UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: September 30, 2021March 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 001-40681
Worksport Ltd.Ltd.
(Exact Name of Small Business Issuer as specified in its charter)
Nevada | 35-2696895 | ||
(State or Other Jurisdiction of | (I.R.S. Employer | ||
Incorporation or Organization) | Identification Number) |
7299 E Danbro Cres.
Mississauga, Ontario, Canada L5N 6P8
(Address of Principal Executive Offices, Including Zip Code)
Registrant’s Telephone Number, including area code: (888) 554-8789
With copies to:
Ross Carmel, Esq.
Philip Magri, Esq.
Carmel, Milazzo & Feil LLP
55 W 39th Street, 18th Floor
New York, NY 10018
Tel: 212-658-0458
Fax: 646-838-1314
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
Common Stock | WKSP | NASDAQ CAPITAL MARKET | ||
Warrants | WKSPW | NASDAQ CAPITAL MARKET |
Indicate by check mark whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter year that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter year that the registrant was required to submit and post such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition year for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of November 15, 2021May 23, 2022 shares of Common Stock outstanding.
WORKSPORT LTD.
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Worksport Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, 2022 | December 31, 2021 | |||||||||||||||
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Assets | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash, restricted cash and cash equivalents | $ | 29,002,627 | $ | 1,107,812 | ||||||||||||
Restricted cash | 1,917,850 | - | ||||||||||||||
Cash and cash equivalents | $ | 25,808,938 | $ | 28,567,333 | ||||||||||||
Accounts receivable net | 155,266 | 122,787 | 55,951 | 62,684 | ||||||||||||
Other receivable | 103,742 | 167,836 | 78,310 | 184,721 | ||||||||||||
Inventory (note 3) | 56,205 | 40,803 | 791,813 | 501,772 | ||||||||||||
Prepaid inventory (note 3) | 141,420 | - | ||||||||||||||
Prepaid expenses and deposits | 5,360,043 | 245,526 | 4,111,008 | 4,715,495 | ||||||||||||
Related party receivable (note 7) | 25,468 | - | ||||||||||||||
Total Current Assets | 36,762,621 | 1,684,764 | 30,846,020 | 34,032,005 | ||||||||||||
Investment | 24,423 | 24,423 | ||||||||||||||
Investment (note 12) | 24,423 | 24,423 | ||||||||||||||
Property and Equipment, net | 800,970 | 91,511 | 1,899,134 | 1,128,799 | ||||||||||||
Right-of-use asset, net (note 10) | 573,862 | 38,506 | ||||||||||||||
Right-of-use asset, net (note 13) | 457,619 | 515,819 | ||||||||||||||
Intangible Assets, net | 442,458 | 62,948 | 734,207 | 593,053 | ||||||||||||
Total Assets | $ | 38,604,334 | $ | 1,902,152 | $ | 33,961,403 | $ | 36,294,099 | ||||||||
Liabilities and Shareholders’ Deficit | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 1,171,010 | $ | 971,667 | $ | 1,258,028 | $ | 1,144,526 | ||||||||
Payroll taxes payable | 51,186 | 48,216 | - | 112,189 | ||||||||||||
Related party loan (note 7) | - | 23,393 | ||||||||||||||
Promissory notes payable (note 4) | 263,211 | 367,058 | ||||||||||||||
Convertible promissory note, net (note 5) | - | 98,982 | ||||||||||||||
Loan payable (note 11) | 28,387 | 184,854 | ||||||||||||||
Current lease liability (note 10) | 214,249 | 23,883 | ||||||||||||||
Related party loan (note 8) | 33,684 | 35,547 | ||||||||||||||
Promissory notes payable (note 5) | 263,211 | 263,211 | ||||||||||||||
Loan payable (note 14) | 28,387 | 28,387 | ||||||||||||||
Current lease liability (note 13) | 211,577 | 212,929 | ||||||||||||||
Total Current Liabilities | 1,728,043 | 1,718,053 | 1,794,887 | 1,796,789 | ||||||||||||
Long Term – Lease Liability (note 10) | 368,431 | 14,624 | ||||||||||||||
Long Term – Lease Liability (note 13) | 264,248 | 316,988 | ||||||||||||||
Total Liabilities | 2,096,474 | 1,732,677 | 2,059,135 | 2,113,777 | ||||||||||||
Shareholders’ Equity (Deficit) | ||||||||||||||||
Series A & B Preferred Stock, $ | par value, shares authorized, Series A and Series B issued and outstanding, respectively (note 6)- | 1 | ||||||||||||||
Common stock, $ | par value, shares authorized, and shares issued and outstanding, respectively (note 6)1,683 | 382 | ||||||||||||||
Series A & B Preferred Stock, $ | par value, shares authorized, Series A and Series B issued and outstanding, respectively (note 7)- | - | ||||||||||||||
Common stock, $ | par value, shares authorized, and shares issued and outstanding, respectively (note 7)1,701 | 1,696 | ||||||||||||||
Additional paid-in capital | 53,279,583 | 12,665,854 | 55,212,869 | 54,608,472 | ||||||||||||
Share subscriptions receivable | (1,577 | ) | (1,577 | ) | (1,577 | ) | (1,577 | ) | ||||||||
Share subscriptions payable | 288,930 | 379,428 | 365,269 | 430,116 | ||||||||||||
Accumulated deficit | (17,052,179 | ) | (12,866,033 | ) | (23,667,414 | ) | (20,849,805 | ) | ||||||||
Cumulative translation adjustment | (8,580 | ) | (8,580 | ) | (8,580 | ) | (8,580 | ) | ||||||||
Total Shareholders’ Equity (Deficit) | 36,507,860 | 169,475 | 31,902,268 | 34,180,322 | ||||||||||||
Total Liabilities and Shareholders’ Equity (Deficit) | $ | 38,604,334 | $ | 1,902,152 | $ | 33,961,403 | $ | 36,294,099 |
The accompanying notes form an integral part of these condensed consolidated financial statements.
3 |
Worksport Ltd.
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30,March 31, 2022 and 2021 and 2020
(Unaudited)
Three Months ended September 30 | Nine Months ended September 30 | 2022 | 2021 | |||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
Net Sales | $ | 93,408 | $ | 116,491 | $ | 287,297 | $ | 223,620 | $ | 47,784 | $ | 7,650 | ||||||||||||
Cost of Goods Sold | 81,810 | 94,134 | 279,364 | 180,028 | 37,977 | 60,221 | ||||||||||||||||||
Gross Profit (Loss) | 11,598 | 22,357 | 7,933 | 43,592 | 9,807 | (52,571 | ) | |||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
General and administrative | 517,735 | 50,836 | 924,041 | 97,566 | 600,858 | 134,284 | ||||||||||||||||||
Sales and marketing | 433,905 | 59,122 | 761,712 | 69,869 | 720,488 | 162,651 | ||||||||||||||||||
Professional fees | 1,111,098 | 280,413 | 2,168,697 | 509,347 | 1,487,579 | 647,114 | ||||||||||||||||||
(Gain) loss on foreign exchange | (11,175 | ) | 2,599 | (2,170 | ) | (4,845 | ) | |||||||||||||||||
Loss (gain) on foreign exchange | (1,338 | ) | 5,206 | |||||||||||||||||||||
Total operating expenses | 2,051,563 | 392,970 | 3,852,280 | 671,937 | 2,807,587 | 949,255 | ||||||||||||||||||
Loss from operations | (2,039,965 | ) | (370,613 | ) | (3,844,347 | ) | (628,345 | ) | (2,797,780 | ) | (1,001,826 | ) | ||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
Interest expense (note 5) | (26,114 | ) | (190,103 | ) | (275,114 | ) | (276,822 | ) | (25,095 | ) | (230,900 | ) | ||||||||||||
Interest income | 1,798 | - | 1,798 | - | 5,266 | - | ||||||||||||||||||
Gain (loss) on settlement of debt | - | (44,274 | ) | 18,204 | (44,274 | ) | - | 9,207 | ||||||||||||||||
Total other income (expense) | (24,316 | ) | (234,377 | ) | (255,112 | ) | (321,096 | ) | ||||||||||||||||
Total other (expense) | (19,829 | ) | (221,693 | ) | ||||||||||||||||||||
Net Loss | $ | (2,064,281 | ) | $ | (604,990 | ) | $ | (4,099,459 | ) | $ | (949,441 | ) | (2,817,609 | ) | (1,223,519 | ) | ||||||||
Loss per Share (basic and diluted) | $ | (0.15 | ) | $ | (0.21 | ) | $ | (0.42 | ) | $ | (0.38 | ) | $ | (0.17 | ) | $ | (0.24 | ) | ||||||
Weighted Average Number of Shares (basic and diluted) | 13,983,567 | 2,857,443 | 9,688,668 | 2,527,364 | 16,988,033 | 5,155,097 |
The accompanying notes form an integral part of these condensed consolidated financial statements
4 |
Worksport Ltd.
