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:
(Former name, former address and former fiscal year, if changed since last report
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 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 14, 2023 , the Registrant had shares of common stock, par value $0.0001 per share, issued and outstanding.
WORKSPORT LTD.
TABLE OF CONTENTS
| 3 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Worksport Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, 2023 (Unaudited) | December 31, 2022 | |||||||
| 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’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Payroll taxes payable | ||||||||
| Related party loan (note 10) | ||||||||
| Loan payable (note 14) | ||||||||
| 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, and 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.
| 4 |
Worksport Ltd.
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three and Six Months Ended June 30, 2023 and 2022
(Unaudited)
| Three Months ended June 30 | Six Months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Professional fees | ||||||||||||||||
| (Gain) loss on foreign exchange | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Rental income (note 19) | ||||||||||||||||
| 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
| 5 |
Worksport Ltd.
Condensed Consolidated Statements of Shareholders’ Equity
For the Three Months Ended June 30, 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 April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | | |||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | |||||||||||||||||||||||||||||||||||||||
| Warrant exercise (note 17) | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | |||||||||||||||||||||||||||||||||||||||
| Shares issued (note 9) | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
| 6 |
Worksport Ltd.
Condensed Consolidated Statements of Shareholders’ Equity
For the Six Months Ended June 30, 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 | - | |||||||||||||||||||||||||||||||||||||||
| Warrant exercise (note 17) | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | |||||||||||||||||||||||||||||||||||||||
| Shares issued (note 9) | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
| 7 |
Worksport Ltd.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 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 | ( | ) | ||||||
| Loan payable | ||||||||
| Repayments on loan payable | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Net cash received from (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.
| 8 |
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- and six-month periods ended June 30, 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 shares of common stock 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 shares of common stock 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.
| 9 |
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 December 31, 2022, the Company was issued shares of common stock at par value of $ of Worksport USA Operations Corporation. On April 1, 2022, the Company was issued shares of common stock 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.
| 10 |
2. Going Concern
As
of June 30, 2023, the Company had $
The accompanying
condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal course of business. During the three and six months ended June
30, 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 June 30, 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 $
To date, the Company’s principal sources of liquidity consist of net proceeds from public and private securities offerings and cash exercises of outstanding warrants. During the six months ended June 30, 2023, the Company received nominal proceeds from public offerings, private placement offerings, and from the exercise of any outstanding warrants or options. Management is focused on transitioning towards revenue as its principal source of liquidity by growing existing product offerings as well as the Company’s customer base. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot provide assurances it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, the Company believes its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of issuance of the accompanying condensed consolidated financial statements.
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 and anticipated cash flows, 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.
| 11 |
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
As of June 30, 2023 and December 31, 2022, inventory consists of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Promotional items | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
5. Prepaid expenses and deposits
As of June 30, 2023 and December 31, 2022, prepaid expenses and deposits consists of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Consulting, services and advertising | $ | $ | ||||||
| Insurance | ||||||||
| Deposit | ||||||||
| $ | $ | |||||||
As
of June 30, 2023, prepaid expense and deposits consists of $
6. Property and Equipment
As of June 30, 2023 and December 31, 2022, major classes of property and equipment consist of the following:
| June 30, 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 June 30, 2023, December 31, 2022, and December 31, 2021:
| Balance as at December 31, 2021 | $ | |||
| Settlement | ( | ) | ||
| Balance as at December 31, 2022 and June 30, 2023 | $ |
| 12 |
During
the year ended December 31, 2022, the Company and the promissory note holder reached an agreement to settle all
outstanding promissory notes and interest for $
During
the year ended December 31, 2019, the note holder advanced $
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 $
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 $
| 13 |
9. Shareholders’ Equity (Deficit)
During six months ended June 30, 2023, the following transactions occurred:
During
the six months ended June 30, 2023, the Company sold shares of common stock at $ per share incurring share issuance cost of
$
The
Company recognized consulting expense of $
Refer to notes 17 and 18 for additional shareholders’ equity (deficit).
