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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Fiscal Year Ended:
Commission
File No.
(Exact Name of Small Business Issuer as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
Telephone Number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
The
aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, as of June 30, 2021,
the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $
As of March 31, 2022, the Registrant had shares of common stock, par value $0.0001 per share, issued and outstanding.
Table of Contents
In this Annual Report on Form 10-K, unless otherwise stated or as the context otherwise requires, references in this document to “Worksport Ltd.,” “Worksport,” “us,” “we,” “our” or the “Company” refer to Worksport Ltd. and its subsidiaries, Worksport Ltd., Worksport Acquisition Corporation, Worksport USA Holding Corporation, and Terravis Energy, Inc. Our logo and other trademarks or service marks of the Company appearing in this Annual Report on Form 10-K are the property of Worksport Ltd. This Annual Report on Form 10-K also contains registered marks, trademarks, and trade names of other companies. All other trademarks, registered marks, and trade names appearing in this Annual Report on Form 10-K are the property of their respective holders.
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Cautionary Note Regarding Forward-Looking Statements and Industry Data
This Annual Report on Form 10-K, in particular, Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements represent our expectations, beliefs, intentions, or strategies concerning future events, including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy in general, all of which were subject to various risks and uncertainties.
When used in this Annual Report on Form 10-K and other reports, statements, and information we have filed with the Securities and Exchange Commission (“SEC”), in our press releases, presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,” “will,” “expects,” “should,” “continue,” “anticipates,” “intends,” “will likely result,” “estimates,” “projects” or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. These statements are only predictions. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Any or all of our forward-looking statements in this document may turn out to be wrong. Actual events or results may differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties, and other factors.
This Annual Report on Form 10-K also contains estimates, projections, and other information concerning our industry, our business, and particular markets, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, general publications, government data, and similar sources.
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PART I
ITEM 1. BUSINESS
Overview
Worksport Ltd., through its subsidiaries, designs, develops, manufactures, and owns the IP on a variety of tonneau covers, solar integrations, and NP (Non-Parasitic), Hydrogen-based true green energy solutions for the sustainable, clean energy, and automotive industries. Worksport Ltd. seeks to capitalize on the growing shift of consumer mindsets towards clean energy integrations with its proprietary solar solutions, mobile energy storage systems (ESS), and NP (Non-Parasitic), Hydrogen-based technology.
Corporate History
The Company was incorporated in the state of Nevada on April 2, 2003 under the name Franchise Holdings International, Inc. (“FNHI”).
In December 2014, FNHI acquired 100% of the outstanding equity of Worksport Ltd., an Ontario, Canada corporation formed in 2011 (“Worksport Ontario”), pursuant to which Worksport Ontario became a wholly-owned subsidiary of FNHI. Upon acquiring Worksport Ontario, FNHI abandoned all previous business plans and has been focusing on developing the tonneau business.
In May 2020, FNHI changed its name to Worksport Ltd.
Terravis Energy Inc. (“Terravis”) was incorporated in the State of Colorado on May 24, 2021. On August 20, 2021, the Company was issued 100 shares of common stock at par value of $0.0001 per share, representing 100% of the outstanding equity of Terravis. On January 20, 2022, Terravis issued an additional 9,999,900 shares of Common Stock to Worksport Ltd. at a par value of $0.0001, representing 100% of the outstanding equity of Terravis.
Public Offering
On August 6, 2021, the Company consummated an underwritten public offering (the “Public Offering”) of an aggregate of 3,272,727 units, pursuant to a registration statement on Form S-1, as amended (File No. 333-256142) and a registration statement on Form S-1 (File No: 333-258429). The public offering price was $5.50 per unit and each unit consisted of one share of common stock and one warrant (“Public Warrant”) to purchase one share of common stock for $6.05 per share (110% of the unit offering price) from the date of issuance until the third anniversary of the issuance date. The Company received gross proceeds of approximately $18.0 million from the Public Offering, and after deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of approximately $16.1 million. The Company used the net proceeds for Working Capital, RD, Marketing, and Equipment.
Nasdaq Uplisting
In connection with the Public Offering, the Company’s common stock and Public Warrants commenced trading on the Nasdaq Capital Market under the symbols “WKSP” and “WKSPW” since August 4, 2021. Prior to the uplisting, the Company’s common stock was quoted on the OTCQB Marketplace under the symbol, “WKSP.”
Products
We have developed soft vinyl tonneau covers and hard aluminum tonneau covers. Covers are offered in three or four-panel options. Once installed, our tonneau covers latch against the bed of the truck and fold up against the back window of the truck cab.
Our current products include the SC (Soft Cover) line: SC3, SC3pro, and SC4.
