10-K: Worksport Ltd. Reports Full Year 2023 Results, Highlights Manufacturing Progress and Strategic Partnerships

Worksport Ltd. reports a significant increase in revenue for 2023, driven by sales of soft tonneau covers and progress in manufacturing hard covers, while also detailing ongoing development of its energy products.

Summary

• Worksport Ltd. reported a net loss of $14.9 million for the year ended December 31, 2023, compared to a net loss of $12.5 million in 2022.
• The company's revenue increased dramatically to $1.5 million in 2023, a 1213% increase from $116,502 in 2022, primarily due to increased sales of soft tonneau covers to a private label partner.
• Cost of sales also increased significantly to $1.2 million in 2023, compared to $56,967 in 2022, with cost of sales as a percentage of sales at 84% in 2023 and 49% in 2022.
• Operating expenses rose to $14.9 million in 2023 from $12.8 million in 2022, driven by increased general and administrative expenses, offset by a decrease in sales and marketing expenses and professional fees.
• The company's cash position decreased to $3.3 million as of December 31, 2023, from $14.6 million in 2022, due to investments in manufacturing equipment and increased operating expenses.
• Worksport raised approximately $4.7 million through a registered direct offering and concurrent private placement in November 2023 and $2.59 million in March 2024.
• The company successfully dispatched its first shipment of hard-folding tonneau covers in August 2023 and secured a long-term supply agreement with a leading automotive aftermarket reseller in the U.S.
• Worksport is developing its SOLIS solar tonneau cover and COR battery system, with a strategic arrangement with NeuronicWorks Inc. for manufacturing the COR system.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there is significant revenue growth and progress in manufacturing and partnerships, the substantial net loss, decreasing cash position, and going concern warning from auditors raise concerns. The company is making progress but faces significant financial challenges.

Positives

• The company has successfully begun domestic manufacturing of hard tonneau covers.
• Worksport has secured key partnerships and supply agreements to expand its market reach.
• The company is actively developing innovative energy products like the SOLIS and COR.
• The company has a growing intellectual property portfolio with patents and trademarks.
• The company is diversifying its supply chain to mitigate geopolitical risks.

Negatives

• The company experienced a significant net loss of $14.9 million in 2023.
• The cost of sales as a percentage of sales increased to 84% in 2023.
• The company's cash position decreased significantly to $3.3 million by the end of 2023.
• The company relies on a small number of customers for the majority of its sales, with one customer accounting for 93% of revenue in 2023.
• The company's independent auditors have expressed substantial doubt about its ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is dependent on generating positive cash flows and securing additional financing.
• The company is exposed to risks related to resurgences of the COVID-19 pandemic or other pandemics.
• The company has a history of losses and expects to incur significant expenses and continuing losses for the foreseeable future.
• The company's long-term results depend on the successful introduction and marketing of new products.
• The company may not succeed in establishing, maintaining, and strengthening its brand.
• The company is subject to risks related to outstanding loan repayment and refinancing efforts.
• The company is exposed to risks related to computer system failures, cyberattacks, or a deficiency in cybersecurity.
• The company relies on two suppliers for the production of its outsourced finished goods.
• The company relies on key personnel, especially Steven Rossi, the CEO.
• The company depends on intellectual property rights that may be infringed upon.
• The company may be subject to claims challenging the inventorship or ownership of its patents.
• The company may need to defend itself against patent or trademark infringement claims.
• The company is subject to risks associated with outsourced production in China and their laws.
• The company is subject to foreign currency risk which may adversely affect its net profit.
• The company has a large number of authorized but unissued shares of common stock which will dilute existing ownership positions when issued.
• The company's common stock or warrants may be affected by limited trading volume and price fluctuations.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company is subject to the requirements of being a public company which may strain its resources.

Future Outlook

The company intends to continue funding operations through equity and debt financing arrangements, while also focusing on transitioning towards revenue generation from its existing product offerings and expanding its customer base. The company plans to increase output capacity through refined production processes and increased personnel.

Management Comments

• Management believes that having manufacturing capability in North America will increase quality control and production efficiency, as well as lower landed costs and geopolitical risks.
• Management is focused on transitioning towards revenue as its principal source of liquidity by growing our existing product offerings and customer base.

Industry Context

The company operates in the automotive aftermarket accessories and new energy industries, focusing on the tonneau cover and portable power station markets. The company is positioning itself to capitalize on the growing popularity of electric vehicles and the increasing demand for clean energy solutions.

Comparison to Industry Standards

• The tonneau cover market is relatively consolidated with Real Truck (formerly Truck Hero) having the largest market share, and Worksport competes directly with them.
• The portable power station market is global and highly fragmented, with competitors including Alpha ESS Co., Ltd., Anker Technology, Bluetti, and Jackery Inc.
• The company's SOLIS cover is designed to be integrated into the design of leading electric pickup trucks, potentially creating partnerships with manufacturers like Workhorse, Rivian, and Tesla.
• The company's COR system is designed to be a market outlier in that it can be charged safely while mobile, whereas competing portable power stations are intended to be stationary during charging.

Related Party Transactions

• The company recorded salaries expense of $374,864 in 2023 related to services rendered by its CEO.
• The company recorded salaries expense of $271,601 in 2023 to an officer and director of the Company.
• The company has a payable of $2,192 to the CEO as of December 31, 2023.

Stakeholder Impact

• Shareholders face the risk of further dilution due to potential future capital raises.
• Employees may be affected by the company's financial instability and potential restructuring.
• Customers may benefit from the company's innovative products and expanded availability.
• Suppliers may be affected by the company's diversification of its supply chain.
• Creditors face the risk of non-payment due to the company's financial challenges.

Next Steps

• The company plans to continue to grow its existing product offerings and customer base.
• The company intends to gradually increase output capacity through refined production processes and increased personnel.
• The company will continue to expand its business and online sales channels in 2024.
• The company will continue to seek additional incentives and grants to lower operational costs.

Key Dates

Keywords

tonneau covers, solar energy, portable power station, automotive aftermarket, electric vehicles, manufacturing, intellectual property, supply chain, financial results, energy storage