UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
Quarterly Period Ended:
For the transition period from __________ to __________
Commission
File No.
(Exact Name of Small Business Issuer as specified in its charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification Number) |
(Address of Principal Executive Offices, Including Zip Code)
Registrant’s
Telephone Number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
Indicate
by check mark whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter year that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding
12 months (or such shorter year that the registrant was required to submit and post such files.
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition year for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐
As of May 23, 2022 shares of Common Stock outstanding.
WORKSPORT LTD.
TABLE OF CONTENTS
| 2 |
Worksport Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable net | ||||||||
| Other receivable | ||||||||
| Inventory (note 3) | ||||||||
| Prepaid expenses and deposits | ||||||||
| Total Current Assets | ||||||||
| Investment (note 12) | ||||||||
| Property and Equipment, net | ||||||||
| Right-of-use asset, net (note 13) | ||||||||
| Intangible Assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Payroll taxes payable | ||||||||
| Related party loan (note 8) | ||||||||
| Promissory notes payable (note 5) | ||||||||
| Loan payable (note 14) | ||||||||
| Current lease liability (note 13) | ||||||||
| Total Current Liabilities | ||||||||
| Long Term – Lease Liability (note 13) | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity (Deficit) | ||||||||
| Series A & B Preferred Stock, $ par value, shares authorized, Series A and Series B issued and outstanding, respectively (note 7) | ||||||||
| Common stock, $par value, shares authorized, and shares issued and outstanding, respectively (note 7) | ||||||||
| Additional paid-in capital | ||||||||
| Share subscriptions receivable | ( | ) | ( | ) | ||||
| Share subscriptions payable | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Cumulative translation adjustment | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity (Deficit) | ||||||||
| Total Liabilities and Shareholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
| 3 |
Worksport Ltd.
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2022 and 2021
(Unaudited)
| 2022 | 2021 | |||||||
| Net Sales | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross Profit (Loss) | ( | ) | ||||||
| Operating Expenses | ||||||||
| General and administrative | ||||||||
| Sales and marketing | ||||||||
| Professional fees | ||||||||
| Loss (gain) on foreign exchange | ( | ) | ||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense (note 5) | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Gain (loss) on settlement of debt | ||||||||
| Total other (expense) | ( | ) | ( | ) | ||||
| Net Loss | ( | ) | ( | ) | ||||
| Loss per Share (basic and diluted) | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Shares (basic and diluted) | ||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
| 4 |
Worksport Ltd.
Consolidated Statements of Shareholders’ Deficit
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Preferred Stock | Common Stock | Additional Paid-in | Share Subscriptions | Share Subscription | Accumulated | Cumulative Translation | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Payable | Deficit | Adjustment | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Public offering | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Share issuance cost | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of shares from private placement | ||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible promissory note to shares (note 6) | ||||||||||||||||||||||||||||||||||||||||
| Warrant exercise (note 17) | ||||||||||||||||||||||||||||||||||||||||
| Loan repayment (note 5 and 14) | ||||||||||||||||||||||||||||||||||||||||
| Warrants issuance for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
| 5 |
Worksport Ltd.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
| 2022 | 2021 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Shares, options and warrants issued for services | ||||||||
| Depreciation and amortization | ||||||||
| Interest on lease liability | ||||||||
| Accrued interest | ||||||||
| Amortization on OID interest | ||||||||
| Gain/(loss) on settlement of debt | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| Changes in operating assets and liabilities (note 9) | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Loan receivable | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Repayment of lease liability | ( | ) | ( | ) | ||||
| Proceeds from issuance of common shares, net of issuance cost | ||||||||
| Proceeds from warrant exercise | ||||||||
| Shareholder Assumption of Debt | ( | ) | ( | ) | ||||
| Repayments on loan payable | ( | ) | ||||||
| Net cash provided by/ used in financing activities | ( | ) | ||||||
| Change in cash | ( | ) | ||||||
| Cash and cash equivalents - beginning of year | ||||||||
| Cash and cash equivalents end of year | $ | $ | ||||||
| Supplemental Disclosure of non-cash investing and financing Activities | ||||||||
| Shares issued for purchase of software | $ | $ | ||||||
| Shares and warrants issued to service providers | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| Conversion of convertible promissory note to common stock | $ | $ | ||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
| 6 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Business Condition
a) Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary in order to make the financial statements not misleading and for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022.
