Worksport Ltd

Previous wording

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 December 31st and the associated quarters, months and periods of those fiscal years. Each of the terms “Company” and “Worksport” as used herein refers collectively to Worksport Ltd. and its subsidiaries, unless otherwise stated.

Current wording

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 December 31 st and the associated quarters, months and periods of those fiscal years. Each of the terms “Company” and “Worksport” as used herein refers collectively to Worksport Ltd. and its subsidiaries, unless otherwise stated.

Previous wording

Our conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, making them strong and competitive products in an otherwise consolidated and saturated market. The Worksport COR, however, operates in a much wider yet unsaturated market. The global Portable Power Station market is quickly growing, and the competitive landscape is far from consolidated. The solar tonneau cover market is in its infancy, and it’s a market in which we have first-mover advantage. To ensure we do not fall behind future competitors, we are highly focused on protecting our intellectual property both domestically and abroad.

Current wording

Our conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, making them strong and competitive products in an otherwise consolidated and saturated market. The Worksport COR, however, operates in a much wider yet unsaturated market. The global Portable Power Station market is quickly growing, and the competitive landscape is far from consolidated. Even less consolidated, the solar tonneau cover market is in its infancy, and it’s a market in which we have first-mover advantage. To ensure we do not fall behind future competitors, we are highly focused on protecting our intellectual property both domestically and abroad.

Previous wording

Such an inflationary environment also increases our direct cost of raw goods or processed goods for our OEM manufacturing as well as indirect costs such as overhead and rent. Due to these present and forecasted price increases and the temporary increases in ocean freight and container handling costs faced in recent periods, Worksport factors in all costs when assessing proper pricing of its goods for sale.

Current wording

Such an inflationary environment also increases our direct cost of raw goods or processed goods for our original equipment manufacturing as well as indirect costs such as overhead and rent. Due to these present and forecasted price increases and the temporary increases in ocean freight and container handling costs faced in recent periods, Worksport factors in all costs when assessing proper pricing of its goods for sale.

Previous wording

Additionally, as central banks and the U.S. Federal Reserve increase interest rates to combat global inflation, the cost of debt financing increases. While we currently do not have material debt other than our $5.3 million mortgage on our West Seneca facility, our mortgage’s variable rate increases and decreases along with interest rates, which resulted in an increase of monthly premiums throughout 2022 and 2023. We are still susceptible to variable monthly mortgage interest costs as a result of changes in interest rates. We continue to explore debt financing options at reasonable interest rates in order to strengthen our cash position.

Current wording

Additionally, as central banks and the U.S. Federal Reserve increase interest rates to combat global inflation, the cost of debt financing increases. While we currently do not have material debt other than our $6.0 million Revolving Credit Facility, our facility’s variable rate fluctuates along with the Prime Rate, meaning our monthly interest costs vary not only by our usage of the facility but by interest rates as well. We continue to explore debt financing options at reasonable interest rates in order to strengthen our cash position.

Previous wording

Rising interest rates have also resulted in a shift in institutional holdings away from micro-cap equities, which has negatively influenced our stock’s trading volume. We continue to forge relationships with institutional investors and analysts in order to maintain a healthy trading volume.

Current wording

Elevated interest rates have also resulted in a shift in institutional holdings away from micro-cap equities, which has negatively influenced our stock’s trading volume. We continue to forge relationships with institutional investors and analysts in order to maintain a healthy trading volume.

Previous wording

We are subject to foreign exchange risk as we manufacture certain products and components in China, market extensively in both Canadian and U.S. markets, employ people residing in both the U.S. and Canada and, to date, have raised funds in Canadian Dollars. Meanwhile, we report results of operations in U.S. Dollars. Since our Canadian customers pay in Canadian Dollars, we are subject to gains and losses due to fluctuations in the USD relative to the Canadian Dollar. Our manufacturers in China are paid in USD to better avoid the relatively greater fluctuation of the Chinese Yuan. To the extent the U.S. dollar strengthens against any of these foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our operations.

Current wording

We are subject to foreign exchange risk as we manufacture certain products and components in China, market extensively in both Canadian and U.S. markets, employ people residing in both the U.S. and Canada and, to date, have raised funds in U.S. Dollars. Meanwhile, we report results of operations in U.S. Dollars. Since some of our Canadian customers pay in Canadian Dollars, we are subject to gains and losses due to fluctuations in the USD relative to the Canadian Dollar. Our manufacturers in China are paid in USD to better avoid the relatively greater fluctuation of the Chinese Yuan. To the extent the U.S. dollar strengthens against any of these foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our operations.