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SC3
The SC3 was Worksport’s first product introduced in 2011 and is fitted with a powder coated lightweight aluminum frame and rear cam latches. The tri-fold cover is ultra-violet (UV) protected vinyl tri-layer material that seals around the truck bed with a rubber gasket designed to protect cargo from moisture and debris.
SC3pro
The SC3pro was introduced in 2012 and has been upgraded from the SC3 to include our patented “Smart Latch” system. The SC3pro offers the same features as the SC3; however, the Smart Latch system allows the operator to open the cover by simply pulling a release cable.
SC4
The SC4 began production in 2021 and is expected to launch in Q2 of 2022. We believe that this will be the first vinyl wrapped tonneau cover to fold in four sections. This cover will also allow its users full bed access by being foldable upwards toward the rear window of the truck. This cover will be more compact when folded parallel to the back window of the truck which will reduce wind resistance and rear window obstruction.
Products in Pre-Production
Worksport is currently developing the following products:
TC3
The TC3 is currently in the pre-production stage, estimated to launch in the second quarter of 2022. The TC3 design will fold with three sections, allowing 2/3 bed access. The cover will have one latching point that is manually operated by the user. The cover panels will be made from formed aluminum, ultra-strong 5052 alloy panels with a matte black powder coated surface, for a durable finish.
Like the SC3pro, TC3 will also offer a cable-operated latching system that allows for one-sided operation by the user. Options on the TC3 will include expandable cargo division and storage solutions.
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Worksport: Terravis System
We are currently developing a three-component system called the Terravis System. The Terravis System is a first-of-its-kind mobile power generator energy storage system that consists of a solar tonneau cover called the Worksport SOLIS, a portable core battery called the Worksport COR, and an XCX Accessory Rail – securely fixed to the truck’s bed with use of specially-designed and patented clamps. The XCX system is used to secure the SOLIS tonneau cover using our patented Pro Series latches and can be used to secure additional accessories along with COR energy storage system, COR batteries, and a solar controller.
The Terravis System is capable of charging and storing up to 6kWh of energy on the go. This energy can be used for emergencies, outdoor activities, or work ranging from a contractor to drone operator. The Terravis System’s integrated track systems can be used for a variety of add-on options such as chrome trim, tie downs, cargo cleats, textile storage bags, seating, cargo racks, sliding system and others. Our sales efforts for our Terravis System will be focused on the North American markets, for companies such as Workhorse, Atlis, Bollinger, Hercules, as well as Toyota, Stellantis, GM and Ford trucks.
Worksport SOLIS
The SOLIS Hybrid Solar Tonneau Cover is fitted with cutting edge Monocrystalline solar panels, capable of generating up to 600 watts of power. The SOLIS is based on our Tough Cover framework and can provide up to 10 additional miles for EV pick-up trucks. This is based on a 98kWh battery under optimal conditions at 85% efficiency. Worksport SOLIS uses our TC (tough cover) design and builds on it by integrating highly advanced solar panels. The solar panels are secured to our 16 Gauge 5052 alloy panels both mechanically and using specialized adhesives, and those panels ensure our covers are extremely strong and durable. SOLIS allows current pick-up truck owners to utilize sustainable energy through advanced solar power technology to charge their COR energy storage systems (ESS) and upcoming EVs. While folded over the bed of the truck, the SOLIS is designed to charge power banks and portable batteries, turning any truck into a mobile micro-grid power station.
Worksport COR
The COR ESS (energy storage system) is a standalone product that can use energy created from SOLIS, our solar cover, and utilize the stored energy on the go, anywhere. Worksport COR is the most unique portable battery system on the market today. Not only does COR allow users to swap a depleted battery for a fully charged one, but it does so without a drop in power output for up to 15s with a load of 1800W. These innovations allow COR to go beyond a simple lifestyle product for work and leisure, as it’s a tool that could potentially save a life in the event of an emergency.
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The COR’s main battery, a Lithium Nickel Manganese Oxide (Li-MNC) battery, boasts a capacity of 1534Wh while its Hot Swap Lithium Iron Phosphate (Li-MNC) battery has a capacity of 78.6Wh. The COR’s built-in inverter allows 2000W of power with an output voltage of 120V AC (frequency of 60Hz) and input voltage of 48V. The system allows Bluetooth connection for monitoring and controlling the COR and its external batteries.
Manufacturing
As of December 31, 2021, all Worksport products were manufactured in a facility located in Meizhou, China according to our specifications, schematics and blueprints. We believe that production at the factory can be increased within 30 days to facilitate volumes up to ten times the current output without any adverse effects on quality or craftsmanship.