On
May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State
in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per
share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change
was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA
declared
Terravis Energy Inc. was incorporated in the State of Colorado on May 5, 2021. On August 20, 2021, the Company was issued common shares at par value of $per share for a controlling interest in Terravis Energy Inc. During the three months ended March 31, 2022 the Company was issued common shares of Terravis Energy Inc. at par value of $per share. During the same period Terravis Energy Inc. issued preferred shares at $per share to Worksport’s Chief Executive Officer.
During the three months ended March 31, 2022 Worksport New York Operations Corporation and Worksport USA Operations Corporation were incorporated in the state of New York and Colorado respectively. During the period the Company was issued common shares at par value of $of Worksport USA Operations Corporation. Subsequently, to the period ended on April 1, 2022, the Company was issued common shares of Worksport New York Operations Corporation.
b) Functional and Reporting Currency
These condensed consolidated financial statements are presented in United States Dollars. The functional currency of the Company and its subsidiaries are United States Dollar. For purposes of preparing these consolidated financial statements, transactions denominated in Canadian Dollar were converted to United States Dollar at the spot rate. Transaction gains and losses resulting from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying consolidated statement of operations and comprehensive loss.
c) Use of Estimates
The preparation of condensed unaudited financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
d) Business condition
The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.
As
of March 31, 2022, the Company had working capital of $
| 7 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Business Condition (continued)
d) Business condition (continued)
Based
on the Company’s future operating plans, existing cash of $
2. Significant Accounting Policies
The accounting polices used in the preparation of these condensed consolidated interim financial statements are consistent with those of the Company’s audited financial statements for the year ended December 31, 2021
3. Inventory
Inventory consists of the following at March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Promotional items | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
4. Prepaid expenses and deposits
As of March 31, 2022 and December 31, 2021 prepaid expenses and deposits consists of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Consulting, services and advertising | $ | $ | ||||||
| Insurance | ||||||||
| Deposit | ||||||||
| $ | $ | |||||||
As
of March 31, 2022 prepaid expense and deposit consists of $
5. Promissory Notes
The following tables shows the balance of the notes payable as of March 31, 2022 and December 31, 2021:
| Balance as at December 31, 2020 | $ | |||
| Repayment | ( | ) | ||
| Balance as at March 31, 2022 and December 31, 2021 | $ |
| 8 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
5. Promissory Notes (continued)
During
the year ended December 31, 2020, the Company reclassified a total of $
During
the year ended December 31, 2016, the Company issued a secured promissory note in the amount of $
During
the year ended December 31, 2016, the Company issued secured promissory notes in the amount of $
During
the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $
During
the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $
The amounts repayable under promissory notes and secured promissory notes at March 31, 2022 and December 31, 2021 are as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Balance owing | $ | $ | ||||||
| Less amounts due within one year | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
| 9 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Convertible Promissory Notes
On
February 25, 2020, the Company entered into an agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”),
pursuant to which the Company issued to Leonite a secured convertible promissory note in the aggregate principal amount of $
The
note carries an original issue discount of $
7. Shareholders’ Equity (Deficit)
During three months ended March 31, 2022, the following transactions occurred:
During
the three months ended March 31, 2022 The Company issued common shares to a consultant for services received valued at $
During
the three months ended March 31, 2022 the Company recognized consulting expense of $
Refer to note 18 for additional shareholders’ equity (deficit).