Previous wording

For the three months ended March 31, 2024, revenues from our entire line of products was $512,637, as compared to $31,925 for the three months ended March 31, 2023. Year-over-year sales increased by approximately 1,506%. For the three months ended March 31, 2024, revenue generated in Canada was $20,007, as compared to $5,522 for the same period in 2023. For the three months ended March 31, 2024, revenue generated in the United States was $492,630, compared to $26,403 for the same period in 2023, an increase of 1,766%.

Current wording

For the three months ended June 30, 2024, revenues from our entire line of products was $1,921,539, as compared to $199,851 for the three months ended June 30, 2023. Year-over-year sales increased by approximately 862%. For the three months ended June 30, 2024, revenue generated in Canada was $31,853 as compared to $0 for the same period in 2023. For the three months ended June 30, 2024, revenue generated in the United States was $1,889,686, compared to $199,851 for the same period in 2023, an increase of 846%.

Previous wording

Revenue increased during the three months ended March 31, 2024 compared to the same period the prior year due to increased sales of soft tonneau covers to a private label partner. The Company continues to focus on establishing new business-to-consumer and business-to-business sales channels while strengthening the support of those channels to increase customer satisfaction and enable high product turnover. For business-to-consumer channels, we have configured our product offerings in a manner conducive with cost-effective marketing, allowing us to securely invest in marketing during 2024. For business-to-business channels, we have created all necessary marketing/sales materials and policies, and we are now actively presenting our product offerings to various dealers, jobbers, and retailers across the United States and Canada. We intend to gradually increase output capacity through refined production processes and increased personnel.

Current wording

Revenue increased during the three months ended June 30, 2024 compared to the same period the prior year due to increased sales of tonneau covers to a private label partner, various dealers and distributors, and end users via the Company’s online marketplaces. The Company continues to focus on establishing new and strengthening existing business-to-consumer and business-to-business sales channels while also strengthening customer support to increase customer satisfaction and enable high product turnover. For business-to-consumer channels, we have configured our product offerings in a manner conducive with cost-effective marketing, allowing us to securely invest in marketing and sales campaigns. For business-to-business channels, we have created all necessary marketing/sales materials and policies as well as an online dealer marketplace, and we are now actively contacting thousands of leads and presenting our product offerings to various dealers, jobbers, and retailers across the United States and Canada. We intend to gradually increase output capacity through refined production processes and increased personnel.

Previous wording

Sales from online retailers of our products increased from $26,434 during the three months ended March 31, 2023, to $45,886 during the three months ended March 31, 2024. Online retailers accounted for 5% of total revenue for the three months ended March 31, 2024, compared to 83% for the three months ended March 31, 2023. Distributor sales decreased for the three months ended March 31, 2024, compared with the three months ended March 31, 2023, with sales of $0 and $5,491, respectively. Private label sales increased from $0 for the three months ended March 31, 2023, to $466,751 for the three months ended March 31, 2024. Private label sales accounted for 91% of total revenue for the three months ended March 31, 2024. We expect to continue to grow our fields of business as we develop unique products with enhanced utility to offer to other prospective clients in the U.S. and Canadian markets.

Current wording

Sales from online retailers of our products increased from $18,163 during the three months ended June 30, 2023, to $897,213 during the three months ended June 30, 2024. Online retailers accounted for 47% of total revenue for the three months ended June 30, 2024, compared to 9% for the three months ended June 30, 2023. Distributor sales increased for the three months ended June 30, 2024, compared with the three months ended June 30, 2023, with sales of $63,926 and $0, respectively. Distributors accounted for 3% of total revenue for the three months ended June 30, 2024. Private label sales increased from $181,688 for the three months ended June 30, 2023, to $960,400 for the three months ended June 30, 2024. Private label sales accounted for 50% of total revenue for the three months ended June 30, 2024. We expect to continue to grow our fields of business as we develop unique products with enhanced utility to offer to other prospective clients in the U.S. and Canadian markets.