We are currently in the process of establishing manufacturing presence within North America and are working towards closing on a property in West Seneca, New York. Management and seller are under contract for the property, and management plans to close on the property in April of 2022 barring any unforeseen problems or delays. Management believes that having manufacturing capability in North America will increase quality control and production efficiency as well as lower landed costs.
Intellectual Property
The Company currently holds a broad collection of intellectual property rights relating to certain aspects of its parts and accessories, and services. This includes patents, trademarks, service marks, and trade secrets. Although the Company believes the ownership of such intellectual property rights is an important factor in its business and that its success does depend in part on such ownership, the Company relies primarily on the innovative skills, technical competence and marketing abilities of its personnel.
Patents
Our current intellectual portfolio consists of five (5) issued U.S. utility patents, one (1) issued Canadian utility patent, and twenty (20) pending patent applications: four (4) U.S. utility applications, seven (7) U.S. provisional applications, seven (7) U.S. design applications, and two (2) Canadian utility applications. We also in the process of preparing several other provisional and design patent applications.
Granted U.S. patents will expire between 2032 and 2036, excluding any patent term adjustment that might be available following the grant of the patent. If issued, pending applications would expire in 2041, excluding any patent term adjustment that might be available following the grant of the patent. Patents issued on the provisional applications, if any, would expire in 2042, excluding any patent term adjustment that might be available following the grant of the patent.
All patents issued to our Chief Executive Officer, Steven Rossi, have been assigned to the Company or will be assigned to the Company upon being issued by the USPTO.
Trademarks
The Company has twenty-eight (28) trademarks in various states of pending, registered and allowed in the United States, Canada, China, European Union, Australia, New Zealand, and United Kingdom.
Governmental Programs, Incentives and Regulations
Globally, both the operation of our business by us and the ownership of our products by our customers are impacted by various government programs, incentives and other arrangements. Our business and products are also subject to numerous governmental regulations that vary among jurisdictions.
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Programs and Incentives
We are in the process of applying for several sales tax, energy, and mortgage incentives, each containing their own sets of guidelines and agreements by which we must abide in order to continue receiving said incentives. While we are not currently bound by these agreements, we expect these agreements to take effect in 2022.
Regulations
Our portable power station (Worksport COR) is subject to various U.S. and international regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, which may present a risk in transportation. We plan to conduct testing to demonstrate our compliance with such regulations.
We use lithium-ion cells in our energy storage products. The use, storage and disposal of our battery packs are regulated under existing laws and are the subject of ongoing regulatory changes that may add additional requirements in the future.
The Market
Our revenue is directly proportional to sales of pickup trucks. The following chart using SEMA1 data from 2021 shows sales of specialty equipment retail sales of aftermarket automotive accessories in the United States in billions from 2014, through 2020 and estimates those sales into 2024.
| 1. | SEMA. Automotive Specialty-Equipment Retail Sales Reach New High. Retrieved from www.sema.org |
This current growth trend is fueled by a decade average of strong overall economic performance, including an ongoing decade average decline in unemployment and growth in consumer spending. A strong economy paired with rising consumer confidence suggest that consumers are willing to spend capital on discretionary items, such as specialty automotive parts. While new vehicle sales have leveled off, they still remain at near-record highs—close to 15 million per year. Recently announced tariffs on imported steel, aluminum, etc. and other policy changes could affect the economy and the automotive industry, however, demand continues to remain strong for new pickup trucks in North America.
The Statista Market Outlook suggests that pickup trucks will continue to be the number one selling vehicle in North America. Pickup truck upgrades are the largest sector of the specialty equipment industry, accounting for 27% of total retail dollars (about $12.03 Billion). In the United States alone, there are over 158.6 million registered light trucks. Despite the growth of crossover vehicles (CUV) overall, full-size pickups remain the most common vehicle subtype on the road today. This is likely driven by the continued popularity of domestic half-ton pickups (e.g., Ford F-150, Chevrolet Silverado, Ram 1500) throughout the United States, especially in the U.S. southern states. Further, in 2021, roughly 75% of vehicles sold in the USA were light trucks.
While there is increasing interest in electrification by automakers, less than 1% of light vehicles are electrified thus far. This will be the decade where mass adoption takes place. The electric pickup truck market is very promising. Under the push of EV’s worldwide and legal policies in states like California banning non-eco truck sales by 2035, we believe that a sizable amount of customers will be looking to purchase and upgrade to newer trucks. EV pickup truck sales are suggested to grow at a 58% change of annual growth rate (CAGR) between 2020 and 2030.
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Of the roughly 56 million pickups in the United States today, nearly 60% of them are either GM Full-Size or Ford F-Series, and account for almost 12% of all vehicles on the road. The Ram Pickup is third. All three brands are ideal target markets for our products.
