UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
Quarterly Period Ended:
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:
With copies to:
Ross Carmel, Esq.
Philip Magri, Esq.
Carmel, Milazzo & Feil LLP
55 W 39th Street, 18th Floor
New York, NY 10018
Tel: 212-658-0458
Fax: 646-838-1314
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 November 14, 2022, shares of Common Stock were outstanding.
WORKSPORT LTD.
TABLE OF CONTENTS
| 2 |
Worksport Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 2022 (Unaudited) | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash (note 14) | ||||||||
| Accounts receivable net | ||||||||
| Other receivable | ||||||||
| Inventory (note 3) | ||||||||
| Prepaid expenses and deposits (note 4) | ||||||||
| 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’ | ||||||||
| 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 | ||||||||
| Loan payable (note 14) | ||||||||
| Long Term – Lease Liability (note 13) | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| 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 | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
| 3 |
Worksport Ltd.
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
| Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Professional fees | ||||||||||||||||
| (Gain) on foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on settlement of debt | ||||||||||||||||
| Rental income (note 19) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Total other income (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.
Condensed Consolidated Statements of Shareholders’ Deficit
For the Three Months Ended September 30, 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 July 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock split provision | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Public offering | - | |||||||||||||||||||||||||||||||||||||||
| Share issuance cost | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Warrant exercise (note 17) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Balance at July 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Share issuance | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Warrant exercise (note 17) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
| 5 |
Worksport Ltd.
Condensed Consolidated Statements of Shareholders’ Deficit
For the Nine Months Ended September 30, 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock split provision | - | - | 24 | 86,663 | - | - | (86,687 | ) | - | - | ||||||||||||||||||||||||||||||
| Conversion of preferred stock to common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Public offering | - | 4,986,046 | ( | ) | ||||||||||||||||||||||||||||||||||||
| Share issuance cost | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of shares from private placement | - | |||||||||||||||||||||||||||||||||||||||
| Warrants issuance for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of convertible promissory note to shares (note 6) | - | |||||||||||||||||||||||||||||||||||||||
| Warrant exercise (note 17) | - | |||||||||||||||||||||||||||||||||||||||
| Loan repayment (note 5 and 14) | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Share issuance | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Warrant exercise (note 17) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
| 6 |
Worksport Ltd.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 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 and share compensation | ||||||||
| Depreciation and amortization | ||||||||
| Interest on lease liability | ||||||||
| Accrued interest | ||||||||
| Repayment of lease liability | ( | ) | ( | ) | ||||
| Amortization on OID interest | ||||||||
| 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 intangible assets | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Proceeds from issuance of common shares, net of issuance cost | ||||||||
| Proceeds from warrant exercise | ||||||||
| Shareholder Assumption of Debt | ( | ) | ||||||
| Loan payable | ||||||||
| Repayments on loan payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Change in cash | ( | ) | ||||||
| Cash, restricted cash and cash equivalents - beginning of year | ||||||||
| Cash, restricted cash and cash equivalents end of period | $ | $ | ||||||
| Supplemental Disclosure of non-cash investing and financing Activities | ||||||||
| Shares issued for purchase of software | $ | $ | ||||||
| Shares base compensation | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| Right-of-use asset | $ | $ | ||||||
| Lease liability | $ | ( | ) | $ | ||||
| Shares issued for share subscriptions payable | $ | $ | ||||||
| Conversion of convertible promissory note to common stock | $ | $ | ||||||
| Non-cash for prepaids | $ | $ | ||||||
| Shares issued for note repayment | $ | $ | ||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||
| Reverse stock split | $ | $ | ||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
| 7 |
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 nine month period ended September 30, 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 NASDAQ. 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 nine months ended September 30, 2022, the Company was issued an additional common shares of Terravis Energy Inc. at par value of $ per share
On January 20, 2022, the board of directors of Terravis and the board of directors of the Company, as the sole stockholder of Terravis, adopted the Terravis Energy, Inc. 2022 Equity Incentive Plan (the “Terravis 2022 Plan”). Under the Terravis 2022 Plan, Terravis’ board of directors or a committee designated by the board of directors may grant incentive stock options, nonqualified stock options, shares of restricted stock, restricted stock units, performance shares, performance units and stock appreciation rights to eligible participants consisting of employees of Terravis, member of Terravis’ board of directors and advisors and consultants to Terravis. The Terravis board of directors authorized and reserved shares of Terravis common stock under the Terravis 2022 Plan, subject to adjustment for any stock splits of Terravis’s common stock or reorganization, recapitalization, or acquisition of Terravis.
