an alternating current
(AC) charging current. Alternating current (AC) is typically how people charge their electric vehicles overnight. AC charging uses
a lower voltage, either Level 1 (120 volts or normal household current) or Level 2 (240 volts or the equivalent power of an electric
dryer). Though the low voltage levels mean a slower charge, AC charging can be easily installed in most households. It is a convenient
solution for residential, workplace, multi-unit dwellings, and other longer-term parking locations like hotels and municipal or
airport parking garages.
Direct current (DC) charging for electric vehicles
allows for higher charging speeds, since DC can be supplied directly to the electric vehicle’s battery at power levels normally
higher than AC charging. The higher the DC power supplied, the faster the electric vehicle can be charged—provided the EV
is designed to handle such power. Charging will slow down toward the end of each charging session in order to preserve the battery.
This typically happens around 80% full.
The Combined Charging System (CCS) is a direct
current (DC) fast charging protocol that is Society of Automotive Engineers (SAE) certified and is featured on vehicles produced
by European and American car companies. The “combined” term in the CCS name designates its capability to incorporate
the Level 2 (J1772 standard) plug and DC fast charging connector into the same larger plug.
The unit of energy to power an electric motor
and charge a battery pack is based on the kWh or Kilo Watt Hour. A kWh unit of energy equivalent to the energy transferred or expended
in one hour by one kilowatt of power. Electric car or boat battery sizes are measured in kilowatt-hours.
The FX1 boat may have the option for a 6.6
kW or 12 kW onboard charger compatible with Level 2 in-house charging. This means it can be charged at home from any outlet. When
connected to a standard 120V 10A outlet, the charge rate is limited to 4 kW. We expect that from a capacity of 25% the charge time
using a fast charging or Inboard 50A system will range from 1.5 hours to 5 hours for the FX1 boat. Charge times are as shown below:
Power source |
Charging Rate |
DC Charging Current |
Charge time |
Fast Charge |
45.0 kW |
125A |
1.8 hours |
Inboard 50A |
12.0 kW |
33A |
6.7 hours |
Inboard 30A dryer outlet |
6.6 kW |
18A |
12.1 hours |
Standard 120 Outlet |
4.0 kW |
11A |
20.0 hours |
This assumes a
standard 104kWh pack discharged to 20 kWh with a 20% reserve.
FX1 Screen Integration
We are working to integrate a 22-inch screen
into our FX1 console. The screen will be utilized for functionality including GPS mapping, depth finder, fish finder, speedometer,
electronic compass, battery sensors, power rating, battery usage reporting, lighting controls, bilge and water pumps controls,
autopilot and more. The screen would reduce traditional buttons that typically clutter a boat console and enhance a customer’s
boating experience. We are designing a customized graphical user interface at the helm to provide FX1 boat owners access to a suite
of various systems, sonar technologies, autopilot, apps, engine data, and multimedia, all on one screen. Specifically, we plan
to install a large-format multifunction display featuring a 22-inch full HD screen with touch control in Forza X1 boats. The sunlight-readable
anti-glare large display should enable owners to experience a powerful, completely networked helm.
Our plans include a fully digital switching
system that will allow users to power up their boat while away from the dock, switch on pumps, control lights, and underwater
lights. Moreover, customers would be able to configure the entire system to provide 1-touch setting access for docking, cruising,
fishing, and anchoring without manually switching each monitor separately.
Forza X1 Intellectual Property
We are working to create a portfolio of
proprietary designs and technology that we expect to serve as the foundation of our product development. To date, we have three
design and four utility patent applications on file with the United States Patent and Trademark Office. Certain of the patent applications
were originally filed by, and in the name of, the individual who was the inventor of the technology and since have been assigned
to us. Below is a list of pending patent applications that we are seeking approval for from the United States Patent and Trademark
Office. We cannot be certain that the patent applications that we file will issue, or that our issued patents will afford protection
against competitors with similar technology. See “Intellectual Property Risks.”
IDEA / CONCEPT NAME |
DESCRIPTION |
IP TYPE |
App Number and Filing Date |
360 Steering Lower Pod with Disconnect |
For outboard, lower pod steering mechanism using slewing bearing and spur gear mechanism allowing for a full 360-degree rotation. Also features a pass through the center method for cooling fluid, and an easy way to interchange lower drive units with the fixed upper unit. |
Full Non-provisional Patent |
App # 17,698,212
FILING DATE 03/18/23 |
Original Outboard Cover Design |
Original shape of outboard cover |
Design Patent |
App # 29/818,844
FILING DATE 12/10/21 |
Unibody Frame |
Shape of frame that allows vertical mounting of motor and transmission inside the outboard |
Design Patent |
App # 29/818,842
FILING DATE 12/10/21 |
Outboard cover design — ALPHA 01 version |
shape of the updated prototype cover and cowling |
Design Patent |
App # 29/819,262
FILING DATE 12/14/21 |
Trim and Tilt with cable routing thru pivot axis |
A trim and tilt assembly that routes cables through the pivot axis which protects cables, keeps the bundle from excessive bending and results in a cleaner design |
Utility Patent |
App # 63,287,740
FILING DATE 12/09/21 |
Jet Drive Lower Unit for an Electric Outboard |
The design of the lower jet drive as it is configured for the integration with the electric outboard |
Utility Patent |
App # 63,293,420
FILING DATE 12/23/21 |
Closed Loop Heat Exchanger Integrated in a Lower Drive Unit |
Integrate a cooling radiator inside of the lower drive propeller or jet drive unit itself. Simplify the cooling circuit by eliminating the need for a raw sea water intake. |
Full Non-provisional Patent |
App # 18/150,943
FILING DATE 1/06/22 |
Outboard Motor Cowling Latch Assembly |
The outboard top cover should not be removed until the electric motor and inverter is safely de-energized which typically takes 4 to 5 seconds after powering down. This invention features a special latch mechanism, a sensor to detect position of latch, and a locking solenoid which will prevent inadvertent removal of cowling cover which will prevent a user from being electrocuted. |
Utility Patent |
App # 63/424,985
Filing Date 11/14/22 |
Docking Assist Motor Control and Auto-pilot mode for Trailer loading and launching |
Similar to docking assist GPS guided auto-pilot systems but this one is specifically intended to assist with single handed boat launching or loading to and from a trailer. Use position sensors on the trailer, have the boat automatically guided safely by itself while the captain is backing trailer into the water, or on the trailer preparing the winch, etc. |
Utility Patent |
App # 63/402,124
FILED 8/30/2022 |
Double Motor Stack for an outboard powerhead arrangement |
Cascadia and other EV motor vendors offer a configuration where the DC motor can be stacked on top of another motor to double the power output of the vehicle. Packing this into an outboard motor design might be a first for the industry and will be worth patenting if possible. |
Utility Patent |
App # 63/402,124
FILING DATE 8/30/22 |
Forza FX1 Future Factory
We are currently designing a state-of-the-art
manufacturing plant to incorporate the latest in closed-molded composite boat building technologies and electric engine assembly
processes., On July 28, 2022, we received notice that the North Carolina Economic investment committee has approved a Job Development
Investment Grant (“JDIG”) providing for reimbursement to
us of up to $1,367,100 over a twelve-year period to establish
a new manufacturing plant in McDowell County, North Carolina. The receipt of grant funding is conditioned upon us investing over
$10.5 million in land, buildings and fixtures, infrastructure and machinery and equipment by the end of 2025 and us creating as
many as 170 jobs. We have selected our new site in McDowell County, North Carolina to build the Forza X1 factory. We are designing
a 100,000 square foot facility designed for capacity and production of 1,000 units annually that we intend to build over time in
various phases, starting with an initial 50,000 square foot facility that will have a capacity of 550 units annually that we anticipate
the cost of which will be $8 million for the construction of the factory. We anticipate that the local incentives that it has been
approved to receive will help to offset some of the cost to be incurred with respect to the building of the factory. However, there
can be no assurance that such negotiations will be successful or that we will meet the requirements to receive the anticipated
incentives will be granted to us.
Initially, the target site for the plant was
a 14.5-acre parcel of undeveloped land located in a light industrial corridor in St. Lucie County. We and Twin Vee entered into
an assignment of land contract pursuant to which Twin Vee assigned to us a land purchase agreement that provides us with an option
to acquire the target site for $750,000. On December 6, 2021, we paid the $50,000 refundable deposit on the land purchase agreement
from our working capital. It has since been determined that the cost associated with building our factory on the Fort Pierce, Florida
site is prohibitive. As a result, on April 28, 2022, we, together with Twin Vee, requested, and were granted, a release and termination
of the land contract for this vacant parcel of land.
Once we execute a definitive agreement for
the purchase of the property upon which the factory will be built, we anticipate that our factory will be complete within 18 months.
Before the completion of new factory construction,
all fabrication for our Forza X1 boats will be performed onsite at Twin Vee’s facility or, if available additional manufacturing
space will be leased. We are currently looking at various locations near the Twin Vee facility or near the future Forza site to
rent a facility until our own facility is finished. We expect that boat production can start immediately upon the Forza X1 product
launch. While there is limited additional manufacturing capacity at Twin Vee’s current facility for the manufacture of our
electric boats, we believe the Twin Vee site can handle approximately 325 units annually, without capital improvements, in addition
to current Twin Vee production.
Our ability to utilize Twin Vee’s manufacturing
capacity pending completion of our own facility will be subject to its availability as determined by Twin Vee. See “Risk
Factors—Risks Related to Our Business—We may not be able to commence production of our electric boats as planned.”
A phone app will be used to reserve orders,
and believe we will be able to fulfill orders from Twin Vee as soon as the product launch is ready. The boat construction cycle
(lead time) will be under fifteen working days, engines will be built in advance and will be a five-day build cycle. Since orders
and deposits will be taken in advance of product launch, the fiberglass molds for the boats will be built to handle expected orders.
We expect production at the Forza FX1 future
factory to initially ramp up according to orders received and increase over time.
Industry Overview
We believe traditional marine manufacturers
are at a crossroads and face significant industry-wide challenges. Much like in the automotive industry, the reliance on the gasoline-powered
internal combustion engine as the principal marine powertrain technology has raised environmental concerns, created dependence
among industrialized and developing nations on oil-primarily imported from foreign countries, exposed consumers to volatile fuel
prices, and inhibited innovation in alternative fuel powertrain technologies.
We expect that shifting consumer preferences
will result in significant growth in the market for electric boats, especially as the demand for recreational powerboats, in general,
remains strong. We estimate many consumers are increasingly willing to consider buying electric-powered boats due to the environmental
and economic consequences of using gasoline-powered vehicles, as demonstrated by the increased sales of hybrid and electric automobiles
in recent years. In its Electric Vehicle Outlook 2021, BloombergNEF estimated that there are currently 12 million passenger EVs
on the road. The prevalence of electric-powered boats is likely to follow suit. In an August 2020 Boating Industry online article,
the marine-focused magazine indicated that electric boat drives represented about 2% of the market, but hybrid and pure electric
boats sales were expected to rise rapidly in the coming years. Specifically, the article cites a report from independent market
research company IDTechEx where it examined the electric boat and ship sector. The report estimates that the market for hybrid
and pure electric boats and ships would be greater than $20 billion worldwide by 2027, finding that recreational boats is the largest
and fastest growing electric marine market in sales number.
Our initiative into sustainable marine technologies
and products is well-timed. The prevalence of batteries necessary to sustain a marine EV model line is expected to rise and become
cheaper. BloombergNEF’s Long-Term Electric Vehicle Outlook reports that annual lithium-battery demand has proliferated in
recent years, and meeting the demand will require unprecedented but achievable increases in materials, components, and cell production.
Battery production capacity is expanding as more factories are brought online. Moreover, battery technology that improves power
and capacity is being designed, developed, and adopted regularly. According to BloombergNEF’s report, it found that the volume-weighted
average price of a lithium-ion battery pack fell 13% from 2019 to $137/kWh (kilowatt-hour) in 2020. The report estimates the volume-weighted
average cost of battery packs will drop below $100/kW in 2024. The Company is establishing itself in the market at the right time
to help keep production costs as low as possible and make our boats affordable for our customers.
Our Solution
Our company believes our solid foundation in
boat building, electric vehicle engineering expertise, and planned direct-to-consumer system will help us rapidly innovate and
introduce new boats and technologies cost-effectively. By operating our sales and service
network, we believe we can offer a compelling and premium customer-centric experience while achieving
operating efficiencies and capturing sales and service revenues that traditional boat manufacturers do not receive in the independent
dealer model. We also plan to leverage our electric powertrain technology to develop and sell powertrain components to other boat
manufacturers and owners.
