Worksport Ltd - Quarter Report: 2022 September (Form 10-Q)

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, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-40681

Worksport Ltd.

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

55 East Beaver Creek Rd #40

Richmond Hill, Ontario, Canada L4B 1E5

(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:

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.

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 14, 2022, 17,190,016 shares of Common Stock were outstanding.

WORKSPORT LTD.

TABLE OF CONTENTS

Worksport Ltd.

Condensed Consolidated Balance Sheets

(Unaudited)

The accompanying notes form an integral part of these condensed consolidated financial statements.

Worksport Ltd.

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2022 and 2021

(Unaudited)

The accompanying notes form an integral part of these condensed consolidated financial statements

Worksport Ltd.

Condensed Consolidated Statements of Shareholders’ Deficit

For the Three Months Ended September 30, 2022 and 2021

(Unaudited)

The accompanying notes form an integral part of these condensed consolidated financial statements

Worksport Ltd.

Condensed Consolidated Statements of Shareholders’ Deficit

For the Nine Months Ended September 30, 2022 and 2021

(Unaudited)

The accompanying notes form an integral part of these condensed consolidated financial statements

Worksport Ltd.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2022 and 2021

(Unaudited)

The accompanying notes form an integral part of these condensed consolidated financial statements.

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Business Condition

a) Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary in order to make the financial statements not misleading and for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the nine month period ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022.

On May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the NASDAQ. The Certificate of Change was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA declared the 1-for-20 reverse stock split effective on August 4,2021. These condensed interim financial statements, including prior period comparative share amounts, have been retrospectively restated to reflect this reverse split.

Terravis Energy Inc. was incorporated in the State of Colorado on May 5, 2021. On August 20, 2021, the Company was issued 100 common shares at par value of $0.0001 per share for a controlling interest in Terravis Energy Inc. During the nine months ended September 30, 2022, the Company was issued an additional 9,990,900 common shares of Terravis Energy Inc. at par value of $0.0001 per share

On January 20, 2022, the board of directors of Terravis and the board of directors of the Company, as the sole stockholder of Terravis, adopted the Terravis Energy, Inc. 2022 Equity Incentive Plan (the “Terravis 2022 Plan”). Under the Terravis 2022 Plan, Terravis’ board of directors or a committee designated by the board of directors may grant incentive stock options, nonqualified stock options, shares of restricted stock, restricted stock units, performance shares, performance units and stock appreciation rights to eligible participants consisting of employees of Terravis, member of Terravis’ board of directors and advisors and consultants to Terravis. The Terravis board of directors authorized and reserved 1,000,000 shares of Terravis common stock under the Terravis 2022 Plan, subject to adjustment for any stock splits of Terravis’s common stock or reorganization, recapitalization, or acquisition of Terravis.

On April 6, 2022, Terravis issued Lorenzo Rossi and Steven Rossi, both of whom are members of Terravis’s board of directors, non-qualified options under the Terravis 2022 Plan exercisable for 750,000 and 250,000, respectively, shares of Terravis’s common stock, for $0.01 per share from the date of grant until the tenth anniversary of the date of grant.

On April 12, 2022, Terravis Steven Rossi, William Caragol, and Ned L. Siegel, all of whom are members of Terravis’s board of directors, non-qualified options under the Terravis 2022 Plan exercisable for 250,000, 50,000, and 50,000, respectively, shares of Terravis’s common stock for $0.01 per share from the date of grant until the tenth anniversary of the date of grant.

During the nine months ended September 30, 2022, Worksport New York Operations Corporation and Worksport USA Operations Corporation were incorporated in the state of New York and Colorado, respectively. During the period, the Company was issued 1,000 common shares at par value of $0.0001 of Worksport USA Operations Corporation. On April 1, 2022, the Company was issued 10,000 common shares of Worksport New York Operations Corporation.

b) Functional and Reporting Currency

These condensed consolidated financial statements are presented in United States dollars (USD or US$). The functional currency of the Company and its subsidiaries are United States dollar. For purposes of preparing these consolidated financial statements, transactions denominated in Canadian dollars (CAD or C$) were converted to United States dollars at the spot rate. Transaction gains and losses resulting from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying consolidated statement of operations.

c) Use of Estimates

The preparation of condensed unaudited financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

d) Business condition

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

As of September 30, 2022, the Company had working capital of $19,591,447 and an accumulated deficit of $29,917,393. As of September 30, 2022, the Company had cash, restricted cash and cash equivalents of $17,279,261. 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.