Condensed Consolidated Statements of Cash Flows
For the nine Months Ended September 30, 2021 and 2020
(Unaudited)
2021 | 2020 | |||||||
Operating Activities | ||||||||
Net Loss | $ | (4,099,459 | ) | $ | (949,441 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Shares, options and warrants issued for services | 1,838,661 | 328,644 | ||||||
Depreciation and amortization | 114,035 | 19,972 | ||||||
Interest on lease liability | 21,633 | 3,983 | ||||||
Accrued interest | 32,654 | 44,095 | ||||||
Amortization of debt discount | - | 198,060 | ||||||
Amortization on OID interest | 211,340 | 17,597 | ||||||
Loss (Gain) on settlement of debt | (18,204 | ) | 44,274 | |||||
Adjustments to reconcile net loss to net cash from operating activities total | (1,899,340 | ) | (292,816 | ) | ||||
Changes in operating assets and liabilities (note 8) | (132,626 | ) | (89,536 | ) | ||||
Net cash used in operating activities | (2,031,966 | ) | (382,352 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Loan receivable | (5,506 | ) | - | |||||
Purchase of investment | - | (8,765 | ) | |||||
Purchase of intangible assets | (23,700 | ) | - | |||||
Purchase of property and equipment | (734,883 | ) | (7,962 | ) | ||||
Net cash used in investing activities | (764,089 | ) | (16,727 | ) | ||||
Financing Activities | ||||||||
Repayment of lease liability | (85,339 | ) | (25,352 | ) | ||||
Proceeds from issuance of common shares, net of issuance cost | 24,398,070 | 250,000 | ||||||
Proceeds from warrant exercise | 8,407,755 | - | ||||||
Proceeds from loan payable | - | 178,836 | ||||||
Repayment of loan payable | (62,905 | ) | (16,150 | ) | ||||
Proceeds from promissory notes | - | 467,500 | ||||||
Shareholder assumption of debt | (48,861 | ) | (615 | ) | ||||
Net cash provided by financing activities | 32,608,720 | 854,219 | ||||||
Change in cash | 29,812,665 | 455,140 | ||||||
Cash, restricted cash and cash equivalents - beginning of year | 1,107,812 | 11,993 | ||||||
Cash, restricted cash and cash equivalents end of period | $ | 30,920,477 | $ | 467,133 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | 9,737 | $ | 11,100 | ||||
Supplemental Disclosure of non-cash investing and financing Activities | ||||||||
Shares issued for purchase of software | $ | 357,603 | $ | - | ||||
Shares issued to service providers | $ | 791,029 | $ | - | ||||
Cashless warrant exercise | $ | 238,895 | $ | - | ||||
Non-cash for prepaids | $ | 5,953,950 | $ | - | ||||
Shares issued from share subscriptions payable | $ | 86,688 | $ | 1,626,415 | ||||
Shares issued for loan repayment | $ | 176,500 | $ | - | ||||
Conversion of convertible promissory note to common stock | $ | 368,318 | $ | - | ||||
Convertible promissory note – equity discount | $ | - | $ | 467,500 | ||||
Convertible promissory note – original issue discount | $ | - | $ | 41,537 | ||||
Conversion of preferred stock to common stock | $ | 171 | $ | 226,587 | ||||
Reverse stock split | $ | 21,182 | $ | - |
The accompanying notes form an integral part of these condensed consolidated financial statements.
Worksport Ltd.
Condensed Consolidated Statements of Shareholders’ Deficit
For the Three Months Ended September 30,March 31, 2022 and 2021 and 2020
(Unaudited)
Preferred Stock | Common Stock | Additional Paid-in | Share Subscriptions | Share Subscription | Accumulated | Cumulative Translation | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Payable | Deficit | Adjustment | (Deficit) | |||||||||||||||||||||||||||||||
Balance at July 1, 2020 | 1,000 | $ | 1 | 2,636,496 | $ | 264 | $ | 10,001,399 | $ | (1,577 | ) | $ | 1,248,735 | $ | (12,022,864 | ) | $ | (8,580 | ) | $ | (782,622 | ) | ||||||||||||||||||
Issuance for prepaid services | - | - | 120,651 | 12 | 168,898 | - | - | - | - | 168,910 | ||||||||||||||||||||||||||||||
Issuance for prepaid services and subscriptions payable | - | - | 179,801 | 18 | 590,737 | - | (590,755 | ) | - | - | - | |||||||||||||||||||||||||||||
Conversion of convertible promissory note to shares | - | - | 126,022 | 12 | 226,826 | - | - | - | - | 226,839 | ||||||||||||||||||||||||||||||
Warrants issuance in connection to convertible promissory note | - | - | - | - | 285,000 | - | - | - | - | 285,000 | ||||||||||||||||||||||||||||||
Warrant issuance for services | - | - | - | - | 12,600 | - | - | - | - | 12,600 | ||||||||||||||||||||||||||||||
Issuance of subscriptions payable | - | - | - | - | - | - | 250,000 | - | - | 250,000 | ||||||||||||||||||||||||||||||
Stock split provision | ||||||||||||||||||||||||||||||||||||||||
Stock split provision, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance for services and subscriptions payable | ||||||||||||||||||||||||||||||||||||||||
Issuance for services and subscriptions payable | ||||||||||||||||||||||||||||||||||||||||
Public offering | ||||||||||||||||||||||||||||||||||||||||
Public offering | ||||||||||||||||||||||||||||||||||||||||
Share issuance cost | ||||||||||||||||||||||||||||||||||||||||
Warrant exercise (note 14) | ||||||||||||||||||||||||||||||||||||||||
Warrant exercise (note 14), shares | ||||||||||||||||||||||||||||||||||||||||
Issuance for services | 12 | 168,898 | 168,910 | |||||||||||||||||||||||||||||||||||||
Issuance for services, shares | 120,651 | |||||||||||||||||||||||||||||||||||||||
Warrants issuance in connection to convertible promissory note (note 5) | 285,000 | 285,000 | ||||||||||||||||||||||||||||||||||||||
Share issuance in connection to convertible promissory note (note 5) | ||||||||||||||||||||||||||||||||||||||||
Share issuance in connection to convertible promissory note (note 5), shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of convertible promissory note to shares (note 5) | 12 | 226,826 | 226,839 | |||||||||||||||||||||||||||||||||||||
Conversion of convertible promissory note to shares (note 5), shares | 126,022 | |||||||||||||||||||||||||||||||||||||||
Issuance for settlement of payables | ||||||||||||||||||||||||||||||||||||||||
Issuance for settlement of payables, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Stock, shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance for services and subscriptions payable | ||||||||||||||||||||||||||||||||||||||||
Issuance for services and subscriptions payable, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of shares from private placement | ||||||||||||||||||||||||||||||||||||||||
Issuance of shares from private placement, shares | ||||||||||||||||||||||||||||||||||||||||
Warrants issuance for services | 12,600 | 12,600 | ||||||||||||||||||||||||||||||||||||||
Loan repayment (note 4 and 11) | ||||||||||||||||||||||||||||||||||||||||
Loan repayment (note 4 and 11), shares | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (604,990 | ) | - | (604,990 | ) | ||||||||||||||||||||||||||||
Balance at September 30, 2020 | 1,000 | $ | 1 | 3,062,970 | 306 | 11,285,460 | $ | (1,577 | ) | $ | 907,980 | $ | (12,627,854 | ) | $ | (8,580 | ) | $ | (444,263 | ) | ||||||||||||||||||||
Balance at July 1, 2021 | 100 | - | 11,148,292 | $ | 1,115 | $ | 26,609,130 | $ | (1,577 | ) | $ | 833,229 | $ | (14,901,211 | ) | $ | (8,580 | ) | $ | 12,532,106 | ||||||||||||||||||||
Stock split provision | - | - | 237,500 | 24 | 86,663 | - | - | (86,687 | ) | - | - | |||||||||||||||||||||||||||||
Issuance for services and subscriptions payable | - | - | 1,120,000 | 112 | 5,972,603 | - | (173,384 | ) | - | - | 5,799,331 | |||||||||||||||||||||||||||||
Public offering | - | - | 3,483,636 | 348 | 21,805,013 | - | - | - | - | 21,805,361 | ||||||||||||||||||||||||||||||
Share issuance cost | - | - | - | - | (4,335,908 | ) | - | - | - | - | (4,335,908 | ) | ||||||||||||||||||||||||||||
Warrant exercise (note 14) | - | - | 839,609 | 84 | 3,142,082 | - | (370,915 | ) | - | - | 2,771,251 | |||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (2,064,281 | ) | - | (2,064,281 | ) | ||||||||||||||||||||||||||||
Balance at September 30, 2021 | 100 | - | 16,829,037 | $ | 1,683 | $ | 53,279,583 | $ | (1,577 | ) | $ | 288,930 | $ | (17,052,179 | ) | $ | (8,580 | ) | $ | 36,507,860 |
Shares | Amount | Shares | Amount | Capital | Receivable | Payable | Deficit | Adjustment | (Deficit) | |||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-in | Share Subscriptions | Share Subscription | Accumulated | Cumulative Translation | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Payable | Deficit | Adjustment | (Deficit) | |||||||||||||||||||||||||||||||
Balance at January 1, 2021 | 1,000 | $ | 1 | 3,820,619 | $ | 382 | $ | 12,665,854 | $ | (1,577 | ) | $ | 379,428 | $ | (12,866,033 | ) | $ | (8,580 | ) | $ | 169,475 | |||||||||||||||||||
Issuance for services and subscriptions payable | - | - | 316,058 | 32 | 569,879 | - | (130,337 | ) | - | - | 439,574 | |||||||||||||||||||||||||||||
Public offering | - | - | 1,502,410 | 150 | 3,003,171 | - | (32,700 | ) | - | - | 2,970,621 | |||||||||||||||||||||||||||||
Share issuance cost | - | - | - | - | (59,160 | ) | - | - | - | - | (59,160 | ) | ||||||||||||||||||||||||||||
Issuance of shares from private placement | - | - | 1,524,990 | 153 | 3,049,828 | - | 32,000 | - | - | 3,081,981 | ||||||||||||||||||||||||||||||
Conversion of convertible promissory note to shares (note 6) | - | - | 244,133 | 24 | 368,294 | - | - | - | - | 368,318 | ||||||||||||||||||||||||||||||
Warrant exercise (note 17) | - | - | 729,990 | 73 | 2,919,902 | - | 12,130 | - | - | 2,932,105 | ||||||||||||||||||||||||||||||
Loan repayment (note 5 and 14) | - | - | - | - | - | - | 111,610 | - | - | 111,610 | ||||||||||||||||||||||||||||||
Warrants issuance for services | - | - | - | - | 37,000 | - | - | - | - | 37,000 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (1,223,519 | ) | - | (1,223,519 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2021 | 1,000 | $ | 1 | 8,138,200 | $ | 814 | $ | 22,554,768 | $ | (1,577 | ) | $ | 372,131 | $ | (14,089,552 | ) | $ | (8,580 | ) | $ | 8,828,005 | |||||||||||||||||||
Balance at January 1, 2022 | 100 | $ | 0 | 16,951,034 | $ | 1,696 | $ | 54,608,472 | $ | (1,577 | ) | $ | 430,116 | $ | (20,849,805 | ) | $ | (8,580 | ) | $ | 34,180,322 | |||||||||||||||||||
Issuance for services and subscriptions payable | - | - | 50,000 | 5 | 604,397 | - | (64,847 | ) | - | - | 539,555 | |||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (2,817,609 | ) | - | (2,817,609 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2022 | 100 | $ | 0 | 17,001,034 | $ | 1,701 | $ | 55,212,869 | $ | (1,577 | ) | $ | 365,269 | $ | (23,667,414 | ) | $ | (8,580 | ) | $ | 31,902,268 |
The accompanying notes form an integral part of these condensed consolidated financial statements
Worksport Ltd.