We
believe our proprietary electric powertrain system will enable us to design and develop zero-emission boats that overcome the design,
styling, and performance issues that have historically limited broad consumer adoption of electric boats. As a result, we believe
customers of our vehicles will enjoy many benefits, including:
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Extended Run Times and Recharging Flexibility. We are designing our FX1 to offer an intermediate-range option and an option that would increase the battery pack capacity for extended run times. Charging stations specifically designed for electric boats will eventually be an option for customers as well. Norway and Venice, Italy, are beginning to construct a network of electric boat charging stations. In the United States, Lake Tahoe is now home to a rapid-charging electric boat charging station. While the US and the rest of the world begin to adopt a network of electric boat-specific stations, our design for the Forza X1 boats incorporates an onboard charging system, permitting recharging from almost any electrical outlet and residential and commercial charging stations previously only utilized for electric automobiles. |
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Energy Efficiency and Cost of Ownership. We believe our FX1 will offer consumers an attractive cost of ownership compared to similar outboard powerboats. By using a single powertrain and customizing the systems within the electric powertrain and the rest of the boat, our boats are more energy-efficient, and therefore less expensive to operate and maintain. |
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Environmental sustainability. Large gas-powered engines often leak and produce carbon emissions, both of which are generally harmful to fragile marine ecosystems. By offering a fully electric boat to our customers and an alternative to traditional propulsion systems, we can foster a more environmentally sustainable boat brand. Our greatest hope is to be purposeful stewards of the marine industry and lead by example in environmentally friendly innovation. |
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Noise Level. So often, powerboats create large amounts of noise, disturbing wildlife and making it difficult for fellow passengers to hear one another while underway. FX1’s electric powertrain will produce little to no sound, making it easier to enjoy the sounds of nature, family, and friends. Our products will also help tremendously with fishing and other sporting and water-based activities that favor less noise. |
Our Strengths and Competitive Advantages
We believe that the following are the critical
investment attributes of our company:
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Assembling a Technology, Engineering and Manufacturing Team. We continue to build and add valuable, experienced and knowledgeable team members. Jim Leffew, our President and Chief Executive Officer, comes to us from Maverick Boat Group, Inc. that was recently sold to Malibu Boats. Jim Leffew has been designing, building and manufacturing boats on a large-scale basis for over 25 years. The year Maverick Boat Group was sold to Malibu Boats, Jim Leffew was overseeing the manufacturing and Maverick Boat Group was building and selling over 1,400 boats annually. The experience and knowledge that Jim Leffew brings to the table is expected to be valuable to the requirements of designing and ramping up our manufacturing facility. |
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Singular Focus and Leadership in Electric Powertrain Technology. We are focused exclusively on developing our electric boats and electric powertrain technology to achieve a compelling combination of range and performance at a price point accessible to a large segment of the boating population. We intend to use our electric powertrain expertise to innovate rapidly and sustain technological and time-to-market advantages over other marine manufacturers. Our targeted base cost for the Forza X1 is approximately $150,000. We are not aware of any other electric boats currently being manufactured and sold commercially in the U.S. The electric boats we are aware of that are in pre-production by other manufacturers are designed either for the luxury or speed boat market and carry a base cost in the range of approximately $300,000. |
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Combination of Expertise from the Traditional Boat Manufacturing Industry and Electrical Engineers. Our company’s founders have been in the boat building business for over 25 years. Our boat design and manufacturing knowledge are supplemented by engineers with strong skills in electrical engineering and software and controls. |
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Rapid Customer-Focused Product Development. We are designing our product development process to rapidly react to data collected from our boats, direct interaction with our customers, and feedback from our web and app platform. That information should enable us to introduce new models and features to expand our customer base and brand recognition. |
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Direct To Consumer System. We are building a vertically integrated and premium direct-to-consumer system to achieve operating efficiencies and capture sales and service revenues traditional boat manufacturers do not generally receive in the distribution and service model they employ. |
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Capital Efficiency. We believe our rapid product development process, powertrain technology applicable for future boat models, and our plan to hold lower inventory levels while still meeting customer demand will help reduce the capital required to reach operating efficiencies. This approach is designed to allow us to achieve profitability at relatively low sales volumes and create a viable long-term business. |
Our Strategy
We intend to be a leading manufacturer and
direct seller of electric boats and electric powertrain and propulsion technologies through the following strategies:
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Successfully Launch the FX1 and electric monohull. We believe the successful launch of our first commercially available electric boat is critical to our ability to capitalize on the marine electric vehicle market opportunity and establish ourselves as leaders in the industry. We are in the early stage of prototyping and testing our electric boats. The first Forza FX1 prototype outboard motor and control system was completed in Q1 2022, by Q3 of 2022, the first Forza FX1 catamaran boat was completed and the engine, propulsion systems and boat were successfully tested in October or 2022. By March of 2023 we had completed seven prototypes and had begun the testing phase on all of these boats. In addition to the FX1 style catamaran, we have successfully prototyped a deck boat and twenty-two-foot monohull. We anticipate that our prototypes will go through additional testing, design, and fabrication iterations, and refinements before we commence production of consumer boats. The electric motor and control system are in working order, our team of engineers have begun the process of improving these engines and are developing a “stacking” engine design which will double the horsepower in the same sleek cowling. These additional motors will have improved features including enhanced liquid cooling heat exchangers and higher power availability. Additional motors are being produced for the purpose of intensive reliability and durability testing, utilizing destructive and non-destructive techniques. The goal is to commercialize and manufacture this motor as the original propulsion system for our FX1 dual console. In a parallel path, we are adapting the motor and control system to the twenty-two-foot monohull specifically designed for electric propulsion. We expect to offer these products for sale to the public at the end of 2023. |
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Invest in Our Infrastructure. We plan to invest in our product development and operations infrastructure to enable our growth, product innovation, and customer experience. |
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Use a Common Platform to Introduce New Models. We intend to design the FX1 with an adaptable platform architecture and common electric powertrain to provide us the flexibility to use the FX1 platform to launch subsequent electric boat models cost-efficiently. |
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Focus on Technological Advancements and Cost Improvement. We intend to constantly look for ways to improve upon and further develop our proprietary electric powertrain system while reducing its manufacturing cost. |
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Build our Company-Owned Sales and Service Network. We are programming and building our expansive and vertically integrated customer-centric web and app platform to connect with customers for an end-to-end experience encompassing everything from buying, financing, delivery, servicing, and training. This customer-centric approach to sales and service is intended to simplify accessing necessary information for potential buyers and current owners in an easily accessible and streamlined online space. |
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Leverage Industry Advancements in Battery Cells. We intend to leverage the substantial investments made globally by battery cell manufacturers to improve power and capacity. |
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Build and Leverage Strategic Relationships. We intend to establish and develop strategic relationships with industry leaders to launch our planned electric boats and sell our electric boat powertrain components. We envision significant inroads with boat manufacturers to retrofit various hull configurations, replacing traditional gas outboard motors and existing boat owners who could retrofit their boats with Forza X1’s outboard motors, controller, and battery packs. |
Our Future Service Network
We intend to develop a support and service
department that will include technicians, service representatives, quality control specialists and customer satisfaction agents.
Moreover, we aim to provide convenient and comprehensive service coverage in all markets where our boats are sold, which customers
may access through a comprehensive service and support website and app.
The website and app platform will be the cornerstone
of our services and repair program. We have selected a web design firm for the development of our website and app. Our goal is
to have the app completed by the second quarter of 2024. Our customers would be able to report through our app or interact directly
with our service support team to schedule an appointment with a Forza X1 mobile service van, perform remote diagnostics or help
arrange appointments with partnered boat repair technicians, marinas, and service centers with whom we have strategic relationships,
arrange for service or repair work, or even schedule the boat’s transportation back to the Forza X1 factory if needed.
We believe that Forza X1 mobile service vans
and trucks will be able to perform a majority of physical service calls at a customer’s home, marina, dock, or wherever our
boats might be located, offering a level of convenience at lower cost than traditional dealer-owned service centers. These mobile
service vans and trucks will travel to the location of the electric boats for repair, or if the boat cannot be repaired at such
location, then the Forza technician will have a vehicle capable of towing the boat back to the Forza factory, where the boat will
have access to a more significant amount of repair and support staff.
We believe that our electric vehicles will
require less service than gas vehicles because electric vehicles are simpler to maintain than internal combustion vehicles. Our
outboard motor system is expected to be less susceptible to wear and tear by exchanging hundreds of moving parts for only a few.
There are no spark plugs or engine motor oil to change or worry about.
Additionally, remote diagnostics will allow
the Company to find issues with customer boats remotely, in real time. In many cases, our service team will be able to provide
an OTA update to resolve the issue without the customer’s boat ever leaving the customer’s sight. Our mission will
be to make the servicing of our products as simple as possible by connecting to and utilizing the diagnostics technology in every
Forza X1 boat. Whether a customer needs maintenance or needs repairs, we intend to provide convenient and comprehensive service
and warranty coverage for our customers throughout the country.
Customers who lack Forza X1 service access
through our network of mobile services vans and trucks will be able to utilize the traditional warranty claim process, which is
standard throughout the recreational boat industry. In our case, a customer will contact us through our website or app and speak
with our support and service department and provide them with details about the issues they are experiencing with their boat. If
over-the-air updates to software or hardware are insufficient to solve the problems and FX1 customer experience and service center
or mobile service van are not within range of the customer, our support and service department will provide assistance.
In the case of a covered warrantable issue,
our support and service department will put them in contact with a local partnered boat repair service technicians or arrange transportation
of the boat to one of our partnered marinas and service centers. If none are available in a customer’s area, our support
and service department would instruct the customer to obtain a quote for the covered warranty repair work and labor at a marine
service center of their choosing. They would transmit the quote for the necessary repair work to our support and service department
for approval. Once approved, the work is completed on the covered warrantable repairs, and we will pay the marine service center
directly.
There may be instances where the customer’s
issue is too technical for a traditional marine service center (e.g., issues related to the EV components of the boat). In such
cases, our support and service department would coordinate with the customer to have the boat picked up on a trailer and towed
to our manufacturing facility in Fort Pierce, Florida, for service.
If a customer contacts our support and service
department for maintenance or an issue not covered under warranty, then our support and service department would be able to coordinate
with them to arrange service with a mobile service van, partnered boat repair technician, or partnered marina or service center
and the customer will be responsible for paying them directly.
We are still in the initial stages of establishing
our service plans. We are in the process of identifying potential marinas, service centers, and technicians we would like to form
strategic relationships with to ensure that we have a comprehensive service support system in place when our FX1 boats are sold.
Although we are planning to eventually internalize most aspects of boat warranty and service through our mobile service vans and
trucks over time, initially, we plan to operate them within 500 miles of the Forza X1 factory and partner with third parties elsewhere
to enable nationwide coverage for our customers’ boat service and warranty repair needs.
Competition
The performance sport boat category and the
powerboat industry as a whole are highly competitive for consumers and dealers. We also compete against consumer demand for used
boats. Competition affects our ability to succeed in both the markets we currently plan to serve and new markets that we may enter
in the future. Competition is based primarily on brand name, price, product selection, and product performance. We will compete
with several large manufacturers that may have greater financial, marketing, and other resources than we do and who are represented
by dealers in the markets in which we now operate and into which we plan to expand. We also will compete with a variety of small,
independent manufacturers. We cannot assure you that we will not face greater competition from existing large or small manufacturers
or that we will be able to compete successfully with new competitors. Our failure to compete effectively with our current and future
competitors would adversely affect our business, financial condition, and results of operations.
We also compete with other leisure activities.
Our boats are not necessities and in times of economic hardship, consumers may cease purchasing non-essential items. Luxury items
may not be used for recreational and sport purposes, and demand for our boats may be adversely affected by competition from other
activities that occupy consumers’ leisure time and by changes in consumer lifestyle, usage pattern or taste.
We also face competition for employees. Competition
for individuals with experience designing, manufacturing and servicing electric boats is intense, and we may not be able to attract,
assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate
and retain these additional employees could seriously harm our business and prospects.
For more information, see “Risk Factors—Risks
Related to Our Business—Our industry is characterized by intense competition, which affects our sales and profits”
and “If we fail to manage future growth effectively, we may not be able to market or sell our products successfully.”
Environmental
and Safety Matters
Certain materials
used in our manufacturing, including the resins used in production of our boats, are toxic, flammable, corrosive or reactive and
are classified by the federal and state governments as “hazardous materials.” Control of these substances is regulated
by the Environmental Protection Agency, or EPA, and state pollution control agencies. The United States Clean Air Act (the “CAA”)
and corresponding state and provincial rules regulate emissions of air pollutants. The Occupational Safety and Health Administration,
or OSHA, standards limit the amount of emissions to which an employee may be exposed without the need for respiratory protection
or upgraded plant ventilation. Twin Vee’s facilities are, and our future factory will be, regularly inspected by OSHA and
by state and local inspection agencies and departments. We believe that Twin Vee’s facilities comply in all material aspects
with these regulations. Although we anticipate that once our factory is built, we will incur capital expenditures related to compliance
with environmental laws, we do not currently anticipate incurring any material expenditure in order to comply with environmental
or safety regulations in connection with our future manufacturing facility.
Powerboats sold in
the United States must be manufactured to meet the standards of certification required by the United States Coast Guard. In addition,
boats manufactured for sale in the European Community must be certified to meet the European Community’s imported manufactured
products standards. These certifications specify standards for the design and construction of powerboats. We believe that all of
our boats will meet these standards. In addition, safety of recreational boats is subject to federal regulation under the Boat
Safety Act of 1971, which requires boat manufacturers to recall products for replacement of parts or components that have demonstrated
defects affecting safety. Twin Vee has instituted recalls for defective component parts produced by certain of its third-party
suppliers. None of Twin Vee’s recalls has had a material adverse effect on it. We expect to begin production of our two FX1
electric boats and commence selling to end user customers by late 2023. Once we have commenced production of our electric boats,
we intend to institute recalls for any defective component parts produced by our third-party suppliers.
If we are not able to pass these additional
costs along to our customers, it may have a negative impact on our business and financial condition.
State Dealership and Servicing Regulations
We intend to comply with specific state regulations,
if any, regarding boat dealerships and servicing when we establish our direct-to-consumer sales and service model. While there
are limitations on the ability of a motor vehicle manufacturer to act as its own dealer to provide direct sales in many states,
these limitations generally do not apply to boat manufacturers.
We will investigate each state’s laws
before our products become available for purchase in that jurisdiction. To determine how the laws would apply to our business would
require fact-specific analysis of numerous factors of business in the state, including whether we have a physical presence or employees,
whether we advertise or conduct other marketing activities, how sale transactions are structured, the volume of sales into the
state, and whether the state prohibits boat manufacturers from acting as dealers or servicing boats.
We plan to establish direct-to-consumer sales
in those states where we are permitted to engage in direct-sales of our products. Moreover, in states where the law is unclear
or prohibitive of direct sales, we intend to work with the governments of those states to carve out an exception for the sale of
zero emission boats that are not available at other dealers within the state and use OneWater sites, where applicable, for the
purpose of selling, delivering and servicing our boats within that particular state.
As a result, we may not be able to sell to
customers in each state in the United States or provide service from a location in every state.
Employees/Human Capital
We believe we maintain
excellent relations with our employees. As of March 20, 2023, we employed sixteen people as full-time employees, these employees
are provided additional administrative support from Twin Vee. We also work with a variety of third-party consultants, including
naval architects, electrical engineers, prototype professionals and procurement professionals. None of our employees are represented
by a labor union. See “Certain Relationships and Related Party Transactions—Transition Services Agreement.”
Corporate Information
Our principal executive office is located at
3101 S. US-1, Ft. Pierce, Florida 34982, and our telephone number is 772-202-8039. We maintain our corporate website at www.forzax1.com.