On April 6, 2022, Terravis issued Lorenzo Rossi and Steven Rossi, both of whom are members of Terravis’s board of directors, non-qualified options under the Terravis 2022 Plan exercisable for and , respectively, shares of Terravis’s common stock, for $ per share from the date of grant until the tenth anniversary of the date of grant.
On April 12, 2022, Terravis Steven Rossi, William Caragol, and Ned L. Siegel, all of whom are members of Terravis’s board of directors, non-qualified options under the Terravis 2022 Plan exercisable for , , and , respectively, shares of Terravis’s common stock for $0.01 per share from the date of grant until the tenth anniversary of the date of grant.
During the nine months ended September 30, 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. On April 1, 2022, the Company was issued common shares of Worksport New York Operations Corporation.
| 8 |
b) Functional and Reporting Currency
These condensed consolidated financial statements are presented in United States dollars (USD or US$). The functional currency of the Company and its subsidiaries are United States dollar. For purposes of preparing these consolidated financial statements, transactions denominated in Canadian dollars (CAD or C$) were converted to United States dollars 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.
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 September 30, 2022, the Company had working capital of $
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 September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Promotional items | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
| 9 |
4. Prepaid expenses and deposits
As of September 30, 2022 and December 31, 2021 prepaid expenses and deposits consists of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Consulting, services and advertising | $ | $ | ||||||
| Insurance | ||||||||
| Deposit | ||||||||
| $ | $ | |||||||
As
of September 30, 2022 prepaid expense and deposit consists of $
5. Promissory Notes
The following tables shows the balance of the notes payable as of September 30, 2022 and December 31, 2021:
| Balance as of December 31, 2020 | $ | |||
| Repayment | ( | ) | ||
| Balance as of September 30, 2022 and December 31, 2021 | $ |
During
the year ended December 31, 2016, the Company issued a secured promissory note in the principal amount of $
During
the year ended December 31, 2016, the Company issued secured promissory notes in the aggregate principal amount of $
During
the years ended December 31, 2017, the Company issued secured promissory notes in the aggregate principal amount of $
During
the years ended December 31, 2017, the Company issued secured promissory notes in the aggregate principal amount of $
| 10 |
The amounts repayable under promissory notes and secured promissory notes at September 30, 2022 and December 31, 2021 are as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Balance owing | $ | $ | ||||||
| Less amounts due within one year | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
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 Nine months ended September 30, 2022, the following transactions occurred:
During
the nine months ended September 30, 2022, the Company issued common shares to a consultant for services received valued at $
During
the nine months ended September 30, 2022 the Company issued restricted stock to members of the board valued at $
During
the nine months ended September 30, 2022, the Company recognized consulting expense of $
Refer to note 17 and 18 for additional shareholders’ equity (deficit).
| 11 |
During nine months ended September 30, 2021, the following transactions occurred:
During
the nine months ended September 30, 2021, the Company issued a total of common shares in connection with a Regulation A offering.
Of the shares issued, common shares valued at $ were from share subscription payable and common shares were cancelled
and refunded valued at $
During
the nine months ended September 30, 2021 the Company had a underwriters’ public offering for units consisting of 1 common
share and 1 warrant at $ per unit. In addition, the Company has granted the underwriter of the offering the option to purchase
During
the same period warrants were exercised for common shares. As of September 30, 2021 common shares were
issued valued at $. Subsequent to September 30, 2021 the remaining common shares valued at $
During
the nine months ended September 30, 2021 the Company raised $
During
the nine months ended September 30, 2021 the Company entered into a loan settlement agreement with a loan holder to issue common
shares at $ per share for all outstanding loan principal and interest valued at $
During
the nine months ended September 30, 2021 the Company entered into a promissory notes payable settlement agreement with a note holder
to issue common shares valued at $ per share for a total value of $
During
the nine months ended September 30, 2021 the Company entered into a settlement agreement with the convertible promissory note holder
to settle all outstanding principal and interest. The Company issued common shares at $ per share valued at $
During the nine months ended September 30, 2021 the Company issued common shares to Steve Rossi, the Company’s Chief Executive Officer and Director, in connection with his Employment Agreement in consideration for Mr. Rossi agreeing to amend the Series A Certificate of Designation to eliminate the Series A Preferred Stock conversion rights and returning Series A Preferred Stock to the Company.
