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 No.) |
| (Address of principal executive offices) | (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: | ||
| The
| ||||
| The
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 past 12 months (or for such shorter period 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 every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant
was required to submit post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 period 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 15, 2023, the Registrant had shares of common stock, par value $0.0001 per share, issued and outstanding.
WORKSPORT LTD.
TABLE OF CONTENTS
| 2 |
Worksport Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable net | ||||||||
| Other receivable | ||||||||
| Inventory (note 4) | ||||||||
| Prepaid expenses and deposits (note 5) | ||||||||
| Total Current Assets | ||||||||
| Investments (note 12) | ||||||||
| Property and Equipment, net (note 6) | ||||||||
| 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 | ||||||||
| Current lease liability (note 13) | ||||||||
| Total Current Liabilities | ||||||||
| Long Term – Lease Liability (note 13) | ||||||||
| Loan payable (note 14) | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| Series A & B Preferred Stock, $ par value, shares authorized, Series A and Series B issued and outstanding, respectively (note 9) | ||||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding, respectively (note 9) | ||||||||
| 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 and Comprehensive Loss
For the Three Months Ended March 31, 2023 and 2022
(Unaudited)
| Three Months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| 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 | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Rental income (note 18) | ||||||||
| Gain on settlement of debt | ||||||||
| 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 March 31, 2023 and 2022
(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, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
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, 2023 and 2022
(Unaudited)
| 2023 | 2022 | |||||||
| 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 | ||||||||
| Accrued interest | ||||||||
| Change in operating lease | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Changes in operating assets and liabilities (note 11) | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Investment | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Shareholder Assumption of Debt | ( | ) | ( | ) | ||||
| Net cash used in 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 | $ | $ | ||||||
| Supplemental Disclosure of cash flow information | ||||||||
| Income tax paid | ||||||||
| Interest paid | ||||||||
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 months period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022 filed with the SEC on March 31, 2023.
Worksport Ltd. (together with its subsidiaries, the “Company”) was incorporated in the State of Nevada on April 2, 2003 under the name Franchise Holdings International, Inc. (“FNHI”). In May 2020, FNHI changed its name to Worksport Ltd. During the year ended December 31, 2014, the Company completed a reverse acquisition transaction (the “Reverse Acquisition”) with TruXmart Ltd. (“TruXmart”). On May 2, 2018, Truxmart legally changed its name to Worksport Ltd. (“Worksport”). Worksport designs and distributes truck tonneau covers in Canada and the United States.
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. (“Terravis”) 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. During the year ended December 31, 2022, the Company was issued an additional common shares of Terravis 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, 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’ common stock or reorganization, recapitalization, or acquisition of Terravis.
On April 6, 2022, Lorenzo Rossi and Steven Rossi, both of whom are members of Terravis’ board of directors, were granted non-qualified stock options under the Terravis 2022 Plan exercisable for and shares of Terravis’ common stock, respectively, with exercise prices of $ per share exercisable from the date of grant until the tenth anniversary of the date of grant.
On April 12, 2022, Steven Rossi, William Caragol, and Ned L. Siegel, all of whom are members of Terravis’ board of directors, were granted non-qualified stock options under the Terravis 2022 Plan exercisable for , , and shares of Terravis’ common stock, respectively, with exercise prices of $ per share exercisable from the date of grant until the tenth anniversary of the date of grant.
| 7 |
On
November 4, 2022, Terravis 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 do 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
During the year ended December 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 year ended, 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.
b) Statement of Compliance
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as issued by the Financial Accounting Standards Board (“FASB”).
c) Basis of Measurement
The Company’s financial statements have been prepared on the accrual basis.
d) Consolidation
The Company’s condensed consolidated financial statements consolidate the accounts of the Company. All intercompany transactions, balances and unrealized gains or losses from intercompany transactions have been eliminated upon consolidation.
e) Functional and Reporting Currency
These condensed consolidated financial statements are presented in United States dollars (USD or US$). The functional currency of the Company and its subsidiaries are United States dollar. For purposes of preparing these condensed consolidated financial statements, transactions denominated in Canadian dollars (CAD or C$) 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 condensed consolidated statement of operations.
f) 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.
| 8 |
2. Going Concern
The
accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the three months
ended March 31, 2023, the Company had net loss of $
The
Company has historically operated at a loss, although that may change as sales volumes increase. As of March 31, 2023, the Company had
working capital of $
The
Company has successfully raised cash, and it is positioned to do so again if deemed necessary or strategically advantageous. During the
year ended December 31, 2021, the Company, through its Reg-A public offering, private placement offering, underwritten public offering,
and exercises of warrants, raised an aggregate of approximately $
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. Based on its current operating plans, the Company believes it has a sufficient level of funding for anticipated operations, capital expenditures and debt repayments for a period of at least 12 months from the issuance date of this Quarterly Report. Still, these factors, among others, indicate the existence of a material uncertainty that cast substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments could be material.