Investors should not rely on any such information in deciding whether to purchase our common stock.
Forza X1, Inc. was initially incorporated as
Electra Power Sports, Inc. on October 15, 2021, but we subsequently changed our name to Forza X1, Inc. on October 29, 2021. Our
majority shareholder 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.
On July 22, 2022, our Board and our sole stockholders
approved a forward split that was effected on July 22, 2022 at a ratio of 1.076923077:1, such that after the forward split our
outstanding shares of common stock increased to 7,000,000 shares of common stock.
Facilities
We currently share our corporate headquarters
located at 3101 US Highway 1, Fort Pierce, Florida, 34982 with Twin Vee. Twin Vee’s parent company, Twin Vee PowerCats, Inc.,
leases the facility from Visconti Holdings, LLC, (“Visconti Holdings”) an entity owned and controlled by our Executive
Chairman and Chief of Product Development, Joseph Visconti pursuant to a lease agreement (the “Lease Agreement”), dated
January 1, 2020, by and among the Company, Visconti Holdings, LLC and Twin Vee PowerCats, Inc. The Lease Agreement currently has
a 5-year term, with an option to renew for an additional 5-year term. Twin Vee PowerCats, Co., currently pays Visconti Holdings
$26,500 per month plus applicable sales and use tax, which is currently 7% in St. Lucie County. While we believe these headquarters
are adequate for our current operations and needs, we do believe that the capacity at the facility will not be sufficient to support
both our full-scale production and Twin Vee’s full-scale production. We are currently in negotiations for a new site to build
the Forza factory. We are currently designing a state-of-the-art manufacturing plant to be built on a new parcel of land as our
future boat manufacturing facility. The parcel of land to be acquired and the manufacturing facility to be built on such property
will be owned by us, and not Twin Vee. In October of 2022, we signed a two-year lease agreement, on a 8,800 square foot warehouse
facility in Old Fort, North Carolina to begin building out our prototype engines. The monthly base rent will be $7,517 the first
year, including taxes and common area maintenance, the lease required a $7,517 security deposit. The bases rent will increase three
(3%) on the anniversary of the annual term. See “Forza FX1 Future Factory.”
Implications of Being an Emerging Growth
Company
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and therefore we intend to take advantage
of certain exemptions from various public company reporting requirements, including not being required to have our internal controls
over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and any golden parachute payments. We may take advantage of these exemptions until we are no longer an “emerging growth company.”
In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards
until such time as those standards apply to private companies. We have elected to use the extended transition period for complying
with new or revised accounting standards under the JOBS Act. This election allows us to delay the adoption of new or revised accounting
standards that have different effective dates for public and private companies until those standards apply to private companies.
As a result of this election, our financial statements may not be comparable to companies that comply with public company effective
dates. We will remain an “emerging growth company” until the earlier of (1) the last day of the fiscal year: (a) following
the fifth anniversary of the completion of our initial public offering (the “IPO”); (b) in which we have total annual
gross revenue of at least $1.235 billion; or (c) in which we are deemed to be a large accelerated filer, which means the market
value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2)
the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References
herein to “emerging growth company” have the meaning associated with that term in the JOBS Act.
Item 1A. Risk Factors.
Investing in our common stock involves a
high degree of risk. You should carefully consider the risks described below, as well as the other information in this Annual Report
on Form 10-K, including our financial statements and the related notes and the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K, before deciding whether
to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial
condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and
you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial also may impair our business operations.
RISKS RELATED TO OUR BUSINESS
We are a start-up entity and expect to
incur significant expenses and continuing losses for the foreseeable future.
We are a start-up entity and have had very
limited operations to date. To date, we have designed and manufactured only prototypes of our electric sport boat, have not yet
commercialized our boats and have not sold any boats. We believe that we will continue to incur operating and net losses in the
future while we grow, including following our initial generation of revenues from the sale of our boats which may occur later than
we expect or not at all. We do not expect to be profitable for the foreseeable future as we invest in our business, build capacity
and ramp up operations, and we cannot assure you that we will ever achieve or be able to maintain profitability in the future.
Even if we are able to successfully develop our boats and attract customers, there can be no assurance that we will be financially
successful. For example, as we develop our product portfolio, we will need to manage costs effectively to sell those products at
our expected margins. Failure to become profitable would materially and adversely affect the value of your investment. If we are
ever to achieve profitability, it will be dependent upon the successful development and commercial introduction and acceptance
of our electric sport boats and the development of a vertically integrated direct-to-consumer distribution system to market and
sell our boats, which may not occur. As such, for the foreseeable future, we will have to fund all our operations and capital expenditures
from cash on hand, and potentially, future offerings of securities. However, unanticipated changes may occur that could consume
our available capital before we expect, including changes in and progress of our development activities.
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 year ended December 31, 2022, we incurred a net loss of $3,630,081 and used cash in operations of
$3,377,621. For the periods October 15, 2021 through December 31, 2021 (Successor) and January 1, 2021 through October 14, 2021
(Predecessor), we incurred a net loss of $270,630 and $186,921, respectively. For the period October 15, 2021 through December
31, 2021 (Successor), we used cash in operations of $317,131. For the period January 1, 2021 through October 14, 2021 (Predecessor),
we had cash provided by operations of $13,024. Losses have principally occurred as a result of the research and development efforts
coupled with no operating revenue.
Until we begin generating revenue, there is
a doubt about our ability to continue as a going concern through December 31, 2023.
Our limited operating history makes it
difficult for us to evaluate our future business prospects.
We are a company with an extremely limited
operating history and have not generated any revenue from sales of our boats or other products and services to date. As we attempt
to transition from research and development activities to production and sales, it is difficult, if not impossible, to forecast
our future results, and we have limited insight into trends that may emerge and affect our business. The estimated costs and timelines
that we have developed to design and complete the design and engineering of the FX1 sport boat and its outboard electric motor
and then reach full scale commercial production are subject to inherent risks and uncertainties involved in the transition from
a start-up company focused on research and development activities to the large-scale manufacture and sale of vehicles. There can
be no assurance that our estimates related to the costs and timing necessary to complete the design and engineering of the FX1
sport boat and its outboard electric motor, will prove accurate. These are complex processes that may be subject to delays, cost
overruns and other unforeseen issues. In addition, we have engaged in limited marketing activities to date, so even if we are able
to bring the FX1 or other commercial products to market, on time and on budget, there can be no assurance that customers will embrace
our products in significant numbers. Although we have received boat reservations, they are non-binding and cancellable and therefore
cannot be relied upon as true indications of interest in our products. Market conditions, many of which are outside of our control
and subject to change, including general economic conditions, the availability and terms of third-party consumer financing, the
impacts and ongoing uncertainties created by the COVID-19 pandemic, fuel and energy prices, regulatory requirements and incentives,
competition and the pace and extent of vehicle electrification generally, will impact demand for the FX1 and our other commercial
products, and ultimately our success.
You should consider our business and prospects
in light of the risks and significant challenges we face as a new entrant into our industry. If we fail to adequately address any
or all of these risks and challenges, our business, prospects, financial condition, results of operations, and cash flows may be
materially and adversely affected.
Our planned fully electric sport boat
has not yet been assembled into a fully integrated product, and even if assembled, an interest in it may not develop.
Our electric boats are being designed as fully
integrated electric boats, including the hull, outboard motor and control system. There can be no assurance that we will be able
to complete development and mass produce the FX1 when anticipated, if at all, or that the anticipated features or services to be
included in the FX1 will create substantial interest or a market, and therefore our anticipated FX1 product, its sales and growth
for our product may not develop as expected, or at all. For example, in May 2021 we experienced a failure in connection with the
sea trial of a prototype of our electric boat which resulted in a six-month delay in our design timetable as we implemented changes
to the design for outboard electric motor system as a result of the failure. Although recent trials have been successful, we cannot
guarantee that similar events will not occur in the future, or that we will be able to contain such events without damage or delay.
Even if such a market for the FX1 sport boat develops, there can be no assurance that we would be able to maintain that market.
Our operations to date have been primarily
limited to finalizing our design and engineering of our electric sport boat as well as organizing and staffing our company in preparation
for launching the FX1 electric boat. As such we have not yet demonstrated, and our success is wholly dependent upon, our ability
to commercialize our products. The successful commercialization of any products will require us to perform a variety of functions,
including:
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completing the design and testing for the FX1 sport boat and our proprietary outboard electric motor; |
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manufacturing the FX1 sport boats; |
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developing a vertically integrated direct-to-consumer distribution system; and |
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conducting sales and marketing activities. |
We cannot be certain that our business strategy
will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks,
our business, prospects, financial condition, and results of operations could be materially and adversely affected, and we may
not have the resources to continue or expand our business operations.
Our planned distribution model is different
from the predominant current distribution model for boat manufacturers, which subjects us to substantial risk and makes evaluating
our business, prospects, financial condition, results of operations, and cash flows difficult.
Our distribution model is still in the planning
stages. We currently plan to mainly sell our boats directly to customers rather than through franchised dealerships (unless required
to do so by certain states), primarily through our website and app platform, subject to obtaining applicable dealer licenses and
equivalent permits in such jurisdictions. The digital customer experience via our online platform will allow customers to research,
shop, choose boat hull color, interior upholstery color, and a possible upgrade of an additional battery to extend run times, order,
track and take delivery through our web-based and app platform. We have not yet: (i) entered into any arrangements with third parties
to provide financing services through our web and app platform, or (ii) hired staff for our intended support and service department.
Once the customer places the order, their Forza X1 account will request several documents, including license, insurance, etc.,
which can be uploaded online without ever speaking with a salesperson. If the customer has questions, concerns, or needs support
through the sales and purchase process, they will be able to contact Forza X1 through the website or app with any questions, concerns.
Since our planned sales and marketing platform
is a newer way to shop, buy and take delivery of a new boat through a mostly virtual process, we are unable to predict or conclude
precisely what the customer will experience. We intend to follow up customer transactions with review and quality control questionnaires
to collect the data and continue to better our platform and how we interact with customers.
In addition to our
website and app platform, we have entered into an agreement with OneWater to be the sole dealer distributing our products and OneWater’s
retail locations may be used as potential delivery points for customers to pick up our products, and where available, we will utilize
them for service needs. However, our relationship with OneWater is new and we have no prior history with OneWater upon which to
evaluate this relationship. In addition, the agreement with OneWater may be terminated by either of us at any time without cause.
This model of boat distribution is relatively
new, different from the predominant current distribution model for boat manufacturers and, with limited exceptions, unproven, which
subjects us to substantial risk. We have no experience in selling or leasing boats direct-to-consumer and therefore this model
may require significant expenditures and provide for slower expansion than the traditional dealer franchise system. For example,
we will not be able to utilize long established relationships developed by Twin Vee, with its dealer network. Moreover, we will
be competing with companies with well established distribution channels. Our success will depend in large part on our ability to
effectively develop our own sales channels and marketing strategies.
Implementing our direct sales model is subject
to numerous significant challenges, including obtaining permits and approvals from government authorities, and we may not be successful
in addressing these challenges. If our direct sales model does not develop as expected or develops more slowly than expected, we
may be required to modify or abandon our sales model, which could materially and adversely affect our business, prospects, financial
condition, results of operations, and cash flows.
We will be dependent upon OneWater for
any sales of our boats through traditional sales methods.
In
order to attract customers that prefer to buy our products through a traditional marketing method, on August 17, 2022, we entered
into a five year agreement with OneWater to establish our customer experience and service centers in OneWater’s current and
future locations and other strategic locations across the United States pursuant to which OneWater will be the sole dealer distributing
our products and OneWater’s retail locations may be used as potential delivery points for customers to pick up our products. We
retained the right to sell our products directly to customers. The agreement may be terminated
by either party for breach upon thirty days’ notice and without cause upon three months’ notice. Our relationship with
OneWater is new and we have no history upon which to evaluate the success of this relationship. Our boats will not be the only
boats sold by OneWater and therefore we will face competition from the other boats sold by OneWater. In addition, either party
may terminate the agreement for any reason upon three months’ notice. If OneWater were to terminate the agreement, we would
need to find other dealers to market and service our products, especially in states that do not allow for direct marketing and
there can be no assurance that we will be successful in doing so.
We have identified
material 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. We expect that the requirements of
these rules and regulations will 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 controls over financial
reporting.
We do not yet have
effective disclosure controls and procedures, or internal controls over all aspects of our financial reporting. We are continuing
to develop and refine our internal controls over financial reporting. Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. We will be required
to expend time and resources to further improve our internal controls over financial reporting, including by expanding our staff.
However, 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.
We have identified material weaknesses in our
internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will
not be prevented or detected on a timely basis. The material weaknesses identified to date include that 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.
We will be required
to expend time and resources to further improve our internal controls over financial reporting, including by expanding our staff.
However, 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.
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 and meet other requirements. 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.
Our ability to generate meaningful product
revenue will depend on consumer adoption of electric boats.
We are only developing electric boats and,
accordingly, our ability to generate meaningful product revenue will depend highly on sustained consumer demand for alternative
fuel vehicles in general and electric boats in particular. If the market for electric boats does not develop as we expect or develops
more slowly than we expect, or if there is a decrease in consumer demand for electric vehicles, our business, prospects, financial
condition and results of operations will be harmed. The market for electric and other alternative fuel vehicles is relatively new,
rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government
regulation (including government incentives and subsidies) and industry standards, frequent new vehicle announcements and changing
consumer demands and behaviors. Any number of changes in the industry could negatively affect consumer demand for electric vehicles
in general and our electric boats in particular.
In addition, demand for electric boats may
be affected by factors directly impacting boat prices or the cost of purchasing and operating boats such as sales and financing
incentives including tax credits, prices of raw materials and parts and components, cost of fuel, availability of consumer credit,
and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle
unit sales, which may result in downward price pressure and adversely affect our business, prospects, financial condition and results
of operations. Further, sales of boats in the marine industry tend to be cyclical in many markets, which may expose us to increased
volatility, especially as we expand and adjust our operations and retail strategies. Specifically, it is uncertain how such macroeconomic
factors will impact us as a new entrant in an industry that has globally been experiencing a recent decline in sales.
