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

 

A close up of a logo Description automatically generated

 

Worksport Ltd.Ltd.

(Exact Name of Small Business Issuer as specified in its charter)

Nevada35-2696895
(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 16,871,48617,001,034 shares of Common Stock outstanding.

 

 

 

 

WORKSPORT LTD.

TABLE OF CONTENTS

 

Page
PART I.I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets at September 30, 2021March 31, 2022 and December 31, 20202021 (Unaudited)3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 (Unaudited)4
Condensed Consolidated Statements of Cash Flow for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 (Unaudited)5
Condensed Consolidated Statements of Shareholders’ Deficit for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 (Unaudited)6-76
Notes to the Condensed Consolidated Financial Statements (Unaudited)8-177-16
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations18-2117-19
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk2120
 
Item 4. Controls and Procedures2220
 
PART II OTHER INFORMATION
Item 1. Legal Proceedings20
 
Item 1. Legal Proceedings22
Item 1A. Risk Factors2220
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds2220
 
Item 3. Defaults Upon Senior Securities2220
 
Item 4. Mine Safety Disclosures2220
 
Item 5. Other Information2220
 
Item 6. Exhibits2221
 
SIGNATURES2322

 

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, $0.0001 par value, 100,100 shares authorized, 100 Series A and 0 Series B issued and outstanding, respectively (note 6)  -   1 
Common stock, $0.0001 par value, 299,000,000 shares authorized, 16,829,037 and 3,820,618 shares issued and outstanding, respectively (note 6)  1,683   382 
Series A & B Preferred Stock, $0.0001 par value, 1,100,000 shares authorized, 100 Series A and 0 Series B issued and outstanding, respectively (note 7)  -   - 
Common stock, $0.0001 par value, 299,000,000 shares authorized, 17,001,034 and 3,820,619 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.

5

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

65

 

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.

 

76

 

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 100 common shares at par value of $0.0001 $0.0001 per share for a controlling interest in Terravis Energy Inc. During the three months ended March 31, 2022 the Company was issued 9,990,900 common shares of Terravis Energy Inc. at par value of $0.0001 per share. During the same period Terravis Energy Inc. issued 1,000 preferred shares at $0.0001 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 1,000 common shares at par value of $0.0001 of Worksport USA Operations Corporation. Subsequently, to the period ended on April 1, 2022, the Company was issued 10,000 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 $5.10 per share. The Company is anticipating additional warrant exercises.

87

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:

●Automobile5 years

 

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

9

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 36,048 common shares valued at $0.09 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 22,500 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.

 

10

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 22,500shares 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 126,022common shares at $1.80per 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 204,622common 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 10,000 common shares to a consultant for services received valued at $86,000, $66,329 was issued from share subscriptions payable. During the same period the Company issued 40,000 common shares for consulting services valued at $86,400.

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 1,502,409 1,502,410 (pre-stock split 30,048,199) common shares relating to the Reg-A public offering. Of the shares issued 15,500 (pre-stock split of 310,000) common shares valued at $31,200were from share subscription payable and 750 (pre-stock split of 15,000) common shares were cancelled and refunded valued at $1,500. The Company raised $3,004,818 3,003,321and incurred share issuance cost of $123,984.

During the nine months ended September 30, 2021 the Company had a underwriters’ public offering for 3,272,727 units consisting of 1 common share and 1 warrant at $5.50 per unit. In addition, the Company has granted the underwriter of the offering the option to purchase 490,909 warrants and/or an additional 490,909 common shares for 45 days after the closing of the option. During the nine months ended September 30, 2021 the underwriter purchased 210,909 common shares at $5.49 per share and 490,909 warrants. A cumulative 3,483,636 common shares were issued in connection with offering for $19,162,798 incurring share issuance costs of $4,335,90859,160.

 

During the same period 2,277,171 733,023 (pre-stock split 14,660,450) 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 2,190,515 729,990 (pre-stock split 14,559,800) common shares were issued valued at $8,387,7582,919,975. Subsequent to September 30,March 31, 2021 the remaining 5,899 3,033 (pre-stock split 60,650) common shares valued at $20,000 12,130were issued. Refer to note 14.

 

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 1,540,990 (pre-stock split 30,819,800) common shares and warrants. As of 2,040,990 units for 1 common share and 2 warrants at $2 per unit. As suchMarch 31, 2021, the Company issued 2,040,990 1,524,990 (pre-stock split 30,499,800) shares of common stock. As of March 31, 2021, the Company has 16,000 (pre-stock split 320,000) common shares in connection withof to be issued. Subsequent to the private offering.period ended the Company issued the remaining 16,000 (pre-stock split 320,000) common shares.