Condensed Consolidated Statements of Shareholders’ DeficitCash Flows
For the NineThree Months Ended September 30,March 31, 2022 and 2021 and 2020
(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, 2020 | - | - | 2,095,340 | $ | 210 | $ | 8,646,404 | $ | (1,577 | ) | $ | 2,159,395 | $ | (11,678,413 | ) | $ | (8,580 | ) | $ | (882,561 | ) | |||||||||||||||||||
Issuance for services | - | - | 120,651 | 12 | 168,898 | - | - | - | - | 168,910 | ||||||||||||||||||||||||||||||
Issuance for prepaid services and subscriptions payable | - | - | 493,458 | 50 | 907,085 | - | (645,335 | ) | - | - | 261,800 | |||||||||||||||||||||||||||||
Issuance of subscriptions payable | - | - | - | - | - | - | 250,000 | - | - | 250,000 | ||||||||||||||||||||||||||||||
Warrant issuance for service | - | - | - | - | 12,600 | - | - | - | - | 12,600 | ||||||||||||||||||||||||||||||
Warrants issuance in connection to convertible promissory note (note 5) | - | - | - | - | 344,110 | - | - | - | - | 344,110 | ||||||||||||||||||||||||||||||
Share issuance in connection to convertible promissory note (note 5) | - | - | 22,500 | 2 | 123,388 | - | - | - | - | 123,390 | ||||||||||||||||||||||||||||||
Conversion of convertible promissory note to shares (note 5) | - | - | 126,021 | 12 | 226,826 | - | - | - | - | 226,839 | ||||||||||||||||||||||||||||||
Issuance for settlement of payables | - | - | 205,000 | 20 | 856,059 | - | (856,080 | ) | - | - | - | |||||||||||||||||||||||||||||
Issuance of Preferred Stock | 1,000 | 1 | - | - | 90 | - | - | - | - | 90 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (949,441 | ) | - | (949,441 | ) | ||||||||||||||||||||||||||||
Balance at September 30, 2020 | 1,000 | $ | 1 | 3,062,970 | $ | 306 | $ | 11,285,460 | $ | (1,577 | ) | $ | 907,980 | $ | (12,627,854 | ) | $ | (8,580 | ) | $ | (444,263 | ) | ||||||||||||||||||
Balance at January 1, 2021 | 1,000 | $ | 1 | 3,820,618 | $ | 382 | $ | 12,665,854 | $ | (1,577 | ) | $ | 379,428 | $ | (12,866,033 | ) | $ | (8,580 | ) | $ | 169,475 | |||||||||||||||||||
Stock split provision | - | - | 237,500 | 24 | 86,663 | - | - | (86,687 | ) | - | - | |||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | (900 | ) | (1 | ) | 1,717,535 | 172 | (171 | ) | - | - | - | - | - | |||||||||||||||||||||||||||
Issuance for services and subscriptions payable | - | - | 1,533,158 | 154 | 7,127,841 | - | (77,798 | ) | - | - | 7,050,197 | |||||||||||||||||||||||||||||
Public offering | - | - | 4,986,046 | 498 | 24,808,184 | - | (32,700 | ) | - | - | 24,775,982 | |||||||||||||||||||||||||||||
Share issuance cost | - | - | - | - | (4,459,892 | ) | - | - | - | - | (4,459,892 | ) | ||||||||||||||||||||||||||||
Issuance of shares from private placement | - | - | 2,040,990 | 204 | 4,081,776 | - | - | - | - | 4,081,980 | ||||||||||||||||||||||||||||||
Warrants issuance for services | - | - | - | - | 37,000 | - | - | - | - | 37,000 | ||||||||||||||||||||||||||||||
Conversion of convertible promissory note to shares (note 5) | - | - | 204,622 | 20 | 368,298 | - | - | - | - | 368,318 | ||||||||||||||||||||||||||||||
Warrant exercise (note 14) | - | - | 2,190,515 | 219 | 8,387,540 | - | 20,000 | - | - | 8,407,759 | ||||||||||||||||||||||||||||||
Loan repayment (note 4 and 11) | - | - | 98,054 | 10 | 176,490 | - | - | - | - | 176,500 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (4,099,459 | ) | - | (4,099,459 | ) | ||||||||||||||||||||||||||||
Balance at September 30, 2021 | 100 | - | 16,829,037 | 1,683 | $ | 53,279,583 | $ | (1,577 | ) | $ | 288,930 | $ | (17,052,179 | ) | $ | (8,580 | ) | $ | 36,507,860 |
2022 | 2021 | |||||||
2022 | 2021 | |||||||
Operating Activities | ||||||||
Net Loss | $ | (2,817,609 | ) | $ | (1,223,519 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Shares, options and warrants issued for services | 1,224,677 | 565,261 | ||||||
Depreciation and amortization | 111,039 | 7,843 | ||||||
Interest on lease liability | 12,302 | 915 | ||||||
Accrued interest | 7,874 | 17,010 | ||||||
Amortization on OID interest | - | 211,340 | ||||||
Gain/(loss) on settlement of debt | - | (9,207 | ) | |||||
Adjustments to reconcile net income loss to cash provided by (used in) operating activities | (1,461,717 | ) | (430,357 | ) | ||||
Changes in operating assets and liabilities (note 9) | (554,762 | ) | (76,510 | ) | ||||
Net cash used in operating activities | (2,016,479 | ) | (506,867 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Loan receivable | - | (5,507 | ) | |||||
Purchase of property and equipment | (614,046 | ) | (119,233 | ) | ||||
Net cash used in investing activities | (614,046 | ) | (124,740 | ) | ||||
Financing Activities | ||||||||
Repayment of lease liability | (126,007 | ) | (7,515 | ) | ||||
Proceeds from issuance of common shares, net of issuance cost | - | 5,993,441 | ||||||
Proceeds from warrant exercise | - | 2,932,105 | ||||||
Shareholder Assumption of Debt | (1,863 | ) | (19,453 | ) | ||||
Repayments on loan payable | - | (62,905 | ) | |||||
Net cash provided by/ used in financing activities | (127,870 | ) | 8,835,673 | |||||
Change in cash | (2,758,395 | ) | 8,204,006 | |||||
Cash and cash equivalents - beginning of year | 28,567,333 | 1,107,812 | ||||||
Cash and cash equivalents end of year | $ | 25,808,938 | $ | 9,311,878 | ||||
Supplemental Disclosure of non-cash investing and financing Activities | ||||||||
Shares issued for purchase of software | $ | 141,781 | $ | 69,315 | ||||
Shares and warrants issued to service providers | $ | 604,401 | $ | 515,818 | ||||
Cashless warrant exercise | $ | - | $ | 51,901 | ||||
Conversion of convertible promissory note to common stock | $ | - | $ | 368,320 |
The accompanying notes form an integral part of these condensed consolidated financial statements.
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 ninethree month period ended September 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the SEC on April 13, 2021.March 31, 2022.
On May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA declared the 1 for 20 reverse stock split effective on August 4, 2021.2021. These condensed interim financial statements including, prior period comparative share amounts, have been retrospectively restated to reflect this reverse split.
During the nine months period September 30, 2021 Terravis Energy Inc. was incorporated in the State of NevadaColorado on May 5, 2021. On August 20, 2021, the Company was issued common shares at par value of $0.0001 $per share for a controlling interest in Terravis Energy Inc. During the three months ended March 31, 2022 the Company was issued common shares of Terravis Energy Inc. at par value of $per share. During the same period Terravis Energy Inc. issued preferred shares at $per share to Worksport’s Chief Executive Officer.
During the three months ended March 31, 2022 Worksport New York Operations Corporation and Worksport USA Operations Corporation were incorporated in the state of New York and Colorado respectively. During the period the Company was issued common shares at par value of $of Worksport USA Operations Corporation. Subsequently, to the period ended on April 1, 2022, the Company was issued common shares of Worksport New York Operations Corporation.
b) Functional and Reporting Currency
Effective January 1, 2020, the Company changed the functional currency of its subsidiary to United States dollars given the increasing prevalence of U.S. dollar-denominated activities of the subsidiary over time. The change in functional currency from Canadian dollars to United States dollars is accounted for prospectively from January 1, 2020. The subsidiary’s balance sheet was converted from Canadian dollars to United States dollars using the year ended December 31, 2019 United States dollar balance as the opening for January 1, 2020 in accordance to ASC 830. These condensed interimconsolidated financial statements are presented in United States Dollars. The functional and presentation currency of the Company and its subsidiary is thesubsidiaries are United States Dollar. As a resultFor purposes of preparing these consolidated financial statements, transactions denominated in Canadian Dollar were converted to United States Dollar at the changespot 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 Company recognized a loss on foreign exchangeaccompanying consolidated statement of $29,940.operations and comprehensive loss.
c) Use of Estimates
The preparation of condensed unaudited financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
d) Business condition
The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.
