Worksport .(WKSP) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Worksport Ltd. reported a significant increase in net sales to $512,637, but net loss widened to $3.71 million, with total assets growing to $27.29 million primarily due to inventory increases, highlighting going concern uncertainty Condensed Consolidated Balance Sheets Balance Sheet Summary (as of March 31, 2024 vs. December 31, 2023) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,536,980 | $3,365,778 | | Inventory | $6,539,846 | $3,631,492 | | Total Current Assets | $10,744,959 | $9,123,506 | | Total Assets | $27,290,843 | $25,953,916 | | Liabilities & Equity | | | | Accounts payable and accrued liabilities | $2,261,869 | $1,451,181 | | Loan payable | $5,300,000 | $5,300,000 | | Total Current Liabilities | $7,843,558 | $7,166,612 | | Total Liabilities | $8,390,124 | $7,775,373 | | Total Shareholders' Equity | $18,900,719 | $18,178,543 | - Inventory significantly increased to $6.54 million from $3.63 million, mainly due to stockpiling of hard tonneau covers in preparation for 2024 sales campaigns[8][31] Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Summary (For the three months ended March 31) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Net Sales | $512,637 | $31,925 | | Gross Profit | $37,456 | $12,168 | | Total operating expenses | $3,676,922 | $3,542,116 | | Loss from operations | ($3,639,466) | ($3,529,948) | | Net Loss | ($3,714,657) | ($3,523,270) | | Loss per Share (basic and diluted) | ($0.18) | ($0.21) | Condensed Consolidated Statements of Cash Flow Cash Flow Summary (For the three months ended March 31, 2024) | Activity | Cash Flow | | :--- | :--- | | Net cash used in operating activities | ($2,794,604) | | Net cash used in investing activities | ($212,969) | | Net cash received from financing activities | $3,178,775 | | Change in cash | $171,202 | - Financing activities provided a net cash inflow of $3.18 million, primarily from the issuance of common stock, which offset cash used in operating and investing activities[11] Notes to the Condensed Consolidated Financial Statements - The company's ability to continue as a going concern is in substantial doubt due to a history of net losses, an accumulated deficit of $52,027,834, and reliance on external financing[21][22][29] - In March 2024, the company completed a registered direct offering, issuing 2,372,240 shares of common stock and 1,477,892 pre-funded warrants for total net proceeds of $2,629,083[26] - The company has a $5.3 million secured loan which was due in May 2024, with the maturity date extended to August 10, 2024, on May 14, 2024[50][51][73] - Subsequent to the quarter end, the company received a grant from the New York State Excelsior Jobs Program worth up to $2.8 million, contingent on creating up to 280 new jobs from 2025 to 2030[73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 1,506% revenue growth to private label sales, but net loss increased due to higher G&A expenses, with liquidity dependent on equity offerings and strategic partnerships Business Developments - The company received the necessary solar panels to begin initial production of its SOLIS Solar Tonneau Cover[85] - A new distribution arrangement was made with Dix Performance North to make the company's tonneau covers widely available throughout Canada[85] - Worksport announced collaborations with Infineon Technologies for its portable power stations and NeuronicWorks for the manufacturing of its COR battery system[85] Results of Operations Revenue Comparison (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $512,637 | $31,925 | +1,506% | | US Revenue | $492,630 | $26,403 | +1,766% | | Private Label Sales | $466,751 | $0 | N/A | - The significant revenue increase was primarily driven by increased sales of soft tonneau covers to a private label partner, which accounted for 91% of total revenue in Q1 2024[99][100] - Cost of sales as a percentage of sales increased to 93% in Q1 2024 from 62% in Q1 2023, mainly due to lower margins on private label sales and high overhead per unit for new domestic manufacturing[102] - Operating expenses increased by $134,806, driven by a $544,706 rise in general and administrative costs for R&D and production expansion, partially offset by a $477,574 decrease in sales and marketing expenses[104][105] - Net loss increased by 5% to $3,714,657 for Q1 2024, compared to $3,523,270 in Q1 2023, attributed to increased operating expenses for expansion[107] Liquidity and Capital Resources - The company's ability to continue as a going concern is dependent on generating cash from operations and obtaining equity/debt financing, as it has not been profitable since inception[108] - As of March 31, 2024, the company had working capital of $2.9 million and an accumulated deficit of $52.0 million[108][117] - In March 2024, the company raised net proceeds of $2,629,083 through a registered direct offering of common stock and pre-funded warrants[112] - On May 14, 2024, the company extended the maturity date of its $5.3 million loan from May 10, 2024, to August 10, 2024, alleviating immediate cash flow pressure[113] Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this item is not applicable - Not Applicable[127] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, with no material changes to internal controls during the quarter - Management concluded that as of the end of the quarter, the company's disclosure controls and procedures were not effective[128] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[131] PART II. OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any material pending or threatened legal proceedings - The company is not presently a party to any material pending or threatened legal proceedings[132] Risk Factors This section directs investors to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - The report refers to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2023[133] Other Information This section discloses a Forbearance Agreement with Northeast Bank, extension of a $5.3 million loan maturity, a potential $2.8 million grant, and exercise of pre-funded warrants - On February 4, 2024, the company entered into a Forbearance Agreement with its lender, Northeast Bank, related to its secured loan for its West Seneca, NY facility[136] - On May 14, 2024, the company extended the maturity date for its $5.3 million loan agreement to August 10, 2024[138] - On May 8, 2024, the company announced it received a major grant from the New York State Excelsior Jobs Program worth up to $2.8 million, contingent on job creation targets[137] Exhibits This section lists all the exhibits filed with the quarterly report, including a Forbearance Agreement, an Omnibus Amendment of Loan Documents, and officer certifications - Key exhibits filed include the Forbearance Agreement with Northeast Bank (Exhibit 10.1) and the Omnibus Amendment of Loan Documents (Exhibit 10.2)[139]