 

During the ninethree months ended September 30,March 31, 2021 the Company entered into consulting agreements with third party consultants for 370,000 (pre-stock split 7,400,000) shares of common stock valued at $1,522,000 for prepaid consulting services. As of March 31, 2021 the Company recorded $111,222 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 166,058 (pre-stock split 3,321,154) common shares valued at $269,911 for consulting services, $241,559 were issued from share subscriptions payable. During the same period the Company issued 150,000 (pre-stock split 3,000,000) 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 62,006(pre-stock split 1,240,111) common shares at $1.80 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 62,006(pre-stock split 1,240,111) 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 36,048 common shares valued at $1.80 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 36,048 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 204,622206,621 (pre-stock split 4,092,431) common shares valued at $368,320. During the same period the convertible promissory note holder exercised 790,243 warrants on a cashless basis for 39,512 (pre-stock split) 790,243 common shares at $1.80 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.

 

11

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 1,717,535 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 370,000 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 $44,652 in share subscriptions payable.

During the nine months ended September 30, 2021 the Company issued 259,808 common shares valued at $741,159 for consulting services, $241,559 were issued from share subscriptions payable. During the same period the Company issued 150,000 common shares valued at $390,000 for consulting services. During the same period the Company issued 3,350 common shares for employee compensation valued at $24,121.

During the nine months ended September 30, 2021 the Company granted 750,000 restricted shares of the Company to consultants for services to be rendered over a period of 12 and 24 months. Upon issuance 750,000 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 45,000 restricted shares of the Company to directors of the Company. Upon issuance 15,000 of the restricted shares vested immediately, 30,000 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 237,500 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 120,651 common shares at $1.40 per share for $168,910 for consulting services.

During the nine months ended September 30, 2020, the Company issued 126,022 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 200,000 common shares valued at $250,000.

During the nine months ended September 30, 2020 the Company issued 66,667 and 12,000 common shares at $1.80 and $1.40 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 200,000 common shares valued at $125,000 for prepaid consulting services. As of September 30, 2020 the Company issued 107,500 shares with a value of $67,188. 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 284,349 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 22,942 common shares pursuant to a subscription payable with a value of $55,000.

During the nine months ended September 30, 2020 the Company issued 22,500 shares in connection with the issuance of convertible promissory note (note 5) at $5.40 per share.

12

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 205,000 shares valued at $856,080. As of September 30, 2020 the Company has issued 205,000 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 299,000,000 shares of its common stock with a par value of $0.0001. All shares were ranked equally with regards to the Company’s residual assets. During 2022 and 2021, the Company was authorized to issue 100 shares of its Series A and 100,000 Series B Preferred Stock with a par value of $0.0001. 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 7,500 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 5,000 common shares for consulting services. As of September 30, 2021, 12,500 common shares were issued to the third party.

1311

 

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 15,000 common shares for consulting services at a $0.001 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 10,000,000 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 

1412

 

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 $32,439, $10,000and $108,000from aan unrelated third party with an interest rate of 10% per annum with a maturity date of December 31, July 22and August 31, 2021, 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 62,0061,240,111 common shares at $1.800.09 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.

 

13.16. Loss per Share

 

For the three and nine months ended September 30, 2021,March 31, 2022, loss per Shareshare is $(0.150.17) and $(0.42) (basic and diluted), compared to the three and nine months ended September 30, 2020,March 31, 2021, of $(0.210.24) and $(0.38) (basic and diluted). Using using the weighted average number of shares of 13,983,56716,988,033 and 9,688,668 (basic(basic and diluted) for the three nine months ended September 30, 2021 and 2,857,4435,155,097 and 2,527,364 (basic(basic and diluted) for the three and nine months ended September 30, 2020.respectively.

