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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Worksport Ltd.    WKSP

WORKSPORT LTD.

(WKSP)
  Report
Delayed Quote. Delayed OTC Bulletin Board - Other OTC - 01/22 03:59:58 pm
0.1799 USD   +23.73%
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WORKSPORT : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/16/2020 | 04:15pm EST

The following management's discussion and analysis ("MD&A") should be read in conjunction with financial statements of Worksport, Ltd. (formerly Franchise Holdings International, Inc) and its wholly owned subsidiary, Worksport Ltd. for the nine-months ended September 30, 2020 and 2019, and the notes thereto. Additional information relating to Worksport Ltd is available at Worksport.ca.

Safe Harbor for Forward-Looking Statements

Certain statements included in this MD&A constitute forward-looking statements, including those identified by the expressions anticipate, believe, plan, estimate, expect, intend, and similar expressions to the extent they relate to Worksport or its management. These forward-looking statements are not facts, promises, or guarantees; rather, they reflect current expectations regarding future results or events. These forward-looking statements are subject to risks and uncertainties that could cause actual results, activities, performance, or events to differ materially from current expectations. These include risks related to revenue growth, operating results, industry, products, and litigation, as well as the matters discussed in Worksport's MD&A under Risk Factors. Readers should not place undue reliance on any such forward-looking statements. Worksport disclaims any obligation to publicly update or to revise any such statements to reflect any change in the Company's expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this report.



COVID-19


In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and including Canada and United States. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. In both Canada and United Sates most states/provinces and cities have reacted by instituting lockdown orders, restrictions on travel, "stay at home" orders and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it.

As a result of the lockdown orders enacted in the United States, Canada and China the Company expects a disruption to its manufacturing with significant reduction to sales presented in these condensed interim financial statements. As of the date of this financial statement, lockdown orders have been relaxed in parts of the United States, Canada and China, but due to low consumer confidence and disruption to manufacturing the Company expects sales to remain low.

The extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.



Revenue


For the nine months ended September 30, 2020, revenue generated from the entire line of Worksport products was $223,620, compared to $1,959,027 for the nine months ended September 30, 2019. The year over year decrease of approximately 89% was attributed to the impact of COVID-19.

For the nine months ended September 30, 2020, revenue generated in Canada was $10,990 compared to $74,058 for the same period in 2019, a decrease of 85%. For the three months ended September 30, 2020, the Company had refunds of $935 compared to revenue of $49,410 for the same period in 2019, an decrease of 102%. The rate of exchange between the Canadian Dollar and the United States Dollar during the first nine months of fiscal 2020 fluctuated due to COVID-19; the Canadian Dollar decreasing in value compare to United States Dollar on average by $0.1. As a result, Canadian Dollars sales during the first nine-months ended September 30, 2020 will be on average lower compared to 2019 when converted to United States Dollar for financial statement reporting purposes. For the nine months ended September 30, 2020, gross revenue generated in the United States was $212,630 compared to $1,884,969 for the same period in 2019. This represents a year-over-year decrease in US-sourced revenue of approximately 89%. For the three months ended September 30, 2020, gross revenue generated in the United States was $117,426 compared to $820,643 for the same period in 2019, an decrease of 86%. The decrease in revenue generated in Canada and United States can be attributed to the lockdown and stay-at-home orders due to the COVID-19 pandemic resulting in lower consumer confidence and demand.

Currently, Worksport works closely with one major distributor in Canada, along with its own contracted distribution and inventory facility in Breinigsville, PA and Depew, NY. This does not include multiple independent online retailers.

Although Worksport currently supports a total of 10 dealers and distributors, Worksport believes the trend of increasing sales through online retailers will continue to outpace the traditional distribution business model. Moreover, reputable online retailer's customers tend to provide larger sales volumes, greater margin of profit as well as greater protection against price erosion.



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  Table of Contents




Cost of Sales


Cost of sales decreased for the first nine months of fiscal 2020, when compared to the first nine months of fiscal 2019, by 88% from $1,473,150 to $180,028. Our cost of sales, as a percentage of sales, was approximately 81% and 75% for nine months ended September 30, 2020 and 2019, respectively. Cost of sales for the three months ended September 30, 2020 were $94,134 compared to $668,516 for the three months ended September 30, 2019. In relation to our cost of sales, as a percentage of sales, was approximately 81% and 77% for the three months ended September 30, 2020 and 2019. The decrease in cost of sales for the three and nine months ended September 30, 2020 was primarily due to significantly lower consumer demand as the COVID-19 pandemic negatively effected the economy.

Within cost of sales, freight costs accounted for 42% of cost of sales during the nine months ended September 30, 2020, whereas in 2019, it accounted for 2% of cost of sales. The increase in the percentage of cost of sales is due to increased shipping expenses due increase demand of international delivery as a result of COVID-19.

Worksport provides its distributors and online retailers an "all-in" wholesale price. This includes any import duty charges, taxes and shipping charges. Discounts are applied if the distributor or retailer chooses to use their own shipping process. Certain exceptions apply on rare occasions where product is shipped outside the contiguous United States or from the United States to Canada. Volume discounts are also offered to certain higher volume customers.



Gross Margin


Gross margin percentage for the nine month ended September 30, 2020 and 2019 were 19% and 25% respectively. For the three month ended September 30, 2020 and 2019 gross margin percentage were 19% and 23% respectively. The decrease in gross margin reflects the affect COVID-19 had impacted the Company's freight costs as stated above increasing from 4% to 42%.



