Worksport Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited, U.S. GAAP. Worksport designs and sells truck tonneau covers and is developing solar, portable-power, and other energy products.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $512,637 | $31,925; up approximately 1,506% |
| Gross profit / margin | $37,456 / 7.3% | $12,168 / 38.1% |
| Operating expenses | $3,676,922 | $3,542,116 |
| Net loss | $3,714,657 | $3,523,270 |
| Loss per share, basic and diluted | $0.18 | $0.21 |
| Cash used in operations | $2,794,604 | $2,934,410 |
| Cash and cash equivalents, March 31 | $3,536,980 | Up $171,202 from year-end 2023 |
Current assets were $10.7 million and current liabilities $7.8 million, producing working capital of $2.9 million. Inventory rose to $6.5 million from $3.6 million, chiefly reflecting stockpiled finished goods for 2024 sales campaigns. The company reported $5.3 million of loan principal as a current liability; accrued interest brought the stated balance to $5.35 million. The secured loan bears interest at prime plus 2.25% and is secured in connection with the West Seneca facility. Cash includes $558,358 in a designated loan-servicing account.
Material changes and business developments
- Revenue growth was driven mainly by private-label sales, which were $466,751, or 91% of revenue. Online retailer sales were $45,886; distributor sales were nil. The company attributed the lower gross margin largely to the private-label mix and elevated overhead per domestically manufactured unit.
- General and administrative expense increased by $544,706, principally due to research and development, production staffing, and wages. Sales and marketing expense fell by $477,574 after certain marketing agreements ended; professional fees increased by $75,167.
- Financing generated $3.18 million of net cash, including approximately $3.2 million from share and warrant issuance. The March registered direct offering produced total net proceeds of $2.63 million and included 2,372,240 common shares, 1,477,892 pre-funded warrants, and 7,700,264 warrants. Common shares outstanding were 24,100,201 at quarter-end, versus 20,320,503 at December 31, 2023.
- Management reported receipt of solar panels to begin initial SOLIS solar tonneau cover production, a Canadian wholesaler catalog arrangement, and product-development/manufacturing collaborations for its COR portable power system.
Outlook, risks, and unusual items
- No specific revenue, earnings, or cash-flow guidance is provided. Management expects to ramp manufacturing and sales in 2024, increase production capacity, and pursue business-to-consumer and business-to-business channels. It expects elevated operating costs to continue, while anticipating that higher volumes and manufacturing efficiencies could help offset them.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance. Worksport has never generated an operating profit, reported a $52.0 million accumulated deficit, and depends on operations and further debt or equity financing. Management cautions that additional financing may not be available on acceptable terms or at all.
- The lender had agreed to forbear from specified enforcement actions following defaults, including failure to maintain a 1.20-to-1 debt-service coverage ratio. On May 14, 2024, the loan maturity was extended to August 10, 2024. A $106,000 extension fee and a separate $106,000 exit fee may be payable if the loan is not repaid by the extended date or is accelerated; both are waived under specified timely-repayment conditions.
- A New York State Excelsior Jobs Program award of up to $2.8 million was announced after quarter-end. The cash benefits depend on creating up to or more than 280 jobs from 2025 to 2030 and are expected to be received over ten years if the conditions are achieved.
- Management concluded disclosure controls and procedures were not effective at quarter-end. It reported no material change in internal control over financial reporting during the quarter and described additional post-closing procedures.
- Risks cited include ongoing losses and financing needs, variable-rate borrowing costs, dependence on suppliers and supply chains, commodity and shipping costs, foreign-exchange exposure, and execution risk in scaling manufacturing and launching new products. The company reported no material pending or threatened legal proceedings and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether the company can convert the sharply higher revenue into sustainable gross margins and repeatable sales, particularly given the high concentration in one private-label channel.
- Current cash runway and funding requirements, including operating cash burn, the inventory build, and access to additional equity or debt financing.
- Repayment or refinancing of the $5.3 million secured loan by August 10, 2024, status of the lender forbearance and defaults, and any extension or exit fees incurred.
- Potential dilution from outstanding warrants, pre-funded warrants, options, and other share-based awards; the filing reported 20.1 million warrants and 5.1 million company stock options outstanding at March 31.
- Progress on production, sales-channel expansion, and SOLIS/COR launches, as well as whether the conditional state grant’s employment targets can be met.
- Remediation of ineffective disclosure controls and procedures.