2021 New Pickup Truck Sales in the United States by Month (All Models)
With 2021 year-end sales of approximately 726,000 units, the Ford F-Series was the best-selling light truck in the United States1. The Ford F-Series is a series of full-size pickup trucks, the most popular variant being the F-1501. The 14th generation of this model was released in 2020.
Pickup truck sales growth in the U.S. decreased in 2021 compared with 2020. U.S. pickup truck sales came to around 2.84 million units in 20212, compared to 2.96 million units in 20203. This decline is largely attributed to chip shortages causing a decrease in trucks manufactured. With the exception of Toyota pickups, light trucks built by U.S.-based automakers continue to be favorites among U.S. vehicle buyers.
| 1. | Statista, Inc. The best-selling light trucks in the United States in 2021. Retrieved from www.statista.com. | |
| 2. | GOODCARBADCAR. 2021 U.S Pickup Truck Sales Analysis. Retrieved from goodcarbadcar.net | |
| 3. | GOODCARBADCAR. 2020 U.S Pickup Truck Sales Analysis. Retrieved from goodcarbadcar.net |
Distribution
We distribute our tonneau covers through wholesalers, private labels, distributors, and online retail channels in Canada and the United States. We will provide our tonneau covers through Original Equipment Manufacturers and our own eCommerce platform.
The specialty equipment (aftermarket) consists of three major types of customers, which include master warehouse distributors, dealers and wholesalers, and retail end consumers. Master warehouse distributors stock and distribute products to their customers, which are usually local dealers and wholesalers. Dealers and wholesalers are local stores which sell products to some businesses and retail consumers in their area and online. Dealers purchase most of their products from their local distributor who deliver to them regularly. Retail end consumers are simply the end users of the products.
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Competition
In our estimation, for many years, consumers looking to purchase tonneau covers have had a limited number of options available, mostly including:
Soft Folding Roll-up covers (Vinyl covers);
Solid one piece caps and lids (Plastic Fiberglass);
Retractable Covers (Plastic Aluminum); and
Hard Folding Standing Covers (Aluminum and FRP).
Solid one piece covers and retractable covers are the least desirable because of their limited functionality and overall cost. We believe that consumers want a less cumbersome tonneau cover with high functionality and at a lower cost.
That is why the most popular covers in today’s market are soft and hard folding/rolling tonneau covers, and the biggest growth opportunity in the tonneau cover market is the aggressively priced hard folding tonneau cover market niche.
Our largest competitor is Truck Hero, which has acquired upwards of 16 independent tonneau cover brands in North America. Truck Hero’s products directly compete with our products. Our other competitors include LEER, Access, Truck Covers USA and Paragon.
We believe that by being independent, aggressively priced, innovative, and operationally sound, we will be able to grow revenues with minimal sales effort while continuing to develop our relationships with our larger clients.
Furthermore, we believe our Company is currently the only independent Business-to-Business (B2B) producer of tonneau covers in the United States and Canada that does not yet sell directly to customers (B2C). Worksport believes that we can expand our current customer base throughout our current and future markets and intends to enter various B2C channels to boost sales of new products.
The Company plans to expand to other markets outside the United States and Canada. We intend to generate revenue in new markets including but not limited to the automotive specialty equipment market and global Original Equipment Manufacturers.
Our goal is to become the leader in the tonneau cover market through innovation. Our main objective is to design and engineer our products to better suit today’s new, dynamic, and innovative models of light trucks and electric trucks, whether that be through Worksport’s Terravis System or through innovations within its subsidiary, Terravis Energy, Inc.
Research and Development
We will spend for research and development activities on an ongoing basis. The company is actively acquiring new engineering and design assets, both in-house and third-party. The Company’s subsidiary, Terravis Energy, Inc., researches green energy solutions for home and community power as well as Electric Vehicle DC charging. Much of the Company’s research and development is focused on hydrogen fuel cell power, which serves as a strong basis for grid-independent power solutions.
Environmental Compliance
We are committed to high environmental standards and carry out our activities and operations in compliance with all relevant and applicable environmental regulations and best industry practices. Costs of environmental regulatory compliance are not expected to be significant.
Employees
We currently employ eleven full-time employees, including our Chief Executive Officer. We intend to hire additional employees as our operations grow. We rely on independent contractors for additional labor, as needed.
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Executive Offices
Our principal business address and RD facility is located at 7299 E Danbro Crescent, Mississauga, ON L5N 6P8, Canada while our secondary business address is 3120 Rutherford Road, Suite 414, Vaughan, ON L4K 0B2, Canada.