Other factors that may influence the adoption
of electric boats include:
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perceptions about electric vehicle quality, safety, design, performance and cost; |
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perceptions about the limited range over which electric boats may be driven on a single battery charge; |
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perceptions about the total cost of ownership of electric boats, including the initial purchase price and operating and maintenance costs, both including and excluding the effect of any government and other subsidies and incentives designed to promote the purchase of electric boats; |
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perceptions about the sustainability and environmental impact of electric boats, including with respect to both the sourcing and disposal of materials for electric vehicle batteries and the generation of electricity provided in the electric grid; |
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the availability of other alternative fuel boats; |
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The influence of any of the factors described
above or any other factors may cause a general reduction in consumer demand for electric vehicles or our electric boats in particular,
either of which would materially and adversely affect our business, results of operations, financial condition and prospects
We may be unable to adequately control
the capital expenditures and costs associated with our business and operations.
We will require significant capital to develop
and grow our business, including developing our first boat to be manufactured, the FX1, as well as building our brand, and we will
not be able to rely on Twin Vee as a source of such funding. We expect to make additional capital expenditures and incur substantial
costs as we complete the design and engineering of the FX1 and prepare to commercially launch sales of our boats and grow our business,
including research and development expenses, raw material procurement costs, sales and distribution expenses as we build our brand
and market our boats and general and administrative expenses as we scale our operations, identify and commit resources to investigate
new areas of demand and incur costs as a public company. In addition, we expect to incur significant costs as we build our factory
in North Carolina. Our ability to become profitable in the future will not only depend on our ability to complete the design and
development of our boats but also to control our capital expenditures and costs. As we expand our product portfolio, we will need
to manage costs effectively to sell those products at our expected margins. If we are unable to cost efficiently design, manufacture,
market, sell and distribute and service our boats and provide our services, our business, prospects, financial condition, results
of operations, and cash flows would be materially and adversely affected.
We may not be able to commence production
of our electric boats as planned.
We currently plan to manufacture our electric
boats at a new state of the art carbon neutral factory that we plan to build in McDowell County, North Carolina. Until we are able
to expand our manufacturing capacity and build the planned manufacturing facility, we expect to continue to share Twin Vee’s
current manufacturing facility, which has a limited capacity and may not be able to satisfy our manufacturing needs. Although we
entered into a Transition Services Agreement with Twin Vee (the “Transition Services Agreement”) following the completion
of our IPO, the Transition Services Agreement does not provide for any dedicated manufacturing capacity for us. See “Certain
Relationships and Related Party Transactions—Transition Services Agreement.” Our ability to utilize Twin Vee’s
manufacturing capacity pending completion of our own facility will be subject to its availability as determined by Twin Vee and
Twin Vee has no obligation to make any manufacturing capacity available to us under the Transition Services Agreement. As a result,
our ability to produce any boats will be limited to available capacity of the Twin Vee facility until our future manufacturing
facility is operational. If Twin Vee does not provide manufacturing capacity, we would not be able to produce our electric boats
unless or until we lease or purchase facilities and equipment necessary for our production purposes. Any facility that we build
will require a significant capital investment and is expected to take at least one year to eighteen months to build and become
fully operational. In addition, even if the construction of our planned facility is completed when anticipated, production at our
facility could be delayed whether due to lack of equipment, workforce issues or other reasons. If we are unable to complete our
own facility and commence production as planned, our business, prospects, financial condition, results of operations, and cash
flows would be materially and adversely affected and the value of your investment in our company may be materially adversely affected.
Changes in general economic conditions,
geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely
impact our business and operating results.
Our operations and performance depend on global,
regional and U.S. economic and geopolitical conditions. General worldwide economic conditions have experienced significant instability
in recent years including the recent global economic uncertainty and financial market conditions. Russia’s invasion and military
attacks on Ukraine have triggered significant sanctions from U.S. and European leaders and financial markets around the world experienced
volatility following the invasion of Ukraine by Russia in February 2022. Resulting changes in U.S. trade policy could trigger retaliatory
actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” Furthermore,
if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our
business and financial condition.
The uncertain financial markets, disruptions
in supply chains, mobility restraints, and changing priorities as well as volatile asset values could impact our business in the
future. The COVID-19 outbreak and government measures taken in response to the pandemic have also had a significant impact, both
direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities
and production have been suspended; and demand for certain goods and services, such boats and other recreational components and
supplies, have spiked, while demand for other goods and services, such as travel, have fallen. The future progression of the pandemic
and its effects on our business and operations are uncertain.
Further, although we have not experienced material
adverse effects on our business due to increasing inflation, it has raised operating costs for many businesses and, in the future,
could impact demand for our products, foreign exchange rates or employee wages. Inflation rates, particularly in the United
States and United Kingdom, have increased recently to levels not seen in years, and increased inflation may result in increases
in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise
capital. In addition, the Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation,
which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic
uncertainty and heightening these risks.
Actual events involving reduced or limited
liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the
financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds,
have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank,
was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation
as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, uncertainty and
liquidity concerns in the broader financial services industry remain and the failure of Silicon Valley Bank and its potential near-
and long-term effects on the biotechnology industry and its participants such as our vendors, suppliers, and investors, may also
adversely affect our operations and stock price.
We are actively monitoring the effects these
disruptions and increasing inflation could have on our operations.
These conditions make it extremely difficult
for us to accurately forecast and plan future business activities.
In addition, the outbreak of a pandemic
could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by
members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory
facilities, or due to quarantines. Pandemics could also impact members of our Board of Directors resulting in absenteeism from
meetings of the directors or committees of directors and making it more difficult to convene the quorums of the full Board of Directors
or its committees needed to conduct meetings for the management of our affairs.
We may not receive the anticipated grant
funding.
On July 28, 2022, we received notice that the
North Carolina Economic investment committee has approved a Job Development Investment Grant (“JDIG”) providing for
reimbursement to us of up to $1,367,100 over a twelve-year period to establish a new manufacturing plant in McDowell County, North
Carolina. The receipt of grant funding is conditioned upon us investing over $10.5 million in land, buildings and fixtures, infrastructure
and machinery and equipment by the end of 2025 and us creating as many as 170 jobs. We are currently in negotiations for a new
site to build the Forza factory in North Carolina. There can be no assurance that the negotiations will be successful. If unsuccessful,
we will not meet the conditions necessary to receive the grant funding and will be subject to the limited capacity at the Twin
Vee factory that Twin Vee allows us, in its discretion, to use. There can be no assurance that we will meet the conditions necessary
to receive the grant funding. We are currently in negotiations for a new site to build the Forza factory in North Carolina. There
can be no assurance that the negotiations will be successful.
We could experience cost increases or
disruptions in supply of raw materials or other components used in our boats.
We expect to incur significant costs related
to procuring raw materials required to manufacture and assemble our boats. The prices for these raw materials fluctuate depending
on factors beyond our control including market conditions and global demand for these materials and could adversely affect our
business, prospects, financial condition, results of operations, and cash flows. Further, any delays or disruptions in our supply
chain could harm our business. For example, COVID-19, including associated variants, could cause disruptions to and delays in our
operations, including shortages and delays in the supply of certain parts, including semiconductors, materials and equipment necessary
for the production of our boats, and the internal designs and processes we may adopt in an effort to remedy or mitigate impacts
of such disruptions and delays could result in higher costs. In addition, our business also depends on the continued supply of
battery cells for our boats. We are exposed to multiple risks relating to availability and pricing of quality battery cells. These
risks include:
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the inability or unwillingness of battery cell manufacturers to build or operate battery cell manufacturing plants to supply the numbers of battery cells (including the applicable chemistries) required to support the growth of the electric or plug-in hybrid vehicle industry as demand for such cells increases; |
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disruption in the supply of battery cells due to quality issues or recalls by the battery cell manufacturers; and |
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Furthermore, currency fluctuations, tariffs
or shortages in petroleum and other economic or political conditions may result in significant increases in freight charges and
raw material costs. Substantial increases in the prices for our raw materials or components would increase our operating costs
and could reduce our margins. In addition, a growth in popularity of electric vehicles without a significant expansion in battery
cell production capacity could result in shortages which would result in increased materials costs to us, and would impact our
projected manufacturing and delivery timelines, and adversely affect our business, prospects, financial condition, results of operations,
and cash flows.
We depend upon third parties to manufacture
and to supply key semiconductor chip components necessary for our boats. We do not have long-term agreements with all of our semiconductor
chip manufacturers and suppliers, and if these manufacturers or suppliers become unwilling or unable to provide an adequate supply
of semiconductor chips, with respect to which there is a global shortage, we would not be able to find alternative sources in a
timely manner and our business would be adversely impacted.
Semiconductor chips are a vital input component
to the electrical architecture of our boats, controlling wide aspects of the boats’ operations. Many of the key semiconductor
chips we intend to use in our boats come from limited or single sources of supply, and therefore a disruption with any one manufacturer
or supplier in our supply chain would have an adverse effect on our ability to effectively manufacture and timely deliver our boats.
We do not have any long- term supply contracts with any suppliers and purchase chips on a purchase order basis. Due to our reliance
on these semiconductor chips, we are subject to the risk of shortages and long lead times in their supply. We are in the process
of identifying alternative manufacturers for semiconductor chips. We have in the past experienced, and may in the future experience,
semiconductor chip shortages, and the availability and cost of these components would be difficult to predict. For example, our
manufacturers may experience temporary or permanent disruptions in their manufacturing operations due to equipment breakdowns,
labor strikes or shortages, natural disasters, component or material shortages, cost increases, acquisitions, insolvency, changes
in legal or regulatory requirements, or other similar problems.
In particular, increased demand for semiconductor
chips in 2020, due in part to the COVID-19 pandemic and increased demand for consumer electronics that use these chips, has resulted
in a severe global shortage of chips in 2021. As a result, our ability to source semiconductor chips to be used in our boats has
been adversely affected. This shortage may result in increased chip delivery lead times, delays in the production of our boats,
and increased costs to source available semiconductor chips. To the extent this semiconductor chip shortage continues, and we are
unable to mitigate the effects of this shortage, our ability to deliver sufficient quantities of our boats to fulfill our preorders
and to support our growth through sales to new customers would be adversely affected. In addition, we may be required to incur
additional costs and expenses in managing ongoing chip shortages, including additional research and development expenses, engineering
design and development costs in the event that new suppliers must be onboarded on an expedited basis. Further, ongoing delays in
production and shipment of boats due to a continuing shortage of semiconductor chips may harm our reputation and discourage additional
preorders and boat sales, and otherwise materially and adversely affect our business and operations.
Our ability to meet our manufacturing
workforce needs is crucial to our results of operations and future sales and profitability.
We rely on the existence of an available hourly
workforce to manufacture our products. We also rely upon our engineers that are specialist in electric engineering. We cannot assure
you that we will be able to attract and retain qualified employees to meet current or future needs at a reasonable cost, or at
all. For instance, the demand for engineers has increased over the past several years and we will compete with many of the tech
companies and automobile companies. In addition, the demand for skilled employees has increased recently with the low unemployment
rates in Florida and North Carolina where we currently have manufacturing facilities and are building a manufacturing facility.
Also, although none of our employees are currently covered by collective bargaining agreements, we cannot assure you that our employees
will not elect to be represented by labor unions in the future. Additionally, competition for qualified employees could require
us to pay higher wages to attract a sufficient number of employees. Significant increases in manufacturing workforce costs could
materially adversely affect our business, financial condition or results of operations.
We have a large fixed cost base that
will affect our profitability if our sales decrease.
The fixed cost levels of operating a powerboat
manufacturer can put pressure on profit margins when sales and production decline. Our profitability will depend, in part, on our
ability to spread fixed costs over a sufficiently large number of products sold and shipped, and if we make a decision to reduce
our rate of production, gross or net margins could be negatively affected. Consequently, decreased demand or the need to reduce
production can lower our ability to absorb fixed costs and materially impact our financial condition or results of operations.
Our outstanding common stock is substantially
controlled by our management.
Twin Vee PowerCats, Co. currently owns 67%
of our outstanding common stock. Joseph Visconti, who currently serves as our Executive Chairman and Chief of Product Development
is also the Chairman of the Board and Chief Executive Officer of our parent company, Twin Vee PowerCats Co., and is also the Chairman
of the Board and Chief Executive Officer of Twin Vee PowerCats Co. Mr. Visconti beneficially owns 25.84 % of the outstanding stock
of f Twin Vee PowerCats Co. As a result, Mr. Visconti is deemed to beneficially own 17% of Forza X1. As a result of these holdings,
Mr. Visconti does and will have significant influence over our management and affairs and over matters requiring stockholder approval,
including the election of directors and approval of significant corporate transactions. Therefore, Twin Vee PowerCats Co. will
have substantial influence over any election of our directors and our operations. It should also be noted that for the most part,
authorization to modify our amended and restated certificate of incorporation, as amended, requires only majority stockholder consent
and approval to modify our amended and restated bylaws requires authorization of only a majority of the board of directors. This
concentration of ownership could also have the effect of delaying or preventing a change in our control. Accordingly, our Executive
Chairman and Chief of Product Development could cause us to enter into transactions or agreements that we would not otherwise consider.
In addition, this concentration of ownership
may delay or prevent a change in our control and might affect the market price of our common stock, even when a change in control
may be in the best interest of all stockholders. Furthermore, the interests of this concentration of ownership may not always coincide
with our interests or the interests of other stockholders.
Our management overlaps substantially
with the management and beneficial owners of our principal stockholder, which may give rise to potential conflicts of interest.
Several of our executive officers and directors
are also officers and/or directors of our principal stockholder, Twin Vee PowerCats Co., and certain of such executive officers
and directors are, in turn, the principal stockholders of Twin Vee PowerCats Co. For example the Chairman of our Board of Directors
is the Chairman of the Board of Director and Chief Executive Officer of Twin Vee PowerCats Co. and our interim Chief Financial
Officer currently serves as the Chief Financial Officer of Twin Vee PowerCats Co. Accordingly, there may be inherent, albeit non-specific,
potential conflicts involved in the participation by members of each company’s management, audit committee, compensation
committee, nominating committee and other applicable board committees which will oversee questions of possible conflicts of interest
and compensation, notwithstanding our effort to appoint independent directors that do not have these inherent conflicts. In addition,
as a matter of practicality, efficiency and appropriate accounting, the costs of certain services (including salaries of executive
officers) are allocated, which creates inter-company obligations.