During six months ended June 30, 2022, the following transactions occurred:
During
the six months ended June 30, 2022, the Company issued shares of common stock to a consultant for services received valued at
$
During
the six months ended June 30, 2022, the Company recognized share subscriptions payable and consulting expense of $
During
the six months ended June 30, 2022, the Company recognized consulting expense of $
Refer to note 17 and 18 for additional shareholders’ equity (deficit).
As
of June 30, 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 and six months ended June 30, 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 six months ended June 30, 2023, the Company recorded salaries expense of $
Refer to note 18 for additional related party transactions.
| 14 |
11. Changes in Cash Flows from Operating Assets and Liabilities
The changes to the Company’s operating assets and liabilities for the six months ended June 30, 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 six months ended June 30, 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
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 June 30, 2023 and December 31, 2022 are as follows:
| June 30, 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:
| June 30, 2023 | June 30, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| 15 |
The following is a summary of cash paid during the six months ended June 30, 2023 and 2022 for amounts included in the measurement of lease liabilities:
| June 30, 2023 | June 30, 2022 | |||||||
| Operating cashflow | $ | $ | ||||||
The following are future minimum lease payments as of June 30, 2023:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 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 $ | |
| b) | During
the year ended December 31, 2020, the Company received $ |
For the three and six months ended June 30, 2023, basic and diluted loss per share is $ and $ compared to the three and six months ended June 30, 2022 having basic and diluted loss per share of $ and $. These losses per share are calculated using the weighted average number of shares of and for the three and six months ended June 30, 2023 and and for the three and six months ended June 30, 2022. For the periods presented, our potentially dilutive shares relating to stock options and restricted stock units were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive. The potentially dilutive shares totaling and for the three and six months ended June 30, 2023 were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented.
There are shares authorized and and shares issued and outstanding, as at June 30, 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 stock options were excluded due to the anti-dilutive effect they would have on the computation. As at June 30, 2023, the Company has warrants convertible to shares of common stock, restricted stock to be issued, performance stock units and stock options exercisable for shares of common stock for a total underlying shares of common stock of . As at June 30, 2022, the Company had warrants convertible to shares of common stock, restricted stock to be issued, and stock options exercisable for shares of common stock and performance stock units for a total underlying shares of common stock of .
| 16 |
16. Warrants
During
the six months ended June 30, 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 June 30, 2023, the Company has the following warrants outstanding:
| Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | ||||||||
| $ | |||||||||||
| $ | |||||||||||
| $ | |||||||||||
| $ | |||||||||||
| June 30, 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, 2021 and 2022 Equity Incentive Plans, .
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 May 1, 2023, the Company and Steven Rossi reached an agreement to modify restricted stock units and performance stock units issued on November 11, 2022 and December 29, 2021, respectively, and replace them with stock options, as described below.
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On November 11, 2022, performance stock units (“PSUs”) granted on 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 June 30, 2023, no PSUs have vested, and the Company recognized $ (2022 - $) in consulting expenses.
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 June 30, 2023, no PSUs have vested, and the Company recognized $ (2022 - $) in consulting expenses.
Stock Options
The Company uses the Black-Scholes option pricing model to determine fair value of stock options on the grant date.
During the six months ended June 30, 2023, the Company issued stock options to Steven Rossi. The stock options have an exercise price of $ and an expiration date of . The fair value of the options on the grant date was estimated to be $. The Company recognized $ in wages and salary during the six months ended June 30, 2023.
During the six months ended June 30, 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 $ in wages and salary expenses during the six months ended June 30, 2023.
During the six months ended June 30, 2023, the Company issued stock options to employees and a consultant with an exercise price of $ and expiring on . . The fair value of the options on the grant date was estimated to be $. During the six months ended June 30, 2023, stock options were cancelled upon the departure of employees. The Company recognized $ in wages and salary and consulting expenses during the six months ended June 30, 2023.