During
the nine months ended September 30, 2021 the Company entered into consulting agreements with third party consultants for shares
of common stock valued at $
During
the nine months ended September 30, 2021 the Company issued common shares valued at $ for consulting services, $
were issued from share subscriptions payable. During the same period the Company issued common shares valued at $
During
the nine months ended September 30, 2021 the Company granted restricted shares of the Company to consultants for services to
be rendered over a period of 12 and 24 months. Upon issuance of the restricted shares vested immediately and issued. As of September
30, 2021 the Company recognized consulting and advertising expense of $
| 12 |
During
the nine months ended September 30, 2021 the Company granted restricted shares of the Company to directors of the Company. Upon
issuance of the restricted shares vested immediately, shall vest on January 1, 2022. As of September 30, 2021 the Company
recognized consulting expense of $
During
the nine months ended September 30, 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 $
Refer
to note 17 for additional shareholders’ equity (deficit) for consulting expense of $
During
the nine months ended September 30, 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, an
anti-dilution clause was triggered resulting in the Company issuing common shares valued at $
As
of September 30, 2022, the Company was authorized to issue shares of its common stock with a par value of $. All shares
were ranked equally with regard 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 nine months ended September 30, 2022, the Company recorded salaries expense of $
During
the nine months ended September 30, 2021, the Company paid a director of the Company $
During
the nine months ended September 30, 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 nine months ended September 30, 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 | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| 13 |
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 $ 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
to effect a reverse split of its common stock at
12. Investment
During
the year ended December 31, 2019, the Company entered into an agreement to purchase shares for $
13. Lease Liabilities
During
the nine months ended September 30, 2022, the Company entered into a lease agreement for warehouse space to commence on June 1, 2022
and ending on
During
the year ended December 31, 2021, the Company entered into a lease agreement for warehouse space to commence on September 1, 2021 and
end on
During
the year ended December 31, 2019, the Company signed a lease agreement for warehouse space to commence on August 1, 2019 and ended 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 nine months ended September 30, 2022 and the year ended December 31, 2021 as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Right-of-use asset | $ | $ | ||||||
| Current lease liability | $ | $ | ||||||
| Long-term lease liability | $ | $ | ||||||
The components of lease expense are as follows:
| September 30, 2022 | September 30, 2021 | |||||||
| Amortization of right-of-use | $ | $ | ||||||
| Interest on lease liability | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
| 14 |
Maturities of lease liability are as follows:
Future minimum lease payments as of September 30, 2022,
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and after | ||||
| Total future minimum lease payments | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of future payments | ||||
| Current portion | ||||
| Long term portion | $ |
14. Loan payable
| a) | During
the nine months ended September 30, 2022, the Company entered into a loan agreement with a third party for the purchase of property
located in West Seneca, New York, the details of which are disclosed in the Company’s Form 8-K filed with the United States
Securities and Exchange Commission on May 11, 2022. The Company received $ | |
| b) | 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 . During the nine
months ended September 30, 2021, the Company agreed to repay the outstanding principal and interest through the issuance of
common shares at $ per share. As of September 30, 2021, the Company accrued interest of $ | |
| c) | During
the year ended December 31, 2020, the Company received $ |
15. Government Assistance
During
the COVID-19 pandemic the Government of Canada was 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 nine months ended September 30,
2022, the Company recognized CEWS of $
For the three and nine months ended September 30, 2022, loss per share is $() and $() (basic and diluted) compared to the three and nine months ended September 30, 2021 loss per share of $() and $() (basic and diluted). These losses per share are calculated using the weighted average number of shares of and (basic and diluted) for the three and nine months ended September 30, 2022 and of and (basic and diluted) for the three and nine months ended September 30, 2021.
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There
are shares authorized, and shares issued and outstanding, as of September 30, 2022 and 2021 respectively.