Our annual and
quarterly financial results are subject to significant fluctuations depending on various factors, many of which are beyond our
control.
Our sales and operating results are expected
to vary significantly from quarter to quarter and year to year depending on various factors, many of which are beyond our control.
These factors include, but are not limited to:
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Seasonal consumer demand for our products; |
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Discretionary spending habits; |
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Changes in pricing in, or the availability of supply in, the powerboat market; |
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Failure to maintain a premium brand image; |
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Disruption in the operation of our manufacturing facilities; |
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Variations in the timing and volume of our sales; |
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The timing of our expenditures in anticipation of future sales; |
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Sales promotions by us and our competitors; |
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Changes in competitive and economic conditions generally; |
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Consumer preferences and competition for consumers’ leisure time; |
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Impact of unfavorable weather conditions; |
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Due to these and other factors, our results
of operations may decline quickly and significantly in response to changes in order patterns or rapid decreases in demand for our
products. We anticipate that fluctuations in operating results will continue in the future.
Unfavorable weather conditions may have
a material adverse effect on our business, financial condition, and results of operations, especially during the peak boating season.
Adverse weather conditions in any year in any
particular geographic region may adversely affect sales in that region, especially during the peak boating season. Sales of our
products are expected to be generally stronger just before and during spring and summer, which represent the peak boating months,
and favorable weather during these months generally has a positive effect on consumer demand. Conversely, unseasonably cool weather,
excessive rainfall, reduced rainfall levels, or drought conditions during these periods may close area boating locations or render
boating dangerous or inconvenient, thereby generally reducing consumer demand for our products. Our annual results would be materially
and adversely affected if our net sales were to fall below expected seasonal levels during these periods. We may also experience
more pronounced seasonal fluctuation in net sales in the future as we expand our businesses. There can be no assurance that weather
conditions will not have a material effect on the sales of any of our products.
A natural disaster, the effects of climate
change, or disruptions at our manufacturing facility could adversely affect our business, financial condition, and results of operations.
We currently rely on the continuous operation
of Twin Vee’s manufacturing facility in Fort Pierce, Florida for the production of our prototypes and expect such reliance
to continue until such time, if ever, that we build a new facility to manufacture our electric boats. Any natural disaster or other
serious disruption to Twin Vee’s facility or any new facility due to fire, flood, earthquake, or any other unforeseen circumstance
would adversely affect our business, financial condition, and results of operations. Changes in climate could adversely affect
our operations by limiting or increasing the costs associated with equipment or fuel supplies. In addition, adverse weather conditions,
such as increased frequency and/or severity of storms, or floods could impair our ability to operate by damaging the Twin Vee facilities
and equipment or restricting product delivery to customers. The occurrence of any disruption at any such manufacturing facility,
even for a short period of time, may have an adverse effect on our productivity and profitability, during and after the period
of the disruption. These disruptions may also cause personal injury and loss of life, severe damage to or destruction of property
and equipment, and environmental damage. Although we maintain property, casualty, and business interruption insurance of the types
and in the amounts that we believe are customary for the industry, we are not fully insured against all potential natural disasters
or other disruptions to our manufacturing facility.
If we fail to manage our manufacturing
levels while still addressing the seasonal retail pattern for our products, our business and margins may suffer.
The seasonality of retail demand anticipated
for our products, based upon sales of Twin Vee’s products, will require us to manage our manufacturing to address anticipated
retail demand. We will need to manage seasonal changes in consumer demand and inventory. If there is weakness in retail demand,
we could be required to reduce our production, resulting in lower rates of absorption of fixed costs in our manufacturing and,
therefore, lower margins. As a result, we will need to balance the economies of level production with the seasonal retail sales
pattern we experience. Failure to adjust manufacturing levels adequately may have a material adverse effect on our financial condition
and results of operations.
We will rely on third-party suppliers to
provide components and raw materials essential to the construction of our boats and anticipate such reliance to continue once we
commercialize our products.
We expect to depend on third-party suppliers
to provide components and raw materials essential to the construction of our boats. While we believe that we will leverage Twin
Vee’s relationships with its current suppliers to provide the materials necessary to meet production demand, we cannot assure
you that these relationships will continue or that the quantity or quality of materials available from these suppliers will be
sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy. We expect that our
need for raw materials and supplies will increase as we produce boats for sale. Our suppliers must be prepared to ramp up operations
and, in many cases, hire additional workers and/or expand capacity in order to fulfill the orders that will be placed by us and
other customers. Operational and financial difficulties that our suppliers may face in the future could adversely affect their
ability to supply us with the parts and components we need, which could significantly disrupt our operations.
Termination or interruption of informal
supply arrangements could have a material adverse effect on our business or results of operations.
Although Twin Vee has long term relationships
with many of its suppliers that are also our suppliers, neither we nor Twin Vee have any formal agreements with any suppliers for
the purchase of parts needed and our purchases currently are made on a purchase order basis. We have no binding commitment from
our suppliers to supply any specified quantity of materials needed within any specified time period. In the event that our suppliers
receive a large number of orders from other customers, there is a possibility that they will not be able to support our needs.
If any of our current suppliers were to be unable to provide needed products to us, there can be no assurance that alternate supply
arrangements will be made on satisfactory terms. If we need to enter into supply arrangements on unsatisfactory terms, or if there
are any delays to our supply arrangements, it could adversely affect our business and operating results.
Product liability, warranty, personal
injury, property damage and recall claims may materially affect our financial condition and damage our reputation.
We are engaged in a business that exposes us
to claims for product liability and warranty claims in the event our products actually or allegedly fail to perform as expected
or the use of our products results, or is alleged to result, in property damage, personal injury or death. Although we maintain
product and general liability insurance of the types and in the amounts that we believe are customary for the industry, we are
not fully insured against all such potential claims. Our products involve kinetic energy, produce physical motion and are to be
used on the water, factors which increase the likelihood of injury or death. Our products will contain lithium-ion batteries, which
have been known to catch fire or vent smoke and flame, and chemicals which are known to be, or could later be proved to be, toxic
or carcinogenic. Any judgment or settlement for personal injury or wrongful death claims could be more than our assets and, even
if not justified, could prove expensive to contest.
We may experience legal claims in excess of
our insurance coverage or claims that are not covered by insurance, either of which could adversely affect our business, financial
condition and results of operations. Adverse determination of material product liability and warranty claims made against us could
have a material adverse effect on our financial condition and harm our reputation. In addition, if any of our products or components
in our products are, or are alleged to be, defective, we may be required to participate in a recall of that product or component
if the defect or alleged defect relates to safety. Any such recall and other claims could be costly to us and require substantial
management attention.
Our boats will use of lithium-ion battery
cells, which, if not appropriately managed and controlled, have been observed to catch fire or vent smoke and flame.
The battery packs within our boats are being
designed to use of lithium-ion cells. If not properly managed or subject to environmental stresses, lithium-ion cells can rapidly
release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion
cells. While the battery pack is designed to contain any single cell’s release of energy without spreading to neighboring
cells, a field or testing failure of battery packs in our boats could occur, which could result in bodily injury or death and could
subject us to lawsuits, field actions (including product recalls), or redesign efforts, all of which would be time consuming and
expensive and could harm our brand image. Also, negative public perceptions regarding the suitability of lithium-ion cells for
boating applications, the social and environmental impacts of mineral mining or procurement associated with the constituents of
lithium-ion cells, or any future incident involving lithium-ion cells, such as a vehicle or other fire, could materially and adversely
affect our reputation and business, prospects, financial condition, results of operations, and cash flows.
Significant product repair and/or replacement
due to product warranty claims or product recalls could have a material adverse impact on our results of operations.
We expect to provide a hull warranty for structural
damage of up to ten years. In addition, we expect to provide a three-year limited fiberglass small parts warranty on all on some
small fiberglass parts and components such as consoles. Gelcoat is expected to be covered up to one year. Additionally, fiberglass
lids, plastic lids, electrical panels, bilge pumps, aerator pumps or other electrical devices (excluding stereos, depth finders,
radar, chart plotters except for installation if installed by us), steering systems, electrical panels, and pumps are covered under
a one-year basic limited systems warranty. Some materials, components or parts of the boat that will not be covered by our limited
product warranties will be separately warranted by their manufacturers or suppliers. These other warranties are expected to include
warranties covering engines purchased from suppliers and other components. We also expect to offer to provide repairs for no additional
cost as part of our new direct to consumer system.
Our standard warranties will require us to
repair or replace defective products during such warranty periods at no cost to the consumer. Although we will employ quality control
procedures, sometimes a product is distributed that needs repair or replacement. The repair and replacement costs we could incur
in connection with a recall could adversely affect our business. In addition, product recalls could harm our reputation and cause
us to lose customers, particularly if recalls cause consumers to question the safety or reliability of our products.
The nature of our business exposes us
to workers’ compensation claims and other workplace liabilities.
Certain materials we use require our employees
to handle potentially hazardous or toxic substances. While our employees who handle these and other potentially hazardous or toxic
materials receive specialized training and wear protective clothing, there is still a risk that they, or others, may be exposed
to these substances. Exposure to these substances could result in significant injury to our employees and damage to our property
or the property of others, including natural resource damage. Our personnel are also at risk for other workplace-related injuries,
including slips and falls. We may in the future be subject to fines, penalties, and other liabilities in connection with any such
injury or damage. Although we currently maintain what we believe to be suitable and adequate insurance in excess of our self-insured
amounts, we may be unable to maintain such insurance on acceptable terms or such insurance may not provide adequate protection
against potential liabilities.
If we are unable to comply with environmental
and other regulatory requirements, our business may be exposed to material liability and/or fines.
Our operations are subject to extensive and
frequently changing federal, state, local, and foreign laws and regulations, including those concerning product safety, environmental
protection, and occupational health and safety. Some of these laws and regulations require us to obtain permits and limit our ability
to discharge hazardous materials into the environment. If we fail to comply with these requirements, we may be subject to civil
or criminal enforcement actions that could result in the assessment of fines and penalties, obligations to conduct remedial or
corrective actions, or, in extreme circumstances, revocation of our permits or injunctions preventing some or all of our operations.
In addition, the components of our boats must meet certain regulatory standards, including stringent air emission standards for
boat engines. Failure to meet these standards could result in an inability to sell our boats in key markets, which would adversely
affect our business. Moreover, compliance with these regulatory requirements could increase the cost of our products, which in
turn, may reduce consumer demand.
While we believe that we are in material compliance
with applicable federal, state, local, and foreign regulatory requirements, and hold all licenses and permits required thereunder,
we cannot assure you that we will, at all times, be able to continue to comply with applicable regulatory requirements. Compliance
with increasingly stringent regulatory and permit requirements may, in the future, cause us to incur substantial capital costs
and increase our cost of operations, or may limit our operations, all of which could have a material adverse effect on our business
or financial condition.
As with most boat construction businesses,
our manufacturing processes involve the use, handling, storage, and contracting for recycling or disposal of hazardous substances
and wastes. The failure to manage or dispose of such hazardous substances and wastes properly could expose us to material liability
or fines, including liability for personal injury or property damage due to exposure to hazardous substances, damages to natural
resources, or for the investigation and remediation of environmental conditions. Under environmental laws, we may be liable for
remediation of contamination at sites where our hazardous wastes have been disposed or at our current facility, regardless of whether
our facility is owned or leased or whether the environmental conditions were created by us, a prior owner or tenant, or a third-party.
While we do not believe that we are presently subject to any such liabilities, we cannot assure you that environmental conditions
relating to our prior, existing, or future sites or operations or those of predecessor companies will not have a material adverse
effect on our business or financial condition.
We will be dependent upon OneWater for
direct distribution of our boats.
On August 17, 2022,
we entered into a five-year agreement with OneWater to establish our customer experience and service centers in OneWater’s
current and future locations and other strategic locations across the United States pursuant to which OneWater will be the sole
dealer distributing our products and OneWater’s retail locations may be used as potential delivery points for customers to
pick up our products. During the terms of the agreement, we will be dependent for sales of our boats on the efforts of OneWater,
over which we have no control. OneWater will also distribute other boats and not just our boats
and therefore we will be competing for One Water customers. In addition, any negative publicity regarding OneWater could have a
negative effect upon our sales.
The electronic vehicle (EV) industry
and its technology are rapidly evolving and may be subject to unforeseen changes which could adversely affect the demand for our
boats or increase our operating costs.
We may be unable to keep up with changes in
EV technology or alternatives to electricity as a fuel source and, as a result, our competitiveness may suffer. Developments in
alternative technologies, such as advanced diesel, hydrogen, ethanol, fuel cells, or compressed natural gas, or improvements in
the fuel economy of the internal combustion engine or the cost of gasoline, may materially and adversely affect our business and
prospects in ways we do not currently anticipate. Existing and other battery cell technologies, fuels or sources of energy may
emerge as customers’ preferred alternative to our boats. Any failure by us to develop new or enhanced technologies or processes,
or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced alternative
fuel and EVs, which could result in the loss of competitiveness of our boats, decreased revenue and a loss of market share to competitors.
Our research and development efforts may not be sufficient to adapt to changes in alternative fuel and electric vehicle technology.
As technologies change, we plan to upgrade or adapt our boats with the latest technology. However, our boats may not compete effectively
with alternative systems if we are not able to source and integrate the latest technology into our boats. Additionally, the introduction
and integration of new technologies into our boats may increase our costs and capital expenditures required for the production
and manufacture of our boats and, if we are unable to cost efficiently implement such technologies or adjust our manufacturing
operations, our business, prospects, financial condition, results of operations, and cash flows would be materially and adversely
affected.
Our sales and profitability depend, in
part, on the successful introduction of new products.
Market acceptance of our products will depend
on our technological innovation and our ability to implement technology in our boats. Our sales and profitability may be adversely
affected by difficulties or delays in product development, such as an inability to develop viable or innovative new products or
to add new features. Our failure to introduce new technologies and product offerings that consumers desire could adversely affect
our business, financial condition, and results of operations. If we fail to introduce new features or those we introduce fail to
gain market acceptance, our bottom line may suffer.