Our main telephone number is (888) 554-8789. Our main website is www.worksport.com and our website for Terravis is www.goterravis.com. The contents of our websites are not incorporated by reference into this annual report.
ITEM 1A. RISK FACTORS
As a “smaller reporting company,” are not required to provide the information required by this Item 1A.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease approximately 2,155 square feet for our secondary executive offices located at 3120 Rutherford Road, Suite 414, Vaughan, ON L4K 0B2, Canada pursuant to a three year lease, dated August 1, 2019 for approximately $1,712.09 USD per month. This office has been used as our primary mailing address, although this may change as we settle into our other properties. While this office meets our current needs, we may not need it once the lease expires.
We additionally have a three year lease for approximately 55,000 square feet for RD space and additional offices located at 7299 E Danbro Crescent, Mississauga, ON L5N 6P8, Canada pursuant to a three year lease, dated April 16, 2021 and terminating on May 31st of 2024 for approximately $21,300 USD per month. This facility is being used primarily for RD purposes as well as corporate offices. This facility meets our RD needs.
We are in the process of purchasing an approximately 222,000 square foot facility located at 2500 N America Dr., West Seneca, NY 14224 to serve as our new OEM manufacturing facility. This facility includes a current tenant to whom we will continue leasing 35,000 square feet for $22,000 USD per month. This facility meets our OEM manufacturing needs both now and in future years, as the facility contains ample space in which to grow.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in lawsuits, claims, investigations, and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. We are not presently a party to any material pending or threatened legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock and Public Warrants commenced trading on the Nasdaq Capital Markets under the symbols “WKSP” and “WKSPW,” respectively, on August 4, 2021. Prior to trading on Nasdaq, our common stock was quoted on the OTCQB Market under the symbol “WKSP.”
The table below sets forth the high and low closing prices of the Company’s Common Stock during the years indicated. The quotations reflect inter-dealer prices without retail mark-up, markdown or commission and may not reflect actual transactions.
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| First Quarter | $ | 12.190 | $ | 2.560 | $ | 8.550 | $ | 0.540 | ||||||||
| Second Quarter | $ | 13.130 | $ | 4.520 | $ | 2.490 | $ | 1.398 | ||||||||
| Third Quarter | $ | 10.894 | $ | 4.320 | $ | 8.100 | $ | 1.370 | ||||||||
| Fourth Quarter | $ | 5.960 | $ | 2.420 | $ | 4.385 | $ | 2.434 | ||||||||
Holders of Common Stock
On December 31, 2021, there were 189 holders of record of our common stock.
Stock Transfer Agent
Our transfer agent is Vstock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598. Their telephone number is (212) 828-8436.
Dividend Policy
We have never paid any cash dividends on our common stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, and other factors that our Board deems relevant. In addition, the terms of any future debt or credit financings may preclude us from paying dividends.
Equity Incentive Plans
In July 2015, the Board of Directors and stockholders adopted the Company’s 2015 Equity Incentive Plan (the “2015 Plan”), effective as of July 5, 2015. The 2015 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2015 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock.
On March 31, 2021, the Board of Directors and majority stockholder adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2021 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock. The Board reserved 1,250,000 shares of Common Stock issuable upon the grant of awards under the 2021 Plan.
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Unregistered Sales of Equity Securities
| ● | 20,000 Common Shares issued to TraDigital Marketing Group, LLC on September 27, 2021 for stock marketing services rendered per agreement signed on March 12, 2021 | |
| ● | 100,000 Common Shares issued to Frank Bernaudo on September 29, 2021 for capital market consulting services rendered per agreement signed on January 15, 2021 | |
| ● | 50,000 Common Shares issued to Steelbase Ltd on September 29, 2021 for broad consulting services rendered per agreement signed on August 30, 2021 | |
| ● | 250,000 Common Shares issued to Wesley van de Wiel on September 29, 2021 for CRM consulting services rendered per agreement signed on February 15, 2021 | |
| ● | 700,000 Common Shares issued to AI Media Data LLC on September 29, 2021 for digital marketing and investor relations services rendered per agreement signed on September 1, 2021 | |
| ● | 400,000 Common Shares subject to Stock Option issued to AI Media Data LLC on September 1, 2021 and vesting 25% every six months from effective date with expiration set at September 1, 2026 for digital marketing services rendered per agreement signed on September 1, 2021 | |
| ● | 75,000 Common Shares issued to Danbro Tool Die Inc. and on April 14, 2021. |
ITEM 6. [RESERVED].
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this report.