3. 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, 2022.
4. Inventory
Inventory consists of the following at March 31, 2023 and December 31, 2022:
| March 31, 2023 | December 31, 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Promotional items | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
| 9 |
5. Prepaid expenses and deposits
As of March 31, 2023 and December 31, 2022 prepaid expenses and deposits consists of the following:
| March 31, 2023 | December 31 , 2022 | |||||||
| Consulting, services and advertising | $ | $ | ||||||
| Insurance | ||||||||
| Deposit | ||||||||
| $ | $ | |||||||
As
of March 31, 2023 prepaid expense and deposit consists of $
6. Property and Equipment
Major classes of property and equipment as at March 31, 2023 and December 31, 2022 are as follows:
| March 31, 2023 | December 31, 2022 | |||||||
| Equipment | $ | $ | ||||||
| Furniture | ||||||||
| Product molds | ||||||||
| Computers | ||||||||
| Leasehold improvements | ||||||||
| Building | ||||||||
| Land | ||||||||
| Automobile | ||||||||
| Deposits | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
7. Promissory Notes
The following tables shows the balance of the notes payable as of March 31, 2023 and December 31, 2022:
| Balance as at December 31, 2021 | $ | ||||
| Settlement | ( | ) | |||
| Balance as at December 31, 2022 and March 31, 2023 | $ |
During
the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes
and interest for $
During
the year ended December 31, 2019, the promissory note holder advanced $
During
the year ended December 31, 2016, the Company issued a secured promissory note in the principal amount of $
| 10 |
During
the year ended December 31, 2016, the Company issued secured promissory notes in the aggregate principal amount of $
8. 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 carried an original issue discount of $
9. Shareholders’ Equity (Deficit)
During three months ended March 31, 2023, the following transactions occurred:
The
Company recognized consulting expense of $
Refer to notes 16 and 17 for additional 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 $
| 11 |
During
the three months ended March 31, 2022, the Company recognized consulting expense of $
Refer to note 16 and 17 for additional shareholders’ equity (deficit).
As
of March 31, 2023, 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 the three months ended March 31, 2023, the Company was
authorized to issue shares of its Series A and Series B Preferred Stock with a par value of $. Series A preferred Stock
have voting rights equal to
10. Related Party Transactions
During
the three months ended March 31, 2023, the Company recorded salaries expense of $
Refer to note 17 for additional related party transactions.
11. 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, 2023 and 2022 are as follows:
| 2023 | 2022 | |||||||
| 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 | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | |||
12. Investments
| a) | During
the year ended December 31, 2019, the Company entered into an agreement to purchase shares of a privately owned US-based
mobile phone development company for $ | |
| b) | During
the three months ended March 31, 2023, the Company purchased $ |
13. Operating Lease Obligations
During
the year ended December 31, 2019, the Company signed a lease agreement for warehouse space to commence on August 1, 2019 and end on
| 12 |
During
the year ended December 31, 2022, the Company signed a lease agreement for approximately
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 and lease liability as of March 31, 2023 and December 31, 2022 are as follows:
| March 31, 2023 | December 31, 2022 | |||||||
| Right-of-use asset | $ | $ | ||||||
| Current lease liability | $ | $ | ||||||
| Long-term lease liability | $ | $ | ||||||
The following is a summary of the Company’s total lease costs:
| March 31, 2023 | March 31, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
The following is a summary of cash paid during the three months ended March 31, 2023 and 2022 for amounts included in the measurement of lease liabilities:
| March 31, 2023 | March 31, 2022 | |||||||
| Operating cashflow | $ | $ | ||||||
Maturities of lease liability are as follows:
Future minimum lease payments as of March 31, 2023:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| 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 year ended December 31, 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 $ |
| 13 |
| b) | During
the year ended December 31, 2020, the Company received $ |
For the three months ended March 31, 2023, loss per share is $ (basic and diluted) compared to that of the three months ended March 31, 2022 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 and shares issued and outstanding, as at March 31, 2023 and 2022, respectively.