If we experience delays in the development
of our fully electric sport boat, fail to bring the FX1 to market as and when planned or if it fails to gain market acceptance,
our bottom line will suffer.
In addition, some of our direct competitors
and indirect competitors may have significantly more resources to develop and patent new technologies. It is possible that our
competitors will develop and patent equivalent or superior technologies and other products that compete with ours. They may assert
these patents against us and we may be required to license these patents on unfavorable terms or cease using the technology covered
by these patents, either of which would harm our competitive position and may materially adversely affect our business.
We also cannot be certain that our products
or features have not infringed or will not infringe the proprietary rights of others. Any such infringement could cause third parties,
including our competitors, to bring claims against us, resulting in significant costs and potential damages.
Our success depends upon the continued
strength of our brand, the value of our brand, and sales of our products could be diminished if we, the consumers who use our products,
or the sports and activities in which our products are used are associated with negative publicity.
We believe that our brand will be a significant
contributor to the success of our business and that maintaining and enhancing our brand is important to expanding our consumer
and dealer base. Failure to continue to protect our brand may adversely affect our business, financial condition, and results of
operations. We expect that our ability to develop, maintain and strengthen the Forza X1 brand will also depend heavily on the success
of our marketing efforts. To further promote our brand, we may be required to change our marketing practices, which could result
in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print.
Many of our current and potential competitors have greater name recognition, broader customer relationships and substantially greater
marketing resources than we do. If we do not develop and maintain strong brands, our business, prospects, financial condition and
operating results will be materially and adversely impacted.
Negative publicity, including that resulting
from severe injuries or death occurring in the sports and activities in which our products are used, could negatively affect our
reputation and result in restrictions, recalls, or bans on the use of our products. If the popularity of the sports and activities
for which we design, manufacture, and sell products were to decrease as a result of these risks or any negative publicity, sales
of our products could decrease, which could have an adverse effect on our net sales, profitability, and operating results. In addition,
if we become exposed to additional claims and litigation relating to the use of our products, our reputation may be adversely affected
by such claims, whether or not successful, including by generating potential negative publicity about our products, which could
adversely impact our business and financial condition.
Our passion and focus on delivering a
high-quality and engaging Forza X1 experience may not maximize short-term financial results, which may yield results that conflict
with the market’s expectations and could result in our stock price being negatively affected.
We are passionate about enhancing the Forza
X1 experience with a focus on driving long-term customer engagement through innovative, technologically advanced boats, which may
not necessarily maximize short-term financial results. We frequently make business decisions that may reduce our short-term financial
results if we believe that the decisions are consistent with our goals to improve the Forza X1 experience, which we believe will
improve our financial results over the long-term. In the near-term, we will focus significant resources on research and development
and sales and marketing to deliver the Forza experience to our customers, which could impact our short-term financial results.
These decisions may not be consistent with the short-term expectations of our stockholders and may not produce the long-term benefits
that we expect, in which case our customer growth, and our business, prospects, financial condition, results of operations, and
cash flows could be harmed.
Extended periods of low gasoline or other
petroleum-based fuel prices could adversely affect demand for our boats, which would adversely affect our business, prospects,
results of operations and financial condition.
A portion of the current and expected demand
for electric vehicles results from concerns about volatility in the cost of gasoline and other petroleum-based fuel, the dependency
of the United States on oil from unstable or hostile countries, government regulations and economic incentives promoting fuel efficiency
and alternative forms of energy, as well as concerns about climate change resulting in part from the burning of fossil fuels. If
the cost of gasoline and other petroleum-based fuel decreases significantly, the outlook for the long-term supply of oil to the
United States improves, the government eliminates or modifies its regulations or economic incentives related to fuel efficiency
and alternative forms of energy or there is a change in the perception that the burning of fossil fuels negatively impacts the
environment, the demand for electric vehicles, including our boats, could be reduced, and our business and revenue may be harmed.
Gasoline and other petroleum-based fuel prices
have historically been extremely volatile, particularly during the ongoing COVID-19 pandemic, and it is difficult to ascertain
whether such volatility will continue to persist. Lower gasoline or other petroleum-based fuel prices over extended periods of
time may lower the perception in government and the private sector that cheaper, more readily available energy alternatives should
be developed and produced. If gasoline or other petroleum-based fuel prices remain at deflated levels for extended periods of time,
the demand for electric vehicles, including our boats, may decrease, which would have an adverse effect on our business, prospects,
financial condition and results of operations.
We will rely on complex machinery for
our operations, and production involves a significant degree of risk and uncertainty in terms of operational performance, safety,
security, and costs.
We expect to rely heavily on complex machinery
for our operations and our production will involve a significant degree of uncertainty and risk in terms of operational performance,
safety, security, and costs. Twin Vee’s manufacturing plant consists of large-scale machinery combining many components.
The manufacturing plant components are likely to suffer unexpected malfunctions from time to time and will depend on repairs and
spare parts to resume operations, which may not be available when needed. Unexpected malfunctions of the manufacturing plant components
may significantly affect operational efficiency. Operational performance and costs can be difficult to predict and are often influenced
by factors outside of our control, such as, but not limited to, scarcity of natural resources, environmental hazards and remediation,
costs associated with decommissioning of machines, labor disputes and strikes, difficulty or delays in obtaining governmental permits,
damages or defects in electronic systems, industrial accidents, pandemics, fire, seismic activity, and natural disasters. Should
operational risks materialize, it may result in the personal injury to or death of workers, the loss of production equipment, damage
to manufacturing facilities, products, supplies, tools and materials, monetary losses, delays and unanticipated fluctuations in
production, environmental damage, administrative fines, increased insurance costs, and potential legal liabilities, all which could
have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows. Although
we generally carry insurance to cover such operational risks, we cannot be certain that our insurance coverage will be sufficient
to cover potential costs and liabilities arising therefrom. A loss that is uninsured or exceeds policy limits may require us to
pay substantial amounts, which could adversely affect our business, prospects, financial condition, results of operations, and
cash flows.
If our boats fail to perform as expected,
our ability to develop, market and sell or lease our products could be harmed.
Once commercialization commences, our boats
may contain defects in design and manufacture that may cause them not to perform as expected or that may require repairs, recalls,
and design changes, any of which would require significant financial and other resources to successfully navigate and resolve.
Our boats will use a substantial amount of software code to operate, and software products are inherently complex and may contain
defects and errors when first introduced. If our boats contain defects in design and manufacture that cause them not to perform
as expected or that require repair, or certain features of our boats take longer than expected to become available, are legally
restricted or become subject to additional regulation, our ability to develop, market and sell our products and services could
be harmed. Although we will attempt to remedy any issues we observe in our products as effectively and rapidly as possible, such
efforts could significantly distract management’s attention from other important business objectives, may not be timely,
may hamper production or may not be to the satisfaction of our customers. Further, our limited operating history and limited field
data reduce our ability to evaluate and predict the long-term quality, reliability, durability and performance characteristics
of our battery packs, powertrains and boats. There can be no assurance that we will be able to detect and fix any defects in our
products prior to their sale or lease to customers.
Any defects, delays or legal restrictions on
boat features, or other failure of our boats to perform as expected, could harm our reputation and result in delivery delays, product
recalls, product liability claims, breach of warranty claims and significant warranty and other expenses, and could have a material
adverse impact on our business, results of operations, prospects and financial condition. As a new entrant to the industry attempting
to build customer relationships and earn trust, these effects could be significantly detrimental to us. Additionally, problems
and defects experienced by other electric consumer vehicles could by association have a negative impact on perception and customer
demand for our boats.
In addition, even if our boats function as
designed, we expect that the battery efficiency, and hence the range, of our electric boats, like other electric vehicles that
use current battery technology, will decline over time. Other factors, such as usage, time and stress patterns, may also impact
the battery’s ability to hold a charge, or could require us to limit boat battery charging capacity, including via over-the-air
or other software updates, for safety reasons or to protect battery capacity, which could further decrease our boats’ range
between charges. Such decreases in or limitations of battery capacity and therefore range, whether imposed by deterioration, software
limitations or otherwise, could also lead to consumer complaints or warranty claims, including claims that prior knowledge of such
decreases or limitations would have affected consumers’ purchasing decisions. Further, there can be no assurance that we
will be able to improve the performance of our battery packs, or increase our boats range, in the future. Any such battery deterioration
or capacity limitations and related decreases in range may negatively influence potential customers’ willingness to purchase
our boats and negatively impact our brand and reputation, which could adversely affect our business, prospects, results of operations
and financial condition.
Our boats will rely on software and hardware
that is highly technical, and if these systems contain errors, bugs, vulnerabilities, or design defects, or if we are unsuccessful
in addressing or mitigating technical limitations in our systems, our business could be adversely affected.
Our boats are expected to rely on software
and hardware that is highly technical and complex and may require modification and updates over the life of the boats. In addition,
our boats will depend on the ability of such software and hardware to store, retrieve, process and manage large amounts of data.
Our software and hardware may contain errors, bugs, vulnerabilities or design defects, and our systems are subject to certain technical
limitations that may compromise our ability to meet our objectives. Some errors, bugs, vulnerabilities, or design defects inherently
may be difficult to detect and may only be discovered after the code has been released for external or internal use. Although we
will attempt to remedy any issues we observe in our boats effectively and rapidly, such efforts may not be timely, may hamper production
or may not be to the satisfaction of our customers.
Additionally, if we deploy updates to the software
(whether to address issues, deliver new features or make desired modifications) and our over-the-air update procedures fail to
properly update the software or otherwise have unintended consequences to the software, the software within our customers’
boats will be subject to vulnerabilities or unintended consequences resulting from such failure of the over-the-air update until
properly addressed.
If we are unable to prevent or effectively
remedy errors, bugs, vulnerabilities or defects in our software and hardware, or fail to deploy updates to our software properly,
we would suffer damage to our reputation, loss of customers, loss of revenue or liability for damages, any of which could adversely
affect our business, prospects, financial condition, results of operations, and cash flows.
We have no experience servicing our boats.
If we are unable to adequately service our boats, our business, prospects, financial condition and results of operations may be
materially and adversely affected.
Because we have not begun commercial production
of the FX1, we have no experience servicing or repairing our electric boats. Servicing electric vehicles is different than servicing
vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques.
In addition, we plan to partner with certain third parties, such as we have with OneWater, to perform some of the service on our
vehicles, and there can be no assurance that we will be able to enter into acceptable arrangements with any such third-party providers.
Further, although such servicing partners may have experience in servicing other electric vehicles, they will initially have no
experience in servicing our boats. There can be no assurance that our service arrangements will adequately address the service
requirements of our customers to their satisfaction, or that we and our servicing partners will have sufficient resources, experience
or inventory to meet these service requirements in a timely manner as the volume of boats we deliver increases. This risk is enhanced
by our limited operating history and our limited data regarding our boats’ real-world reliability and service requirements.
In addition, if we are unable to roll out and establish a widespread service network that provides satisfactory customer service,
our customer loyalty, brand and reputation could be adversely affected, which in turn could materially and adversely affect our
sales, results of operations, prospects and financial condition.
Our customers will also depend on our customer
support team to resolve technical and operational issues relating to the integrated software underlying our boats, a large portion
of which we have developed in-house. As we grow, additional pressure may be placed on our customer support team or partners, and
we may be unable to respond quickly enough to accommodate short-term increases in customer demand for technical support. We also
may be unable to modify the future scope and delivery of our technical support to compete with changes in the technical support
provided by our competitors. Increased customer demand for support, without corresponding revenue, could increase costs and negatively
affect our results of operations. If we are unable to successfully address the service requirements of our customers, or if we
establish a market perception that we do not maintain high-quality support, our brand and reputation could be adversely affected,
and we may be subject to claims from our customers, which could result in loss of revenue or damages, and our business, results
of operations, prospects and financial condition could be materially and adversely affected.
We may not be able to execute our manufacturing
strategy successfully, which could cause the profitability of our products to suffer.
Our manufacturing strategy is designed to improve
product quality and increase productivity, while reducing costs and increasing flexibility to respond to ongoing changes in the
marketplace. To implement this strategy, we must be successful in our continuous improvement efforts, which depend on the involvement
of management, production employees, and suppliers. Any inability to achieve these objectives could adversely impact the profitability
of our products and our ability to deliver desirable products to our consumers.
We may need to raise additional capital that may be required
to grow our business, and we may not be able to raise capital on terms acceptable to us or at all.
Operating our business
and maintaining our growth efforts will require significant cash outlays and advance capital expenditures and commitments. Our
current plans also involve constructing a 100,000 square foot state-of-the-art manufacturing facility dedicated to developing and
manufacturing our FX series electric boats, the cost of which is uncertain. Although the proceeds of our IPO should be sufficient
to fund our operations, if cash on hand and cash generated from operations and from the IPO are not sufficient to meet our cash
requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our growth. We cannot
assure you that we will be able to raise needed cash on terms acceptable to us or at all. Financings 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 shareholders. 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.
If we fail to manage future growth effectively,
we may not be able to market or sell our products successfully.
Any failure to manage our growth effectively
could materially and adversely affect our business, prospects, operating results and financial condition. We plan to expand our
operations in the near future. Our future operating results depend to a large extent on our ability to manage this expansion and
growth successfully. Risks that we face in undertaking this expansion include:
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expanding our management team; |
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hiring and training new personnel; |
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forecasting production and revenue; |
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expanding our marketing efforts; |
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controlling expenses and investments in anticipation of expanded operations; |
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establishing or expanding design, manufacturing, sales and service facilities; |
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implementing and enhancing administrative infrastructure, systems and processes; and |
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expanding into new markets and establishing sales, service and manufacturing operations in such markets. |
We intend to continue to hire a number of additional
personnel, including design and manufacturing personnel and service technicians for our electric boats and powertrains. Competition
for individuals with experience designing, manufacturing and servicing electric boats is intense, and we may not be able to attract,
assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate
and retain these additional employees could seriously harm our business and prospects.
We depend upon our executive officers,
and we may not be able to retain them and their knowledge of our business and technical expertise would be difficult to replace.
