Forza X1, Inc. (FRZA) was founded with the ambitious goal of inspiring the adoption of sustainable recreational boating through the production of stylish electric sport boats. However, the company's journey has been anything but smooth sailing, as it grapples with a rapidly evolving industry landscape and market headwinds.

Business Overview

Forza X1 was incorporated in October 2021, initially under the name Electra Power Sports, Inc., before changing its name to Forza X1, Inc. in October of the same year. The company's parent, Twin Vee Catamarans, Inc., was incorporated in Florida in 2009 and later reincorporated in Delaware in 2021 as Twin Vee PowerCats Co.

Forza X1's mission was to inspire the adoption of sustainable recreational boating by producing stylish electric sport boats designed to offer a cleaner, quieter, and more efficient alternative to traditional gasoline-powered boats. The company focused on creating, implementing, and selling electric boats utilizing their electric vehicle (EV) technology to control and power their boats and proprietary outboard electric motor.

Throughout its development phase, Forza X1 made significant progress, completing the design phase of their outboard motor and building three different prototypes of their electric boat. However, the company faced increasing industry challenges, including a marked deceleration in the global demand for recreational marine vehicles influenced by economic uncertainties and shifting consumer priorities. Additionally, larger players in the boat industry had completed development of their own electric outboard motors and brought them to market, intensifying competition in the nascent electric boat segment.

In an effort to conserve cash and reduce expenditures in the face of challenging market conditions, Forza X1's Board of Directors made the decision on July 11, 2024, to discontinue and wind down the company's business related to the development and sale of electric boats utilizing its proprietary outboard electric motor. This strategic shift came as the electric boat segment has experienced even more sluggish growth than the broader automotive EV market, with several major players in the boat industry already bringing their own electric outboard motors to market.

Financial Overview

Financials Forza X1's financial performance has been characterized by significant losses over the past few years, as the company invested heavily in research and development efforts without generating meaningful revenue. For the year ended December 31, 2023, the company reported a net loss of $5.93 million, compared to a net loss of $3.63 million in the prior year. This trend continued into 2024, with the company reporting a net loss of $4.90 million for the nine months ended September 30, 2024.

The company's most recent quarterly results for Q3 2024 paint a stark picture of its financial situation. Revenue for the quarter was $0, reflecting the complete discontinuation of its business operations. The net loss for the quarter stood at $895,702, while operating cash flow (OCF) and free cash flow (FCF) were negative at $885,507 and $902,004, respectively. Year-over-year growth comparisons are not applicable as the company no longer has an operating business.

It's worth noting that Forza X1 recorded an impairment charge of $1.67 million against the carrying value of its partially constructed manufacturing facility in the second quarter of 2024, further impacting its financial results.

Liquidity

The company's cash position, while once bolstered by the proceeds from its initial public offering in 2022 and a secondary offering in 2023, has steadily declined due to ongoing operating losses. As of September 30, 2024, Forza X1 had $7.20 million in cash and cash equivalents, compared to $9.82 million at the end of 2023. The company's working capital stood at $7.44 million as of September 30, 2024, a significant decline from $12.53 million at the end of 2023.

Forza X1's financial ratios paint a concerning picture, with a current ratio of 66.38, a quick ratio of 65.85, and a cash ratio of 63.27 as of September 30, 2024. These ratios, while seemingly strong on the surface, are largely the result of the company's limited operations and lack of significant current liabilities. The company's return on assets, equity, and capital employed have all been deeply negative, reflecting the substantial losses incurred.

The company's debt-to-equity ratio stands at a relatively low 0.0078, indicating minimal leverage. However, this should be viewed in the context of the company's discontinued operations and pending merger. No details were provided regarding available credit lines or facilities.

Merger Agreement with Twin Vee PowerCats Co

In the face of these challenges, Forza X1 has sought a strategic solution in the form of a merger agreement with its parent company, Twin Vee PowerCats Co. (VEEE). On August 12, 2024, the two companies announced a definitive merger agreement, under which Forza X1 will merge with and into a wholly-owned subsidiary of Twin Vee, with Forza X1 surviving as a wholly-owned subsidiary of the combined entity.