During the six months ended June 30, 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 $ in wages and salary expenses during the six months ended June 30, 2023.
During the six months ended June 30, 2023, the Company issued stock options to a consultant 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 $ in consulting expenses during the six months ended June 30, 2023.
During the six months ended June 30, 2023, the Company issued stock options to directors 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 $ in consulting expenses during the six months ended June 30, 2023.
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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 expenses during the six months ended June 30, 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 six months ended June 30, 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 $ 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 $ (2022 - $) to consulting expenses during the six months ended June 30, 2023.
On August 6, 2021, the Company granted options to directors, advisors, and officers with an exercise price of $ and an expiry date of . . The fair value of the options on the grant date was estimated to be $. The Company recognized $ (2022 - $) to consulting expenses during the six months ended June 30, 2023.
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 $(2022 - $) to consulting expenses during the six months ended June 30, 2023. During the six months ended June 30, 2023, the Company and the stock options holder reached an agreement to cancel all stock options in exchange for extending the exercisable period of warrants to December 31, 2024.
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 fully vested on January 1, 2022. The fair value of the options on the grant date was estimated to be $. The Company recognized $ (2022 - $) to consulting expenses during the six months ended June 30, 2023.
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 . For each of these three option grants, 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 $(2022 - $) in consulting expenses during the six months ended June 30, 2023.
| June 30, 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 June 30, 2023 | ||||||||||||||||
| Stock options | $ | - | $ | |||||||||||||||||
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| June 30, 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 June 30, 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 six months ended June 30, 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 August 14, 2023. The following events occurred after the quarter-ended June 30, 2023:
| ● | On July 10, 2023, the Company granted non-qualified stock options to a consultant with an exercise price of $ and an expiry date of . | |
| ● | On
July 25 and August 3, 2023, the Company sold a total of shares of common stock for
total proceeds of $ | |
| ● | During
the month of July 2023, the Company granted stock options to various employees, directors,
advisors, and consultants with exercise prices of $ |
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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 “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.
Overview
Worksport Ltd., through its subsidiaries, designs, develops, manufactures, and owns the Intellectual Property on a portfolio of tonneau cover, solar integration, portable power station, and NP (Non-Parasitic), Hydrogen-based green energy products and solutions for the automotive aftermarket accessories, power storage, residential heating, and electric vehicle-charging industries. We seek to provide consumers with next-generation automotive aftermarket accessories while capitalizing on growing consumer interest in clean energy solutions and power grid independence.
Rising Popularity of Electric Vehicles
Electric Vehicles (EVs) have been exponentially increasing in consumer interest, whether that interest takes the form of vehicle pre-orders, sales, or investments. As we begin marketing our Worksport SOLIS and COR, we plan to market the SOLIS as a must-have accessory for electric light duty vehicle owners while simultaneously riding the coattails of EV popularity to promote our other products (COR and conventional tonneau covers) to the very large population of Americans that have an interest in EVs without the funds to purchase them. Further, participating in the EV space allows us to target consumers with an interest in cutting-edge technologies – a great market in which to promote our COR.
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Regulatory Environment Favoring Electric Vehicles
The Build Back Better Bill was a strong indication of upcoming and favorable USA regulations. Many regulations that improve North America’s Electric Vehicle (EV) charging infrastructure or provide grants to businesses operating in the EV space will benefit us. While we are primarily focused on the light duty vehicle market, our energy products are particularly useful for electric light duty pickup trucks and, therefore, are positioned to benefit greatly from any bill that increases the prevalence of such vehicles.
Limited Competitive Landscape
Our conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, making them strong and competitive products in an otherwise consolidated and saturated market. The Worksport COR, however, operates in a much wider yet unsaturated market. The global Portable Power Station market is quickly growing, and the competitive landscape is far from consolidated. The solar tonneau cover market is in its infancy, and it’s a market in which we have first-mover advantage. To ensure we do not fall behind future competitors, we are highly focused on protecting our intellectual property both domestically and abroad.