As of September 30, 2021,March 31, 2022, the Company had working capital of $35,034,57829,051,133 and an accumulated deficit of $17,052,17923,667,414. As of September 30, 2021,March 31, 2022, the Company had cash, restricted cash and cash equivalents of $30,920,47725,808,938. Based on its current operating plans, the Company believes it has 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.
During the nine months ended September 30, 2021 the Company through its Reg-A public offering, underwritten public offering, private placement offering, and exercises of warrants had raised in aggregate of approximately $32,800,000. In addition, as of November 2021 the Company has approximately 6,400,000 warrants and stock options exercisable at $4to $6.05 per warrant and stock option compared to an average share price of approximately $per share. The Company is anticipating additional warrant exercises.
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Business Condition (continued)
d) Business condition (continued)
Based on the Company’s future operating plans, existing cash and restricted cash of $30,920,47725,808,938 combined with possible warrants and stock options exercises of approximately $33,000,00041,000,000; management believes the Company havehas sufficient funds to meet its contractual obligations and working capital requirements for the next 12 months and the foreseeable future.
e) Reclassification
Certain amounts in the prior period Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 have been reclassified to conform with current period presentation. The Company reclassified $25,352 of changes from accounts payable and accrued liabilities under operating assets and liabilities to repayment of lease liability under financing activities. This reclassification resulted in a decrease in net cash used by operating activities from $407,704 to $382,352 and decrease in net cash provided by financing activities from $879,571 to $854,219. This reclassification did not have any effect on the reported results of operations.
2. Significant Accounting Policies
The accounting polices used in the preparation of these condensed consolidated interim financial statements are consistent with those of the Company’s audited financial statements for the year ended December 31, 2020 in addition to:2021
Property and Equipment – During the nine months ended September 30, 2021 the Company purchased an automobile. As such the Company has updated its accounting policy of its capital assets. Capital assets are recorded at cost and are amortized using the straight-line method over the following estimated useful lives:
3. Inventory
Inventory consists of the following at September 30, 2021March 31, 2022 and December 31, 2020:2021:
Schedule of Inventory
March 31, 2022 | December 31, 2021 | |||||||||||||||
2021 | 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Finished goods | $ | 46,157 | $ | 32,358 | $ | 790,961 | $ | 427,794 | ||||||||
Promotional items | 552 | 552 | 850 | 728 | ||||||||||||
Raw materials | 9,496 | 7,893 | - | 73,250 | ||||||||||||
Inventory | $ | 56,205 | $ | 40,803 | $ | 791,813 | $ | 501,772 | ||||||||
Prepaid inventory | $ | 141,420 | $ | - |
4.Prepaid expenses and deposits
As of March 31, 2022 and December 31, 2021 prepaid expenses and deposits consists of the following:
Schedule of Prepaid Expenses and Deposits
March 31, 2022 | December 31, 2021 | |||||||
Consulting, services and advertising | $ | 3,495,235 | $ | 4,328,389 | ||||
Insurance | 1,808 | 3,041 | ||||||
Deposit | 613,965 | 384,065 | ||||||
Prepaid expenses and deposits, net | $ | 4,111,008 | $ | 4,715,495 |
As of March 31, 2022 prepaid expense and deposit consists of $3,488,984 (December 31, 2021- $4,328,389) in prepaid consulting, services and advertising for third party consultants through the issuance of shares and stock options.
5. Promissory Notes
The following tables shows the balance of the notes payable as of September 30, 2021March 31, 2022 and December 31, 2020:2021:
Schedule of Notes Payable
Balance as at December 31, 2019 | $ | 267,881 | ||
Reclassification | 99,177 | |||
Balance as at December 31, 2020 | $ | 367,058 | ||
Repayment | (103,847 | ) | ||
Balance as at September 30, 2021 | $ | 263,211 |
Balance as at December 31, 2020 | $ | 367,058 | ||
Repayment | (103,847 | ) | ||
Balance as at March 31, 2022 and December 31, 2021 | $ | 263,211 |
8 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
5. Promissory Notes (continued)
During the year ended December 30,31, 2020, the Company reclassified a total of $88,12099,177 from accounts payable to promissory notes.notes and from promissory notes to other receivable. The terms of the note is under negotiation and is currently due on demand.
During the year ended December 30, 2020, the Company reclassified a debit balance of $11,058 from notes payable to other receivable.
During the year ended December 31, 2016, the Company issued a secured promissory note in the amount of $73,452 ($($123,231Canadian Dollars)., respectively. During the year ended December 31, 2018, the Company issued two additions to the original unsecured promissory note of July 2016, totaling $22,639 ($($30,884Canadian dollars). The secured promissory note bears interest at a rate of 18% per annum. The payment terms of the original note including these additions are due “upon completion of going public on the Canadian Securities Exchange, with no change in interest rate.” The secured promissory note is secured by all present and after-acquired property and assets of the Company. During the year ended
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
4. Promissory Notes (continued)
December 31, 2019, the Company extended the maturity dates of the secured promissory notes to be due on April 1, 2021. As at September 30, 2021,March 31, 2022, principal balance owing was $96,091 ($($123,231Canadian Dollars) (December 31, 2020(2021 - $96,091 ($($123,231Canadian Dollars)). As of September 30, 2021,March 31, 2022, the accrued interest on this note payable was $61,97070,757 ($80,693($91,753 Canadian Dollars) (December 31, 2020(2021 - $48,77053,120 ($64,102($69,571 Canadian Dollars)) included in accounts payable and accrued liabilities. As of September 30, 2021, the Company and the secured promissory note holder are in dispute.
During the year ended December 31, 2016, the Company issued secured promissory notes in the amount of $79,000. The secured promissory notes bearshas an interest at a rate of 18% per annum, payable monthly. The secured promissory notes are secured by all present and after-acquired property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of all secured promissory notes to be due on April 1, 2021. As at September 30, 2021March 31, 2022 principal balance owing was $79,000 (December 31, 2020(2021 - $79,000). As of September 30, 2021,March 31, 2022, the accrued interest on this note payable was $41,60748,678 (December 31, 2020(2021 – $31,00034,497) included in accounts payable and accrued liabilities. As of September 30, 2021,March 31, 2022, the Company and the secured promissory note holder are in dispute.
During the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $53,848 ($67,700 Canadian Dollars). The secured promissory notes were due in October and November 2018and bears interest at a rate of 12% per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December 31, 2019, the Company extended the maturity date of the secured promissory notes to November 3, 2020. During the nine monthsyear ended September 30,December 31, 2021, the Company and promissory note holders reached an agreement to repay $62,905 ($($80,108Canadian Dollars) for outstanding principal of $53,848and interest of $14,740. As a result, of the Company recognized a gain on settlement of debt of $5,682. As of September 30,March 31, 2022 and December 31, 2021 the secured promissory notes hashave been repaid in full.
During the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $60,000. The secured promissory notes are due in August and November 2018 and bear interest at a rate of 12% per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December 31, 2019 the Company extended the maturity dates of this secured promissory note to November 3, 2020. During the year ended December 31, 2019, the Company a principal repayment of $10,000. During the quarteryear ended September 30,December 31, 2021 the Company and secured promissory note holder agreed to repay all outstanding principal and interest through the issuance of common shares valued at $ per share. As at September 30,December 31, 2021, the Company had recorded principal and interest of $73,886 as a result of the share repayment the Company recognized a gain on settlement of $8,997. As of September 30,March 31, 2022 and December 31, 2021 the secured promissory notes has been repaid in full.
The amounts repayable under promissory notes and secured promissory notes at September 30, 2021March 31, 2022 and December 31, 2020:2021 are as follows:
Schedule of Secured Notes Payable
March 31, 2022 | December 31, 2021 | |||||||
March 31, 2022 | December 31, 2021 | |||||||
Balance owing | $ | 263,211 | $ | 263,211 | ||||
Less amounts due within one year | (263,311 | ) | (263,211 | ) | ||||
Long-term portion | $ | - | $ | - |
September 30, 2021 | December 31, 2020 | |||||||
Balance owing | $ | 263,211 | $ | 367,058 | ||||
Less amounts due within one year | (263,211 | ) | (367,058 | ) | ||||
Long-term portion | $ | - | $ | - |
9 |
5.Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Convertible Promissory Notes
On February 25, 2020, the Company entered into an agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which the Company issued to Leonite a secured convertible promissory note in the aggregate principal amount of $544,425 to be paid in tranches. As additional consideration for the purchase of the note, (I)(i) the Company issued to Leonite common shares, and (ii) the Company issued to Leonite a five-year warrant to purchase 45,000 common shares at an exercise price of $2.00 per share (subject to adjustment), which may be exercised on a cashless basis. Refer to note 14 for warrant valuation.