Operating Expenses


Operating expenses increased for the nine months ended September 30, 2020 by $137,308 to $671,937 compared to $534,629 for the nine months ended September 30, 2019. For the three months ended September 30, 2020 operating expenses were $392,970 compared to $173,664 for the three months ended September 30, 2019.



  ? General and administrative expense decreased by $51,475 from $149,041 to
    $97,566 during the nine months ended September 30, 2020. For the three months
    ended September 30, 2020 general and administrative expense decreased by
    $40,418 from $91,254 to $50,836 compared to the three month ended September
    30, 2019. The nine and three months decrease is attributed to reduced general
    and administrative expenses as a result of COVID-19.
  ? The Company also realized a gain on foreign exchange in the amount of $4,845
    during the nine months ended September 30, 2020, a decrease of $38,582 when
    compared to a gain on foreign exchange of $43,427 during the nine months ended
    September 30, 2019. For the three months ended September 30, 2020 the Company
    had a loss on foreign exchange of $2,599 compared to a gain on foreign
    exchange of $22,701 for the three months ended September 30, 2019. The
    decrease on foreign exchange was the result of the Company's reduced
    operations in Canadian Dollars related expenses and sales.
  ? Professional fees which include accounting, legal and consulting fees,
    increased from $366,843 for the nine months ended September 30, 2019 to
    $509,347 for the nine months ended September 30, 2020. For the three months
    ended September 30, 2020 and 2019 the Company recognized Professional fees of
    $280,413 and $92,858 respectively. Professional fees increased for the three
    and nine months ended September 30, 2020 compare to 2019 was due to the
    Company' employing third party consultants to help expand production and
    sales.




Other Income and Expenses



Other income and expenses for the nine months ended September 30, 2020 was $321,096 compared to an income of $190,901 as at September 30, 2019. A difference of $511,997. For the three months ended September 30, 2020 and 2019 other income and expenses were $234,377 and income of $242,498 respectively. The difference for the three and nine months ended September 30, 2020 and 2019 can be attributed to the Company recognizing a loss on settlement of debt in for $44,274 compare to a gain on settlement of debt $250,778 respectively.



Net Loss


Net loss for the nine months ended September 30, 2020 was $949,441 compared to a net income of $142,149 for the nine months ended September 30, 2019, a change of $1,091,590 or 768%. For the three months ended September 30, 2020 net loss was $604,990 compare to a net income of $270,370 for the three months ended September 30, 2019. The increase in the net loss can be attributed to the decrease in net sales of $753,562 and $1,959,027 when comparing the three and nine months ended September 30, 2019 to 2020 as a result of COVID-19.



17


  Table of Contents



Liquidity and Capital Resources



Cash Flow Activities


Cash increased from September 30, 2019 to September 30, 2020 at $178,752 to $467,133, as a result of funds received from financing activities. Increase in accounts receivable at September 30, 2019 to 2020 were $187,706 and $122,606 respectively. The increase in accounts receivable as at September 30, 2020 was due to the lifting of COVID-19 quarantine measures. Other receivable decreased by $22,970 due to funds being received from sales tax refund. Decrease in inventory as at September 30, 2019 and 2020 were $91,038 and $44,423. Decrease in inventory was a result of disruptions to supplier manufacturing from the COVID-19 pandemic. Prepaid expenses decreased by $48,642 as at September 30, 2020 compared to a decrease of $97,737 as at September 30, 2019. The difference was due the Company entering into new consulting and marketing services not yet to fully rendered. Accounts payable and accrued liabilities decreased by $73,201 as at September 30, 2020 compare to September 30, 2019 with an increase of $437,347. The decrease in payables as at September 30, 2020 is due to the Company increasing payment to vendors compare to expenses being incurred.



Investing Activities


During the nine months ended September 30, 2020, the Company advanced a further $8,765 to a US based mobile phone development company.

During the nine months ended September 30, 2020, the Company purchased $7,962 in patents and leasehold improvements.

During the nine months ended September 30, 2019, the Company invested $84,149 in warehouse equipment, product moulds, patents, trademarks, and leasehold improvements.

During the nine months ended September 30, 2019, the Company advanced a further $15,658 to a US based mobile phone development company.



Financing Activities


During the first nine months of fiscal 2020, the Company received $467,500 in convertible promissory note, made repayment of $615 and $16,150 to shareholder loans and convertible promissory note respectively. During the same period the Company received a loan of $150,439 from an unrelated third party and $28,397 ($40,000 CDN) from the Government of Canada. The Company also received $250,000 in share subscription for 4,000,000 common stock.

During the first nine months of fiscal 2019, the Company issued $30,000 in issuance of common stock for cash and repayment of $9,395 of shareholder loans.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements with any party.



Critical Accounting Policies


Our discussion and analysis of results of operations and financial condition are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The accounting policies that we follow are set forth in Note 2 to our financial statements as included in the Form 10K filed on May 14, 2020. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the financial statements.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2019 1,93 M - -
Net income 2019 -0,41 M - -
Net Debt 2019 0,35 M - -
P/E ratio 2019 -4,89x
Yield 2019 -
Capitalization 13,7 M 13,7 M -
EV / Sales 2018 8,24x
EV / Sales 2019 1,34x
Nbr of Employees 1
Free-Float 79,6%
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Managers and Directors
NameTitle
Steven Rossi President, CEO & Secretary
Michael Johnston Chief Financial Officer
Lorenzo Rossi Director
Craig Loverock Director
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