This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q")
contain forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve risks and uncertainties.
Forward-looking statements provide current expectations of future events based
on certain assumptions and include any statement that does not directly relate
to any historical or current fact. Forward-looking statements can also be
identified by words such as "future," "anticipates," "believes," "estimates,"
"expects," "intends," "plans," "predicts," "will," "would," "could," "can,"
"may," and similar terms. Forward-looking statements are not guarantees of
future performance and actual results may differ significantly from the results
discussed in the forward-looking statements. All forward-looking statements in
this Form 10-Q are made based on current expectations, forecasts, estimates and
assumptions, and involve risks, uncertainties and other factors that could cause
results or events to differ materially from those expressed in the
forward-looking statements. In evaluating these statements, various factors,
uncertainties, and risks should be specifically considered that could affect
future results or operations. These factors, uncertainties and risks may cause
actual results to differ materially from any forward-looking statement set forth
in this Form 10-Q. These risks and uncertainties described and other information
contained in the reports filed with or furnished to the SEC should be carefully
considered before making any investment decision with respect to the Company's
securities. The Company assumes no obligation to revise or update any
forward-looking statements for any reason, except as required by law.
Unless otherwise stated, all information presented herein is based on the
Company's fiscal calendar, and references to particular years, quarters, months
or periods refer to the Company's fiscal years ended in March and the associated
quarters, months and periods of those fiscal years. Each of the terms the
"Company" and "Worksport" as used herein refers collectively to Worksport Ltd.
and its wholly owned subsidiaries, unless otherwise stated.
The following discussion should be read in conjunction with the 2021 Form 10-K
filed with the U.S. Securities and Exchange Commission (the "SEC") and the
condensed consolidated financial statements and accompanying notes included in
Part I, Item 1 of this Form 10-Q.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2022 compared to the Three Months Ended
September 30, 2021
Revenue
For the three months ended September 30, 2022, revenue generated from sales was
$18,350, compared to $93,408 for the three months ended September 30, 2021.
Total revenues decreased by approximately 80% compared to the same period in the
prior year.
Revenue decreased for the three months ended September 30, 2022, compared to the
same period the prior year due to the Company's focus on building up its
inventory in anticipation of launching its e-commerce platform, research and
development, and repositioning for domestic manufacturing. The Company is
anticipating the launch of its e-commerce platform and domestic manufacturing in
early-to-mid 2023.
For the three months ended September 30, 2022, total revenue generated in the
United States decreased by 86%, from $93,408 in the prior period to $13,134. For
the three months ended September 30, 2022, total revenue generated in the Canada
increased by 100%, from $0 in the prior period to $5,216. Similar to the above,
the overall decrease in revenue was a result of the Company shifting its focus
to inventory buildup in anticipation of launching its e-commerce platform.
For the three months ended September 30, 2022, online revenues decreased by 86%
from $93,408 in the prior period to $13,134. Online revenue accounted for 72%
and 100% of total revenue for the three months ended September 30, 2022 and 2021
respectively. For the three months ended September 30, 2022, distributor
revenues were $5,216 compared to $0 in the prior period.
Cost of Sales
For the three months ended September 30, 2022, cost of sales decreased by 85%.
from $81,810 in the prior period to $12,602. Cost of sales, as a percentage of
sales, was approximately 69% for the three months ended September 30, 2022,
compared to 88% for the same period in 2021. The decrease in cost of sales as a
percentage of sales was primarily due to increased efficiency associated with
manufacturing and acquiring inventory, driven by lower ocean freight costs, for
the three months ended September 30, 2022, compared to the same prior period.
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Gross Margin
Gross margin percentage for the three months ended September 30, 2022 was 31%,
compared to 12% for the same period in 2021. The increase in gross margin
reflects the Company's efforts to control the cost of manufacturing and
acquiring inventory.
Operating Expenses
Operating expenses increased for the three months ended September 30, 2022, by
$897,013 from $2,051,563 in the prior period to $2,948,576.
? General and administrative expense increased by $1,002,652 from $517,735 in
the prior period to $1,520,388. The increased expenses are related to research
and development and salaries as the Company seeks to expand its domestic
operations and further develop its products.
? Sales and marketing expenses increased by $152,483 from $433,905 in the prior
period to $586,388. The increase in sales and marketing is a result of the
Company's marketing campaign to create brand and product awareness.
? Professional fees which include accounting, legal and consulting fees,
decreased from $1,111,098 for the three months ended September 30, 2021 to
$858,605 for the three months ended September 30, 2022. The decrease was due
to the transition of various third-party consultant services to in-house
operations.
? The Company realized a gain on foreign exchange of $16,805 during the three
months ended September 30, 2022, an increase of $5,630 compared to a gain of
$11,175 during the prior period.
Other Income and Expenses
Other income and expenses for the three months ended September 30, 2022, was a
gain of $65,168 compared to a loss of $24,316 for the prior period, an increase
of $89,484. The change can be attributed to higher than expected interest income
and rental income from a sub-leased facility.
Net Loss
Net loss for the three months ended September 30, 2022, was $2,877,660 compared
to $2,064,281 for the three months ended September 30, 2021, a change of
$813,379 or 39%. The increase in the net loss can be attributed to the increase
in various operating expenses as the Company focuses on expanding its
operations, research and development, manufacturing and supply chain.
Nine Months Ended September 30, 2022, compared to Nine Months Ended September
30, 2021
Revenue
For the nine months ended September 30, 2022, revenue generated from sales was
$77,439, compared to $287,297 for the nine months ended September 30, 2021.
Total revenues decreased by approximately 73% compared to the same period in the
prior year.