Previous wording

Cost of sales increased by 2,305%, from $19,757 for the three months ended March 31, 2023, to $475,181 for the three months ended March 31, 2024. Our cost of sales, as a percentage of sales, was approximately 93% and 62% for the three months ended March 31, 2024 and 2023, respectively. The increase in the cost of sales as a percentage of sales was primarily due to increased sales to private labels at a lower agreed upon sales price compared to online retail sales. We consistently secure a 20% gross margin on soft covers sold to private labels, as these soft covers are drop shipped from our Chinese suppliers at a fixed cost. However, our margins on domestically manufactured hard covers is dependent on the cost of raw materials, which fluctuates, as well as overhead, which is expected to decrease in future quarters as we realize manufacturing efficiencies and allocate more existing human capital and machinery resources away from design engineering and testing towards production. Our overhead per domestic unit was particularly high during the three months ended March 31, 2024 due to this allocation of resources.

Current wording

Cost of sales increased by 960%, from $153,288 for the three months ended June 30, 2023, to $1,624,910 for the three months ended June 30, 2024. Our cost of sales, as a percentage of sales, was approximately 85% and 77% for the three months ended June 30, 2024 and 2023, respectively. The increase in the cost of sales as a percentage of sales was primarily due to increased sales of domestically-produced hard covers. We consistently secure a 20% gross margin on soft covers sold to private labels, as these soft covers are drop shipped from our Chinese suppliers at a fixed cost. However, our margins on domestically manufactured hard covers is dependent on the cost of raw materials, which fluctuates, as well as overhead, which has been high due to manufacturing inefficiencies and low production volumes – both of which are actively being mitigated as we streamline manufacturing processes and allocate more existing human capital and machinery resources away from design engineering and testing towards production.

Previous wording

Operating expenses increased for the three months ended March 31, 2024 by $134,806, from $3,542,116 for the three months ended March 31, 2023 to $3,676,922, due to the following factors:

Current wording

Operating expenses increased for the three months ended June 30, 2024 by $422,095, from $3,785,282 for the three months ended June 30, 2023 to $4,207,377, due to the following factors:

Previous wording

We reported other expenses for the three months ended March 31, 2024 of $75,191, compared to a gain of $6,678 for three months ended March 23, 2023. Other expenses can be attributed to increased interest expense partially offset by interest and rental income.

Current wording

We reported net other expenses for the three months ended June 30, 2024 of $102,651, compared to a loss of $58,736 for three months ended June 30, 2023. Net other expenses can be attributed to decreased interest and rental income.

Previous wording

Net loss for the three months ended March 31, 2024 was $3,714,657, compared to a net loss of $3,523,270 for the three months ended March 31, 2023 – an increase of 5%. The increase in the net loss can be attributed to the increase in various operating expenses as we focus on expanding our operations, research and development, manufacturing, and supply chain.

Current wording

Net loss for the three months ended June 30, 2024 was $4,013,399, compared to a net loss of $3,797,455 for the three months ended June 30, 2023 – an increase of 6%. The increase in the net loss can be attributed to the increase in various operating expenses as we focus on expanding our operations, research and development, manufacturing, and supply chain.

Previous wording

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the three months ended March 31, 2024, the Company had a net loss of $3,714,657 (2023 - $3,523,270). As of March 31, 2024, the Company has working capital of $2,901,401 (December 31, 2023 - $1,956,894) and had an accumulated deficit of$52,027,834(December 31, 2023 - $48,313,177). The Company has not generated profit from operations since inception and to date has relied on debt and equity financings for continued operations. The Company’s ability to continue as a going concern is dependent upon the ability to generate cash flows from operations and obtain equity and/or debt financing. The Company intends to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps management is taking will be successful.

Current wording

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the three and six months ended June 30, 2024, the Company had a net loss of $4,013,399 (2023 – $3,797,455) and $7,728,056 (2023 – $7,320,725), respectively. As of June 30, 2024, the Company has working capital of $8,489,246 (December 31, 2023 – $1,956,894) and had an accumulated deficit of $56,041,233 (December 31, 2023 – $48,313,177). The Company has not generated profit from operations since inception and to date has relied on debt and equity financings for continued operations. The Company’s ability to continue as a going concern is dependent upon the ability to generate cash flows from operations and obtain equity and/or debt financing. The Company intends to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps management is taking will be successful.

Previous wording

Despite the Company having mostly completed its purchasing of large manufacturing machinery, operational costs are expected to remain elevated and, thus, further decrease cash and cash equivalents. Concurrently, the Company intends to continue its ramp-up of manufacturing and increasing sales volumes in 2024, which should mitigate the effects of operational costs on cash and cash equivalents; this view is supported by the fact that the manufacturing facility of the Company was completed for initial production output in 2023 and has started to generate revenue in the third quarter of 2023.

