Worksport Ltd. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 31, 2022. The company designs and sells truck tonneau covers and is developing solar, energy-storage, and other clean-energy products. Financial statements are in U.S. dollars and audited under U.S. GAAP; the auditor expressed an unqualified opinion.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $303,750 | $346,144 |
| Gross profit (loss) | $(46,952); gross margin approximately -15% | $47,148; gross margin approximately 14% |
| Operating expenses | $7,514,779 | $1,033,387 |
| Net loss | $(7,897,085) | $(1,187,620) |
| Basic and diluted loss per share | $(0.69) | $(0.43) |
| Cash and cash equivalents at year-end | $28,567,333 | $1,107,812 |
| Net cash used in operating activities | $(4,046,705) | $(695,112) |
- Current assets were $34.0 million and current liabilities $1.8 million, yielding reported working capital of $32.2 million; FY2020 had a $33,289 working-capital deficit. Total assets were $36.3 million and total liabilities $2.1 million.
- Financing activities provided $32.6 million, principally from securities offerings and warrant exercises. Investing activities used $1.1 million, mainly for property and equipment.
- Year-end obligations included $263,211 of current promissory notes, a $28,387 government loan, and $529,917 in lease liabilities ($212,929 current; $316,988 long-term). The convertible note was settled during 2021.
- The company has never reported a profit and had an accumulated deficit of $20.85 million. Management said existing cash and anticipated resources should fund operations for at least 12 months from issuance, while warning that future capital may be needed and cannot be assured on acceptable terms.
Changes versus FY2020
- Revenue fell approximately 12%. Management attributed the decline to inventory-building and preparations for e-commerce and domestic manufacturing; higher shipping, delivery, and other supply-chain costs also weighed on sales. U.S. revenue declined about 17%, while Canadian revenue increased about 41%.
- Cost of sales rose 17% despite lower revenue. Freight and shipping represented 79% of cost of sales, versus 28% in 2020, driving gross margin from positive 14% to negative 15%.
- Operating expenses increased $6.5 million. Professional fees rose to $4.27 million, including substantial consulting and offering-related costs; general and administrative and sales and marketing expenses also increased as the company expanded and promoted its products.
- Net loss widened to $7.90 million. The statements include $3.92 million of shares, options, and warrants issued for services as a noncash operating cash-flow adjustment; reported prepaid consulting, services, and advertising reached $4.33 million at year-end.
- Cash increased sharply following 2021 public and private offerings and warrant exercises. The August Nasdaq underwritten offering generated approximately $16.1 million in net proceeds; broader financing proceeds reported for the year were approximately $32.9 million.
Outlook, risks, and unusual items
- Products and plans: Management expected the SC4 vinyl cover and TC3 aluminum cover to launch in Q2 2022. The developing Terravis system combines the SOLIS solar tonneau cover and COR portable battery, with stated SOLIS output up to 600 watts and system storage up to 6 kWh. These are plans and product claims, not reported FY2021 sales results; the filing provides no formal financial guidance.
- Manufacturing: Products were manufactured in China at year-end, with inventory sourced from one Asian supplier. Management planned to purchase a 222,000-square-foot West Seneca, New York facility for $8.125 million, proposing a $5.3 million mortgage at prime plus 5.5% and a $2.825 million down payment. The purchase was not yet complete as of the filing; subsequent-event disclosure described closing steps in progress.
- Operating risks: Management cited inflation, fuel prices, freight and container costs, COVID-19 uncertainty, and potential production or shipment delays. Three customers accounted for 77.6% of FY2021 revenue. Reliance on a single inventory supplier and concentrated customers increases exposure to disruptions or lost business.
- Funding, dilution, and governance: The company relies heavily on equity financing and warrant exercises. Outstanding warrants, options, and other equity awards may dilute shareholders. CEO Steven Rossi retained 51% of voting power through Series A preferred stock, notwithstanding the common-share ownership figures disclosed in the filing.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses involving written procedures, control documentation, system access, and segregation of duties. Management targeted remediation in the first half of 2022; no auditor attestation on internal controls was included.
- Legal and accounting matters: The filing says there were no material pending or threatened legal proceedings, but the notes describe an unresolved proceeding with a promissory-note holder and a dispute with a secured-note holder. Equity and debt transactions were identified as a critical audit matter because their valuation and accounting involved complex estimates. These disclosures should be read together.
- Worksport stated it was testing for compliance with dangerous-goods transport rules for lithium-ion batteries. It also reported $139,440 of Canadian wage and rent subsidies in 2021.
Most important facts for investors to verify
- Whether the West Seneca facility purchase and proposed mortgage closed, and the resulting total financing, interest, and operating commitments.
- Whether the planned Q2 2022 product launches occurred and whether SOLIS, COR, and tonneau-cover sales achieved meaningful revenue and margins.
- Actual cash use after year-end, remaining warrant proceeds available and likely, and whether management’s stated 12-month liquidity outlook remains supportable.
- Progress in remediating the disclosed material weaknesses in financial reporting controls.
- Status and potential financial exposure of the note-holder dispute, plus customer and supplier concentration and freight-cost trends.
- Equity-based consulting and marketing arrangements, prepaid-service balances, outstanding awards, and potential shareholder dilution.