As of September 30, 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 of September 30, 2022 the Company has warrants convertible to
17. Warrants
During
the nine months ended September 30, 2022, an aggregate of
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, an aggregate of warrants expired.
As of September 30, 2022, the Company has the following warrants outstanding:
| Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| September 30, 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 | $ | $ | ||||||||||||||
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Under the Company’s 2015 Equity Incentive Plan, .
All equity-settled share-based payments are ultimately recognized as an expense in the statement of operations 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.
Performance Share Units
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 $. As of September 30, 2022, no PSUs have been vested and the Company recognized $ (2021 - $) in consulting expense.
Stock Options
On
July 23, 2021, the Company granted options to a director with an exercise price of $ and an expiry date of .
. The Company
recognized $
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
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 the 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 an 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 $
During
the nine months ended September 30, 2022, the Company granted and options to advisors with an exercise price of $ and
$ respectively. The options will expire on and . The options vested immediately upon issuance. The fair
value of the options on the grant date was estimated to be $ and $. The Company recognized $
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During the nine months ended September 30, 2022, Terravis Energy Inc., a subsidiary of the Company, granted an aggregate of to its officers and directors. The stock options have an exercise price of $ and will expire on . The options vested immediately upon issuance. The fair value of the options on grant date was estimated to be immaterial.
| September 30, 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 September 30, 2022 | ||||||||||||||||
| Stock options | $ | - | $ | |||||||||||||||||
| September 30, 2022 | ||||||||
| 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 September 30, 2022 | ||||||||||||||||
| Stock options | $ | $ | ||||||||||||||||||
19. Rental Income
During
the nine months ended September 30, 2022, the Company entered into a sublease agreement for its warehouse in Mississauga, Ontario, Canada.
The sublease commenced on September 15, 2022 and end on
During
the nine months ended September 30, 2022 the Company entered into a lease agreement in relation to its West Seneca property. Initially,
the Company entered into a lease agreement with a third-party from July 1 to
During
the nine months ended September 30, 2022 the Company recognized rental income of $
20. 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 are unknown at this time, as is the efficacy of the government and central bank interventions.
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Additionally, while the potential economic impact and duration of such impact brought by the COVID-19 pandemic are 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. The Company does not yet know the full extent of potential delays or impacts on its business, financing or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies. The management and board of the Company are constantly monitoring this situation to minimize potential losses.
21. Subsequent Events
On
November 4, 2022, Terravis Energy, Inc. filed an amendment to its articles of incorporation with the Colorado Secretary of State, pursuant
to which the Terravis board of directors attached a certificate of designation designating shares of its authorized preferred stock
as Series A Preferred Stock with a par value $ per share. According to the certificate of designation, holders of the Series A
Preferred Stock does not have any dividend, conversion or liquidation rights. Unless otherwise prohibited by law or the Series A Preferred
Stock certificate of designation, the Series A Preferred Stock shall vote together with the outstanding shares of common stock of Terravis
as one class on any matter put forth before the common stockholders. For so long the Series A Preferred Stock is outstanding, the holders
of the Series A Preferred Stock shall be entitled to
On November 11, 2022, performance stock units (“PSU”) as disclosed in Note 18 granted December 29, 2021 were cancelled and replaced. In replacement to the cancelled PSU the Company issued and .
Additionally, on November 11, 2022, the Company’s Compensation Committee of the Board of Directors granted up to restricted shares to the Company’s Chief Executive Officer. The vesting of these restricted shares are based on individual significant Company milestones.
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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 September 30, 2022 compared to the Three Months Ended September 30, 2021
Revenue
For the three months ended September 30, 2022, revenue generated from sales was $18,350, compared to $93,408 for the three months ended September 30, 2021. Total revenues decreased by approximately 80% compared to the same period in the prior year.
Revenue decreased for the three months ended September 30, 2022, compared to the same period the prior year due to the Company’s focus on building up its inventory in anticipation of launching its e-commerce platform, research and development, and repositioning for domestic manufacturing. The Company is anticipating the launch of its e-commerce platform and domestic manufacturing in early-to-mid 2023.
For the three months ended September 30, 2022, total revenue generated in the United States decreased by 86%, from $93,408 in the prior period to $13,134. For the three months ended September 30, 2022, total revenue generated in the Canada increased by 100%, from $0 in the prior period to $5,216. Similar to the above, the overall decrease in revenue was a result of the Company shifting its focus to inventory buildup in anticipation of launching its e-commerce platform.