Current wording

Despite the Company having mostly completed its purchasing of large manufacturing machinery, operational costs are expected to remain elevated and, thus, further decrease cash and cash equivalents. Concurrently, the Company intends to continue its ramp-up of manufacturing and increasing sales volumes in the second half of 2024, which should mitigate the effects of operational costs on cash and cash equivalents; this view is supported by the fact that the manufacturing facility of the Company was completed for initial production output in 2023 and started to generate revenue in the third quarter of 2023, registering its highest quarterly sales total in the Company’s history in the second quarter of 2024.

Previous wording

On March 20, 2024, the Company consummated a registered direct offering pursuant to which it sold 2,372,240 shares of common stock and 1,477,892 pre-funded warrants to the same institutional investor as in the Company’s registered direct offering on November 2, 2023, for a total net proceeds of $2,629,083. Concurrently with the registered direct offering, the Company issued the institutional investor 7,700,264 warrants in a private sale. The warrants are exercisable for 7,700,264 shares of common stock for $0.74 per share six months after issuance until five and a half years from the issuance date, subject to beneficial ownership limitations contained in the warrants. The Company registered the 7,700,264 shares of common stock underlying the warrants on a Form S-1 (333-278461) which was declared effective by the SEC on April 8, 2024.

Current wording

On March 20, 2024, the Company consummated a registered direct offering pursuant to which it sold 2,372,240 shares of common stock and 1,477,892 pre-funded warrants to the same institutional investor as in the Company’s registered direct offering on November 2, 2023, for total net proceeds of $2,629,083. Concurrently with the registered direct offering, the Company issued the institutional investor 7,700,264 warrants in a private sale. The warrants are exercisable for 7,700,264 shares of common stock for $0.74 per share six months after issuance until five and a half years from the issuance date, subject to beneficial ownership limitations contained in the warrants. The Company registered the 7,700,264 shares of common stock underlying the warrants on a Form S-1 (333-278461) which was declared effective by the SEC on April 8, 2024.

Previous wording

As disclosed in the footnotes to our financial statements, on May 14, 2024, the Company and Worksport New York Operations Corporation (“Worksport New York”) entered into an Omnibus Amendment of Loan Documents (the “Loan Amendment”) with Northeast Bank (the “Lender”). This amendment pertains to the secured loan agreement dated May 4, 2022, which was originally used to finance the purchase of our facility and land in West Seneca, New York. Effective as of May 10, 2024, the Lender extended the maturity date of the loan from May 10, 2024, to August 10, 2024. This extension alleviates immediate cash flow pressures by postponing the loan repayment, allowing us to manage our resources more effectively and focus on other operational needs. As part of the Loan Amendment, we agreed to pay the Lender an extension fee of $106,000. This fee is deemed fully earned but will be waived if the loan is repaid in full on or before the new maturity date. If the loan is not repaid by the extended maturity date or is accelerated due to default, the fee will become payable. Additionally, we agreed to an exit fee of $106,000 under similar conditions. This fee will be waived if the loan is repaid on or before the new maturity date without acceleration. This loan extension demonstrates our ability to negotiate favorable terms with our creditors and underscores our commitment to maintaining strong liquidity. This strategic decision supports our long-term growth and helps us navigate the current economic and interest rate environment more effectively. The details of the Loan Amendment have been filed as an exhibit to this report and are incorporated by reference herein.

Current wording

As disclosed in the footnotes to our financial statements, on May 14, 2024, the Company and Worksport New York Operations Corporation entered into an Omnibus Amendment of Loan Documents with Northeast Bank. This amendment pertains to the secured loan agreement dated May 4, 2022, which was originally used to finance the purchase of our facility and land in West Seneca, New York. Effective as of May 10, 2024, the Lender extended the maturity date of the loan from May 10, 2024, to August 10, 2024. This extension alleviated immediate cash flow pressures by postponing the loan repayment, allowing us to manage our resources more effectively and focus on other operational needs. As part of the Loan Amendment, we agreed to pay the Lender an extension fee of $106,000. This fee was deemed fully earned but was waived, as the loan was repaid in full on or before the new maturity date. If the loan was not repaid by the extended maturity date or was accelerated due to default, the fee would have become payable. Additionally, we agreed to an exit fee of $106,000 under similar conditions. This fee was waived, as the loan was repaid on or before the new maturity date without acceleration. This loan extension demonstrates our ability to negotiate favorable terms with our creditors and underscores our commitment to maintaining strong liquidity. This strategic decision supported our long-term growth and helped us navigate the current economic and interest rate environment more effectively. The details of the Loan Amendment have been filed as an exhibit to this report and are incorporated by reference herein.