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
5. Convertible Promissory Notes (continued)
The note carries an original issue discount of $44,425to cover Leonite’s legal fees, accounting fees, due diligence fees and/or other transactional costs incurred in connection with the purchase of the note. Therefore, the purchase price of the note was $500,000. On February 28, 2020, the Company recorded $198,715, $182,500principal and $16,215original issue discount. On September 1, 2020 the Company recorded an additional $310,322, $285,000principal and $25,322original issue discount. As of September 30,December 31, 2021, the Company has recorded $509,037, $467,500principal and $41,537original issue discount. Furthermore, the Company issued shares of common stock valued at $123,390and a debt-discount related to the warrants valued at $344,110. During the year ended December 31, 2020 Leonite converted $226,839of convertible promissory note into common shares at $per share. The original value of the convertible note converted was $182,565as a result the Company recognized a loss of $44,274on settlement of debt. During the nine monthsyear ended September 30,December 31, 2021 Leonite converted its remaining outstanding principal and interest into common shares. Leonite received common shares at $1.80 per share valued at $368,319. The original value of the convertible note converted including interest was $325,667. As a result the Company recognized a loss of $42,651on settlement of debt. In connection with the settlement the Company expensed the remaining $148,027of the original debt discount to interest expense. As of September 30,March 31, 2022 and December 31, 2021 the convertible promissory note has been repaid in full.
The Company amortized $58,146 (2020 - $11,677) of financing costs related to the shares and warrants for the nine months ended September 30, 2021. The remaining net balance of the note at September 30, 2021 is $0 (2020 - $12,715) comprised of principal of $0 (2020 - $183,538) and net of unamortized debt discount of $0 (2020 - $170,823).
6.7. Shareholders’ Equity (Deficit)
During three months ended March 31, 2022, the ninefollowing transactions occurred:
During the three months ended March 31, 2022 The Company issued 86,000, $ was issued from share subscriptions payable. During the same period the Company issued common shares for consulting services valued at $86,400. common shares to a consultant for services received valued at $
During the three months ended September 30,March 31, 2022 the Company recognized consulting expense of $1,482 to share subscriptions payable from restricted shares issued during the year ended December 31, 2021. As of March 31, 2022, the restricted shares have not been issued.
Refer to note 18 for additional shareholders’ equity (deficit).
During three months ended March 31, 2021, the following transactions occurred:
During the ninethree months ended September 30,March 31, 2021, the Company issued a total of (pre-stock split ) common shares relating to the Reg-A public offering. Of the shares issued ) common shares valued at $were from share subscription payable and 1,500 (pre-stock split of ) common shares were cancelled and refunded valued at $. The Company raised $3,004,818 3,003,321and incurred share issuance cost of $123,984. (pre-stock split of
During the nine months ended September 30, 2021 the Company had a underwriters’ public offering for units consisting of 1 common share and 1 warrant at $ per unit. In addition, the Company has granted the underwriter of the offering the option to purchase warrants and/or an additional common shares for 45 days after the closing of the option. During the nine months ended September 30, 2021 the underwriter purchased common shares at $ per share and warrants. A cumulative common shares were issued in connection with offering for $19,162,798 incurring share issuance costs of $ .
During the same period ) Reg-A public offering warrants were exercised for 2,196,416 733,023 (pre-stock split 14,660,450) common shares. As of September 30,March 31, 2021 (pre-stock split ) common shares were issued valued at $8,387,7582,919,975. Subsequent to September 30,March 31, 2021 the remaining (pre-stock split ) common shares valued at $20,000 12,130were issued. Refer to note 14. (pre-stock split
During the nine monthsthree month period ended September 30,March 31, 2021 the Company raised $4,081,980 3,081,981through private placement offerings for units for 1 common share and 2 warrants at $2 per unit. As suchMarch 31, 2021, the Company issued (pre-stock split ) shares of common stock. As of March 31, 2021, the Company has (pre-stock split ) common shares in connection withof to be issued. Subsequent to the private offering.period ended the Company issued the remaining (pre-stock split ) common shares. (pre-stock split ) common shares and warrants. As of
During the ninethree months ended September 30,March 31, 2021 the Company entered into consulting agreements with third party consultants for (pre-stock split ) shares of common stock valued at $1,522,000 for prepaid consulting services. As of March 31, 2021 the Company recorded $in share subscriptions payable.
10 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
7. Shareholders’ Equity (Deficit) (continued)
During the three months ended March 31, 2021 the Company issued (pre-stock split ) common shares valued at $269,911 for consulting services, $were issued from share subscriptions payable. During the same period the Company issued (pre-stock split ) common shares valued at $300,000 for consulting services.
During the three months ended March 31, 2021 the Company issued entered into a loan settlement agreement with a loan holder to issue (pre-stock split ) common shares at $ per share for all outstanding loan principal and interest valued at $111,610. As of the date of the settlement the Company had $157,787 loan payable, resulting in the Company recognized a gain on settlement of $46,176. Refer to note 11. As of September 30,16. Subsequent to the three month ended March 31, 2021 the Company issued (pre-stock split ) common shares.shares were issued.
During the ninethree months ended September 30, 2021 the Company entered into a promissory notes payable settlement agreement with a note holder to issue common shares valued at $ per share for a total value of $64,890. As of the date of the settlement the Company had $73,886 promissory notes payable, resulting in the Company recognized a gain on settlement of $8,997. Refer to note 4. As of September 30, 2021 the Company issued common shares.
During the nine months ended September 30,March 31, 2021 the Company entered into a settlement agreement with the convertible promissory note holder to settle all outstanding principal and interest. The Company issued (pre-stock split ) common shares valued at $368,320. During the same period the convertible promissory note holder exercised warrants on a cashless basis for (pre-stock split) common shares at $per share valued at $368,318. As of the date of the settlement the Company had $325,667 convertible promissory note, resulting in the Company recognizing a loss of $42,651 on settlement of debt.shares. Refer to note 5.8 and 19.
Worksport Ltd.
NotesRefer to the Condensed Consolidated Financial Statementsnote 17 for additional shareholders’ equity (deficit) for consulting expense of $37,000
(Unaudited) related to warrant issuance.
6. Shareholders’ Equity (Deficit) (continued)
During the nine monthsyear ended September 30, 2021 the Company issued common shares to Steve Rossi, the Company’s Chief Executive Officer and Director, in connection with his Employment Agreement in consideration for Mr. Rossi agreeing to amend the Series A Certificate of Designation to eliminate the Series A Preferred Stock conversion rights and returning 900 Series A Preferred Stock to the Company.
During the nine months ended September 30, 2021 the Company entered into consulting agreements with third party consultants for 380,000 shares of common stock valued at $1,648,700 for consulting services. As of September 30, 2021 the Company issued common shares to the third party consultants for services received. The remaining 10,000 common share will be expensed throughout the term of the agreement as the Company accrues the stock payable. As of September 30, 2021 the Company recorded $ in share subscriptions payable.
During the nine months ended September 30, 2021 the Company issued common shares valued at $741,159 for consulting services, $ were issued from share subscriptions payable. During the same period the Company issued common shares valued at $390,000 for consulting services. During the same period the Company issued common shares for employee compensation valued at $.
During the nine months ended September 30, 2021 the Company granted restricted shares of the Company to consultants for services to be rendered over a period of 12 and 24 months. Upon issuance of the restricted shares vested immediately and issued. As of September 30, 2021 the Company recognized consulting and advertising expense of $177,333 and $3,812,667 to prepaid expense.
During the nine months ended September 30, 2021 the Company granted restricted shares of the Company to directors of the Company. Upon issuance of the restricted shares vested immediately, shall vest on January 1, 2022. As of September 30, 2021 the Company recognized consulting expense of $35,569.
During the nine months ended September 30,December 31, 2021, the Company completed a share consolidation of the Company’s issued and outstanding common shares based on twenty (20) pre-consolidation shares to one (1) post-consolidation share. As a result of the share consolidation a anti-dilution clause was triggered resulting in the Company issuing common shares valued at $86,688.
During the nine months period ended September 30, 2020, the following transactions occurred:
During the nine months ended September 30, 2020 the Company issued common shares at $ per share for $168,910 for consulting services.
During the nine months ended September 30, 2020, the Company issued common shares pursuant to the conversion of the convertible promissory note (note 5) with a value of $226,839.
During the nine months ended September 30, 2020, the Company entered into a share subscription agreement with a consultant of the Company for common shares valued at $.
During the nine months ended September 30, 2020 the Company issued and common shares at $ and $ per share for $120,000 and $16,800 respectively for prepaid advertising services. As of September 30, 2020 the Company has expensed $53,293 from prepaid expenses.
During the nine months ended September 30, 2020 the Company entered into a share subscription agreement with a consultant of the Company for common shares valued at $ for prepaid consulting services. As of September 30, 2020 the Company issued shares with a value of $. As of September 30, 2020 the Company has expensed $93,750 from prepaid expenses.
During the nine months ended September 30, 2020 the Company issued a consultant common shares of subscription payable with a value of $648,147 relating to the anti-dilution feature triggered on March 5, 2019.
During the nine months ended September 30, 2020 the Company issued common shares pursuant to a subscription payable with a value of $.
During the nine months ended September 30, 2020 the Company issued shares in connection with the issuance of convertible promissory note (note 5) at $ per share.
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Shareholders’ Equity (Deficit) (continued)
During the nine months ended September 30, 2020 the Company entered into a settlement to fulfill a debt purchase agreement entered in 2017 for shares valued at $856,080. As of September 30, 2020 the Company has issued shares.
During the nine months ended September 30, 2020, Steven Rossi (the Company’s CEO) was issued 1,000 Series A Preferred Shares at $0.09 per share equal to 299,000 common shares voting rights.
As of September 30, 2021,March 31, 2022, the Company was authorized to issue shares of its common stock with a par value of $ . All shares were ranked equally with regards to the Company’s residual assets. During 2022 and 2021, the Company was authorized to issue shares of its Series A and Series B Preferred Stock with a par value of $ . Series A preferred Stock have voting rights equal to 0 shares of common stock, per share of preferred stock. Series B preferred Stock have voting rights equal to 10,000 shares of common stock, per share of preferred stock.