For the three months ended September 30, 2022, online revenues decreased by 86% from $93,408 in the prior period to $13,134. Online revenue accounted for 72% and 100% of total revenue for the three months ended September 30, 2022 and 2021 respectively. For the three months ended September 30, 2022, distributor revenues were $5,216 compared to $0 in the prior period.
Cost of Sales
For the three months ended September 30, 2022, cost of sales decreased by 85%. from $81,810 in the prior period to $12,602. Cost of sales, as a percentage of sales, was approximately 69% for the three months ended September 30, 2022, compared to 88% for the same period in 2021. The decrease in cost of sales as a percentage of sales was primarily due to increased efficiency associated with manufacturing and acquiring inventory, driven by lower ocean freight costs, for the three months ended September 30, 2022, compared to the same prior period.
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Gross Margin
Gross margin percentage for the three months ended September 30, 2022 was 31%, compared to 12% 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 September 30, 2022, by $897,013 from $2,051,563 in the prior period to $2,948,576.
| ● | General and administrative expense increased by $1,002,652 from $517,735 in the prior period to $1,520,388. The increased expenses are related to research and development and salaries as the Company seeks to expand its domestic operations and further develop its products. | |
| ● | Sales and marketing expenses increased by $152,483 from $433,905 in the prior period to $586,388. The increase in sales and marketing is a result of the Company’s marketing campaign to create brand and product awareness. | |
| ● | Professional fees which include accounting, legal and consulting fees, decreased from $1,111,098 for the three months ended September 30, 2021 to $858,605 for the three months ended September 30, 2022. The decrease was due to the transition of various third-party consultant services to in-house operations. | |
| ● | The Company realized a gain on foreign exchange of $16,805 during the three months ended September 30, 2022, an increase of $5,630 compared to a gain of $11,175 during the prior period. |
Other Income and Expenses
Other income and expenses for the three months ended September 30, 2022, was a gain of $65,168 compared to a loss of $24,316 for the prior period, an increase of $89,484. The change can be attributed to higher than expected interest income and rental income from a sub-leased facility.
Net Loss
Net loss for the three months ended September 30, 2022, was $2,877,660 compared to $2,064,281 for the three months ended September 30, 2021, a change of $813,379 or 39%. The increase in the net loss can be attributed to the increase in various operating expenses as the Company focuses on expanding its operations, research and development, manufacturing and supply chain.
Nine Months Ended September 30, 2022, compared to Nine Months Ended September 30, 2021
Revenue
For the nine months ended September 30, 2022, revenue generated from sales was $77,439, compared to $287,297 for the nine months ended September 30, 2021. Total revenues decreased by approximately 73% compared to the same period in the prior year.
Revenue decreased for the three months ended September 30, 2022, compared to the same period the prior year due to the Company’s focus on building up its inventory in anticipation of launching its e-commerce platform, research and development, and repositioning for domestic manufacturing. The Company is anticipating the launch of its e-commerce platform and domestic manufacturing in early-to-mid 2023.
For the nine months ended September 30, 2022, total revenue generated in the United States decreased by 73% from $246,652 in the prior period to $65,458. For the nine months ended September 30, 2022, total revenue generated in the Canada decreased by 71% from $40,645 in the prior period to $11,981. Similar to the above, the decrease in revenue was a result of the Company shifting its focus to inventory buildup in anticipation of launching its e-commerce platform.
| 21 |
For the nine months ended September 30, 2022, online revenues decreased by 73% from $246,701 in the prior period to $65.458. Online revenue accounted for 85% and 86% of total revenue for the nine months ended September 30, 2022, and 2021, respectively. For the nine months ended September 30, 2022, distributor revenues were $11,981 compared to $0 in the prior period.
Cost of Sales
For the nine months ended September 30, 2022, cost of sales decreased by 79% from $279,364 in the prior period to $58,566. Cost of sales, as a percentage of sales, was approximately 76% for the nine months ended September 30, 2022, compared to 97% for the same period in 2021, respectively. The decrease in the cost of sales as a percentage of sales was primarily due to increased efficiency associated with acquiring and manufacturing inventory for the nine months ended September 30, 2022, compared to the same prior period.