Based on the Company’s future operating plans, existing cash of $17,279,261 combined with possible warrants and stock options exercises of approximately $28,695,215; management believes the Company has sufficient funds to meet its contractual obligations and working capital requirements for the next 12 months and the foreseeable future.

2. Significant Accounting Policies

The accounting polices used in the preparation of these condensed consolidated interim financial statements are consistent with those of the Company’s audited financial statements for the year ended December 31, 2021.

3. Inventory

Inventory consists of the following at September 30, 2022 and December 31, 2021:

Schedule of Inventory 

4. Prepaid expenses and deposits

As of September 30, 2022 and December 31, 2021 prepaid expenses and deposits consists of the following:

Schedule of Prepaid Expenses and Deposits

As of September 30, 2022 prepaid expense and deposit consists of $1,933,547 (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, 2022 and December 31, 2021:

 Schedule of Notes Payable

During the year ended December 31, 2016, the Company issued a secured promissory note in the principal amount of $73,452 ($123,231 Canadian 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 ($30,884 Canadian 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 December 31, 2019, the Company extended the maturity dates of the secured promissory notes to be due on April 1, 2021. As of September 30, 2022, principal balance owing was $96,091 ($123,231 Canadian Dollars) (December 31, 2021 - $96,091 ($123,231 Canadian Dollars)). As of September 30, 2022, the accrued interest on this note payable was $79,331 ($102,874 Canadian Dollars) (2021 - $61,970 ($80,693 Canadian Dollars)) included in accounts payable and accrued liabilities. As of September 30, 2022, the Company and the promissory note holder are in dispute.

During the year ended December 31, 2016, the Company issued secured promissory notes in the aggregate principal amount of $79,000. The secured promissory notes have 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 of September 30, 2022 principal balance owing was $79,000 (2021 - $79,000). As of September 30, 2022, the accrued interest on this note payable was $55,797 (2021 – $41,607) included in accounts payable and accrued liabilities. As of September 30, 2022, the Company and the promissory note holder are in dispute.

During the years ended December 31, 2017, the Company issued secured promissory notes in the aggregate principal amount of $53,848 ($67,700 Canadian Dollars). The secured promissory notes were due in October and November 2018 and 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 year ended December 31, 2021, the Company and promissory note holders reached an agreement to repay $62,905 ($80,108 Canadian Dollars), for the outstanding principal of $53,848 and accrued interest of $14,740. As a result, the Company recognized a gain on settlement of debt of $5,682. As of September 30, 2022 and December 31, 2021, the secured promissory notes have been repaid in full.

During the years ended December 31, 2017, the Company issued secured promissory notes in the aggregate principal amount of $60,000. The secured promissory notes were 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 made a principal repayment of $10,000. During the year ended 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 of 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, 2022 and December 31, 2021 the secured promissory notes have been repaid in full.

The amounts repayable under promissory notes and secured promissory notes at September 30, 2022 and December 31, 2021 are as follows:

Schedule of Secured Notes Payable

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) 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.

The note carries an original issue discount of $44,425 to cover Leonite’s legal fees, accounting fees, due diligence fees and 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, $182,500 principal and $16,215 original issue discount. On September 1, 2020 the Company recorded an additional $310,322, $285,000 principal and $25,322 original issue discount. As of December 31, 2021, the Company has recorded $509,037, consisting of $467,500 for principal and $41,537 as an original issue discount. Furthermore, the Company issued 22,500 shares of common stock valued at $123,390 and a debt-discount related to the warrants valued at $344,110. During the year ended December 31, 2020, Leonite converted $226,839 of convertible promissory note into 126,022 common shares at $1.80 per share. The original value of the convertible note converted was $182,565 as a result the Company recognized a loss of $44,274 on settlement of debt. During the year ended December 31, 2021, Leonite converted its remaining outstanding principal and interest into common shares. Leonite received 204,622 common shares at $1.80 per share valued at $368,319. The original value of the convertible note converted including interest was $325,667. As a result, the Company recognized a loss of $42,651 on settlement of debt. In connection with the settlement, the Company expensed the remaining $148,027 of the original debt discount to interest expense. As of September 30, 2022 and December 31, 2021, the convertible promissory note has been repaid in full.

7. Shareholders’ Equity (Deficit)

During Nine months ended September 30, 2022, the following transactions occurred:

During the nine months ended September 30, 2022, the Company issued 10,000 common shares to a consultant for services received valued at $86,000, of which $66,329 was issued from share subscriptions payable. During the same period the Company issued 80,000 common shares for consulting, advisory services and employee compensation valued at $240,000.

