Worksport .(WKSP) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for Worksport Ltd. as of September 30, 2023, show increased revenue but widening net loss and decreased cash and working capital Condensed Consolidated Balance Sheets As of September 30, 2023, total assets decreased to $24.6 million from $32.8 million at year-end 2022, primarily due to a significant reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (as of Sep 30, 2023 vs. Dec 31, 2022) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,965,578 | $14,620,757 | | Total Current Assets | $7,894,134 | $18,332,107 | | Property and Equipment, net | $14,329,099 | $11,900,672 | | Total Assets | $24,621,491 | $32,764,130 | | Liabilities & Equity | | | | Total Current Liabilities | $7,563,771 | $2,461,730 | | Total Liabilities | $8,207,186 | $8,645,876 | | Accumulated deficit | ($44,654,242) | ($33,384,219) | | Total Shareholders' Equity | $16,414,305 | $24,118,254 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three and nine months ended September 30, 2023, Worksport reported dramatic net sales increases but significantly higher operating expenses, leading to larger net losses Statement of Operations Summary (Three Months Ended Sep 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $458,483 | $18,350 | | Gross Profit | $89,687 | $5,748 | | Total operating expenses | $4,009,196 | $2,948,576 | | Net Loss | ($3,949,298) | ($2,877,660) | | Loss per Share | ($0.23) | ($0.17) | Statement of Operations Summary (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $690,259 | $77,439 | | Gross Profit | $148,418 | $18,873 | | Total operating expenses | $11,336,594 | $9,067,672 | | Net Loss | ($11,270,023) | ($9,067,588) | | Loss per Share | ($0.65) | ($0.53) | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity decreased from $24.1 million at the start of 2023 to $16.4 million by September 30, 2023, primarily due to the $11.3 million net loss - Total stockholders' equity decreased from $24,118,254 on January 1, 2023, to $16,414,305 on September 30, 2023[14] - The accumulated deficit increased by $11,270,023 during the first nine months of 2023, reflecting the company's net loss for the period[14] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, the company experienced a significant net cash decrease of $11.7 million, driven by operating and investing activities Cash Flow Summary (Nine Months Ended Sep 30) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,194,347) | ($6,361,539) | | Net cash used in investing activities | ($3,512,469) | ($10,212,245) | | Net cash received from financing activities | $51,637 | $5,285,712 | | Change in cash | ($11,655,179) | ($11,288,072) | - Cash and cash equivalents fell from $14.6 million at the beginning of the year to $3.0 million at the end of the period[15] Notes to the Condensed Consolidated Financial Statements The notes detail significant accounting policies, including substantial doubt about going concern, inventory increases, and a $4.3 million capital raise in November 2023 - 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 $44.7 million, and reliance on debt and equity financing[31][32][37] - Inventory increased significantly to $3.55 million from $1.35 million at year-end 2022, driven by a large increase in raw materials in preparation for manufacturing[40] - Subsequent to the quarter end, on November 2, 2023, the company raised net proceeds of $4,261,542 through a sale of common stock and pre-funded warrants[100][35] - During the nine months ended September 30, 2023, the company issued a total of 3,206,256 stock options to employees, consultants, and directors[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on tonneau covers and clean energy, highlighting significant revenue growth, increased operating expenses, and ongoing liquidity challenges Business Developments In the first nine months of 2023, Worksport achieved key milestones including U.S. manufacturing setup, new product launches, and securing significant purchase orders and supply agreements - Completed installation of its custom manufacturing line in the U.S. and began production runs in May 2023[113] - Received purchase orders totaling approximately $2.32 million for its soft-folding and hard-folding tonneau covers in July 2023[113] - Signed a long-term supply agreement in September 2023 with an automotive aftermarket reseller, expecting annual sales of an estimated $16 million[113] Results of Operations The company's financial performance for the three and nine months ended September 30, 2023, shows substantial revenue growth, primarily from new private label sales, but also widened net losses due to increased operating expenses Revenue Comparison (Three Months Ended Sep 30) | Period | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $458,483 | $18,350 | +2,399% | Revenue Comparison (Nine Months Ended Sep 30) | Period | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $690,259 | $77,439 | +791% | - Private label sales, which were $0 in Q3 2022, grew to $432,659 in Q3 2023, accounting for 94% of total revenue[131] - Net loss for Q3 2023 increased to $3,949,298 from $2,877,660 in Q3 2022, a 37% increase, driven by higher operating expenses[137] Liquidity and Capital Resources; Going Concern The company's liquidity has significantly tightened, with cash and working capital dropping sharply, leading to substantial doubt about its ability to continue as a going concern, despite a recent $4.3 million capital raise Liquidity Metrics | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,965,578 | $14,620,757 | | Working Capital | $330,423 | $15,870,377 | | Accumulated Deficit | ($44,654,242) | ($33,384,219) | - The company's ability to continue as a going concern is dependent on generating cash from operations and obtaining additional financing[147] - On November 2, 2023, the company closed a sale of common stock and pre-funded warrants for total net proceeds of $4,261,542[151] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were not effective as of the end of the quarter[167] - There were no changes in internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, internal controls[170] PART II. OTHER INFORMATION Legal Proceedings The company reported no legal proceedings - None[171] Unregistered Sales of Equity Securities and Use of Proceeds On May 1, 2023, the company issued 2,000,000 stock options to its CEO, Steven Rossi, in exchange for modifying previously issued restricted and performance stock units - On May 1, 2023, the Company issued its CEO stock options to purchase up to 2,000,000 shares of common stock at an exercise price of $1.74 per share[173] - The issuance was in exchange for modifying 1,600,000 restricted stock units and 400,000 performance stock units previously granted to the CEO[173] Other Information This section outlines key events after quarter-end, including the sale of 71,698 common shares for $118,697 and a larger financing deal raising $4,261,542 in November 2023 - Subsequent to September 30, 2023, the Company sold 71,698 shares of common stock for net proceeds of $118,697 via its ATM agreement[178] - On November 2, 2023, the Company raised net proceeds of $4,261,542 through a sale of 1,925,000 shares of common stock and 1,575,000 pre-funded warrants[178]