Aug. 16, 2021, 3:59 p.m. EDT

10-Q: WORKSPORT LTD

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 September 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 2020 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.

COVID-19

The Company believes that the COVID- 19 pandemic has had certain impacts on its business, but management does not believe there has been a material long-term impact from the effects of the pandemic on the Company's business and operations, results of operations, financial condition, cash flows, liquidity or capital and financial resources.

During the six months ended June 30, 2021, aspects of the Company's business continued to be affected by the COVID-19 pandemic with respect to its manufacturing practices and sales. Combined with decreased consumer confidence, Management expects the Company to generate less revenues than in previous periods.

The full extent of the future impact of the COVID-19 pandemic on the Company's operational and financial performance is currently uncertain and will depend on many factors outside the Company's control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on the global economy and demand for consumer products.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Revenue

For the three months ended June 30, 2021, revenue generated from sales was $186,239, compared to $66,102 for the three months ended June 30, 2020. Total revenues increased by approximately 182% compared to the same period in the prior year.

Revenue increased for the three months ended June 30, 2021 compared to the same period the prior year due to [_______________].

For the three months ended June 30, 2021 total revenues generated in Canada increased by 7,906% from $546 in the prior period to $43,713. For the three months ended June 30, 2021, total revenue generated in the United States increased by 135% from $65,556 in the prior period to $153,775. The increase in revenue generated in Canada and United States can be attributed to the Company's focus on enhancing its manufacturing and logistics supply chain for the introduction of new products into the market [IS THIS TRUE]

For the three months ended June 30, 2021, online revenues increased by 138% from $64,597 in the prior period to $153,810. Online revenue accounted for 78% of total revenue for the three months ended June 30, 2021 compared to 95.4% for the same period in 2020.

For the three months ended June 30, 2021, revenues based on distributors were $43,378 compared to $93 for the same period in 2020.

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 three months ended June 30, 2021 cost of sales increased by 133% from $58,883 in the prior period to $137,333. Cost of sales, as a percentage of sales, was approximately 74% for three months ended June 30, 2021 compare to 89% for the same period in 2020, respectively. The increase in cost of sales was primarily due to increased sales for the three months ended June 30, 2021 compare to the same prior period.

Shipping and freight costs accounted for 26% of total cost of sales during the three months ended June 30, 2021, compared to 28% for the same period in 2020. The decrease in the percentage of the cost of sales was due to [_____].

Gross Margin

Gross margin percentage for the three months ended June 30, 2021 was 26% compared to 11% for the same period in 2020. The increase in gross margin reflects the Company's focus on enhancing its manufacturing and logistics supply chain in decreasing cost of sales.

Operating Expenses

Operating expenses increased for the three months ended June 30, 2021 by $710,966 from $140,496 in the prior periods to $851,462.

? General and administrative expense increased by $259,198 from $12,824 in the prior period to $272,022. The increase related to research and development and salaries as the Company seeks to expand its operations and products. ? The Company realized a loss on foreign exchange of $3,799 during the three months ended June 30, 2021, a increase of $3,517 compared to $282 during the prior period. The increase on loss on foreign exchange can be attributed to operating expenses denominated in the Canadian Dollar.

Other Income and Expenses

Other income and expenses for the three months ended June 30, 2021 was $18,100 compared to $58,908 the prior period, a decrease of $40,808. The difference can be attributed to the Company's increased interest expense [IS THIS TRUE?].

Net Loss

Net loss for the three months ended June 30, 2021 was $811,659 compared to $192,185 for the three months ended June 30, 2020, a change of $619,474 or 322%. The increase in the net loss can be attributed to the increase of various operating expenses as the Company focuses on expanding its operations, research and development and supply chain.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Revenue

For the six months ended June 30, 2021, revenue generated from sales was $193,889, compared to $107,129 for the six months ended June 30, 2020. Total revenues increased by approximately 81% compared to the same period in the prior year.

Revenue increased for the six months ended June 30, 2021 compared to the same period the prior year due to [_______________].

For the six months ended June 30, 2021 total revenues generated in Canada increased by 265% from $11,815 in the prior periods to $43,078. For the six months ended June 30, 2021, total revenue generated in the United States increased by 69% from $95,314 in the prior period to $161,465. The increase in revenue generated in Canada and United States can be attributed to the Company's focus on enhancing its manufacturing and logistics supply chain for the introduction of new products into the market.

For the six months ended June 30, 2021, online revenues increased by 93% from $83,654 in the prior period to $161,519. Online revenue accounted for 79% of total revenue for the six months ended June 30, 2021 compared to 83% for the same period in 2020.

