Cautionary Note Regarding Forward-Looking Statements
The following discussion contains forward-looking statements regarding us, our
business, prospects and results of operations that are subject to certain risks
and uncertainties posed by many factors and events that could cause our actual
business, prospects and results of operations to differ materially from those
that may be anticipated by such forward-looking statements. Factors that may
affect such forward-looking statements include, without limitation, our ability
to successfully develop new products and services for new markets; the impact of
competition on our revenues, changes in law or regulatory requirements that
adversely affect or preclude clients from using us for certain applications;
delays our introduction of new products or services; and our failure to keep
pace with our competitors. When used in this discussion, words such as
"believes," "anticipates," "expects," "intends" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this report. We undertake no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by us in this report and other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect our business.
13
Results of Operations
Revenue
For the year ended December 31, 2020, total revenues were $346,144, compared to
$1,926,405 for the year ended December 31, 2019. Total revenues decreased by
approximately 82% due to the COVID-19 pandemic and the loss of a significant
customer during the year ended December 31, 2020.
As a result of the COVID-19 pandemic, factory output decreased, shipping costs
increased and the ability to distribute products to dealers, wholesalers and
retailers was constrained due to labor shortages.
For the year ended December 31, 2020 total revenues generated in Canada
decreased 56% from $65,842 USD to $28,917 USD for the same period in 2019. For
the year ended December 31, 2020, total revenue generated in the United States
decreased 83% from $1,860,563 USD to $317,227 for the same period in 2019.
For the year ended December 31, 2020, online revenues of increased from $174,793
in 2019 to $337,053, an increase of 93%. Online revenue accounted for 90% of
total revenue for the year ended December 31, 2020 compared to 8% for the year
ended December 31, 2019.
For the year ended December 31, 2020, revenues based on distributors decreased
from $64,610 in 2019 to $29,699.
For the year ended December 31, 2020, private label revenues decreased from
$1,912,40 to $0.
Worksport currently works with a total of nine dealers and distributors,
however, given current market conditions Worksport plans to focus on online
sales during 2021. Management believes that increasing sales through online
retailers will continue to outpace the traditional distribution business model
during 2021. Management further believes that online retailer's customers tend
to provide larger sales volumes, greater profit margins and greater protection
against price erosion.
Cost of Sales
For the year ended December 31, 2020 total cost of sales decreased by 82% from
$1,687,857 to $298,996 for the year ended December 31, 2019. The decrease in
cost of sales directly relates to the decrease in revenues generated.
Cost of sales, as a percentage of sales, was approximately 82% and 88% for the
years ended December 31, 2020 and 2019, respectively. The decrease in percentage
of sales resulted in a gross margin increase from 12% for the years ended
December 31, 2019 to 14% for the year ended December 31, 2020. This increase in
gross margin is related to the fluctuation in foreign exchange rates between the
Canadian Dollar and the United States dollars for purposes of financial
reporting as well as the decrease in the overall cost of goods sold, especially
associated with warehousing and fulfillment.
Shipping and freight costs accounted for 28% of total cost of sales during the
year ended December 31, 2020, compared to 3% in 2019. This increase is primarily
attributed to an increase in international shipping expense.
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 Sates or from the United States to Canada.
Volume discounts are also offered to certain higher volume customers. Worksport
also offers a "dock price" or "pickup program," where certain distributors or
retailers are able to pick up product directly from one of Worksport's stocking
warehouses.
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Operating Expenses
For the year ended December 31, 2020 general and administrative expenses were
$201,929 compared to $238,841 for the year ended December 31, 2019.
Material changes in general and administrative expenses consisted of the
following:
? Wages decreased from $72,081 for the year ended December 31, 2019 compared to
$66,182 for the year ended December 31, 2020.
? General expenses decreased from $127,396 for the year ended December 31, 2019
compared to $108,197 for the year ended December 31, 2020. The decrease was
due to a decrease in the Company's operations as a result of COVID-19.
? Shipping and freight charges decreased by 35% or $9,312 to $17,329 for the
year ended December 31, 2020 compared to $26,641 year ended December 31, 2019.
The decrease was a result of decreased Company operations due to COVID-19
resulting in decrease shipping cost being incurred.
? Professional fees which include accounting, legal fees, consulting fees, and
listing and filing fees, increased from $515,279 for the year ended December
31, 2019 to $679,654 for the year ended December 31, 2020-an increase of 32%.
Accounting and audit fees decreased by 33% from $173,434 in 2019 to $115,957in
2020. Consulting fees increased by 194% or from $260,556 in 2019 to $394,864
2020. Legal fees decreased from $124,373 in 2019 to $104,648 in 2020.
Other Income and Expenses
During the year ended December 31, 2020 a convertible promissory note was
converted into 2,520,434 shares of common stock at $0.09 per share for $226,839.
The original value of the convertible promissory note converted was $182,565 as
a result of the conversion the Company recognized a loss of $44,274 on
settlement of debt.