Business Developments
The following highlights recent material developments in our business in the six months ended June 30, 2023:
| ● | In January 2023, a Worksport representative traveled to a European vendor who was manufacturing a portion of Worksport’s assembly line to assess the quality of said machinery. Later that month, Worksport announced its approval of the machinery following a rigorous on-site inspection, after which the machine was shipped to Worksport’s USA production facility with an arrival date of March 14, 2023. | |
| ● | In February and June of 2023, Worksport hosted job fairs at its production facility to attract local assembly people, machine operators, and clerical workers. Both job fairs proved to be a success, the former of which attracted nearly 100 applicants. | |
| ● | By May 2023, Worksport had completed its installation of its custom manufacturing line, at which point it was ready to conduct training sessions and test production runs. That same month, Worksport sent a potential private-label customer hard-folding tonneau cover samples – samples that were approved shortly thereafter. Further, much of the raw materials required for a first full production run were received in May 2023. | |
| ● | In June 2023, Worksport announced the launch of a new product line: the SC4 PRO, a soft, quad-fold cover with enhanced usability compared to Worksport’s SC4. | |
| ● | In June 2023, Worksport officially relocated its corporate headquarters to its production facility in West Seneca, New York. This change symbolizes Worksport’s focus on domestic manufacturing and investment of resources into its West Seneca production facility. |
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Key Factors Affecting our Performance
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.
COVID-19
The outbreak of the coronavirus, specifically identified as “COVID-19,” resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which included 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 experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions – many of which have deeply impacted capital markets.
As a safety precaution, we created a policy such that any personnel exposed to an infectious disease or virus was not to report to the office until the completion of a variable length quarantine. While this resulted in fewer personnel working in our offices or labs on a given day, it likely prevented further contamination and sick leave. We do not believe this policy has impacted revenue nor timelines towards upcoming product launches; however, supply chain issues caused by COVID-19 did result in higher cost of goods sold during 2021 and 2022. While freight costs have since returned to pre-COVID-19 levels, 2021 freight costs were, in some cases, more than four times higher than those shortly before COVID-19.
The supply chain for certain raw materials has been disproportionately, negatively impacted when compared to supply chains of other raw materials. The supply chain for power electronics, specifically, is still facing supply chain issues as a result of COVID-19, for the globe faced a simultaneous supply shock and heightened demand for these goods – increasing the prices for such raw materials while simultaneously slowing suppliers’ order fulfillments. Further, due to such shortages, many suppliers of power electronics have focused their attention on large customers such as those more directly aligned within the electric vehicle supply chain as compared to companies on the outskirts of this supply chain such as Worksport. This particular result of COVID-19 primarily affects the sourcing of components for the Worksport COR. In order to mitigate these supply chain issues, we have invested more resources into sourcing power electronics in the interest of finding reliable suppliers with manageable lead times and competitive pricing.
The response of many governments to the COVID-19 pandemic has resulted in higher interest rates and destabilized equity markets – particularly among micro- or low-capitalization companies – effectively increasing the cost of and decreasing easy access to capital, which could negatively impact our short-term and long-term liquidity. These factors, combined with the consequences of possible future waves of the disease, could have a material impact on our liquidity, capital resources, operations, and business as well as those of the third parties on which we rely. The management and Board are constantly monitoring this situation to minimize potential losses.
Climate Change
Climate change threatens to cause many foreseeable as well as unforeseeable ramifications. In cautious preparation for those that are foreseeable, we have strategically begun domestic manufacturing operations in Western New York – an economically growing region not immediately threatened by climate change to the same extent as other regions and possibly one that may benefit from future population migrations within the United States of America. Further, we intend to lower our own carbon footprint by investing in energy-saving measures in our factory in West Seneca, NY.
Considering climate change may also exacerbate geopolitical tensions, we are working to diversify our supply chain and lower our reliance on any particular region or country for raw materials in order to lower our exposure to climate change-induced economic or political instability.