Previous wording

Cash increased from $3,365,778 at December 31, 2023, to $3,536,980 at March 31, 2024 – an increase of $171,202 or 5%. The increase was primarily due to the closing of sale of shares during the three months ended March 31, 2024, raising approximately $3,200,000.

Current wording

Cash increased from $3,365,778 at December 31, 2023, to $3,426,089 at June 30, 2024 – an increase of $60,311 or 2%. The increase was primarily due to the closing of a sale of shares as well as a warrant inducement during the six months ended June 30, 2024, raising approximately $6,800,000.

Previous wording

As of March 31, 2024, we had current assets of $10,744,959 (December 31, 2023 - $9,123,506) and current liabilities of $7,843,558 (December 31, 2023 – $7,166,612). As of March 31, 2024, we had working capital of $2,901,401 (December 31, 2023 – $1,956,894) and an accumulated deficit of $52,027,834 (December 31, 2023 - $48,313,177).

Current wording

As of June 30, 2024, we had current assets of $10,743,200 (December 31, 2023 – $9,123,506) and current liabilities of $2,253,954 (December 31, 2023 – $7,166,612). As of June 30, 2024, we had working capital of $8,489,246 (December 31, 2023 – $1,956,894) and an accumulated deficit of $56,041,233 (December 31, 2023 – $48,313,177).

Previous wording

Net cash used by operating activities for the three months ended March 31, 2024 was $2,794,604, compared to $2,934,410 in the prior period, primarily driven by a larger net loss during the three months ended March 31, 2024, and partially offset by the issuance of shares, stock options, and warrants for services.

Current wording

Net cash used by operating activities for the six months ended June 30, 2024 was $6,421,292, compared to $6,018,704 in the prior period, primarily driven by a larger net loss during the six months ended June 30, 2024, and partially offset by the issuance of shares, stock options, and warrants for services.

Previous wording

Inventory increased at March 31, 2024 by $2,908,354, and at March 31, 2023 by $257,423, as a result of our stockpiling components for production as well as finished goods in anticipation of the launch of targeted sales campaigns expected to drive significant sales volumes in our business to consumer department. Prepaid expenses decreased by $1,155,090 at March 31, 2024, and increased by $742,590 at March 31, 2023 due to deposits used and made by us for the purchase of manufacturing equipment and inventory, respectively.

Current wording

Inventory increased at June 30, 2024 by $2,755,252, and at June 30, 2023 by $1,533,492, as a result of our stockpiling components for production as well as finished goods to fulfill rising demand for our domestically-produced tonneau covers. Prepaid expenses and deposits decreased by $1,345,434 at June 30, 2024, and increased by $14,280 at June 30, 2023 due to deposits used and made by us for the purchase of manufacturing equipment and inventory, respectively.

Previous wording

Accounts payable and accrued liabilities increased at March 31, 2024 by $810,688 compared to an decrease of $6,799 in the prior period.

Current wording

Accounts payable and accrued liabilities decreased at June 30, 2024 by $59,989 compared to a decrease of $828,757 in the prior period.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 was $212,969 compared to $1,153,229 in the prior period. The decrease in investing activities was primarily attributable to higher capital expenditure on various manufacturing equipment in 2023.

Current wording

Net cash used in investing activities for the six months ended June 30, 2024 was $335,787 compared to $2,663,046 in the prior period. The decrease in investing activities was primarily attributable to higher capital expenditure on various manufacturing equipment in 2023.

Previous wording

Net cash generated by financing activities for the three months ended March 31, 2024 was $3,178,775 compared to net cash used from financing activities of $43,904 in the prior period.

Current wording

Net cash generated by financing activities for the six months ended June 30, 2024 was $6,817,390 compared to net cash used from financing activities of $36,772 in the prior period.

Previous wording

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 March 27, 2024. 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.

Current wording

The accounting policies that we follow are set forth in Note 2 to our financial statements as included in our 2023 Annual Report on Form 10-K filed on March 27, 2024. 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.