7.8. Related Party Transactions
During the ninethree months ended September 30, 2021,March 31, 2022, the Company recorded salaries expense of $157,89980,672 (2020(2021 - $48,19449,783) related to services rendered to the Company by its CEO.CEO and make a repayment of $1,863. As of March 31, 2022 related party loan was $33,684 (December 31, 2021 - $35,547). During the same period the Company recorded salaries expense of $58,16767,226 to an officer of the Company who is also aand director of the Company.
During the ninethree months ended September 30, 2021 the Company repaid $75,621 to the Company’s CEO and director. During the same period the Company’s CEO and director paid on behalf of the Company’s operating expense of $26,760 for a total net transaction of $48,861. As of September 30, 2021 the Company has a receivable from related party of $25,468.
During the year ended DecemberMarch 31, 2020, the Company repaid $5,245 to the Company’s CEO and director. As of December 31, 2020, the Company has $23,393 in related party loan.
During the nine months ended September 30, 2021, the Company paid a director of the Company $50,000for services rendered from 2015 to 2020.
During the ninethree months ended September 30,March 31, 2021, the Company paid $59,203to a U.S.-based corporation which the Company’s CEO and director is also a stockholder.
Refer to note 6 and 1518 for additional related party transactions.
8.9. Changes in Cash Flows from Operating Assets and Liabilities
The changes to the Company’s operating assets and liabilities for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 are as follows:
Schedule of Changes in Operating Assets and Liabilities
2021 | 2020 | |||||||
Decrease (increase) in accounts receivable | $ | (32,479 | ) | $ | (122,606 | ) | ||
Decrease (increase) in other receivable | 69,603 | 22,970 | ||||||
Decrease (increase) in inventory and prepaid inventory | (156,822 | ) | 44,423 | |||||
Decrease (increase) in prepaid expenses and deposits | (223,582 | ) | 48,642 | |||||
Increase (decrease) in lease liability | (14,295 | ) | 4,297 | |||||
Increase (decrease) in payroll taxes payable | 2,970 | (14,061 | ) | |||||
Increase (decrease) in accounts payable and accrued liabilities | 221,979 | (73,201 | ) | |||||
Changes in operating assets and liabilities | $ | (132,626 | ) | $ | (89,536 | ) |
9. Commitments and contingencies
2022 | 2021 | |||||||
Decrease (increase) in accounts receivable | $ | 6,733 | $ | 106,349 | ||||
Decrease (increase) in other receivable | 106,413 | 135,307 | ||||||
Decrease (increase) in inventory | (290,041 | ) | (252,529 | ) | ||||
Decrease (increase) in prepaid expenses and deposits | (430,917 | ) | (64,594 | ) | ||||
Increase (decrease) in lease liability | 59,612 | 850 | ||||||
Increase (decrease) in taxes payable | (112,189 | ) | 2,970 | |||||
Increase (decrease) in accounts payable and accrued liabilities | 105,626 | (4,862 | ) | |||||
Changes in operating assets and liabilities | $ | (554,762 | ) | $ | (76,510 | ) |
During the nine months ended September 30, 2021 the Company entered into an amended agreement to reserve an additional common shares for consulting services. During the year ended December 31, 2020 the Company entered into an agreement with a third-party advisor to reserve for issuance common shares for consulting services. As of September 30, 2021, common shares were issued to the third party.
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
9. 10. Commitments and contingencies(continued)
During the nine months periodyear ended September 30,December 31, 2021, the Company entered into an agreement with a third-party advisor to reserve for sale and issuance common shares for consulting services at a $ per share.
11. Reverse Stock Split
On May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA declared the 1 for 20 reverse stock split effective on August 4, 2021. These consolidated financial statements including, prior period comparative share amounts, have been retrospectively restated to reflect this reverse split.
12. Investment
During the year ended December 31, 20202019, the Company (defendant)entered into an agreement to purchase shares for $50,000. The shares have been issued to the Company. The Company’s investment accounts for a 10% equity stake in a privately owned US based mobile phone development company. As of March 31, 2022, the Company had advanced a total of $24,423and is currently in an ongoing legal proceeding with a promissory notes payable holder (plaintiff). As September 30, 2021,advancing tranches of capital as required by the outcome of the legal proceeding is uncertain.
Company.
10.
13. Lease Liabilities
During the nine monthsyear ended September 30,December 31, 2021 the Company entered into a second lease agreement for warehouse space to commence on June 1, 2021 and end on May 31, 2024with monthly lease payments of $19,910. 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 July 31, 2022with monthly lease payments of $2,221. During the three months ended March 31, 2022 the Company entered into a new lease agreement commencing on June 1, 2022 and ending on May 31, 2027
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 10%. The Company has measured the right-of-use asset at an amount equal to the lease liability.
The Company’s right-of-use asset for the ninethree months ended September, 2021March 31, 2022 and year ended December 31, 20202021 as follows:
Schedule Right-of-use Asset
September 30, 2021 | December 31, 2020 | |||||||
Right-of-use asset | $ | 573,862 | $ | 38,506 | ||||
Current lease liability | $ | 214,249 | $ | 23,883 | ||||
Long-term lease liability | $ | 368,431 | $ | 14,624 |
March 31, 2022 | December 31, 2021 | |||||||
Right-of-use asset | $ | 457,619 | $ | 515,819 | ||||
Current lease liability | $ | 211,577 | $ | 212,929 | ||||
Long-term lease liability | $ | 264,248 | $ | 316,988 |
The components of lease expense are as follows:
Schedule of Components of Lease Expense
September 30, 2021 | September 30, 2020 | March 31, 2022 | March 31, 2021 | |||||||||||||
Amortization of right-of-use | $ | 86,817 | $ | 16,010 | $ | 58,199 | $ | 5,749 | ||||||||
Interest on lease liability | $ | 21,633 | $ | 3,983 | $ | 12,302 | $ | 915 | ||||||||
Total lease cost | $ | 108,451 | $ | 19,993 | $ | 70,501 | $ | 6,664 |
Maturities of lease liability are as follows:
Future minimum lease payments as of September 30, 2021,
Schedule of Future Minimum Lease Payments
2021 (remainder of year) | 66,395 | |||
2022 | 254,469 | |||
2023 | 238,918 | |||
2024 | 99,549 | |||
Total future minimum lease payments | 659,331 | |||
Less: amount representing interest | (76,652 | ) | ||
Present value of future payments | 582,680 | |||
Current portion | 214,249 | |||
Long term portion | $ | 368,431 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
11.13. Lease Liabilities (continued)
Maturities of lease liability are as follows:
Future minimum lease payments as of March 31, 2022,
Schedule of Future Minimum Lease Payments
2022 | 188,075 | |||
2023 | 238,918 | |||
2024 | 99,549 | |||
Total future minimum lease payments | 526,542 | |||
Less: amount representing interest | (50,717 | ) | ||
Present value of future payments | 475,825 | |||
Current portion | 211,577 | |||
Long term portion | $ | 264,248 |
14. Loan payable
During the year ended December 31, 2020 the Company received loans of $, $and $from aan unrelated third party with an interest rate of % per annum with a maturity date of , and , respectively. During the ninethree months ended September 30,March 31, 2021 the Company agreed to repay the outstanding principal and interest through the issuance of common shares at $per share. During the nine months ended September 30,As of March 31, 2021, the Company accrued interest expense of $1,319 (2020 - $2,226). As of the date of the settlement agreement the Company had $150,439principal and $7,3487,336 interest outstanding, resulting in the Company recognizing a gain on settlement of $46,176for the nine monthsthree month period ended September 30,March 31, 2021.
During the year ended December 31, 2020 the Company received $28,387 ($($40,000CDN) interest free from the Government of Canada as part of the COVID-19 small business relief program. Repaying the balance of the loan on or before December 31, 20222023 will result in loan forgiveness of 25 percent. As of September 30, 2021March 31, 2022 loan payable outstanding is $28,387 ($($40,000CDN).
12. 15. Government Assistance
The Government of Canada is currently providing funding through the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs in order to provide financial relief to Canadian businesses affected by COVID-19. The CEWS program provides a reimbursement of salaries for eligible employers based on a decrease in revenues. The CERS program provides a reimbursement of rent expenses paid by eligible parties based on a decrease in revenues. During the three and nine months ended September 30, 2021,March 31, 2022, the Company recognized CEWS of $103,8700 ($129,947(2021 - $21,704 ($27,534 CDN)) and CERS of $13,6280 ($16,974(2021 - $0 CDN)) as a reduction in general and administrative expense on the condensed consolidated statements of operations.
For the three and nine months ended September 30, 2021,March 31, 2022, loss per Shareshare is $() and $(0.42) (basic and diluted), compared to the three and nine months ended September 30, 2020,March 31, 2021, of $() and $(0.38) (basic and diluted). Using using the weighted average number of shares of and 9,688,668 (basic(basic and diluted) for the three nine months ended September 30, 2021 and and 2,527,364 (basic(basic and diluted) for the three and nine months ended September 30, 2020.respectively.
There are shares authorized, and shares issued and outstanding, as at September 30,March 31, 2022 and 2021 and 2020 respectively. As of September 30, 2021,March 31, 2022, the Company has shares to be issued. The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share”.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 September 30,March 31, 2022 the Company has warrants convertible to 6,577,513 common shares, restricted stock to be issued, stock options exercisable for common shares, and performance stock units that would result in the issuance of up to common shares upon specific vesting conditions being met, for a total underlying common shares of 9,070,013. As at March 31, 2021 the Company has warrants and stock options convertible to 7,187,6702,884,180 common shares for a total underlying common shares of 7,187,6702,884,180. At September 30, 2020
13 |
Worksport Ltd.