We believe our Worksport SOLIS and Worksport COR products will be received positively by the public for their resilience to and even increased utility as a result of Climate Change. However, we acknowledge the potentially negative environmental impacts of poor battery recycling and increasing demand for precious metals. We are actively researching ways to lower such environmental impacts.
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Inflation
Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions and tariffs. Increasing prices in the component materials for the parts of our goods may impact the availability, quality and price of our products as suppliers search for alternatives to existing materials and increase the prices they charge. Our suppliers may also fail to provide consistent quality of product as they may substitute lower cost materials to maintain pricing levels. Rapid and significant changes in commodity prices may negatively affect our profit margins, and it may be difficult to mitigate worsened margins through customer pricing actions and cost reduction initiatives.
Such an inflationary environment also increases our direct cost of raw goods or processed goods for our OEM manufacturing as well as indirect costs such as overhead and rent. Due to these present and forecasted price increases and the temporary increases in ocean freight and container handling costs faced during the majority of 2022 as a result of 2021 supply chain issues, we updated our product pricing in 2022.
In addition, as central governments and the U.S. Federal Reserve increase interest rates to combat global inflation, the cost of debt financing increases. While we currently do not have material debt other than our $5.3 million mortgage on our West Seneca facility, our mortgage’s variable rate increases and decreases along with interest rates, which resulted in an increase of monthly premiums throughout 2022. We are still susceptible to variable monthly mortgage interest costs as a result of changes in interest rates. We continue to explore debt financing options at reasonable interest rates in order to strengthen our cash position.
Rising interest rates have also resulted in a shift in institutional holdings away from micro-cap equities, which has negatively influenced our stock’s trading volume. We continue to forge relationships with institutional investors and analysts in order to maintain a healthy trading volume.
Gasoline Prices and Supply Chain Issues
We faced significantly higher ocean freight, trucking, and container handling costs as well as last mile delivery costs in 2021 and 2022 than we did in previous years – all of which have increased our products’ landed costs. Higher oil and gasoline prices further increased these costs, and we are operating under the assumption most of these higher costs will remain throughout 2023.
Our transition towards domestic manufacturing and assembly is anticipated to largely offset these higher costs, as we believe we will be less exposed to higher international shipping costs. We are also identifying North American suppliers of our products’ components and will prioritize transport by rail when possible to avoid high trucking costs.
Geopolitical Conditions
In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen. It is not possible to predict the broader consequences of the conflict, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as any counter measures or retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks or the disruption of energy exports, is likely to cause regional instability and geopolitical shifts, which could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. The situation remains uncertain, and while it is difficult to predict the impact of any of the foregoing, the conflict and actions taken in response to the conflict could increase our costs, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.
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Foreign Currencies
We are subject to foreign exchange risk as we manufacture our products in China, market extensively in both Canadian and U.S. markets, employee people residing in both the U.S. and Canada and, to date, have raised funds in Canadian Dollars. Meanwhile, we report results of operations in U.S. Dollars. Since our Canadian customers pay in Canadian Dollars, we are subject to gains and losses due to fluctuations in the USD relative to the Canadian Dollar. While having our products manufactured in China, our manufacturers are paid in USD to better avoid the relatively greater fluctuation of the Chinese Yuan. To the extent the U.S. dollar strengthens against any of these foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our operations.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2023 compared to the Three Months Ended June 30, 2022
Revenue
For the three months ended June 30, 2023, revenues from our entire line of products was $199,851, as compared to $11,305 for the three months ended June 30, 2022. Year-over-year sales increased by approximately 1,668%. For the three months ended June 30, 2023, revenue generated in Canada was $0, as compared to $5,855 for the same period in 2022. For the three months ended June 30, 2023, revenue generated in the United States was $199,851, compared to $5,450 for the same period in 2022, an increase of 3,567%.