During three months ended March 31, 2021, the following transactions occurred:
During
the three months ended March 31, 2021, the Company issued a total of (pre-stock split ) common shares relating to
the Reg-A public offering. Of the shares issued (pre-stock split of ) common shares valued at $ were from share subscription
payable and (pre-stock split of ) common shares were cancelled and refunded valued at $
During
the same period (pre-stock split ) Reg-A public offering warrants were exercised for
During
the three month period ended March 31, 2021 the Company raised $
During
the three months ended March 31, 2021 the Company entered into consulting agreements with third party consultants for (pre-stock split )
shares of common stock valued at $
| 10 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
7. Shareholders’ Equity (Deficit) (continued)
During
the three months ended March 31, 2021 the Company issued (pre-stock split )
common shares valued at $
During
the three months ended March 31, 2021 the Company issued entered into a settlement agreement with a loan holder to issue (pre-stock split )
common shares for all outstanding loan principal and interest valued at $
During
the three months ended March 31, 2021 the Company entered into a settlement agreement with the convertible promissory note holder
to settle all outstanding principal and interest. The Company issued (pre-stock split )
common shares valued at $
Refer
to note 17 for additional shareholders’ equity (deficit) for consulting expense of $
During
the year ended December 31, 2021, the Company completed a share consolidation of the Company’s issued and outstanding common shares
based on twenty (20) pre-consolidation shares to one (1) post-consolidation share. As a result of the share consolidation a anti-dilution
clause was triggered resulting in the Company issuing common shares valued at $
As
of March 31, 2022, the Company was authorized to issue shares of its common stock with a par value of $. All shares
were ranked equally with regards to the Company’s residual assets. During 2022 and 2021, the Company was authorized to issue
shares of its Series A and Series B Preferred Stock with a par value of $.
8. Related Party Transactions
During
the three months ended March 31, 2022, the Company recorded salaries expense of $
During
the three months ended March 31, 2021, the Company paid a director of the Company $
During
the three months ended March 31, 2021, the Company paid $
Refer to note 18 for additional related party transactions.
9. Changes in Cash Flows from Operating Assets and Liabilities
The changes to the Company’s operating assets and liabilities for the three months ended March 31, 2022 and 2021 are as follows:
| 2022 | 2021 | |||||||
| Decrease (increase) in accounts receivable | $ | $ | ||||||
| Decrease (increase) in other receivable | ||||||||
| Decrease (increase) in inventory | ( | ) | ( | ) | ||||
| Decrease (increase) in prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Increase (decrease) in lease liability | ||||||||
| Increase (decrease) in taxes payable | ( | ) | ||||||
| Increase (decrease) in accounts payable and accrued liabilities | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | |||
| 11 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
10. Commitments and contingencies
During the year ended December 31, 2021, the Company entered into an agreement with a third-party advisor to reserve for sale and issuance common shares for consulting services at a $ per share.
11. Reverse Stock Split
On
May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State
in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per
share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change
was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA
declared
12. Investment
During
the year ended December 31, 2019, the Company entered into an agreement to purchase shares for $
13. Lease Liabilities
During
the year ended December 31, 2021 the Company entered into a second lease agreement for warehouse space to commence on June 1, 2021 and
end on
The
Company has accounted for its leases upon adoption of ASC 842 whereby it recognizes a lease liability and a right-of-use asset at the
date of initial application, beginning January 1, 2019. The lease liability is measured at the present value of the remaining lease payments,
discounted using the Company’s incremental borrowing rate of
The Company’s right-of-use asset for the three months ended March 31, 2022 and year ended December 31, 2021 as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Right-of-use asset | $ | $ | ||||||
| Current lease liability | $ | $ | ||||||
| Long-term lease liability | $ | $ | ||||||
The components of lease expense are as follows:
| March 31, 2022 | March 31, 2021 | |||||||
| Amortization of right-of-use | $ | $ | ||||||
| Interest on lease liability | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
| 12 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
13. Lease Liabilities (continued)
Maturities of lease liability are as follows:
Future minimum lease payments as of March 31, 2022,
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total future minimum lease payments | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of future payments | ||||
| Current portion | ||||
| Long term portion | $ |
14. Loan payable
During
the year ended December 31, 2020 the Company received loans of $,
$and $from an unrelated third party with an
interest rate of %
per annum with a maturity date of , and , respectively. During the three months
ended March 31, 2021 the Company agreed to repay the outstanding principal and interest through the issuance of common shares at $per share. As of March 31, 2021, the Company
accrued interest of $
During
the year ended December 31, 2020 the Company received $
15. Government Assistance
The
Government of Canada is currently providing funding through the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency
Rent Subsidy (“CERS”) programs in order to provide financial relief to Canadian businesses affected by COVID-19. The CEWS
program provides a reimbursement of salaries for eligible employers based on a decrease in revenues. The CERS program provides a reimbursement
of rent expenses paid by eligible parties based on a decrease in revenues. During the three months ended March 31, 2022, the Company
recognized CEWS of $
For the three months ended March 31, 2022, loss per share is $() (basic and diluted) compared to the three months ended March 31, 2021, of $() (basic and diluted) using the weighted average number of shares of (basic and diluted) and (basic and diluted) respectively.