COVID-19
The outbreak of the coronavirus, specifically identified as “COVID-19,” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak 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 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.
| 13 |
Business Overview
Inflation
In an inflationary economy, Worksport benefits from debt financing. While Worksport ended December 31, 2021 with little to no long term debt, Worksport is currently in the process of securing a mortgage for its West Seneca production facility. Worksport has the benefit of mortgaging the facility in a low interest rate environment – locking in a lower rate – while also benefiting from the lower real cost of mortgage payments in an inflationary environment.
Such an inflationary environment also increases Worksport’s costs, however. These costs include direct costs such as the cost of raw goods or processed goods for its OEM manufacturing as well as indirect costs such as overhead and rent. Due to these forecasted price increases and the high increases in ocean freight and container handling costs as a result of 2021 supply chain issues, Worksport has updated its product pricing for 2022.
Gasoline Prices and Supply Chain Issues
Worksport has faced significantly higher ocean freight, trucking, and container handling costs in 2021 than it did in previous years. Further, last mile delivery costs have recently increased – all of which have increased the Company’s products’ landed costs. This more recent rise in gasoline prices has worsened these costs, and the Company is operating under the assumption these higher costs will remain throughout 2022.
Worksport’s transition towards Made in America manufacturing will largely offset these higher costs, as the Company will be less exposed to higher international shipping costs. Worksport is also identifying North American suppliers of its products’ components and will prioritize transport by rail when possible to avoid high trucking costs.
Rising Popularity of Electric Vehicles
Electric Vehicles (EVs) have been exponentially increasing in consumer interest, whether that interest take the form of vehicle pre-orders, sales, or investments. As Worksport begins marketing its Terravis SOLIS and COR, the Company plans to market the SOLIS as a must-have accessory for electric light duty vehicle owners while simultaneously riding the coattails of EV popularity to promote its other products (COR and conventional tonneau covers) to the very large population of Americans that have an interest in EVs without the funds to purchase them. Further, participating in the EV space allows the Company to target consumers with an interest in cutting-edge technologies – a great market to which to promote its COR.
Regulatory Environment Favoring Electric Vehicles
The Build Back Better Bill was a strong indication of upcoming and favorable USA regulations. Any regulation that improves North America’s Electric Vehicle (EV) charging infrastructure or provide grants to businesses operating in the EV space will benefit Worksport. While the Company is primarily focused on the light duty vehicle market, it is the only existing participant in the electric-specific, light duty vehicle aftermarket accessories market and, therefore, is positioned to benefit greatly from any bill that increases the prevalence of electric light duty vehicles.
Limited Competitive Landscape
Worksport’s conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, making them strong and competitive products in an otherwise consolidated and saturated market. The Terravis COR, however, operates in a much wider yet unsaturated market. The global Portable Power Station market is quickly growing, and the competitive landscape is far from consolidated. The solar tonneau cover market is in its infancy, and it’s a market in which the Company has first-mover advantage. To ensure it does not fall behind future competitors, the Company is highly focused on protecting its intellectual property both domestically and abroad.
| 14 |
Results of Operations
Revenue
For the year ended December 31, 2021, revenues from the entire line of Worksport products were $303,750, as compared to $346,144 for the year ended, December 31, 2020. The year over year sales decreased by approximately 12% due to 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 repositions to domestic manufacturing.
For the year ended December 31, 2021, revenue generated in Canada was $40,683, as compared to $28,917 for the same period in 2020, an increase of 41%. For the year ended December 31, 2021, revenue generated in the United States was $263,067, compared to $317,227 for the same period in 2020. This represents a decrease in US-source revenue of approximately 17% year-over-year. 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 repositions to domestic manufacturing. In addition, increase cost of shipping and delivery as a result of supply chain disruption, gas prices and inflation contributing to overall sales decrease for fiscal 2021.
Sales from online retailers of the Worksport products decreased from $337,053 in 2020 to $263,116 in 2021, a decrease of 22%. Online retailers accounted for 87% of total revenue for the year ended December 31, 2021, compared to 90% for the year ended December 31, 2020. Distributor sales increased for the year ended December 31, 2021 compared with the year ended December 31, 2020 with sales of $40,349 and $29,699, respectively. Worksport expects to continue to grow its fields of business as it develops unique and non-competing products to offer to other prospective clients in the US and Canadian markets.
Currently, Worksport works closely with one distributor in Canada, along with its own contracted distribution and inventory facility in Breinigsville, PA and Depew, NY. This does not include multiple independent online retailers.
Although Worksport currently supports a total of nine dealers and distributors, Worksport will return to a focus on online sales with new inventory being received in the US market for 2021. Worksport continues to believe the trend of increasing sales through online retailers will continue to outpace the traditional distribution business model. Moreover, reputable online retailers’ customers tend to provide larger sales volumes, greater margin of profit, and greater protection against price erosion.