Gross Margin
Gross margin percentage for the nine months ended September 30, 2022, was 24% compared to a 3% 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 nine months ended September 30, 2022, by $5,215,392 from $3,852,280 in the prior periods to $9,067,672.
| ● | General and administrative expense increased by $2,048,120 from $924,041 in the prior period to $2,972,161. The increased expenses are 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 $1,191,531 from $761,712 in the prior period to $1,953,243. The increase in sales and marketing is a result of the Company’s marketing campaign to create brand and product awareness. | |
| ● | Professional fees which include accounting, legal and consulting fees, increased from $2,168,697 for the nine months ended September 30, 2021 to $4,160,059 for the nine months ended September 30, 2022. The increase was due to the engagement of various third-party consultants to expand the Company’s business operations. | |
| ● | The Company realized a gain on foreign exchange of $17,791 during the nine months ended September 30, 2022, an increase of $15,621 compared to a gain of $2,170 during the prior period. The gain on the foreign exchange can be attributed to operating expenses denominated in the Canadian Dollar. |
Other Income and Expenses
Other income and expenses for the nine months ended September 30, 2022, a loss of $18,789 compared to a loss of $255,112 the prior period, a decrease of $236,323. The change can be attributed to the Company’s interest expense partially offset by rental and interest income.
Net Loss
Net loss for the nine months ended September 30, 2022, was $9,067,588 compared to $4,099,459 for the nine months ended September 30, 2021, a change of $4,968,129 or 121%. The increase in the net loss can be attributed to the increase in various operating expenses as the Company focuses on expanding its operations, research and development, manufacturing and supply chain.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, the Company had $17,279,261 in cash, restricted 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 September 30, 2022, the Company had an accumulated deficit of $29,917,393.
Cash Flow Activities
Accounts receivable increased at September 30, 2022 by $390 and decreased at September 30, 2021 by $32,479. The increase in accounts receivable was due to sales near the end of the quarter. Other receivable increased at September 30, 2022 by $94,150 and decreased by $69,604 at September 30, 2021. Other receivables increased at September 30, 2022 due to increased receivables from a sales tax refund.
Inventory increased at September 30, 2022 by $785,014 and at September 30, 2021 by $156,822 as a result of the Company stockpiling inventory in anticipation of the launch of its e-commerce platform. Prepaid expenses increased by $1,063,680 at September 30, 2022 and at September 30, 2021 by $223,582, due to deposits made by the Company for the purchase of manufacturing equipment and professional services.
Accounts payable and accrued liabilities increased at September 30, 2022 by $647,996 and by $221,979 at September 30, 2021.
Cash decreased from $30,920,477 on September 30, 2021 to $17,279,261 at September 30, 2022, a decrease of $13,641,216 or 44%. The decrease was due to the Company’s focus on acquiring assets for domestic production such as the building in West Seneca, NY, industrial automation equipment, building up its inventory in anticipation of launching its e-commerce platform, and research and development.
As of September 30, 2022, the Company had current assets of $22,096,328 and current liabilities of $2,504,881.
Operating Activities
Net cash used by operating activities for the nine months ended September 30, 2022, was $6,361,539, compared to $2,117,305 in the prior period.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2022, was $10,212,245 compared to $764,089 in the prior period. The increase in investing activities was primarily due to the purchase of property and equipment.
Financing Activities
Net cash generated by financing activities for the nine months ended September 30, 2022, was $5,285,712 compared to of $32,694,059 in the prior period.
Based on the Company’s future operating plans and existing cash of $17,279,261, 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.
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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.
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.
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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
Subsequent Events
On November 4, 2022, Terravis Energy, Inc. filed an amendment to its articles of incorporation with the Colorado Secretary of State, pursuant to which the Terravis board of directors attached a certificate of designation designating 1,000 shares of its authorized preferred stock as Series A Preferred Stock with a par value $0.0001 per share. According to the certificate of designation, holders of the Series A Preferred Stock does not have any dividend, conversion or liquidation rights. Unless otherwise prohibited by law or the Series A Preferred Stock certificate of designation, the Series A Preferred Stock shall vote together with the outstanding shares of common stock of Terravis as one class on any matter put forth before the common stockholders. For so long the Series A Preferred Stock is outstanding, the holders of the Series A Preferred Stock shall be entitled to 51% of the total votes on all matters regardless of the actual number of shares of Series A Preferred Stock then outstanding, and the holders of the common stock and any other shares of capital stock of Terravis entitled shall be entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power. On November 4, 2022, the Company issued 1,000 shares of Series A Preferred Stock to Steven Rossi, the President of Terravis and the Chief Executive Officer and President of the Company.