Notes to the Company has Condensed Consolidated Financial Statements
145,000 warrants convertible to 145,000 common shares and convertible promissory note convertible to common shares for a total underlying common shares of .(Unaudited)
14.17. Warrants
During the ninethree months ended September 30, 2021, a total ofMarch 31, 2022, 2,277,1710 warrants were exercised forand common shares.Reg-A public offering warrants expired. During the three months ended March 31, 2021, warrants were exercised at $4.00 per share warrants were exercised at $6.05 per share and 294,500 warrants were exercised on a cashless basis for common shares. During the same period the 39,512 warrants were exercised on a cashless basis related to a convertible promissory note, please refer to note 5. As of September 30, 2021 common shares were issued with the remaining common shares issued subsequent to the period ended.
During the nine monthsyear ended September 30,December 31, 2021, the Company issued and 2,040,990warrants convertible to 1 and 2 common shares each exercisable for a period of 12 and 18 months respectively. The warrants were issued in connection with the Reg-A public offering and private placement offering respectively. The exercise price of the warrants is $per share. During the same period the Company issued warrants convertible to 1 common share at an exercise price of $per share exercisable for a period of 36 months. 3,272,727warrants were purchased through the underwritten public offering and 490,909over-allotment warrants purchased by the underwriter. The warrants were issued in connection with the underwritten public offering.
During the nine monthsyear ended September 30,December 31, 2021 the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company will issue an additional 150,000 warrants for a total of 250,000 warrants valued at $37,000. The exercisable period of the warrants was also amended to a period of five years beginning on January 14, 2021. The warrants are convertible to 1 common share each exercisable at $2 per share.
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
14. Warrants (continued)
During the nine months periodyear ended December 31, 2021 the Company issued representative warrants to the Company’s underwriters. The representative warrants are not exercisable until January 30, 2022. The representative are exercisable for common shares at $ per share until August 3, 2024. As of September 30, 2021March 31, 2022 the Company has not valuedrecognized a value of $273,993 for the representative warrants.warrants to share issuance cost.
During the year ended December 31, 2021, warrants expired.
As of September 30, 2021,March 31, 2022, the Company has the following warrants outstanding:
Schedule of Warrants Exercise Price
Exercise price | Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | ||||||||||||||||
$ | 4.00 | 11,250 | December 1, 2021 | |||||||||||||||||||||
$ | 4.00 | 329,816 | February 24, 2022 | |||||||||||||||||||||
$ | 4.00 | 1,790,990 | October 1, 2022 | 4.00 | 1,690,990 | October 1, 2022 | ||||||||||||||||||
$ | 6.05 | 3,446,636 | August 6, 2024 | 6.05 | 3,577,545 | August 6, 2024 | ||||||||||||||||||
$ | 2.00 | 5,488 | February 25, 2025 | 2.00 | 5,488 | February 25, 2025 | ||||||||||||||||||
$ | 2.40 | 62,500 | March 20, 2025 | 2.40 | 62,500 | March 20, 2025 | ||||||||||||||||||
$ | 40.00 | 250,000 | January 14, 2026 | 40.00 | 250,000 | January 14, 2026 | ||||||||||||||||||
5,896,680 | 5,586,523 |
Schedule of Warrants Activity
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||
Number of warrants | Weighted average price | Number of warrants | Weighted average price | Number of warrants | Weighted average price | Number of warrants | Weighted average price | |||||||||||||||||||||||||
Balance, beginning of year | 716,815 | $ | 4.00 | - | $ | - | 5,658,315 | $ | 4.30 | 716,815 | $ | 4.00 | ||||||||||||||||||||
Issuance | 7,307,036 | $ | 4.30 | 716,815 | $ | 4.00 | 130,909 | $ | 6.05 | 7,457,036 | $ | 4.30 | ||||||||||||||||||||
Expired | (202,701 | ) | $ | (4.00 | ) | (26,815 | ) | $ | (4.00 | ) | ||||||||||||||||||||||
Exercise | (2,277,171 | ) | $ | (4.00 | ) | - | $ | - | - | $ | - | (2,488,721 | ) | $ | (4.00 | ) | ||||||||||||||||
Balance, end of period | 5,896,680 | $ | 4.30 | 716,815 | $ | 4.00 | 5,586,523 | $ | 4.35 | 5,658,315 | $ | 4.30 |
Under the Company’s 2015 Equity Incentive Plan .
14 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
18. Stock Options (continued)
All equity-settled share-based payments are ultimately recognized as an expense in the statement of operations and comprehensive loss with a corresponding credit to “Additional Paid in Capital”.Capital.” If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different to that estimated on vesting.
On December 29, 2021 the Company granted and performance stock units (“PSU”) to the Company’s Chief Executive Officer and a director, respectively. . the fair value of the PSU was estimated to be $ , which will be expensed as stock-based compensation over a five year period. As of March 31, 2022, no PSUs have been vested and the Company recognized $(2021 - $) to stock-based compensation expense. It is uncertain whether any of these grants will vest as of the date of this report.
On August 6, 2021, the Company granted options to directors, advisors and officers with an exercise price of $and an expiry date of . . The Company recognized $283,1315,096 (2021 - $0) to consulting expense during the ninethree months ended September 30, 2021.March 31, 2022.
On July 23, 2021, the Company granted options to a director with an exercise price of $and an expiry date of . The stock options will vestvested on January 1, 2022. . The Company recognized $52,242799 (2021 - $0) to consulting expense during the ninethree months ended September 30, 2021.March 31, 2022.
On September 1, 2021, the Company granted options to a consultant with an exercise price of $and an expiry date of . shall vestvested on March 1, 2022, shall vest on September 1, 2022, shall vest on March 1, 2023 and shall vest on September 1, 2023. The fair value of the options on grant date was estimated to be $. The Company recognized $84,949264,787 (2021 - $0) to consulting expense during the ninethree months ended September 30, 2021.March 31, 2022.
On October 7 and November 2, 2021, the Company granted and options respectively, to advisors with an exercise price of $and $. The options will expire on and respectively. The stock options vested on January 1, 2022. The fair value of the options on grant date was estimated to be $. The Company recognized $5,294 (2021 - $0) to consulting expense during the three months ended March 31, 2022.
On December 29, 2021, the Company granted in aggregate of options to members of the board with an exercise price of $. The options will expire on . shall vest on December 29, 2022, shall vest on December 29, 2023 and shall vest on December 29, 2024. The fair value of the options on grant date was estimated to be $. The Company recognized $18,844 (2021 - $0) to consulting expense during the three months ended March 31, 2022.
On February 7, 2022, the Company granted options to an advisor with an exercise price of $. The options will expire on . The options vested immediately upon issuance. The fair value of the options on grant date was estimated to be $. The Company recognized $21,780 to consulting expense during the three months ended March 31, 2022.
March 31, 2022 | December 31, 2021 | |||||||||||||||
Number of stock options | Weighted average price | Number of stock options | Weighted average price | |||||||||||||
Balance, beginning of year | 712,500 | $ | 5.00 | 0 | $ | 0 | ||||||||||
Granted | 10,000 | $ | 2.19 | 712,500 | $ | 5.00 | ||||||||||
Balance, end of period | 722,500 | $ | 4.93 | 712,500 | $ | 5.00 |
Range of Exercise prices | Outstanding | Weighted average life (years) | Weighted average exercise price | Exercisable on March 31, 2022 | ||||||||||||||||
Stock options | $ | - | 722,500 | $ | 4.93 | 332,500 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
15. Stock Options (continued)
Nine months ended | ||||||||
Number of options | Weighted Average Price | |||||||
Balance, beginning of period | 0 | $ | 0 | |||||
Granted | 555,000 | $ | 5.37 | |||||
Balance, end of period | 555,000 | $ | 5.37 |
Range of Exercise prices | Number outstanding | Weighted average life (years) | Weighted average exercise price | Number exercisable on September 30, 2021 | ||||||||||||||||
Stock options | $ | - | 555,000 | $ | 5.37 | - |
As of September 30, 2021 stock options has been vested.
16.19. COVID-19
The recent outbreak of the novel coronavirus, specifically identified as “COVID-19”,“COVID-19,” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions.
Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or mining production activities or the ore and mining industry or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely. The management and board of the Company is constantly monitoring this situation to minimize potential losses.
17.20. Subsequent Events
● | On | ||
● | In April 2022 the Company’s wholly owned subsidiary Terravis Energy Inc. granted officers, directors and board members of the Company | ||
● | On | ||
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 SeptemberMarch 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 20202021 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.
COVID-19
The Company believes that the COVID- 19 pandemic has had certain impacts on its business, but management does not believe there has been a material long-term impact from the effects of the pandemic on the Company’s business and operations, results of operations, financial condition, cash flows, liquidity or capital and financial resources.
During the nine months ended September 30, 2021, aspects of the Company’s business continued to be affected by the COVID-19 pandemic with respect to its manufacturing practices and sales. Combined with decreased consumer confidence, Management expects the Company to generate less revenues than in previous periods.
The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on the global economy and demand for consumer products.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2021March 31, 2022, compared to Three Months Ended September 30, 2020March 31, 2021
Revenue
For the three months ended September 30, 2021,March 31, 2022, revenue generated from sales was $93,408,$47,784, compared to $116,491$7,650 for the three months ended September 30, 2020.March 31, 2022. Total revenues decreasedincreased by approximately 20%525% compared to the same period in the prior year.
Revenue decreasedincreased for the three months ended September 30, 2021March 31, 2022, compared to the same period the prior year due to the Company shiftingnearing completion of its focus toon building up its inventory to mitigate against potential supply chain issues in anticipation of launching its e-commerce platform, while it repositions to domestic manufacturing.