Cost of Sales
Cost of sales increased by 17%, from $298,996 for the year ended December 31, 2020 to $350,702 for the year ended December 31, 2021. The Company’s cost of sales, as a percentage of sales, was approximately 115% and 86% for the years ended December 31, 2021 and 2020, respectively. The increase in percentage of sales resulted in a gross margin decrease from 14% for the year ended December 31, 2020 to negative 15% for the year ended December 31, 2021. The increase in cost of sales as a percentage of sales and decrease in gross margin was primarily due to increased cost associated with acquiring and selling inventory translating to increased cost of sales for the year ended December 31, 2021, compared to the prior year.
Within cost of sales, shipping and freight costs accounted for 79% of cost of sales during the year ended December 31, 2021, whereas in 2020, it accounted for 28% of cost of sales. This increase is primarily attributed to an increase in international shipping expense due to supply chain issues and rising oil prices as well as increase in sales volume resulting in higher overall shipping and freight cost.
Worksport provides its distributors and online retailers an “all-in” wholesale price. This includes any import duty charges, taxes and shipping charges. Discounts are applied if the distributor or retailer chooses to use their own shipping process. Certain exceptions apply on rare occasions where product is shipped outside the contiguous United Sates or from the United States to Canada. Volume discounts are also offered to certain higher volume customers. Worksport also offers a “dock price” or “pickup program,” where clients are able to pick up product directly from one of Worksport stocking warehouses.
| 15 |
Operating Expenses
Operating expenses increased for year ended December 31, 2021 by $6,481,392, from $1,033,387 for the fiscal year ended December 31, 2020 to $7,514,779 for the fiscal year ended December 31, 2021, due to the following factors.
| ● | General and administrative expense increased by $1,653,309 from $201,929 for 2020 to $1,855,238 for 2021. 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 $1,238,684, from $148,008 for 2020 to $1,386,692 for 2021. The increase in sales and marketing is a result of building brand and product awareness. | |
| ● | Professional fees which include accounting, legal and consulting fees, increased from $679,654 in 2020 to $4,268,684 in 2021. The increase was due to the employment of various third-party consultants to help expand the Company’s business operations and in connection with the Company’s underwritten public offering of common stock and warrants in August 2021. | |
| ● | The Company realized a loss on foreign exchange of $4,165 during 2021, an increase of $369 compared to $3,796 during 2020. |
Other Income and Expenses
Other income and expenses for the year ended December 31, 2021 was $335,354, compared to $201,381 the prior year, representing an increase of $133,973. The difference can be attributed to the Company recognizing a gain on settlement of debt in the prior year and recognition of bad debt for 2021.
Net Loss
Net loss for the year ended December 31, 2021 was $7,897,085, compared to a net loss of $1,187,620 for the year ended December 31, 2020, an increase of 565%. 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.
Liquidity and Capital Resources
As of December 31, 2021, the Company had $28,567,333 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 December 31, 2021 the Company had an accumulated deficit of $20,849,805.
To date, the Company’s principal sources of liquidity consisted net proceeds from public and private securities offerings and cash exercises of outstanding warrants. During the year ended December 31, 2021 the Company received $32,852,630 of proceeds from public offerings, private placement offering and exercises of warrants net of share issuance costs. During the year ended December 31, 2021, the Company made repayments of $62,905 of promissory notes. The Company believes its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements.
Based on current internal projections, the Company believes it has and/or will generate sufficient cash for its operational needs, for at least one year from the date of issuance of the accompanying consolidated financial statements. Management is focused on growing the Company’s existing product offerings, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying consolidated financial statements.
Public Underwritten Offering
On August 6, 2021, the Company consummated an underwritten public offering (the “Public Offering”) of an aggregate of 3,272,727 units, pursuant to a registration statement on Form S-1, as amended (File No. 333-256142) and a registration statement on Form S-1 (File No: 333-258429). The public offering price was $5.50 per unit and each unit consisted of one share of common stock and one warrant (“Public Warrant”) to purchase one share of common stock for $6.05 per share (110% of the unit offering price) from the date of issuance until the third anniversary of the issuance date. The Company received gross proceeds of approximately $18.0 million from the Public Offering, and after deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of approximately $16.1 million. The Company used the net proceeds for Working Capital, RD, Marketing, and Equipment.
| 16 |
Regulation A+ Offering
During the years ended December 31, 2020 and 2021, the Company sold 497,590 and 1,502,410 units respectively, $2.00 per unit in a Reg A/Tier 2 public offering pursuant to a Form 1-A (File No: 24-11271) qualified by the Securities and Exchange Commission on November 9, 2020 (the “Reg A Offering”). Each unit consisted of one share of common stock and one warrant to purchase one share of common stock for $4.00 per share during the 12 months following the date of issuance. The gross proceeds from the sale of units were $3,048,199. As of December 31, 2021, the Company received $7,104,090 from the exercise of 1,776,023 warrants.