There
are shares
authorized, and
shares
issued and outstanding, as at March 31, 2022 and 2021 respectively. As of March 31, 2022, the Company has shares to be issued. The computation of loss
per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings
Per Share.” Shares underlying the Company’s outstanding warrants and convertible promissory notes were excluded due to the
anti-dilutive effect they would have on the computation. As at March 31, 2022 the Company has warrants convertible to
| 13 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
17. Warrants
During
the three months ended March 31, 2022,
During
the year ended December 31, 2021, the Company issued and
During
the year ended December 31, 2021 the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company
will issue an additional
During the year ended December 31, 2021 the Company issued representative warrants to the Company’s underwriters. The representative warrants are not exercisable until January 30, 2022. The representative are exercisable for common shares at $ per share until August 3, 2024. As of March 31, 2022 the Company recognized a value of $273,993 for the representative warrants to share issuance cost.
During the year ended December 31, 2021, warrants expired.
As of March 31, 2022, the Company has the following warrants outstanding:
| Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||
| Number of warrants | Weighted average price | Number of warrants | Weighted average price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Issuance | $ | $ | ||||||||||||||
| Expired | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Exercise | $ | ( | ) | $ | ( | ) | ||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
Under the Company’s 2015 Equity Incentive Plan .
| 14 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
18. Stock Options (continued)
All equity-settled share-based payments are ultimately recognized as an expense in the statement of operations and comprehensive loss with a corresponding credit to “Additional Paid in Capital.” If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different to that estimated on vesting.
On December 29, 2021 the Company granted and performance stock units (“PSU”) to the Company’s Chief Executive Officer and a director, respectively. . the fair value of the PSU was estimated to be $, which will be expensed as stock-based compensation over a five year period. As of March 31, 2022, no PSUs have been vested and the Company recognized $(2021 - $) to stock-based compensation expense. It is uncertain whether any of these grants will vest as of the date of this report.
On
August 6, 2021, the Company granted options to directors, advisors and officers with
an exercise price of $and an expiry date of . .
The Company recognized $
On
July 23, 2021, the Company granted options to a director with an exercise price
of $and an expiry date of . The stock options vested on
January 1, 2022. .
The Company recognized $
On
September 1, 2021, the Company granted options to a consultant with an exercise price
of $and an expiry date of . vested
on March 1, 2022, shall vest on September 1, 2022, shall vest on March 1, 2023 and shall vest on September 1, 2023. The fair value
of the options on grant date was estimated to be $.
The Company recognized $
On
October 7 and November 2, 2021, the Company granted and options respectively, to advisors with an exercise
price of $and $.
The options will expire on and respectively. The stock options vested
on January 1, 2022. The fair value of the options on grant date was estimated to be $.
The Company recognized $
On
December 29, 2021, the Company granted in aggregate of options to members of the board with an exercise
price of $.