For the six months ended June 30, 2021, revenues based on distributors were $[__] compared to $11,355 for the same period in 2020.

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 six months ended June 30, 2021 cost of sales increased by 130% from $85,894 in the prior periods to $197,554. Cost of sales, as a percentage of sales, was approximately 102% for six months ended June 30, 2021 compared to 80% for the same periods in 2020, respectively. The increase in cost of sales was primarily due to increased sales for the three and six months ended June 30, 2021 compare to the same prior period.

Shipping and freight costs accounted for 35% of total cost of sales during the six months ended June 30, 2021, compared to 23% for the same period in 2020. The increase in the percentage of the cost of sales was due to increased sales correlating in increased shipping expenses.

Gross Margin

Gross margin percentage for the six months ended June 30, 2021 was negative 2% compared to 20% for the same period in 2020. The decrease in gross margin reflects [_______] .

Operating Expenses

Operating expenses increased for the six months ended June 30, 2021 by $1,521,750 from $278,967 in the prior periods to $1,800,717.

? General and administrative expense increased by $359,576 from $46,730 in the prior period to $406,306. The increase related to research and development and salaries as the Company seeks to expand its operations and products. ? The Company realized a loss on foreign exchange of $9,005 during the six months ended June 30, 2021, a decrease of $16,449 compared to a gain of $7,444 during the prior period. The increase on loss on foreign exchange can be attributed to operating expenses denominated in the Canadian Dollar. ? Professional fees which include accounting, legal and consulting fees, increased from $228,934 for the six months ended June 30, 2020 to $1,057,599 for the six months ended June 30, 2021. The increase was due to the employment of various third party consultants to help expand the Company's business operations.

Other Income and Expenses

Other income and expenses for the six months ended June 30, 2021 was $249,000 compared to $86,719 the prior period, an increase of $162,281. The difference can be attributed to the Company's increased interest expense.

Net Loss

Net loss for the six months ended June 30, 2021 was $2,035,178 compared to $344,451 for the six months ended June 30, 2020, a change of $1,690,727 or 491%. The increase in the net loss can be attributed to the increase of various operating expenses as the Company focuses on expanding its operations, research and development and supply chain.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2021, the Company had $12,266,597 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.

Since the Company's acquisition of Worksport in fiscal 2014, it has never generated a profit.

As of June 30, 2021 the Company had an accumulated deficit of $14,901,211.

Cash Flow Activities

Accounts receivable increased at June 30, 2020 by $35,406 and decreased at June 30, 2021 by $16,504. The decrease was due to the Company's collection of receivables from customers. Other receivable decreased at June 30, 2021 and 2020 by $116,997 and $9,657 respectively, due to funds received from a sales tax refund and capital raised in the Reg-A offering.

Inventory decreased at June 30, 2020 by $60,136 and increased at June 30, 2021 by $212,344. Prepaid expenses increased by $220,841 at June 30, 2021 and increased at June 30, 2020 by $20,925, due to increased consulting and marketing expenditures during the quarter ended June 30, 2021.

Accounts payable and accrued liabilities decreased at June 30, 2021 and 2020 by $34,428 and $1,042 respectively.

Cash increased from $21,111 at June 30, 2020 to $12,266,597 at June 30, 2021, an increase of $12,245,486 or 58,005%. The increase in cash was primarily due to its warrants exercised, Reg A and private placement offerings which generated of approximately $12,300,000.

As of June 30, 2021, the Company had current assets of $13,120,449 and current liabilities of $1,684,764.

Operating Activities

Net cash used by operating activities for the six months ended June 30, 2021 was $995,925, compared to $229,553 in the prior period. The primary difference was due to the issuance of shares and warrants for services.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2021 was $321,575 compared to $8,764 in the prior period. The increase in investing activities was primarily due to the purchase of property and equipment of $257,305 and the advance of $5,507 of a short term receivable.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2021was $12,476,286 compared to $247,435 in the prior period.

During the six months ended June 30, 2021 the Company received $12,689,106 of proceeds from Reg-A public offering, private placement offering and exercises of warrants incurring share issuance cost of $123,984. During the six months ended June 30, 2021 the Company made repayment of $62,905 of promissory notes and repayment of $25,931 of shareholder loans.

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 $12,266,597; 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.

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 April 13, 2021. 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.

Aug 16, 2021

COMTEX_391667088/2041/2021-08-16T15:58:54

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2021 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.