On December 29, 2021, the Company granted 400,000 and 300,000 performance stock units (“PSU”) to the Company’s Chief Executive Officer and a director, respectively. The PSU will vest in 5% increments according to a schedule that correlates with the Company’s stock price. The first 5% of the PSUs vest upon the Company’s stock price closing at $3.00. 50% will have vested at a closing price of $16.50 and 100% will have vested at a closing price of $31.50. The fair value of the PSU was estimated to be $2,308,012. As of September 30, 2022, no PSUs have been vested and the Company recognized $201,686 (2021 - $0) in consulting expense.
On November 11, 2022, the performance stock unit (“PSU”) awards that the Company granted to Steven Rossi, the Company’s Chief Executive Officer and Chairman of the Board, and to Lorenzo Rossi, a member of the Company’s Board of Directors, on December 29, 2021 (as described in Note 18 to the financial statements included in Item 1.01 of this quarterly report) were cancelled and replaced. In replacement of the cancelled PSU awards, on November 11, 2022, the Compensation Committee of the Board of Directors of the Company granted 400,000 and 300,000 PSU awards under the Company’s 2015 Equity Incentive Plan to Steven Rossi and Lorenzo Rossi, respectively. The PSU awards will vest in 5% increments according to a schedule that correlates with the Company’s stock price. The first 5% of the PSUs vest upon the Company’s stock price closing at $2.25. 50% will have vested at a closing price of $5.31 and 100% will have vested at a closing price of $13.76. Copies of the PSU awards are filed as exhibits10.1 and 10.2 to this quarterly report and are incorporated by reference herein.
On November 11, 2022, the Company’s Compensation Committee of the Board of Directors granted Steven Rossi, the Company’s Chief Executive Officer and Chairman of the Board, a restricted stock award under the Company’s 2015 Equity Incentive Plan. The award vests upon the achievement of the following milestones: (i) 200,000 shares upon the completion of the Company’s first fiscal quarter in which the Company has revenues of $1,000,000 in two consecutive quarters; (ii) the greater of 200,000 restricted shares or the number of restricted shares equal to 3% of the value of the transaction upon the consummation of a material accretive acquisition; (iii) 200,000 shares upon the consummation of the spin-off of TerraVis Energy, Inc. on The Nasdaq Stock Market LLC; (iv) 200,000 shares shares upon the Company’s facility in Seneca, New York producing 100 tonneau covers per day, over the course of a calendar month, excluding weekends and holidays; (v) 200,000 shares upon the Company’s facility in Seneca, New York producing ten solar tonneau covers per day, over the course of a calendar month; (vi) 200,000 shares upon the consummation of an equity financing or cumulative equity financings with gross proceeds of at least $10,000,000; (vii) 200,000 shares upon the Company achieving net profitability for two consecutive fiscal quarters and (viii) 200,000 shares upon the consummation of a spin-off of a subsidiary (other than TerraVis Energy, Inc.) of the Company on The Nasdaq Stock Market LLC. A copy of the restrictive stock awards has been filed as Exhibit 10.3 to this quarterly report and is incorporated by reference herein.
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Item 6. Exhibits
| EXHIBIT No. | DESCRIPTION | |
| 10.1† | Performance Stock Unit award, dated November 11, 2022, to Steven Rossi | |
| 10.2† | Performance Stock Unit award, dated November 11, 2022, to Lorenzo Rossi | |
| 10.3† | Restricted Stock award, dated November 11, 2022, to Steven Rossi | |
| 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) |
† Management contract or any compensatory plan, contract or arrangement.
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SIGNATURES
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: November 14, 2022 | By: | /s/ Steven Rossi |
| Steven Rossi | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Dated: November 14, 2022 | By: | /s/ Michael Johnston |
| Michael Johnston | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
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