For The Company is anticipating the three months ended September 30, 2021 total revenues generated in Canada were $0 compared to a losslaunch of $935 in the prior period. For the three-months ended September 30, 2021, total revenue generated in the United States decreased by 20% from $117,426 in the prior period to $93,408. Similar to above, the decrease in revenue was a result of the Company shifting its focus to building up its inventory to mitigate against potential supply chain issues in anticipation of launching its e-commerce platform while it repositionsin 2022 and beginning to domestic manufacturing.focus on increasing sales.
For the three months ended September 30, 2021, online revenues decreased by 20% from $116,482 in the prior period to $93,408. Online revenue accounted for 100% of total revenue for the three months ended September 30, 2021 compared to 99% for the same period in 2020.
Cost of Sales
For the three months ended September 30, 2021March 31, 2022, cost of sales decreased by 13%37% from $94,134$60,221 in the prior period to $81,810.$37,977. Cost of sales, as a percentage of sales, was approximately 88%79% for three months ended September 30, 2021March 31, 2022 compared to 81%787% for the same period in 2020,2021, respectively. The increasedecrease in cost of sales as a percentage of sales was primarily due to increased costefficiency associated with acquiring and manufacturing inventory for the ninethree months ended September 30, 2021March 31, 2022, compare to the same prior period
Shipping and freight costs accounted for 55% of the total cost of sales during the three months ended September 30, 2021, compared to 40% for the same period in 2020.
Gross Margin
Gross margin percentage for the three months ended September 30, 2021March 31, 2022, was 12%21% compared to 19%negative 687% for the same period in 2020.2021. The decreaseincrease in gross margin reflects the increasedCompany’s efforts to control the cost of inventory due to increased costs of manufacturing.manufacturing and acquiring inventory.
Operating Expenses
Operating expenses increased for the three months ended September 30, 2021March 31, 2022, by $1,658,593$1,742,932 from $392,970$949,255 in the prior periods to $2,051,563.$2,682,187.
● | General and administrative expense increased by | |
● | Sales and marketing expenses increased by | |
● | The Company realized a gain on foreign exchange of | |
● | Professional fees which include accounting, legal and consulting fees, increased from |
Other Income and Expenses
Other income and expenses for the three months ended September 30, 2021March 31, 2022, was $24,316$19,829 compared to $234,377$221,693 the prior period, a decrease of $210,061.$201,864. The change can be attributed to the Company’s decrease in interest expense.
Net Loss
Net loss for the three months ended September 30, 2021March 31, 2022, was $2,064,281$2,817,609 compared to $604,990$1,223,519 for the three months ended September 30, 2020,March 31, 2021, a change of $1,459,291$1,594,090 or 241%130%. The increase in the net loss can be attributed to the increase of various operating expenses as the Company focuses on expanding its operations, research and development, manufacturing and supply chain.
Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020
Revenue
For the nine months ended September 30, 2021, revenue generated from sales was $287,297, compared to $223,620 for the nine months ended September 30, 2020. Total revenues increased by approximately 28% compared to the same period in the prior year.
Revenue increased for the nine months ended September 30, 2021 compared to the same period the prior year due to the increased demand for the Company’s products during the first six months of the year as Covid-19 restrictions were eased.
For the nine months ended September 30, 2021 total revenues generated in Canada increased by 370% from $10,990 in the prior periods to $40,645. For the nine months ended September 30, 2021, total revenue generated in the United States increased by 16% from $212,620 in the prior period to $246,652. The increase in revenue generated in Canada and United States can be attributed to the easing of Covid-19 restrictions.
For the nine months ended September 30, 2021, online revenues increased by 18% from $208,554 in the prior period to $246,701. Online revenue accounted for 86% of total revenue for the nine months ended September 30, 2021 compared to 98% for the same period in 2020.
For the nine months ended September 30, 2021, revenues based on sales to distributors were $40,311 compared to $8,845 for the same period in 2020.
Cost of Sales
For the nine months ended September 30, 2021 cost of sales increased by 55% from $180,028 in the prior periods to $279,364. Cost of sales, as a percentage of sales, was approximately 97% for nine months ended September 30, 2021 compared to 81% for the same periods in 2020, respectively. The increase in cost of sales as a percentage of sales was primarily due to increased cost associated with acquiring inventory for the nine months ended September 30, 2021 compare to the same prior period.
Shipping and freight costs accounted for 38% of total cost of sales during the nine months ended September 30, 2021, compared to 42% for the same period in 2020.
Gross Margin
Gross margin percentage for the nine months ended September 30, 2021 was 3% compared to 19% for the same period in 2020. The decrease in gross margin reflects the Company’s increased costs of procuring inventory as the Company seeks to gain greater control over its manufacturing process.
Operating Expenses
Operating expenses increased for the nine months ended September 30, 2021 by $3,180,343 from $671,937 in the prior periods to $3,852,280.
Other Income and Expenses
Other income and expenses for the nine months ended September 30, 2021 was $255,112 compared to $321,096 the prior period, a decrease of $65,984. The difference can be attributed to the Company’s gain on settlement of debt and interest income.
Net Loss
Net loss for the nine months ended September 30, 2021 was $4,099,459 compared to $949,441 for the nine months ended September 30, 2020, a change of $3,150,018 or 332%. The increase in the net loss can be attributed to the increase of various operating expenses as the Company focuses on expanding its operations, research and development programs and manufacturing and supply chains.
Worksport currently works with a total of ten dealers and distributors, however, given current market conditions Worksport plans to focus on online sales during 2021.2022. Management believes that increasing sales through online retailers will continue to outpace the traditional distribution business model during 2021.2022. Management further believes that online retailer’s customers tend to provide larger sales volumes, greater profit margins and greater protection against price erosion.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2021,March 31, 2022, the Company had $30,920,477$25,808,938 in cash, restricted cash and cash equivalents. The Company has generated only limited revenues and has relied primarily upon capital generated from public and private offerings of its securities.
Since the Company’s acquisition of Worksport in fiscal 2014, it has never generated a profit.
As of September 30, 2021March 31, 2022, the Company had an accumulated deficit of $17,052,179.$23,667,414.
Cash Flow Activities
Accounts receivable increaseddecreased at September 30, 2020March 31, 2022 by $122,606$6,733 and September 30,March 31, 2021 by $32,479.$106,349. The increasedecrease in accounts receivable was due to the Company increased sale near quarter end.Company’s collection of payments from customers. Other receivable decreased at September 30,March 31, 2022 and 2021 by $106,413 and 2020 by $69,603 and $22,970$135,307 respectively, due to funds received from a sales tax refund.
Inventory decreased at September 30, 2020 by $44,423 and increased at September 30,March 31, 2022 by $290,041 and at March 31, 2021 by $156,822.$252,529 as a result of the Company stockpiling inventory in anticipation of the launch of its e-commerce platform. Prepaid expenses increased by $223,582$430,917 at September 30,March 31, 2022 and at March 31, 2021 and decreased at September 30, 2020 by $48,642,$64,594, due to increased consulting and marketing expenditures during the quarter ended September 30, 2021.deposits made by to Company to purchase manufacturing equipment.
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Accounts payable and accrued liabilities increased at September 30, 2021 $221,979March 31, 2022 by $105,626 and decreased at September 30, 2020March 31, 2021 by and $73,201 respectively.$4,862.
Cash increased from $467,133$9,311,878 at September 30, 2020March 31, 2021 to $30,920,477$25,808,938 at September 30, 2021,March 31, 2022, an increase of $30,453,343$16,497,060 or 6,519%177%. The increase in in cash was primarily due to warrants exercises, public offerings and private placement offerings which generated of approximately $32,000,000.offerings.
As of September 30, 2021,March 31, 2022, the Company had current assets of $36,762,621$30,846,020 and current liabilities of $1,728,043.$1,794,887.
Operating Activities
Net cash used by operating activities for the ninethree months ended September 30, 2021March 31, 2022, was $2,031,966,$2,016,480, compared to $382,352$506,867 in the prior period.
Investing Activities
Net cash used in investing activities for the ninethree months ended September 30, 2021March 31, 2022, was $764,090$614,046 compared to $16,727$124,740 in the prior period. The increase in investing activities was primarily due to the purchase of property and equipment of $734,883 and intangible assets of $23,700.equipment.
Financing Activities
Net cash provided byused in financing activities for the ninethree months ended September 30, 2021March 31, 2022, was $32,608,720$127,870 compared to $854,219net cash generated of $8,835,673 in the prior period.
During the nine months ended September 30, 2021 the Company received $32,805,825 of proceeds from public offerings, private placement offering and exercises of warrants net of share issuance cost. During the nine months ended September 30, 2021 the Company made repayment of $62,905 of promissory notes and repayment of $48,861 of shareholder loans.
During 2021, the Company intends to introduce several new tonneau covers as well as the Terravis system. The Company anticipates that the introduction of these new products will improve the Company’s financial position.
Based on the Company’s future operating plans, existing cash of $30,920,477;$25,808,938; management believes that the Company has sufficient funds to meet its contractual obligations and working capital requirements for the next 12 months and the foreseeable future.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
Our discussion and analysis of results of operations and financial condition are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies that we follow are set forth in Note 2 to our financial statements as included in the Form 10-K filed on April 13, 2021.March 31, 2022. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the financial statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the quarter covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time years and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this quarterly report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not Applicable.
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Item 6. Exhibits
EXHIBIT No. | �� | DESCRIPTION |
31.1 | Section 302 Certification of Chief Executive Officer | |
31.2 | Section 302 Certification of Chief Financial Officer | |
32.1 | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WORKSPORT LTD. | ||
Dated: | By: | /s/ Steven Rossi |
Steven Rossi | ||
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
WORKSPORT LTD. | ||
Dated: | By: | /s/ Michael Johnston |
Michael Johnston | ||
Chief Financial Officer and Accounting Officer |