Under the terms of the agreement, each share of Forza X1 common stock (other than those held by Twin Vee) will be converted into the right to receive 0.61166627 shares of Twin Vee common stock. The completion of the merger is subject to various customary conditions, including the approval of both Forza X1 and Twin Vee shareholders, which was obtained on November 11, 2024.

The merger is intended to provide strategic benefits to the combined company, including anticipated annual cost savings of approximately $700,000. However, there can be no assurance that these anticipated benefits will materialize or result in increased shareholder value or revenue streams for the merged entity.

Operational Challenges and Headwinds

Forza X1's journey has been marked by several operational challenges and industry-wide headwinds. The global deceleration in the demand for recreational marine vehicles, influenced by economic uncertainties and shifting consumer priorities, has had a significant impact on the electric boat segment. This slowdown has been exacerbated by the slower-than-expected adoption of electric vehicles (EVs) in the broader automotive industry, which has led to cautious consumer spending and investment in EV technology.

Moreover, Forza X1 has faced internal operational challenges, including material weaknesses in its internal control over financial reporting related to a lack of segregation of duties. The company had planned to address these issues by hiring additional accounting expertise and utilizing outside advisors, but these efforts were ultimately halted due to the decision to wind down the company's electric boat business and pursue the merger with Twin Vee.

The discontinuation of Forza X1's electric boat business has led to significant changes in the company's operations and personnel. On September 10, 2024, the company's President, Dan Norton, and the company mutually agreed to terminate his employment, effective September 30, 2024. Mr. Norton did not advise the company of any disagreement on any matter relating to its operations, policies or practices.

Regulatory Concerns and Delisting

Forza X1's challenges have also extended to the regulatory realm. In October 2023, the company received written notice from Nasdaq notifying it that its common stock had not maintained the minimum closing bid price of $1.00 per share as required by Nasdaq Listing Rule 5550(a)(2). After being granted two compliance periods, the company was ultimately unable to regain compliance, and its common stock was delisted from Nasdaq in October 2024.

The delisting of Forza X1's shares has had a significant impact on the company, as it is no longer recognized as a "covered security" under the National Securities Markets Improvement Act of 1996. This change means that the company is now subject to regulation in each state in which it offers its securities, potentially creating additional complexities and compliance requirements.

The company's common stock has been suspended from trading on the Nasdaq Capital Market and is currently trading on the OTC Markets system. This suspension is likely to have a negative effect on the price of the company's common stock and may impact its liquidity and investor interest.

Outlook and Conclusion

Forza X1's future remains uncertain as it navigates the challenges of the electric boat market and the pending merger with Twin Vee PowerCats Co. The company's decision to discontinue and wind down its electric boat business, coupled with its financial struggles and regulatory issues, have cast a shadow over its long-term prospects.

The successful completion of the merger with Twin Vee, if achieved, could provide some respite and potential synergies for the combined entity. However, the realization of the anticipated benefits of the merger, such as the expected cost savings, remains to be seen. Investors will closely monitor the progress of the merger integration and the combined company's ability to capitalize on the evolving recreational boating market.

Overall, Forza X1's journey has been a cautionary tale for companies operating in the highly competitive and rapidly evolving electric vehicle and recreational marine industries. The company's struggles serve as a reminder of the importance of adaptability, strong operational execution, and the ability to navigate complex regulatory environments in order to achieve long-term success.

The company's financial performance, characterized by zero revenue and ongoing losses, reflects the complete discontinuation of its business operations. With the impending merger, Forza X1 will cease to operate as a standalone public company, and its future will be tied to the success of the combined entity with Twin Vee PowerCats Co. As the recreational boating industry continues to evolve, particularly in the electric segment, the merged company will face the challenge of repositioning itself in a market that has proven to be more challenging than initially anticipated.