Revenue increased for the three months ended June 30, 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. 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 gradually increase output capacity through refined production processes and increased personnel.
Sales from online retailers of our products increased from $5,450 during the three months ended June 30, 2022 to $18,163 during the three months ended June 30, 2023, an increase of 233%. Online retailers accounted for 9% of total revenue for the three months ended June 30, 2023, compared to 48% for the three months ended June 30, 2022. Distributor sales decreased for the three months ended June 30, 2023, compared with the three months ended June 30, 2022, with sales of $0 and $5,855, respectively. Private label sales increased from $0 for the three months ended June 30, 2022, to $181,688 for the three months ended June 30, 2023. 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.
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 increased by 1,819%, from $7,987 for the three months ended June 30, 2022 to $153,288 for the three months ended June 30, 2023. Our cost of sales, as a percentage of sales, was approximately 77% and 71% for the three months ended June 30, 2023 and 2022, respectively. The increase in the cost of sales as a percentage of sales was primarily due to increased inflationary pressure increasing the cost of materials for production.
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” whereby clients are able to pick up product directly from our stocking warehouse.
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Operating Expenses
Operating expenses increased for the three months ended June 30, 2023 by $473,773, from $3,331,509 for the three months ended June 30, 2022 to $3,785,282 for the three months ended June 30, 2023, due to the following factors.
| ● | General and administrative expenses increased by $893,886, from $850,915 in 2022 to $1,744,801 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 $97,655, from $646,367 for 2022 to $548,712 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 $1,813,875 in 2022 to $1,491,453 in 2023. The decrease in professional fees was due to the completion of consulting engagements with various third-party consultants. | |
| ● | We realized a loss on foreign exchange of $316 during 2023, compared to a loss on foreign exchange of $352 for the prior period due to conversions between CAD and USD. |
Other Income and Expenses
We reported other loss for the three months ended June 30, 2023 of $58,736 compared to a loss of $64,128 in the prior period. Other loss can be attributed to increased interest expense partially offset by interest and rental income.
Net Loss
Net loss for the three months ended June 30, 2023 was $3,797,455 compared to a net loss of $3,372,319 for the three months ended June 30, 2022 – an increase of 13%. 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.
Six Months Ended June 30, 2023 compared to the Six Months Ended June 30, 2022
Revenue
For the six months ended June 30, 2023, revenues from the entire line of our products were $231,776, as compared to $59,089 for the six months ended June 30, 2022. Year-over-year sales increased by approximately 292%. For the six months ended June 30, 2023, revenue generated in Canada was $2,655, as compared to $5,802 for the same period in 2022. For the six months ended June 30, 2023, revenue generated in the United States was $229,121, compared to $53,287 for the same period in 2022, an increase of 330%.
Revenue increased for the six months ended June 30, 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. 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 gradually increase output capacity through refined production processes and increased personnel.
Sales from online retailers of our products decreased from $53,287 during the six months ended June 30, 2022 to $42,437 during the six months ended June 30, 2023, a decrease of 20%. Online retailers accounted for 18% of total revenue for the six months ended June 30, 2023 compared to 90% for the six months ended June 30, 2022. Distributor sales decreased for the six months ended June 30, 2023 compared with the six months ended June 30, 2022 with sales of $2,655 and $5,802, respectively. Private label sales increased from $0 for the three months ended June 30, 2022 to $188,684 for the three months ended June 30, 2023. 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.
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.
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Cost of Sales
Cost of sales increased by 276%, from $45,964 for the six months ended June 30, 2022 to $173,045 for the six months ended June 30, 2023. Our cost of sales, as a percentage of sales, was approximately 75% and 78% for the six months ended June 30, 2023 and 2022, respectively. The cost of sales as a percentage of sales decreased compared with prior period primarily due to increased efficiency associated with improved supply chain logistics for the six months ended June 30, 2023.