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, 2023, the Company has
warrants convertible to
16. Warrants
During
the three months ended March 31, 2023, the Company and a stock options holder reached an agreement to cancel all stock options
in exchange for extending the exercisable period of
During
the year ended December 31, 2022, an aggregate of
During
the year ended December 31, 2022, the Company and a warrant holder reached an agreement to extend the exercisable period of
During
the year ended December 31, 2021, the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company
issued an additional
During
the year ended December 31, 2021, the Company issued
As of March 31, 2023, the Company has the following warrants outstanding:
| Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| 14 |
| March 31, 2023 | December 31, 2022 | |||||||||||||||
| 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, .
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 than that estimated on vesting.
Performance Share Units
On November 11, 2022, performance stock units (“PSUs”) granted December 29, 2021, as described below, were modified to include new terms pertaining to the PSU vesting schedule. . The fair value of the PSUs was estimated to be $. As of March 31, 2023, no PSUs have vested, and the Company recognized $ (2022 - $) in consulting expense.
On
December 29, 2021, the Company granted and performance stock units (“PSUs”) to the Company’s Chief
Executive Officer and a director, respectively. . The fair value of the PSUs was
estimated to be $. As of March 31, 2023, no PSUs have vested, and the Company recognized $
Stock Options
The Company uses the Black-Scholes option pricing model to determine fair value of stock options on the grant date.
During
the three months ended March 31, 2023, the Company issued stock options to employees and a consultant with an exercise price of
$ and expiring on . The options shall vest in two equal installments on March 14, 2024, and 2025. The fair value of
the options on the grant date was estimated to be $. The Company recognized $
During
the three months ended March 31, 2023, the Company issued stock options to an employee with an exercise price of $ and expiring
on . . The fair value
of the options on the grant date was estimated to be $. The Company recognized $
| 15 |
During
the three months ended March 31, 2023, the Company issued stock options to a consultant with an exercise price of $ and expiring
on . The options shall vest in three equal installments on January 30, 2023, March 1, 2023, and September 1, 2023. The
fair value of the options on the grant date was estimated to be $. The Company recognized $
During
the three months ended March 31, 2023, the Company issued stock options to directors with an exercise price of $ and expiring
on . The options shall vest in six equal installments on January 30, 2023, July 31, 2023, January 30, 2024, July 30,
2024, January 30, 2025, and July 30, 2025. The fair value of the options on the grant date was estimated to be $. The Company
recognized $
During the year ended December 31, 2022, the Company granted and options to advisors with an exercise price of $ and $, respectively, expiring on , and , respectively. The options vested immediately upon issuance. The fair values of the options on the grant date were estimated to be $ and $, respectively. The Company recognized $ (2022 - $) in consulting expense during the three months ended March 31, 2023.
During the year ended December 31, 2022, the Company granted options to a consultant with an exercise price of $ expiring on . . The fair value of the options on the grant date was estimated to be $. The Company recognized $ (2022 - $) in consulting expenses during the three months ended March 31, 2023.
During the year ended December 31, 2022, Terravis Energy, Inc., a subsidiary of the Company, granted an aggregate of of Terravis Energy, Inc. stock options to its officers and directors. The stock options have an exercise price of $0.01 and will expire on . The options vested immediately upon issuance. The fair value of the options on the grant date was estimated to be immaterial.
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 . ; shall vest 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 advisors and options with exercise prices of $ and $, respectively.
The options will expire on , and , respectively. The stock options vested on January 1, 2022. The fair
value of the options on the 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 . ; vested on December
29, 2022, shall vest on December 29, 2023, and shall vest on December 29, 2024. The fair value of the options on the grant
date was estimated to be $. The Company recognized $
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| March 31, 2023 | December 31, 2022 | |||||||||||||||
| Number of stock options | Weighted average price | Number of stock options | Weighted average price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Cancelled | ( | ) | $ | ( | ) | $ | ||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
| Range of Exercise prices | Outstanding | Weighted average life (years) | Weighted average exercise price | Exercisable on March 31, 2023 | ||||||||||||||||
| Stock options | $ | - | $ | |||||||||||||||||
| March 31, 2023 | December 31, 2022 | |||||||||||||||
| 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, 2023 | ||||||||||||||||
| Stock options | $ | $ | ||||||||||||||||||
18. Rental Income
During
the year ended December 31, 2022, the Company entered into a sublease agreement for its warehouse in Mississauga, Ontario, Canada. The
sublease commenced on
During
the year ended December 31, 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 three months ended March 31, 2023, the Company recognized rental income of $
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 are unknown at this time, as is the efficacy of the government and central bank interventions.
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.