During the year ended December 31, 2020, the Company reached a legal settlement
agreement with an investor. In accordance with the settlement agreement,
4,166,667 post-stock split (25,000,000 pre-stock split), reserved shares were
released and returned to the Company. This transaction resulted in a gain on
debt settlement of $229,142.
During the year ended December 31, 2019, the Company reached a legal settlement
agreement (the "unwinding") with an individual investor to dissolve the Debt
Settlement and Mutual Release Agreement entered into on January 12, 2018. In
accordance with the settlement agreement, 19,055,551 pre-stock split, reserved
shares were released and returned to the Company. In addition, 5,944,449
pre-stock split (990,742 post-stock split) shares already issued were returned
to the Company's treasury, and cancelled, reducing the companies issued and
outstanding shares accordingly. This transaction resulted in a gain on debt
settlement of $250,778. The Company closed the unwinding in August 2019.
Net Loss
Net loss for the year ended December 31, 2020 was $1,187,620 compared to a net
loss of $359,034 for the year ended December 31, 2019 which is a of 231%
increase in net loss when compared year over year. The increase in net loss was
a result of the following:
? Increase in operating expenses from $776,398 for 2019 to $1,033,387 for 2020.
An increase of $256,989 or 33%.
? Decrease in gross profit from $238,548 for 2019 to $47,148 for 2020. A
decrease of $191,400 or 80%.
Liquidity and Capital Resources
At December 31, 2020, we had $1,107,812 in 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
15
Since the Company's acquisition of Worksport in fiscal 2014, it has never
generated a profit.
The Company had an accumulated deficit of $12,866,033 as of December 31, 2020.
During the year ended December 31, 2020, the Company completed a Reg-A offering
in which $1,107,812 was raised.
During the year ended December 31, 2020, the Company completed two private
offerings of equity securities, pursuant to Section 4(a)(2) and Rule 506(b) of
Regulation D under the Securities Act in which an aggregate of $250,000 was
raised.
Cash increased from $11,993 at December 31, 2019 to $1,107,812 at December 31,
2020, an increase of $1,095,818 or 9,137%. The increase in cash was primarily
due to funds raised from the Company's public Reg-A offering.
As of December 31, 2020, the Company had cash and cash equivalents of $1,107,812
and a working capital deficiency of $33,289. Net cash used by operating
activities for the year ended December 31, 2020 was $726,304, compared to cash
used in operations for the year ended December 31, 2019 of $2,157. The primary
difference was due to the Company's Net Loss as a result of operating expenses
and interest expense.
Net cash used in investing activities for the year ended December 31, 2020 was
$16,727 compared to $124,048 during the same period in 2019. The decrease in
investing activities was primarily attributable to a significant decrease in the
purchase of property and equipment.
Net cash provided by financing activities was $1,838,850 for the year ended
December 31, 2020 compared to $117,841 for the year ended December 31, 2019. The
increase in net cash provided by financing activities was primarily due to the
Company's Reg-A offering and private offerings.
In January and February 2021, in connection with the Company's Reg-A public
offering, the Company raised approximately $3,000,000 in additional capital.
During February 2021, approximately 12,000,000 warrants were exercised at $0.20
per warrant for an approximate value of $2,400,000.
Subsequent to year ended December 31, 2020, the Company raised approximately
$900,000 in connection with a private offering of its common stock.
During 2021, the Company intends to introduce several new tonneau covers as well
as the TerraVis system. The Company anticipates that the introduction of these
new products will improve the Company's financial position.
Based on the Company's future operating plans, existing cash of $1,107,812,
additional funds of approximately $6,300,000 raised subsequent to the year ended
December 31, 2020; 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
The Company does not have any off-balance sheet arrangements with any party.
COVID-19
The recent outbreak of the novel coronavirus, specifically identified as
"COVID-19," has resulted in governments worldwide enacting emergency measures to
combat the spread of the virus. These measures, which include the implementation
of travel bans, self-imposed quarantine periods and social distancing, have
caused material disruption to businesses globally resulting in an economic
slowdown. Global equity markets have experienced significant volatility and
weakness. Governments and central banks have reacted with significant monetary
and fiscal interventions designed to stabilize economic conditions. The duration
and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy
of the government and central bank interventions.
16
Additionally, while the potential economic impact brought by, and the duration
of the COVID-19 pandemic is difficult to assess or predict, the impact of the
COVID-19 pandemic on the global financial markets may reduce our ability to
access capital, which could negatively impact our short-term and long-term
liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and
subject to change. We do not yet know the full extent of potential delays or
impacts on our business, financing or mining production activities or the ore
and mining industry or the global economy as a whole. However, these effects
could have a material impact on our liquidity, capital resources, operations and
business and those of the third parties on which we rely. The management and
Board of the Company is constantly monitoring this situation to minimize
potential losses.
Critical Accounting Policies
Our discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these 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 3 to our financial
statements as included in this annual report. 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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