The options will expire on . shall vest on December 29, 2022, shall vest on December 29, 2023 and shall vest on December 29, 2024. The fair value
of the options on grant date was estimated to be $.
The Company recognized $
On
February 7, 2022, the Company granted options to an advisor with an exercise price
of $.
The options will expire on . The options vested immediately upon
issuance. The fair value of the options on grant date was estimated to be $.
The Company recognized $
| March 31, 2022 | December 31, 2021 | |||||||||||||||
| Number of stock options | Weighted average price | Number of stock options | Weighted average price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
| Range of Exercise prices | Outstanding | Weighted average life (years) | Weighted average exercise price | Exercisable on March 31, 2022 | ||||||||||||||||
| Stock options | $ | - | $ | |||||||||||||||||
| 15 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
19. COVID-19
The outbreak of the coronavirus, specifically identified as “COVID-19,” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions.
Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely. The management and board of the Company is constantly monitoring this situation to minimize potential losses.
20. Subsequent Events
| ● | On May 2, 2022 the Company issued shares of common stock to a third party consultant and an employee for a total amount of shares at $ per share. | |
| ● | In April 2022 the Company’s wholly owned subsidiary Terravis Energy Inc. granted officers, directors and board members of the Company an aggregate of stock options. | |
| ● | On May 6th 2022 the Company closed on the purchase of its Property located in West Seneca, New York, the details of which are disclosed in the Company’s Form 8-K filed on May 11, 2022 with the United States Securities and Exchange Commission. |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this Form 10-Q are made based on current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, various factors, uncertainties, and risks should be specifically considered that could affect future results or operations. These factors, uncertainties and risks may cause actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. These risks and uncertainties described and other information contained in the reports filed with or furnished to the SEC should be carefully considered before making any investment decision with respect to the Company’s securities. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
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 in March and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company” and “Worksport” as used herein refers collectively to Worksport Ltd. and its wholly owned subsidiaries, unless otherwise stated.
The following discussion should be read in conjunction with the 2021 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2022, compared to Three Months Ended March 31, 2021
Revenue
For the three months ended March 31, 2022, revenue generated from sales was $47,784, compared to $7,650 for the three months ended March 31, 2022. Total revenues increased by approximately 525% compared to the same period in the prior year.
Revenue increased for the three months ended March 31, 2022, compared to the same period the prior year due to the Company nearing completion of its focus on building up its inventory in anticipation of launching its e-commerce platform, while it repositions to domestic manufacturing. The Company is anticipating the launch of its e-commerce platform in 2022 and beginning to focus on increasing sales.
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Cost of Sales
For the three months ended March 31, 2022, cost of sales decreased by 37% from $60,221 in the prior period to $37,977. Cost of sales, as a percentage of sales, was approximately 79% for three months ended March 31, 2022 compared to 787% for the same period in 2021, respectively. The decrease in cost of sales as a percentage of sales was primarily due to increased efficiency associated with acquiring and manufacturing inventory for the three months ended March 31, 2022, compare to the same prior period
Gross Margin
Gross margin percentage for the three months ended March 31, 2022, was 21% compared to negative 687% for the same period in 2021. The increase in gross margin reflects the Company’s efforts to control the cost of manufacturing and acquiring inventory.
Operating Expenses
Operating expenses increased for the three months ended March 31, 2022, by $1,742,932 from $949,255 in the prior periods to $2,682,187.
| ● | General and administrative expense increased by $466,574 from $134,284 in the prior period to $600,858. The increase expense is related to research and development and salaries as the Company seeks to expand its operations and further develop its products. | |
| ● | Sales and marketing expenses increased by $557,837 from $162,651 in the prior period to $720,488. The increase in sales and marketing is a result of the Company’s marketing campaign to create brand and product awareness. | |
| ● | The Company realized a gain on foreign exchange of $1,338 during the three months ended March 31, 2022, an increase of $6,544 compared to a loss of $5,206 during the prior period. The gain on foreign exchange can be attributed to operating expenses denominated in the Canadian Dollar. | |
| ● | Professional fees which include accounting, legal and consulting fees, increased from $647,114 for the three months ended March 31, 2021 to $1,487,579 for the three months ended March 31, 2022. The increase was due to the employment of various third-party consultants help expand the Company’s business operations. |
Other Income and Expenses
Other income and expenses for the three months ended March 31, 2022, was $19,829 compared to $221,693 the prior period, a decrease of $201,864. The change can be attributed to the Company’s decrease in interest expense.