20. Subsequent Events
The Company has evaluated subsequent events through May 15, 2023. The following events occurred after the quarter-ended March 31, 2023:
| ● | On
April 21, 2023, the Company sold common shares at $ per share for $ | |
| ● | On May 1, 2023, the Company and Steven Rossi reached an agreement to cancel the restricted stock units and performance stock units issued to Steven Rossi on November 11, 2022 and December 29, 2021, respectively. | |
| ● | On May 1, 2023, the Company issued stock options to Steven Rossi.
The stock options have an exercise price of $ and an expiration date of May 1, 2033. The options shall vest in increments of 10% for
each dollar that the Company’s stock price increases between $ |
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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 2022 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, 2023 compared to the Three Months Ended March 31, 2022
Revenue
For the three months ended March 31, 2023, revenues from the entire line of our products were $31,925, as compared to $47,784 for the three months ended March 31, 2022. The year-over-year sales decreased by approximately 33%. For the three months ended March 31, 2023, revenue generated in Canada was $5,522, as compared to $0 for the same period in 2022. For the three months ended March 31, 2023, revenue generated in the United States was $26,403, compared to $47,784 for the same period in 2022, a decrease of 45%.
Revenue decreased for the three months ended March 31, 2023 compared to the same period the prior year due to our focus on establishing new business-to-consumer and business-to-business sales channels while strengthening the support of those channels to increase customer satisfaction and enable high product turnover once domestic production begins. For business-to-consumer channels, we established our own e-commerce platform as well as listed our products on online marketplaces including eBay, Amazon, and Walmart. For business-to-business channels, we updated our terms and conditions, created improved product brochures for distributors, strategically created a Minimum Advertised Price policy to prevent our business-to-consumer channels from interfering with our business-to-business channels, established sales representation across the continental U.S. by forging relationships with various sales agencies, and more. We intend to begin domestic manufacturing in the second quarter of fiscal year 2023 and gradually increase output capacity through refined production processes and increased personnel.
Sales from online retailers of our products decreased from $47,784 during the three months ended March 31, 2022 to $26,434 during the three months ended March 31, 2023, a decrease of 45%. Online retailers accounted for 83% of total revenue for the three months ended March 31, 2023 compared to 100% for the three months ended March 31, 2022. Distributor sales increased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 with sales of $5,491 and $0, respectively. We expect to continue to grow our fields of business as we develop unique products with enhanced utility to offer to other prospective clients in the US and Canadian markets.
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We currently support a network of dealers, distributors, and independent resellers, and we will continue to expand our business and online sales channels in 2023.
Cost of Sales
Cost of sales decreased by 48%, from $37,977 for the three months ended March 31, 2022 to $19,757 for the three months ended March 31, 2023. Our cost of sales, as a percentage of sales, was approximately 62% and 79% for the three months ended March 31, 2023 and 2022, respectively. The decrease in the cost of sales as a percentage of sales was primarily due to increased efficiency associated with improved supply chain logistics for the three months ended March 31, 2023, compared to the same prior period.
We provide our distributors and online retailers an “all-in” wholesale price. This includes any import duty charges, taxes, and shipping charges. Discounts are applied if the distributor or retailer chooses to use their own shipping process. Certain exceptions apply on rare occasions where product is shipped outside the contiguous United Sates or from the United States to Canada. Volume discounts are offered to certain high-volume customers, and we also offer a “dock price” or “pickup program” in which clients are able to pick up product directly from our stocking warehouse.
Operating Expenses
Operating expenses increased for the three months ended March 31, 2023 by $734,529, from $2,807,587 for the three months ended March 31, 2022 to $3,542,116 for the three months ended March 31, 2023, due to the following factors.
| ● | General and administrative expenses increased by $1,528,754 from $600,858 in 2022 to $2,129,612 in 2023. The increase was related to increased research and development activities and an increase in salaries as we seek to expand our operations and further develop our products. | |
| ● | Sales and marketing expenses decreased by $176,137 from $720,488 for 2022 to $544,351 for 2023. The decrease in sales and marketing is primarily attributable to the completion of several marketing agreements and lower cost of in-house marketing campaigns to create brand and product awareness. | |
| ● | Professional fees, which include accounting, legal, and consulting fees, decreased from $1,487,579 in 2022 to $868,611 in 2023. The decrease in professional fees was due to the completion of consulting engagements with various third-party consultants. | |
| ● | We realized a gain on foreign exchange of $458 during 2023, compared to a gain on foreign exchange of $1,338 for the prior period due to conversions between CAD and USD. |
Other Income and Expenses
We reported other income for the three months ended March 31, 2023 of $6,678 compared to a loss of $19,829 in the prior period. The change can be attributed to our gain on loan forgiveness from the Government of Canada as well as rental and interest income, which are partially offset by an increase in interest expense.