 

There are 299,000,000shares authorized, 16,829,03717,001,034 and 3,062,9708,820,619 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 227,566221,667 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 5,586,523 warrants convertible to 6,577,513 common shares, 1,070,000 restricted stock to be issued, 722,500 stock options exercisable for 722,500 common shares, and 700,000 performance stock units that would result in the issuance of up to 700,000common 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 5,896,6802,884,180 warrants and 555,000 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 110,397 common shares for a total underlying common shares of 255,397.(Unaudited)

 

14.17. Warrants

 

During the ninethree months ended September 30, 2021, a total ofMarch 31, 2022, 2,277,1710 warrants were exercised forand 2,196,416202,701 common shares.Reg-A public offering warrants expired. During the three months ended March 31, 2021, 1,626,161772,535 warrants were exercised at $4.00 per share 317,000 warrants were exercised at $6.05 per share and 294,500 warrants were exercised on a cashless basis for 213,743772,535 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 2,190,517 common shares were issued with the remaining 5,899 common shares issued subsequent to the period ended.

 

During the nine monthsyear ended September 30,December 31, 2021, the Company issued 1,502,409and 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 $4.00per share. During the same period the Company issued 3,763,636warrants convertible to 1 common share at an exercise price of $6.05per 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.

 

15

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 130,909 representative warrants to the Company’s underwriters. The representative warrants are not exercisable until January 30, 2022. The representative are exercisable for 130,909 common shares at $6.05 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, 26,815 warrants expired.

 

As of September 30, 2021,March 31, 2022, the Company has the following warrants outstanding:

Schedule of Warrants Exercise Price

Exercise priceExercise price  Number outstanding  Remaining Contractual Life (Years)  Expiry dateExercise price  Number outstanding  Remaining Contractual Life (Years)  Expiry date
$4.00   11,250   0.17  December 1, 2021
$4.00   329,816   0.30  February 24, 2022
      
$4.00   1,790,990   1.00  October 1, 20224.00   1,690,990   0.50  October 1, 2022
$6.05   3,446,636   2.85  August 6, 20246.05   3,577,545   2.35  August 6, 2024
$2.00   5,488   3.41  February 25, 20252.00   5,488   2.91  February 25, 2025
$2.40   62,500   3.47  March 20, 20252.40   62,500   2.97  March 20, 2025
$40.00   250,000   4.29  January 14, 202640.00   250,000   3.79  January 14, 2026
    5,896,680   1.75       5,586,523   1.88   

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 

 

15.18. Stock Options

 

Under the Company’s 2015 Equity Incentive Plan the number of common shares reserved for issuance under the option plan shall not exceed 10% of the issued and outstanding common shares of the Company, have a maximum term of 10 years and vest at the discretion of the Board of Directors.

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 400,000 and 300,000 performance stock units (“PSU”) to the Company’s Chief Executive Officer and a director, respectively. The PSU will vest in 5% increments according to a schedule that correlates with the Company’s stock price. The first 5% of the PSUs vest upon the Company’s stock price closing at $3.00. 50% will have vested at a closing price of $16.50 and 100% will have vested at a closing price of $31.50. the fair value of the PSU was estimated to be $2,308,012, 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 $115,400 (2021 - $0) 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 140,000 options to directors, advisors and officers with an exercise price of $5.50 and an expiry date of August 6, 2026. The stock options will vestvested on January 1, 2022. The fair value of the options on grant date was estimated to be $754,189. 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 15,000 options to a director with an exercise price of $5.50 and an expiry date of July 23, 2026. The stock options will vestvested on January 1, 2022. The fair value of the options on grant date was estimated to be $129,480. 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 400,000 options to a consultant with an exercise price of $5.32 and an expiry date of September 1, 2026. The options have a vesting period of 6 months from the initial grant date; 100,000 shall vestvested on March 1, 2022, 100,000shall vest on September 1, 2022, 100,000shall vest on March 1, 2023 and 100,000shall vest on September 1, 2023. The fair value of the options on grant date was estimated to be $2,112,000. 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 5,000 and 62,500 options respectively, to advisors with an exercise price of $5.50 and $5.24. The options will expire on October 7, 2026and November 2, 2026respectively. The stock options vested on January 1, 2022. The fair value of the options on grant date was estimated to be $326,498. 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 90,000 options to members of the board with an exercise price of $2.51. The options will expire on December 29, 2026. The options have a vesting period of 1 year from the initial grant date; 10,000 shall vest on December 29, 2022, 10,000 shall vest on December 29, 2023 and 10,000 shall vest on December 29, 2024. The fair value of the options on grant date was estimated to be $224,280. 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 10,000 options to an advisor with an exercise price of $2.19. The options will expire on February 7, 2027. The options vested immediately upon issuance. The fair value of the options on grant date was estimated to be $21,780. The Company recognized $21,780 to consulting expense during the three months ended March 31, 2022.