During the nine months ended September 30, 2022 the Company issued 45,000 restricted stock to members of the board valued at $260,100 from share subscriptions payable.

During the nine months ended September 30, 2022, the Company recognized consulting expense of $186,107 to share subscriptions payable from restricted shares and stock options to be issued. As of September 30, 2022, the restricted shares have not been issued.

Refer to note 17 and 18 for additional shareholders’ equity (deficit).

During nine months ended September 30, 2021, the following transactions occurred:

During the nine months ended September 30, 2021, the Company issued a total of 1,502,409 common shares in connection with a Regulation A offering. Of the shares issued, 15,500 common shares valued at $31,200 were from share subscription payable and 750 common shares were cancelled and refunded valued at $1,500. The Company 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 $4,335,908.

During the same period 2,277,171 warrants were exercised for 2,196,416 common shares. As of September 30, 2021 2,190,515 common shares were issued valued at $8,387,758. Subsequent to September 30, 2021 the remaining 5,899 common shares valued at $20,000 were issued.

During the nine months ended September 30, 2021 the Company raised $4,081,980 through private placement offerings of 2,040,990 units for 1 common share and 2 warrants at $2 per unit. As such the Company issued 2,040,990 common shares in connection with the private offering.

During the nine months ended September 30, 2021 the Company entered into a loan settlement agreement with a loan holder to issue 62,006 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, 2021 the Company issued 62,006 common shares.

During the nine 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. As of September 30, 2021 the Company issued 36,048 common shares.

During the nine months ended September 30, 2021 the Company entered into a settlement agreement with the convertible promissory note holder to settle all outstanding principal and interest. The Company issued 204,622 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.

During the nine months 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, 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.

Refer to note 17 for additional shareholders’ equity (deficit) for consulting expense of $37,000 related to warrant issuance.

During the nine months ended September 30, 2021, the Company completed a share consolidation of the Company’s issued and outstanding common shares based on twenty (20) pre-consolidation shares to one (1) post-consolidation share. As a result of the share consolidation, an anti-dilution clause was triggered resulting in the Company issuing 237,500 common shares valued at $86,688.

As of September 30, 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 regard 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 do not have any voting rights. Each share of Series B Preferred Stock has voting rights equal to 10,000 shares of common stock.

8. Related Party Transactions

During the nine months ended September 30, 2022, the Company recorded salaries expense of $231,432 (2021 - $157,899) related to services rendered by the Company by its CEO. During the same period, the Company recorded salaries expense of $192,589 to an officer and director of the Company. As of September 30, 2022 the Company has a payable of $49,646 to the CEO.

During the nine months ended September 30, 2021, the Company paid a director of the Company $50,000 for services rendered from 2015 to 2020.

During the nine months ended September 30, 2021, the Company paid $59,203 to a U.S.-based corporation in which the Company’s CEO and Chairman of the Board is a stockholder.

Refer to note 18 for additional related party transactions.

9. Changes in Cash Flows from Operating Assets and Liabilities

The changes to the Company’s operating assets and liabilities for the nine months ended September 30, 2022 and 2021 are as follows:

 Schedule of Changes in Operating Assets and Liabilities

10. Commitments and contingencies

During the year ended December 31, 2021, the Company entered into an agreement with a third-party advisor to reserve for sale and issuance 15,000 common shares for consulting services at $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 to effect a reverse split of its common stock at the rate of 1-for-20 for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the Nasdaq Stock Market, LLC. The Certificate of Change was submitted to the Nevada Secretary of State on May 21, 2021, and FINRA announced the reverse stock split on August 3, 2021. The reverse stock split took effect in the marketplace 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, 2019, the Company 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 September 30, 2022, the Company had advanced a total of $24,423 and is advancing tranches of capital as required by the Company.

13. Lease Liabilities

During the nine months ended September 30, 2022, the Company entered into a lease agreement for warehouse space to commence on June 1, 2022 and ending on May 31, 2027 with monthly lease payments of $20,808.

During the year ended December 31, 2021, the Company entered into a lease agreement for warehouse space to commence on September 1, 2021 and end on May 31, 2024 with 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 ended on July 31, 2022 with monthly lease payments of $2,221.

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 nine months ended September 30, 2022 and the year ended December 31, 2021 as follows:

Schedule Right-of-use Asset

The components of lease expense are as follows:

Schedule of Components of Lease Expense

Maturities of lease liability are as follows:

Future minimum lease payments as of September 30, 2022,

Schedule of Future Minimum Lease Payments