Net Loss
Net loss for the three months ended March 31, 2023 was $3,523,270 compared to a net loss of $2,817,609 for the three months ended March 31, 2022 – an increase of 25%. The increase in the net loss can be attributed to the increase in various operating expenses as we focus on expanding our operations, research and development, manufacturing, and supply chain.
Liquidity and Capital Resources
As of March 31, 2023, we had $10,489,214 in cash and cash equivalents. We have generated only limited revenues and have relied primarily upon capital generated from public and private offerings of our securities. Since the Company’s acquisition of Worksport in fiscal year 2014, it has never generated a profit. As of March 31, 2023, we had an accumulated deficit of $36,907,489.
To date, our principal sources of liquidity consists of net proceeds from public and private securities offerings and cash exercises of outstanding warrants. During the three months ended March 31, 2023, we did not receive any proceeds from public offerings, private placement offering, nor exercises of warrants. Management is focused on transitioning towards revenue as our principal source of liquidity by growing our existing product offerings, as well as our customer base, to increase our revenues. We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure we will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, we believe our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying condensed consolidated financial statements.
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Cash Flow Activities
Cash decreased from $14,620,757 at December 31, 2022 to $10,489,214 at March 31, 2023 – a decrease of $4,131,543 or 28%. The decrease was primarily due to the acquiring of assets for domestic production, such as industrial manufacturing equipment, as well as increasing spending for inventory in anticipation of launching our e-commerce platform, research and development, and overhead.
As of March 31, 2023, we had current assets of $14,705,146 (December 31, 2022 - $18,332,107) and current liabilities of $2,432,819 (December 31, 2022 – $2,461,730). As of March 31, 2023, we had working capital of $12,272,327 (December 31, 2022 – $15,870,377) and an accumulated deficit of $36,907,489 (December 31, 2022 - $33,384,219).
Operating Activities
Net cash used by operating activities for the three months ended March 31, 2023 was $2,934,410, compared to $2,130,184 in the prior period, primarily driven by a larger net loss during the three months ended March 31, 2023 and partially offset by the issuance of shares, options, and warrants for services.
Accounts receivable increased at March 31, 2023 by $38,013 and decreased by $6,733 in the prior period. The increase in accounts receivable was due to higher sales to distributors near the end of the period in 2023 compared to 2022.
Inventory increased at March 31, 2023 by $257,423 and at March 31, 2022 by $290,041 as a result of our stockpiling inventory in anticipation of the launch of our e-commerce platform. Prepaid expenses increased by $742,590 at March 31, 2023 and by $430,917 at March 31, 2022 due to deposits made by us for the purchase of inventory and professional services.
Accounts payable and accrued liabilities decreased at March 31, 2023 by $6,799 and increased by $105,626 in the prior period.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2023 was $1,153,229 compared to $614,046 in the prior period. The increase in investing activities was primarily due to the purchase of manufacturing property and equipment and Guaranteed Investment Certificate (“GIC”).
Financing Activities
Net cash used by financing activities for the three months ended March 31, 2023 was $43,904 compared to $1,863 in the prior period.
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, 2023. 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.
| 21 |
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
Subsequent Events
| ● | On April 21, 2023, the Company sold 4,434 common shares at $1.72 per share for $7,624. The sale of the common shares was in connection with the Form S-3 shelf registration statement, which was declared effective by the SEC on October 13, 2022 allowing the Company to issue up to $30,000,000 of common shares and up to $13,000,000 of common shares that may be issued and sold under the At The Market Offering Agreement dated as of September 30, 2022. | |
| ● | On May 1, 2023, the Company and Steven Rossi reached an agreement to cancel the 1,600,000 restricted stock units and 400,000 performance stock units issued to Steven Rossi on November 11, 2022 and December 29, 2021, respectively. | |
| ● | On May 1, 2023, the Company issued 2,000,000 stock options to Steven Rossi. The stock options have an exercise price of $1.74 and an expiration date of May 1, 2033. The options shall vest in increments of 10% for each dollar that the Company’s stock price increases between $2.00 and $11.00, as measured using the volume weighted average of the Company’s common stock for ten consecutive trading days. |
| 22 |
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) |
| 23 |
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: May 15, 2023 | By: | /s/ Steven Rossi |
| Steven Rossi | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: May 15, 2023 | By: | /s/ Michael Johnston |
| Michael Johnston | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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