Worksport Ltd. — FY2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023, not a standalone 2023 fourth quarter. Worksport develops and sells truck-bed tonneau covers and is developing solar-integrated SOLIS covers and COR portable power systems. It also reports early-stage energy initiatives. The company began domestic production of hard covers in 2023; management said consistent AL3 Pro production was underway by March 2024.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $1.530 million | $116,502 |
| Cost of sales | $1.289 million | $56,967 |
| Gross profit / calculated gross margin | $240,514 / 15.7% | $59,535 / 51.1% |
| Operating expenses | $14.977 million | $12.833 million |
| Operating loss | $14.737 million | $12.774 million |
| Net loss | $14.929 million | $12.534 million |
| Basic and diluted loss per share | $0.84 | $0.73 |
| Net cash used in operating activities | $11.931 million | $7.978 million |
| Cash and cash equivalents | $3.366 million | $14.621 million |
- Revenue grew approximately 1,213%, mainly from private-label soft-cover sales. Private-label sales were $1.419 million, or 93% of revenue; one customer accounted for 93% of total revenue.
- Gross margin fell as a greater share of sales came from lower-priced private-label products and domestic hard-cover manufacturing carried high overhead during its ramp-up.
- General and administrative expense rose to $9.644 million from $4.979 million, partly reflecting R&D, hiring and production expansion. Sales and marketing and professional fees declined year over year.
- At year-end, current assets were $9.124 million and current liabilities $7.167 million, leaving working capital of $1.957 million, down from $15.870 million. Inventory increased to $3.631 million from $1.346 million.
- Total liabilities were $7.775 million. The $5.3 million secured mortgage was classified as current at year-end; the filing says principal and accrued interest were due in May 2024. The mortgage bears interest at prime plus 2.25%; the filing gives differing maturity dates in separate sections (May 10 and May 20, 2024).
- Operating cash use increased year over year. Investing cash use was $3.756 million, primarily for equipment and production assets; financing provided $4.432 million, including net equity proceeds.
Material changes, outlook and key risks
- Going concern: The company has an accumulated deficit of $48.313 million and has never generated a profit since its acquisition of Worksport. The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern. Management depends on increased sales and further equity and/or debt financing; there is no assurance either will be sufficient or available on acceptable terms.
- Funding after year-end: A March 2024 registered direct and concurrent private offering generated approximately $2.59 million in net proceeds, according to the filing. It included warrants to purchase up to 7,700,264 shares at $0.74 per share, creating potential dilution; cashless exercises would provide no proceeds to the company.
- Management outlook: Management expects to ramp manufacturing and sales in 2024 and seeks to broaden distribution and online channels. No quantified revenue, earnings or cash-flow guidance is provided. SOLIS, COR and other new product commercialization remains subject to development, manufacturing, regulatory and customer-acceptance risks.
- Customer and operating concentration: Dependence on one customer for 93% of 2023 revenue makes results vulnerable to order reductions or loss of that relationship. Soft-cover finished goods are sourced from two suppliers in China; tariffs, shipping disruption and geopolitical risks may affect costs and availability.
- Financing and dilution: Cash fell 77% during 2023, while operating cash use exceeded $11.9 million. The mortgage refinancing/repayment timetable and availability of additional capital are important near-term uncertainties. The company also had substantial outstanding warrants and options.
- Controls and cybersecurity: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2023, citing insufficiently precise written procedures, inadequate control documentation and access/segregation-of-duties deficiencies. Remediation was ongoing, with management targeting 2024. The company also disclosed that it lacked formalized cybersecurity measures and had not completed comprehensive risk assessments or an incident-response plan.
- Other notable matters: The auditor identified inventory valuation, equity transactions and going concern as critical audit matters. No material pending legal proceedings or off-balance-sheet arrangements were reported. The filing states that no cash dividends are expected in the foreseeable future.
Important facts for investors to verify
- Whether the mortgage was repaid or refinanced by its stated May 2024 maturity, and the exact applicable due date and current balance.
- Subsequent cash, operating cash burn and financing needs, including the use of March 2024 offering proceeds and any further capital raises.
- Whether revenue growth continues beyond the concentrated 2023 private-label orders, and whether customer concentration declines.
- Realized gross margins and production costs as domestic hard-cover manufacturing scales; assess inventory levels, turnover and potential obsolescence.
- Actual commercialization timing, sales and unit economics for AL3, SOLIS and COR, rather than development milestones or illustrative product-performance estimates.
- Progress in remediating material weaknesses and establishing effective cybersecurity governance and controls.
- Potential dilution from outstanding and subsequently issued warrants, options, restricted shares and equity-plan capacity.