Our future success will depend in significant
part upon the continued service of our executive officers. We cannot assure you that we will be able to continue to attract or
retain such persons. We do not have an insurance policy on the life of our Executive Chairman or our President and Chief Executive
Officer, and we do not have “key person” life insurance policies for any of our other officers or advisors. The loss
of the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product
development, loss of customers and sales and diversion of management resources, which could adversely affect our operating results.
We may attempt to grow our business through
acquisitions or strategic alliances and new partnerships, which we may not be successful in completing or integrating.
We may in the future enter into acquisitions
and strategic alliances that will enable us to acquire complementary skills and capabilities, offer new products, expand our consumer
base, enter new product categories or geographic markets, and obtain other competitive advantages. We cannot assure you, however,
that we will identify acquisition candidates or strategic partners that are suitable to our business, obtain financing on satisfactory
terms, complete acquisitions or strategic alliances, or successfully integrate acquired operations into our existing operations.
Once integrated, acquired operations may not achieve anticipated levels of sales or profitability, or otherwise perform as expected.
Acquisitions also involve special risks, including risks associated with unanticipated challenges, liabilities and contingencies,
and diversion of management attention and resources from our existing operations. Similarly, our partnership with leading franchises
from other industries to market our products or with third-party technology providers to introduce new technology to the market
may not achieve anticipated levels of consumer enthusiasm and acceptance, or achieve anticipated levels of sales or profitability,
or otherwise perform as expected.
We rely on network and information systems
and other technologies for our business activities and certain events, such as computer hackings, viruses or other destructive
or disruptive software or activities may disrupt our operations, which could have a material adverse effect on our business, financial
condition and results of operations.
Network and information systems and other technologies
are important to our business activities and operations. Network and information systems-related events, such as computer hackings,
cyber threats, security breaches, viruses, or other destructive or disruptive software, process breakdowns or malicious or other
activities could result in a disruption of our services and operations or improper disclosure of personal data or confidential
information, which could damage our reputation and require us to expend resources to remedy any such breaches. Moreover, the amount
and scope of insurance we maintain against losses resulting from any such events or security breaches may not be sufficient to
cover our losses or otherwise adequately compensate us for any disruptions to our businesses that may result, and the occurrence
of any such events or security breaches could have a material adverse effect on our business and results of operations. The
risk of these systems-related events and security breaches occurring has intensified, in part because we maintain certain information
necessary to conduct our businesses in digital form stored on cloud servers. While we intend to develop and maintain systems seeking
to prevent systems-related events and security breaches from occurring, the development and maintenance of these systems is costly
and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated.
Despite these efforts, there can be no assurance that disruptions and security breaches will not occur in the future. Moreover,
we may provide certain confidential, proprietary and personal information to third parties in connection with our businesses, and
while we obtain assurances that these third parties will protect this information, there is a risk that this information may be
compromised.
Likewise, data privacy breaches by employees
or others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to
the public. While we have invested in protection of data and information technology, there can be no assurance that our efforts
will prevent breakdowns or breaches in our systems that could adversely affect our business. The occurrence of any of such network
or information systems-related events or security breaches could have a material adverse effect on our business, financial condition
and results of operations.
Uninsured losses could result in payment
of substantial damages, which would decrease our cash reserves and could harm our cash flow and financial condition.
In the ordinary course of business, we may
be subject to losses resulting from product liability, accidents, acts of God and other claims against us, for which we may have
no insurance coverage. While we currently carry commercial general liability, commercial boat liability, excess liability, product
liability, cybersecurity, crime, special crime, drone, cargo stock throughput, builder’s risk, owner controlled insurance
program, property, owners protective, workers’ compensation, employment practices, employed lawyers, production, fiduciary
liability and directors’ and officers’ insurance policies, we may not maintain as much insurance coverage as other
original equipment manufacturers do, and in some cases, we may not maintain any at all. Additionally, the policies that we have
may include significant deductibles, and we cannot be certain that our insurance coverage will be sufficient to cover all or any
future claims against us. A loss that is uninsured or exceeds policy limits may require us to pay substantial amounts, which could
adversely affect our financial condition and results of operations. Further, insurance coverage may not continue to be available
to us or, if available, may be at a significantly higher cost, especially if insurance providers perceive any increase in our risk
profile in the future.
Intellectual Property Risks
Our patent applications may not issue
as patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar
to ours.
We cannot be certain
that we are the first inventor of the subject matter to which we have filed a particular patent application, or that we are the
first party to file such a patent application. If another party has filed a patent application for the same subject matter as we
have, we may not be entitled to the protection sought by the patent application. Further, the scope of protection of issued patent
claims is often difficult to determine. As a result, we cannot be certain that the patent applications that we file will issue,
or that our issued patents will afford protection against competitors with similar technology. In addition, our competitors may
design around our issued patents, which may adversely affect our business, prospects, financial condition, results of operations,
and cash flows.
We may not be
able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We may not be able
to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position. We
rely on a combination of patent, trade secret (including those in our know-how), and other intellectual property laws,
as well as employee and third-party nondisclosure agreements, intellectual property licenses, and other contractual rights to establish
and protect our rights in our technology and intellectual property. Our patent or trademark applications may not be granted, any
patents or trademark registrations that may be issued to us may not sufficiently protect our intellectual property and any of our
issued patents, trademark registrations or other intellectual property rights may be challenged by third parties. Any of these
scenarios may result in limitations in the scope of our intellectual property or restrictions on our use of our intellectual property
or may adversely affect the conduct of our business. Despite our efforts to protect our intellectual property rights, third parties
may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe
upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and the
steps we have taken or will take to prevent misappropriation may not be successful. From time to time, we may have to resort to
litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.
Patent, trademark,
and trade secret laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property
rights to the same extent as do the laws of the United States. Therefore, our intellectual property rights may not be as strong
or as easily enforced outside of the United States. Failure to adequately protect our intellectual property rights could result
in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease
in our revenue which would adversely affect our business, prospects, financial condition, results of operations, and cash flows.
If our patents
expire or are not maintained, our patent applications are not granted or our patent rights are contested, circumvented, invalidated
or limited in scope, we may not be able to prevent others from selling, developing or exploiting competing technologies or products,
which could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows.
We cannot assure you
that our pending applications will issue as patents. Even if our patent applications issue into patents, these patents may be contested,
circumvented or invalidated in the future. In addition, the rights granted under any issued patents may not provide us with adequate
protection or competitive advantages. The claims under any patents that issue from our patent applications may not be broad enough
to prevent others from developing technologies that are similar or that achieve results similar to ours. The intellectual property
rights of others could also bar us from licensing and exploiting any patents that issue from our pending applications. Numerous
patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology.
Many of these existing patents and patent applications might have priority over our patent applications and could subject our patents
to invalidation or our patent applications to rejection. Finally, in addition to patents and patent applications that were filed
before our patents and patent applications, any of our existing or future patents may also be challenged by others on the basis
that they are invalid or unenforceable.
We may in the
future become, subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’
former employers.
Many of our employees
were previously employed by other companies with similar or related technology, products or services. We are, and may in the future
become, subject to claims that we or these employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary
information of former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims,
we may be forced to pay monetary damages or be enjoined from using certain technology, products, services or knowledge. Even if
we are successful in defending against these claims, litigation could result in substantial costs and demand on management resources.
Our use of open
source software in our applications could subject our proprietary software to general release, adversely affect our ability to
sell our services and subject us to possible litigation, claims or proceedings.
We plan to use open
source software in connection with the development and deployment of our products and services. Companies that use open source
software in connection with their products have, from time to time, faced claims challenging the use of open source software and/or
compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe
to be open source software or claiming noncompliance with open source licensing terms. Some open source software licenses may require
users who distribute proprietary software containing or linked to open source software to publicly disclose all or part of the
source code to such proprietary software and/or make available any derivative works of the open source code under the same open
source license, which could include proprietary source code. In such cases, the open source software license may also restrict
us from charging fees to licensees for their use of our software. While we will monitor the use of open source software and try
to ensure that open source software is not used in a manner that would subject our proprietary source code to these requirements
and restrictions, such use could inadvertently occur, in part because open source license terms are often ambiguous and have generally
not been interpreted by U.S. or foreign courts.
Further, in addition
to risks related to license requirements, use of certain open source software carries greater technical and legal risks than does
the use of third-party commercial software. For example, open source software is generally provided as-is without any
support or warranties or other contractual protections regarding infringement or the quality of the code, including the existence
of security vulnerabilities. To the extent that our platform depends upon the successful operation of open source software, any
undetected errors or defects in open source software that we use could prevent the deployment or impair the functionality of our
systems and injure our reputation. In addition, the public availability of such software may make it easier for attackers to target
and compromise our platform through cyber-attacks. Any of the foregoing risks could materially and adversely affect our business,
prospects, financial condition, results of operations, and cash flows.
A significant
portion of our intellectual property is not protected through patents or formal copyright registration. As a result, we do not
have the full benefit of patent or copyright laws to prevent others from replicating our products, product candidates and brands.
We have not protected
certain of our intellectual property rights through patents or formal copyright registration, and we do not currently have any
issued patents and only have three design and four utility patent applications that we filed for, among other things, our propulsion
system being developed and boat design. There can be no assurance that any patent will issue or if issued that the patent will
protect our intellectual property. As a result, we may not be able to protect our intellectual property and trade secrets or prevent
others from independently developing substantially equivalent proprietary information and techniques or from otherwise gaining
access to our intellectual property or trade secrets. In such an instance, our competitors could produce products that are nearly
identical to ours resulting in us selling less products or generating less revenue from our sales.
Confidentiality agreements with employees
and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We rely on trade secrets, know-how and technology,
which are not protected by patents, to protect the intellectual property behind our electric powertrain and for the construction
of our boats. We have recently begun to use confidentiality agreements with our collaborators, employees, consultants, outside
collaborators and other advisors to protect our proprietary technology and processes. We intend to use such agreements in the future,
but these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy
in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets
and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade
secret protection could adversely affect our competitive business position.
We may need to defend ourselves against patent, copyright
or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
The status of the
protection of our intellectual property is unsettled as we do not have any issued patents, registered trademarks or registered
copyrights and other than three design, five utility and two full non-provisional patent applications,
we have not applied for the same. Companies, organizations or individuals, including our competitors, may hold or obtain patents,
trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market
our powerboats and electric powertrains or use third-party components, which could make it more difficult for us to operate our
business. In the future, we may receive communications from third parties that allege our products or components thereof are covered
by their patents or trademarks or other intellectual property rights, we have not received any communication of this kind to date.
Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise
assert their rights. If we are determined to have infringed upon a third-party’s intellectual property rights, we may be
required to do one or more of the following:
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cease making, using, selling or offering to sell processes, goods or services that incorporate or use the third-party intellectual property; |
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pay substantial damages; |
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seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; |
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redesign our boats or other goods or services to avoid infringing the third-party intellectual property; |
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establish and maintain alternative branding for our products and services; or |
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find-third providers of any part or service that is the subject of the intellectual property claim. |
In the event of a successful claim of infringement
against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our
business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation
or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management
attention.
Risks Related to Our Industry
Demand in the powerboat industry is highly
volatile.
Volatility of demand in the powerboat industry,
especially for recreational powerboats and electric powerboats, may materially and adversely affect our business, prospects, operating
results and financial condition. The markets in which we will be competing have been subject to considerable volatility in demand
in recent periods. Demand for recreational powerboats depends to a large extent on general, economic and social conditions in a
given market. Historically, sales of recreational powerboats decrease during economic downturns. We have fewer financial resources
than more established powerboat manufacturers to withstand adverse changes in the market and disruptions in demand.
Our industry is characterized by intense
competition, which affects our sales and profits.
The performance sport boat category and the
powerboat industry as a whole are highly competitive for consumers and dealers. We also compete against consumer demand for used
boats. Competition affects our ability to succeed in both the markets we currently plan to serve and new markets that we may enter
in the future. Competition is based primarily on brand name, price, product selection, and product performance. We will compete
with several large manufacturers that may have greater financial, marketing, and other resources than we do and who are represented
by dealers in the markets in which we now operate and into which we plan to expand. We also will compete with a variety of small,
independent manufacturers. In addition, when marketing our boats through OneWater, we will compete with other boats marketing by
OneWater. We cannot assure you that we will not face greater competition from existing large or small manufacturers or that we
will be able to compete successfully with new competitors. Our failure to compete effectively with our current and future competitors
would adversely affect our business, financial condition, and results of operations.
General economic conditions, particularly
in the U.S., affect our industry, demand for our products and our business, and results of operations.
Demand for premium boat brands has been significantly
influenced by weak economic conditions, low consumer confidence, high unemployment, and increased market volatility worldwide,
especially in the U.S. In times of economic uncertainty and contraction, consumers tend to have less discretionary income and tend
to defer or avoid expenditures for discretionary items, such as our products. Sales of our products are highly sensitive to personal
discretionary spending levels. Our business is cyclical in nature and its success is impacted by economic conditions, the overall
level of consumer confidence and discretionary income levels. Any substantial deterioration in general economic conditions that
diminishes consumer confidence or discretionary income may reduce our sales and materially adversely affect our business, financial
condition and results of operations. We cannot predict the duration or strength of an economic recovery, either in the U.S. or
in the specific markets where we sell our products. Corporate restructurings, layoffs, declines in the value of investments and
residential real estate, higher gas prices, higher interest rates, and increases in federal and state taxation may each materially
adversely affect our business, financial condition, and results of operations.
Consumers often finance purchases of our products.
Although consumer credit markets have improved, consumer credit market conditions continue to influence demand, especially for
boats, and may continue to do so. There continue to be fewer lenders, tighter underwriting and loan approval criteria, and greater
down payment requirements than in the past. If credit conditions worsen, and adversely affect the ability of consumers to finance
potential purchases at acceptable terms and interest rates, it could result in a decrease in the sales of our products.
The uncertain financial markets, disruptions
in supply chains, mobility restraints, and changing priorities as well as volatile asset values could impact our business in the
future. The COVID-19 outbreak and government measures taken in response to the pandemic have also had a significant impact, both
direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities
and production have been suspended; and demand for certain goods and services, such as medical services and supplies, have spiked,
while demand for other goods and services, such as travel, have fallen. The future progression of the pandemic and its effects
on our business and operations are uncertain. In addition, the outbreak of a pandemic could disrupt our operations due to
absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees
who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines.