Schedule of Stock Options Activity

  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 

Schedule of Share-based Payment Arrangement, Option, Exercise Price Range

  Range of Exercise prices  Outstanding  Weighted average life (years)  Weighted average exercise price  Exercisable on March 31, 2022 
Stock options $2.19 - 5.50   722,500   4.40  $4.93   332,500 

1615

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

15. Stock Options (continued)

Schedule of Stock Options Activity

  

Nine months ended
September 30, 2021

 
  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 

Schedule of  Share-based Payment Arrangement, Option, Exercise Price Range

  Range of
Exercise prices		  Number
outstanding		  Weighted average
life (years)		  Weighted average
exercise price		  Number exercisable on September 30, 2021 
Stock options $5.32 - 5.50   555,000         4.86  $5.37         - 

As of September 30, 2021 0 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 October 7, 2021,May 2, 2022 the Company entered into a board advisory agreement withissued 10,000 shares of common stock to a third party. As compensationparty consultant and an employee for a total amount of 20,000 shares at $2.32 per share.
●In April 2022 the Company’s wholly owned subsidiary Terravis Energy Inc. granted officers, directors and board members of the Company shall grant to the advisoran aggregate of 5,0001,350,000 stock options. The stock option has an exercise price of $5.50 and an expiry date of October 7, 2026. The stock options will fully vest on January 1, 2022.
●On October 26, 2021, 11,250 warrants were exercised for 11,250 shares valued $45,000.
 ●On October 27, 2021, 300 warrants were exercised for 300 shares valued $1,200.
●On November 2, 2021,May 6th 2022 the Company closed on the purchase of its Property located in West Seneca, New York, the details of which are disclosed in the Company’s Form 8-K filed on May 11, 2022 with the United States Securities and an advisor entered into a modified advisory board agreement. The advisor and Company has agreed to a milestone compensation structure base on when milestone criteria are achieved for Customer/Revenue generation, Strategic Partnership, Board/Advisor, Government Affairs and Banking and Capital Markets. The Company has agreed to potential compensation package for the advisory of 250,000 stock options exercisable at $5.24 for 10 years and/or 100,000 restricted stocks of common shares.
○As of November 3, 2021 the Company has issued 25,000 restricted stock valued at $131,000.Exchange Commission.

1716

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.

 

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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 $466,899$466,574 from $50,836$134,284 in the prior period to $517,735.$600,858. The increase expense is related to research and development and salaries as the Company seeks to expand its operations and further develop its products.
●Sales and marketing expenses increased by $374,783$557,837 from $59,122$162,651 in the prior period to $433,905.$720,488. The increase in sales and marketing is a result of buildingthe Company’s marketing campaign to create brand and product awareness.
 ●The Company realized a gain on foreign exchange of $11,175$1,338 during the three months ended September 30, 2021,March 31, 2022, an increase of $13,774$6,544 compared to a loss of $2,599$5,206 during the prior period. The gain on foreign exchange can be attributed to operating expenses denominated in the Canadian Dollar.
 ●Professional fees which include accounting, legal and consulting fees, increased from $280,413$647,114 for the three months ended September 30, 2020March 31, 2021 to $1,111,098$1,487,579 for the three months ended September 30, 2021.March 31, 2022. The increase was due to the employment of various third-party consultants to help expand the Company’s business operations.

 

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.

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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.

●General and administrative expense increased by $826,473 from $97,566 in the prior period to $924,041. The increase was related to research and development and salaries as the Company seeks to expand its operations and further develop its products.
●Sales and marketing expenses increased by $691,843 from $69,869 in the prior period to $761,712. The increase in sales and marketing is a result of building brand and product awareness.
●The Company realized a gain on foreign exchange of $2,170 during the nine months ended September 30, 2021, a decrease of $2,675 compared to $4,845 during the prior period. The decrease in gain on foreign exchange can be attributed to the weakening of the Canadian Dollar against the United States Dollar.
●Professional fees which include accounting, legal and consulting fees, increased from $509,347 for the nine months ended September 30, 2020 to $2,168,697 for the nine months ended September 30, 2021. The increase was due to the employment of various third-party consultants to help expand the Company’s business operations.

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.

 

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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.

18

 

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.

19

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not Applicable.

21

 

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.

20

 

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
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

2221

 

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: November 15, 2021May 23, 2022By:/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: November 15, 2021May 23, 2022By:/s/ Michael Johnston
  Michael Johnston
  Chief Financial Officer and Accounting Officer

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