Revenue decreased for the three months ended September 30, 2022, compared to the
same period the prior year due to the Company's focus on building up its
inventory in anticipation of launching its e-commerce platform, research and
development, and repositioning for domestic manufacturing. The Company is
anticipating the launch of its e-commerce platform and domestic manufacturing in
early-to-mid 2023.
For the nine months ended September 30, 2022, total revenue generated in the
United States decreased by 73% from $246,652 in the prior period to $65,458. For
the nine months ended September 30, 2022, total revenue generated in the Canada
decreased by 71% from $40,645 in the prior period to $11,981. Similar to the
above, the decrease in revenue was a result of the Company shifting its focus to
inventory buildup in anticipation of launching its e-commerce platform.
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For the nine months ended September 30, 2022, online revenues decreased by 73%
from $246,701 in the prior period to $65.458. Online revenue accounted for 85%
and 86% of total revenue for the nine months ended September 30, 2022, and 2021,
respectively. For the nine months ended September 30, 2022, distributor revenues
were $11,981 compared to $0 in the prior period.
Cost of Sales
For the nine months ended September 30, 2022, cost of sales decreased by 79%
from $279,364 in the prior period to $58,566. Cost of sales, as a percentage of
sales, was approximately 76% for the nine months ended September 30, 2022,
compared to 97% for the same period in 2021, respectively. The decrease in the
cost of sales as a percentage of sales was primarily due to increased efficiency
associated with acquiring and manufacturing inventory for the nine months ended
September 30, 2022, compared to the same prior period.
Gross Margin
Gross margin percentage for the nine months ended September 30, 2022, was 24%
compared to a 3% for the same period in 2021. The increase in gross margin
reflects the Company's efforts to control the cost of manufacturing and
acquiring inventory.
Operating Expenses
Operating expenses increased for the nine months ended September 30, 2022, by
$5,215,392 from $3,852,280 in the prior periods to $9,067,672.
? General and administrative expense increased by $2,048,120 from $924,041 in
the prior period to $2,972,161. The increased expenses are related to research
and development and salaries as the Company seeks to expand its operations and
further develop its products.
? Sales and marketing expenses increased by $1,191,531 from $761,712 in the
prior period to $1,953,243. The increase in sales and marketing is a result of
the Company's marketing campaign to create brand and product awareness.
? Professional fees which include accounting, legal and consulting fees,
increased from $2,168,697 for the nine months ended September 30, 2021 to
$4,160,059 for the nine months ended September 30, 2022. The increase was due
to the engagement of various third-party consultants to expand the Company's
business operations.
? The Company realized a gain on foreign exchange of $17,791 during the nine
months ended September 30, 2022, an increase of $15,621 compared to a gain of
$2,170 during the prior period. The gain on the foreign exchange can be
attributed to operating expenses denominated in the Canadian Dollar.
Other Income and Expenses
Other income and expenses for the nine months ended September 30, 2022, a loss
of $18,789 compared to a loss of $255,112 the prior period, a decrease of
$236,323. The change can be attributed to the Company's interest expense
partially offset by rental and interest income.
Net Loss
Net loss for the nine months ended September 30, 2022, was $9,067,588 compared
to $4,099,459 for the nine months ended September 30, 2021, a change of
$4,968,129 or 121%. The increase in the net loss can be attributed to the
increase in various operating expenses as the Company focuses on expanding its
operations, research and development, manufacturing and supply chain.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, the Company had $17,279,261 in cash, restricted cash
and cash equivalents. The Company has generated only limited revenues and has
relied primarily upon capital generated from public and private offerings of its
securities.
Since the Company's acquisition of Worksport in fiscal 2014, it has never
generated a profit.
As of September 30, 2022, the Company had an accumulated deficit of $29,917,393.
Cash Flow Activities
Accounts receivable increased at September 30, 2022 by $390 and decreased at
September 30, 2021 by $32,479. The increase in accounts receivable was due to
sales near the end of the quarter. Other receivable increased at September 30,
2022 by $94,150 and decreased by $69,604 at September 30, 2021. Other
receivables increased at September 30, 2022 due to increased receivables from a
sales tax refund.
Inventory increased at September 30, 2022 by $785,014 and at September 30, 2021
by $156,822 as a result of the Company stockpiling inventory in anticipation of
the launch of its e-commerce platform. Prepaid expenses increased by $1,063,680
at September 30, 2022 and at September 30, 2021 by $223,582, due to deposits
made by the Company for the purchase of manufacturing equipment and professional
services.
Accounts payable and accrued liabilities increased at September 30, 2022 by
$647,996 and by $221,979 at September 30, 2021.
Cash decreased from $30,920,477 on September 30, 2021 to $17,279,261 at
September 30, 2022, a decrease of $13,641,216 or 44%. The decrease was due to
the Company's focus on acquiring assets for domestic production such as the
building in West Seneca, NY, industrial automation equipment, building up its
inventory in anticipation of launching its e-commerce platform, and research and
development.
As of September 30, 2022, the Company had current assets of $22,096,328 and
current liabilities of $2,504,881.
Operating Activities
Net cash used by operating activities for the nine months ended September 30,
2022, was $6,361,539, compared to $2,117,305 in the prior period.
Investing Activities
Net cash used in investing activities for the nine months ended September 30,
2022, was $10,212,245 compared to $764,089 in the prior period. The increase in
investing activities was primarily due to the purchase of property and
equipment.
Financing Activities
Net cash generated by financing activities for the nine months ended September
30, 2022, was $5,285,712 compared to of $32,694,059 in the prior period.
Based on the Company's future operating plans and existing cash of $17,279,261,
management believes that the Company has sufficient funds to meet its
contractual obligations and working capital requirements for the next 12 months
and the foreseeable future.
Off-Balance Sheet Arrangements
None.
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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 10-K filed on March 31, 2022. 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.
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