Pandemics could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees
of directors and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct
meetings for the management of our affairs.
Further, due to increasing inflation, operating
costs for many businesses including ours have increased and, in the future, could impact demand or pricing manufacturing of our
drug candidates or services providers, foreign exchange rates or employee wages. Inflation rates, particularly in the United
States, have increased recently to levels not seen in years, and increased inflation may result in increases in our operating costs
(including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital. In addition,
the Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with
reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty
and heightening these risks.
Actual events involving reduced or limited
liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the
financial services industry or the financial services industry generally or concerns or rumors about any events of these kinds,
have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank,
was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation
as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, uncertainty and
liquidity concerns in the broader financial services industry remain and the failure of Silicon Valley Bank and its potential near-
and long-term effects on the biotechnology industry and its participants such as our vendors, suppliers, and investors, may also
adversely affect our operations and stock price.
We are actively monitoring the effects these
disruptions and increasing inflation could have on our operations.
These conditions make it extremely difficult
for us to accurately forecast and plan future business activities.
Global economic
conditions could materially adversely impact demand for our products and services.
Our operations and
performance depend significantly on economic conditions. Global financial conditions continue to be subject to volatility arising
from international geopolitical developments and global economic phenomenon, as well as general financial market turbulence, including
a significant recent market reaction to the novel coronavirus (COVID-19), resulting in a significant reduction in many major market
indices. Uncertainty about global economic conditions could result in material adverse effects on our business, results of operations
or financial condition. Access to public financing and credit can be negatively affected by the effect of these events on U.S.
and global credit markets. The health of the global financing and credit markets may affect our ability to obtain equity or debt
financing in the future and the terms at which financing, or credit is available to us. These instances of volatility and market
turmoil could adversely affect our operations and the trading price of our common shares resulting in.
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customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services; and |
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third-party suppliers being unable to produce parts and components for our products in the same quantity or on the same timeline or being unable to deliver such parts and components as quickly as before or subject to price fluctuations, which could have a material adverse effect on our production or the cost of such production. |
Our sales may be adversely impacted by
increased consumer preference for other leisure activities or used boats or the supply of new boats by competitors in excess of
demand.
Our boats are not necessities and in times
of economic hardship, consumers may cease purchasing non-essential items. Demand for our boats may be adversely affected by competition
from other activities that occupy consumers’ leisure time and by changes in consumer lifestyle, usage pattern or taste. Similarly,
an overall decrease in consumer leisure time may reduce consumers’ willingness to purchase and enjoy our boats.
During the economic downturn that commenced
in 2008, for example, there was a shift in consumer demand toward purchasing more used boats, primarily because prices for used
boats are typically lower than retail prices for new boats. If this were to occur again, it could have the effect of reducing demand
among retail purchasers for our new boats. Also, while we have balanced production volumes for our boats to meet demand, our competitors
could choose to reduce the price of their products, which could have the effect of reducing demand for our new boats. Reduced demand
for new boats could lead to reduced sales by us, which could adversely affect our business, results of operations, and financial
condition.
Risks Relating to Ownership of our Common
Stock
Terms of subsequent financings may adversely
impact your investment.
We may have to engage in common equity, debt,
or preferred stock financing in the future. Stockholders’ rights and the value of any investment in our securities could
be reduced. Interest on debt securities could increase costs and negatively impacts operating results. Preferred stock could be
issued in series from time to time with such designation, rights, preferences, and limitations as needed to raise capital. The
terms of preferred stock could be more advantageous to those investors than to the holders of common shares. In addition, if we
need to raise more equity capital from the sale of common shares, institutional or other investors may negotiate terms at least
as, and possibly more, favorable than the terms of your investment. Common shares which we sell could be sold into any market which
develops, which could adversely affect the market price and could result in dilution to existing shareholders.
Future sales
and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans and outstanding
warrants, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to
fall.
We
expect that significant additional capital may be needed in the future to continue our planned operations, including conducting
clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a
public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions
at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities,
investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders,
and new investors could gain rights, preferences and privileges senior to the holders of our common stock. Pursuant to the Forza
X1, Inc. 2022 Stock Incentive Plan (the “2022 Plan”) our management is authorized to grant
equity awards to our employees, officers, directors and consultants.
Initially, the aggregate
number of shares of our common stock that might be issued pursuant to stock awards under our 2022 Plan was 1,500,000 shares, which
has been since increased to 1,970,250 pursuant to the evergreen provision in the 2022 Plan, and of which remain available for grant
as of the date hereof. Increases in the number of shares available for future grant or purchase may result in additional dilution,
which could cause our stock price to decline.
At December 31, 2022,
we had outstanding (i) warrants to purchase 172,500 shares of common stock outstanding at an exercise price of $6.25, and (ii)
options to purchase 1,441,500 shares of common stock at a weighted average exercise price of $3.41 per share. The issuance of the
shares of common stock underlying the options and warrants will have a dilutive effect on the percentage ownership held by holders
of our common stock.
The issuance of the
shares of common stock underlying the options and warrants will have a dilutive effect on the percentage ownership held by holders
of our common stock.
If securities analysts do not publish
research or reports about our company, or if they issue unfavorable commentary about us or our industry or downgrade our common
stock, the price of our common stock could decline.
The trading market for our common stock will
depend in part on the research and reports that third-party securities analysts publish about our company and our industry. We
may be unable or slow to attract research coverage and if one or more analysts cease coverage of our company, we could lose visibility
in the market. In addition, one or more of these analysts could downgrade our common stock or issue other negative commentary about
our company or our industry. As a result of one or more of these factors, the trading price of our common stock could decline.
The obligations associated with being
a public company will require significant resources and management attention, which may divert from our business operations.
As a result of the IPO, we are subject to the
reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly,
and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things,
that we establish and maintain effective internal controls and procedures for financial reporting. As a result, we will incur significant
legal, accounting, and other expenses that we did not previously incur.
Our failure
to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our common stock.
Our shares of common
stock are listed for trading on The Nasdaq Capital Market under the symbol “FRZA.” If we fail to satisfy the continued
listing requirements of The Nasdaq Capital Market such as the corporate governance requirements, the stockholder’s equity
requirement or the minimum closing bid price requirement, The Nasdaq Capital Market may take steps to de-list our common stock
or warrants. Such a de-listing or even notification of failure to comply with such requirements would likely have a negative effect
on the price of our common stock and warrants would impair your ability to sell or purchase our common stock when you wish to do
so. In the event of a de-listing, we would take actions to restore our compliance with The Nasdaq Capital Market’s listing
requirements, but we can provide no assurance that any such action taken by us would allow our common stock become listed again,
stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below The Nasdaq
Capital Market, minimum bid price requirement or prevent future non-compliance with The Nasdaq Capital Market’s listing requirements.
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 listed on The Nasdaq Capital
Market, our common stock is covered securities. Although the states are preempted from regulating the sale of covered securities,
the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding
of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we
were to be delisted from The Nasdaq Capital Market, our common stock would cease to be recognized as covered securities and we
would be subject to regulation in each state in which we offer our securities.
For as long as we are an emerging growth
company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards
and disclosure about our executive compensation, that apply to other public companies.
We are an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible 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, (i) not being required to comply with the auditor attestation requirements of
Section 404(b) of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and (iii) exemptions from the requirements of holding a non-binding advisory vote on executive compensation
and of stockholder approval of any golden parachute payments not previously approved. We have elected to adopt these reduced disclosure
requirements. We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of
these exemptions and as a result, there may be a less active trading market for our common stock and our stock price may be more
volatile.
We could remain an “emerging growth company”
for up to five years or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed
$1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange
Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last
business day of our most recently completed fiscal quarter, and (c) the date on which we have issued more than $1 billion in non-convertible
debt securities during the preceding three-year period.
We are also a “smaller reporting company”
as defined in the Exchange Act and have elected to take advantage of certain of the scaled disclosures available to smaller reporting
companies. To the extent that we continue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2
under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an
“emerging growth company” may continue to be available to us as a “smaller reporting company,” including
exemption from compliance with the auditor attestation requirements pursuant to SOX and reduced disclosure about our executive
compensation arrangements. We will continue to be a “smaller reporting company” until we have $250 million or
more in public float (based on our common stock) measured as of the last business day of our most recently completed second fiscal
quarter or, in the event we have no public float (based on our common stock) or a public float (based on our common stock) that
is less than $700 million, annual revenues of $100 million or more during the most recently completed fiscal year.
Our common stock price has been and may
continue to be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at
or above the price paid for your stock.
The trading
price of our common stock has been and is expected to continue to be volatile and has been and may continue to be subject to wide
fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. On August
12, 2022, the reported closing price of our common stock was $7.49, while on December 6,2022 the closing price of our common stock
was $1.36. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our
operating performance for prospects.
Volatility in the market price of our common
stock may prevent stockholders from being able to sell their shares at or above the price they paid for them. Many factors, which
are outside our control, may cause the market price of our common stock to fluctuate significantly, including those described elsewhere
in this “Risk Factors” section and this Annual Report on Form 10-K, as well as the following:
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Our operating and financial performance and prospects; |
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Our quarterly or annual earnings or those of other companies in our industry compared to market expectations; |
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Conditions that impact demand for our products; |
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Future announcements concerning our business or our competitors’ businesses; |
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The public’s reaction to our press releases, other public announcements, and filings with the SEC; |
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The size of our public float; |
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Coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; |
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Market and industry perception of our success, or lack thereof, in pursuing our growth strategy; |
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Strategic actions by us or our competitors, such as acquisitions or restructurings; |
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Changes in laws or regulations that adversely affect our industry or us; |
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Changes in accounting standards, policies, guidance, interpretations, or principles; |
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Changes in senior management or key personnel; |
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Issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock; |
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Changes in our dividend policy; |
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Adverse resolution of new or pending litigation against us; and |
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Changes in general market, economic, and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war, and responses to such events. |
As a result, volatility in the market price
of our common stock may prevent investors from being able to sell their common stock at or above the price paid for such shares
or at all. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our
operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock
is low. As a result, shareholders may suffer a loss on their investment.
Additionally, recently, securities of certain
companies have experienced significant and extreme volatility in stock price due to short sellers of shares of common stock,
known as a “short squeeze.” These short squeezes have caused extreme volatility in those companies and in the market
and have led to the price per share of those companies to trade at significantly inflated rates that is disconnected from the underlying
value of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a
significant portion of their original investment as the price per share has declined steadily as interest in those stocks have
abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we
won’t be in the future, and shareholders may lose a significant portion or all of their investment if they purchase our shares
at a rate that is significantly disconnected from our underlying value.
Our common stock
has often been thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise
money or otherwise desire to liquidate your shares.
To date, there have
been many days on which limited trading of our common stock took place. We cannot predict the extent to which investors’
interests will lead to an active trading market for our common stock or whether the market price of our common stock will be volatile.
If an active trading market does not develop, investors may have difficulty selling any of our common stock that they buy. We are
likely to be too small to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that an active
public trading market for our common stock will develop or be sustained. The market price of our common stock could be subject
to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products
or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance
of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic
conditions.
We do not intend to pay dividends on
our common stock for the foreseeable future.
We presently have no intention to pay dividends
on our common stock at any time in the foreseeable future. Any decision to declare and pay dividends in the future will be made
at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition,
cash requirements, contractual restrictions, and other factors that our board of directors may deem relevant. Furthermore, our
ability to declare and pay dividends may be limited by instruments governing future outstanding indebtedness we may incur.
FINRA sales practice requirements may limit your ability to
buy and sell our common shares, which could depress the price of our shares.
FINRA rules require broker-dealers to have
reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer.
Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things.
Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will
not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend
that their customers buy our common shares, which may limit your ability to buy and sell our shares, have an adverse effect on
the market for our shares and, thereby, depress their market prices.
Volatility in our common shares price
may subject us to securities litigation.
The market for our common shares may have,
when compared to seasoned issuers, significant price volatility, and we expect that our share price may continue to be more volatile
than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action
litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the
target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s
attention and resources.
Provisions in our corporate charter documents
and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and
may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our
bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider
favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit
the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price
of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team,
these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making
it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
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our board of directors is divided into three classes, one class of which is elected each year by our stockholders with the directors in each class to serve for a three-year term; |
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the authorized number of directors can be changed only by resolution of our board of directors; |
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directors may be removed only by the affirmative vote of the holders of at least sixty percent (60%) of our voting stock, whether for cause or without cause; |
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our bylaws may be amended or repealed by our board of directors or by the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of our stockholders; |
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stockholders may not call special meetings of the stockholders or fill vacancies on the board of directors; |
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our board of directors will be authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve; |
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our stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors; and |
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our stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder meeting. |
Moreover, because we are incorporated in Delaware,
we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in
excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the
transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner.
Our amended and restated certificate
of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain types of
state actions that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation
provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the
exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach
of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action arising
pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or bylaws (as either may be amended
from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine. The exclusive forum provision
does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other
claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law
claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability
created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent
jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act
or the rules and regulations thereunder.
These exclusive-forum provisions may limit
a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
employees, control persons, underwriters, or agents, which may discourage lawsuits against us and our directors, employees, control
persons, underwriters, or agents. Additionally, a court could determine that the exclusive forum provision is unenforceable, and
our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations
thereunder. If a court were to find these provisions of our bylaws inapplicable to, or unenforceable in respect of, one or more
of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other
jurisdictions, which could adversely affect our business, financial condition, or results of operations.
We presently intend to retain our earnings,
if any, to finance the development and growth of our business and operations and do not anticipate declaring or paying cash dividends
on our common stock in the foreseeable future.
Any future determination as to the declaration
and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions,
including our operating results, financial condition, contractual restrictions, capital requirements, business prospects, and other
factors our board of directors may deem relevant. See “Risk Factors — Risks Relating to Ownership of Our Common Stock
— We do not intend to pay dividends on our common stock for the foreseeable future”.”