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 six months ended June 30, 2023 by $1,208,302, from $6,119,096 for the six months ended June 30, 2022 to $7,327,398 for the six months ended June 30, 2023, due to the following factors.
| ● | General and administrative expenses increased by $2,422,640 from $1,451,773 in 2022 to $3,874,413 in 2023. The increase was related to increased research and development activities, increased employment of production personnel including engineers, machine operators, and assembly people, and increases in salaries as we seek to expand our operations and further develop our products. | |
| ● | Sales and marketing expenses decreased by $273,792 from $1,366,855 for 2022 to $1,093,063 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 $3,301,454 in 2022 to $2,360,064 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 $142 during 2023, compared to a gain on foreign exchange of $986 for the prior period due to conversions between CAD and USD. |
Other Income and Expenses
We reported other expenses for the six months ended June 30, 2023 of $52,058 compared to $83,957 in the prior period. The decrease in other expenses 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 six months ended June 30, 2023 was $7,320,725, compared to a net loss of $6,189,928 for the six months ended June 30, 2022 – an increase of 18%. 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; Going Concern
As of June 30, 2023, the Company had $5,902,235 in cash and cash equivalents. The Company has generated only limited revenues and have relied primarily upon capital generated from public and private offerings of its securities. Since the Company’s acquisition of Worksport in fiscal year 2014, it has never generated a profit. As of June 30, 2023, the Company had an accumulated deficit of $40,704,944.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the three and six months ended June 30, 2023, the Company had net loss of $3,797,455 (2022 - $3,372,319) and $7,320,725 (2022 - $6,189,928). As of June 30, 2023, the Company has working capital of $3,554,410 (December 31, 2022 - $15,870,377) and had an accumulated deficit of $40,704,944 (December 31, 2022 - $33,384,219). The Company has not generated profit from operations since inception and to date has relied on debt and equity financings for continued operations. The Company’s ability to continue as a going concern is dependent upon the ability to generate cash flows from operations and obtain equity and/or debt financing. The Company intends to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps management is taking will be successful.
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The Company has historically operated at a loss, although that may change as sales volumes increase. As of June 30, 2023, the Company had working capital of $3,554,410 (December 31, 2022 – $15,870,377) and an accumulated deficit of $40,704,944 (December 31, 2022 - $33,384,219). As of June 30, 2023, the Company had cash and cash equivalents of $5,902,235 (December 31, 2022 - $14,620,757). Despite the Company almost having completed its purchasing of large manufacturing machinery, operational costs are expected to remain elevated and, thus, decrease cash and cash equivalents. Concurrently, the Company intends to begin manufacturing and increasing sales volumes within the second half of 2023, which should mitigate the effects of operational costs on cash and cash equivalents. This view is supported by the fact that the manufacturing facility of the Company is near completion and is expected to start generating more substantial revenue in the third quarter of 2023, barring unforeseeable delays.
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 $32,500,000. On September 30, 2022, the Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 13, 2022 allowing the Company to issue up to $30,000,000 of common stock and prospectus supplement covering the offering, issuance and sale by us of up to $13,000,000 of common stock that may be issued and sold under an At The Market Offering Agreement dated September 30, 2022 (“ATM Agreement”), with H.C. Wainwright & Co., LLC, as the sales agent (“HCW”). Pursuant to the ATM Agreement, HCW is entitled to a commission equal to 3.0% of the gross sales price of the shares of common stock sold. As of June 30, 2023, the Company has sold and issued 4,434 shares of common stock in consideration for net proceeds of $7,134 under the ATM Agreement.
To date, the Company’s principal sources of liquidity consist of net proceeds from public and private securities offerings and cash exercises of outstanding warrants. During the six months ended June 30, 2023, the Company received nominal proceeds from public offerings, private placement offerings, and from the exercise of any outstanding warrants or options. Management is focused on transitioning towards revenue as its principal source of liquidity by growing existing product offerings as well as the Company’s customer base. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot provide assurances it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, the Company believes its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of issuance of the accompanying condensed consolidated financial statements.
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 and anticipated cash flows, 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.