Net Loss
Net loss for the three months ended March 31, 2022, was $2,817,609 compared to $1,223,519 for the three months ended March 31, 2021, a change of $1,594,090 or 130%. The increase in the net loss can be attributed to the increase of various operating expenses as the Company focuses on expanding its operations, research and development, manufacturing and supply chain.
Worksport currently works with a total of ten dealers and distributors, however, given current market conditions Worksport plans to focus on online sales during 2022. Management believes that increasing sales through online retailers will continue to outpace the traditional distribution business model during 2022. Management further believes that online retailer’s customers tend to provide larger sales volumes, greater profit margins and greater protection against price erosion.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2022, the Company had $25,808,938 in cash and cash equivalents. The Company has generated only limited revenues and has relied primarily upon capital generated from public and private offerings of its securities.
Since the Company’s acquisition of Worksport in fiscal 2014, it has never generated a profit.
As of March 31, 2022, the Company had an accumulated deficit of $23,667,414.
Cash Flow Activities
Accounts receivable decreased at March 31, 2022 by $6,733 and March 31, 2021 by $106,349. The decrease in accounts receivable was due to the Company’s collection of payments from customers. Other receivable decreased at March 31, 2022 and 2021 by $106,413 and $135,307 respectively, due to funds received from a sales tax refund.
Inventory increased at March 31, 2022 by $290,041 and at March 31, 2021 by $252,529 as a result of the Company stockpiling inventory in anticipation of the launch of its e-commerce platform. Prepaid expenses increased by $430,917 at March 31, 2022 and at March 31, 2021 by $64,594, due to deposits made by to Company to purchase manufacturing equipment.
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Accounts payable and accrued liabilities increased at March 31, 2022 by $105,626 and decreased at March 31, 2021 by $4,862.
Cash increased from $9,311,878 at March 31, 2021 to $25,808,938 at March 31, 2022, an increase of $16,497,060 or 177%. The increase in in cash was primarily due to warrants exercises, public offerings and private placement offerings.
As of March 31, 2022, the Company had current assets of $30,846,020 and current liabilities of $1,794,887.
Operating Activities
Net cash used by operating activities for the three months ended March 31, 2022, was $2,016,480, compared to $506,867 in the prior period.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2022, was $614,046 compared to $124,740 in the prior period. The increase in investing activities was primarily due to the purchase of property and equipment.
Financing Activities
Net cash used in financing activities for the three months ended March 31, 2022, was $127,870 compared to net cash generated of $8,835,673 in the prior period.
Based on the Company’s future operating plans, existing cash of $25,808,938; management believes that the Company has sufficient funds to meet its contractual obligations and working capital requirements for the next 12 months and the foreseeable future.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
Our discussion and analysis of results of operations and financial condition are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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 31, 2022. 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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the quarter covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this quarterly report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not Applicable.
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Item 6. Exhibits
| EXHIBIT No. | DESCRIPTION | |
| 31.1 | Section 302 Certification of Chief Executive Officer | |
| 31.2 | Section 302 Certification of Chief Financial Officer | |
| 32.1 | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WORKSPORT LTD. | ||
| Dated: May 23, 2022 | By: | /s/ Steven Rossi |
| Steven Rossi | ||
| Chief Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| WORKSPORT LTD. | ||
| Dated: May 23, 2022 | By: | /s/ Michael Johnston |
| Michael Johnston | ||
| Chief Financial Officer and Accounting Officer |
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