Cash Flow Activities
Cash decreased from $14,620,757 at December 31, 2022, to $5,902,235 at June 30, 2023 – a decrease of $8,718,522 or 60%. 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, production personnel, and overhead.
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As of June 30, 2023, we had current assets of $10,454,976 (December 31, 2022 - $18,332,107) and current liabilities of $6,900,566 (December 31, 2022 – $2,461,730). As of June 30, 2023, we had working capital of $3,544,410 (December 31, 2022 – $15,870,377) and an accumulated deficit of $40,704,944 (December 31, 2022 - $33,384,219).
Operating Activities
Net cash used by operating activities for the six months ended June 30, 2023 was $6,018,704, compared to $5,042,882 in the prior period, primarily driven by a larger net loss during the six months ended June 30, 2023, and partially offset by the issuance of shares, options, and warrants for services.
Accounts receivable increased at June 30, 2023 by $263,874 and by $3,850 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 June 30, 2023 by $1,533,492, and at June 30, 2022 by $600,940, as a result of our stockpiling components for production as well as finished goods in anticipation of the launch of our e-commerce platform. Prepaid expenses increased by $14,280 at June 30, 2023, and by $1,658,508 at June 30, 2022, due to deposits made by us for the purchase of machinery and equipment, inventory, and professional services.
Accounts payable and accrued liabilities decreased at June 30, 2023 by $828,757, and increased by $585,813 in the prior period.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2023 was $2,663,046 compared to $9,051,810 in the prior period. The decrease in investing activities was primarily due to the purchase of a manufacturing facility in 2022.
Financing Activities
Net cash used by financing activities for the six months ended June 30, 2023 was $36,772 compared to net cash received from financing activities of $5,285,712 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
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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, cannot provide absolute assurance that the objectives of the control system are met. Ahe 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.
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 our periodic reports filed with the SEC are prepared in accordance with generally accepted accounting principles. Management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 1, 2023, the Company issued Steven Rossi, the Company’s Chief Executive Officer and President, stock options to purchase up to an aggregate of 2,000,000 shares of common stock in agreement for Mr. Rossi’s agreement to modify 1,600,000 restricted stock units and 400,000 performance stock units issued to Mr. Rossi on November 11, 2022 and December 29, 2021, respectively. The stock options issued to Mr. Rossi are exercisable for $1.74 per share and expire on May 1, 2033 and 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 price of the Company’s common stock for ten consecutive trading days.
The stock options were issued outside of the Company’s equity incentive plans and the Company relied on the exemption from registration afforded the Company under Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
Subsequent Events
| ● | On July 10, 2023, the Company granted 10,000 stock options to a consultant with an exercise price of $2.55 and an expiry date of July 10, 2028. The options shall vest in full on September 27, 2024. | |
| ● | On July 25 and August 3, 2023, the Company sold a total of 22,995 shares of common stock for total proceeds of $91,731. The sale of the shares of common stock 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 shares of common stock and and prospectus supplement covering the offering, issuance and sale by us of up to $13,000,000 of shares of common stock that may be issued and sold under the At The Market Offering Agreement dated as of September 30, 2022. | |
| ● | During the month of July 2023, the Company granted 321,950 stock options to various employees, directors, advisors, and consultants with exercise prices of $3.36 to $4.20 and an expiry date of 10 years from the date of issuance. The options will vest in two installments, 50% shall vest at the two-year anniversary of the grant date and remaining 50% shall vest at the three-year anniversary of the grant date. |
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Item 6. Exhibits
| EXHIBIT No. | DESCRIPTION | |
| 31.1 | Section 302 Certification of Chief Executive Officer | |
| 31.2 | Section 302 Certification of Chief Financial Officer | |
| 32.1 | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of 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: August 14, 2023 | By: | /s/ Steven Rossi |
| Steven Rossi | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Dated: August 14, 2023 | By: | /s/ Michael Johnston |
| Michael Johnston | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
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