Rule 506(b)/Reg D Private Placement
During 2021, the Company sold an aggregate of 2,040,990 units on the same terms as the units sold in the Reg A Offering in a private placement under Section 4(a)(2) and/or Rule 506(b) of Regulation D under the Securities Act. Each unit consisted of one share of common stock and two warrants to purchase two shares of common stock for $4.00 per share during the 16 months following the date of issuance. The gross proceeds from the sale of units in the private placement were $4,081,980. As of the date of this annual report, 700,000 warrants sold in the private offering have been exercised on a cashless basis.
Cash Flow Activities
Cash increased from $1,107,812 at December 31, 2020 to $28,567,333 at December 31, 2021, an increase of $27,459,521 or 2.487%. The increase in cash was primarily due to warrants exercises, public offerings and private placement offerings which generated of approximately $32,000,000.
As of December 31, 2021, the Company had current assets of $34,032,005 (2020 - $1,684,764) and current liabilities of $1,796,789 (2020 – $1,718,053). As of December 31, 2021, Company had working capital of $32,235,216 (2020 – working capital deficiency of $33,289) and an accumulated deficit of $20,849,805 (2020 - $12,866,033)
Operating Activities
Net cash used by operating activities for the year ended December 31, 2021 was $4,046,705, compared to $695,112 in the prior year, primarily driven by a larger net loss in 2021 and partially offset by the issuance of shares, options, and warrants for services. In addition, the following contributed to the balance of net cash used in operating activities:
Accounts receivable increased at December 31, 2020 by $119,813 and December 31, 2021 by $2,228, which reduced cashflow from operations to their respective years
Other receivables increased at December 31, 2021 by $16,883 and by $121,396 in the prior year due to the Company’s increases in sales tax refund to be received in future periods.
Inventory decreased at December 31, 2020 by $72,353 and increased at December 31, 2021 by $460,969. Prepaid expenses increased by $382,067 at December 31, 2021 and decreased at December 31, 2020 by $43,201, due to increased consulting and marketing expenditures during the year ended December 31, 2021.
Accounts payable and accrued liabilities increased at December 31, 2021 and decreased at December 31, 2020 by $187,510 and $59,284 respectively.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2021 was $1,131,735 compared to $16,727 in the prior year. The increase in investing activities was primarily due to the purchase of property and equipment of $1,101,784 and intangible assets of $29,951.
| 17 |
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2021 was $32,637,961 compared to $1,807,657 in the prior year. During the year ended December 31, 2021 the Company received $32,852,630 of proceeds from public offerings, private placement offering and exercises of warrants net of share issuance cost. During the year ended December 31, 2021 the Company made repayment of $62,905 of promissory notes.
Off-Balance Sheet Arrangements
None
Critical Accounting Policies
Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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 3 to our financial statements as included in this annual report. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information in this Item.
| 18 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
| 19 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of Worksport, LTD (formerly Franchise Holdings International, Inc.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Worksport, LTD (the Company) as of December 31, 2021, and 2020, and the related statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters (CAM) communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Equity Transactions and Conversion of Debt Securities
As discussed in Note 8, 9, 10, and 22 to the financial statements, the Company has issued a significant amount of equity securities, many of which were issued to settle its promissory notes and convertible notes payable. Many of the notes are issued with original issuance discounts and with warrants which are valued and recorded as a discount to the notes. The tracking of these transactions can be complicated and require management to estimate the value of equity securities using a Black Sholes option pricing model.
We identified the fair market value of debt and equity transactions and related conversions to be a critical audit matter. The calculations can be complex and subject to error.
To address this critical audit matter, we gained an understanding of Management’s process to record the equity and debt transactions. We obtained their calculations and tested its clerical accuracy and the inputs. We agreed the basic terms to source agreements and considered key assumptions. Finally, we recalculated the recorded values and conversion amounts.
/s/
|
|
| March 31, 2021 |
We have served as the Company’s auditor since 2016.
| 20 |
Worksport Ltd.
Consolidated Balance Sheets
December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable net | ||||||||
| Other receivable | ||||||||
| Inventory (note 4) | ||||||||
| Prepaid expenses and deposits | ||||||||
| Total Current Assets | ||||||||
| Investment (note 17) | ||||||||
| Property and Equipment, net (note 5) | ||||||||
| Right-of-use asset, net (note 18) | ||||||||
| Intangible Assets, net (note 6) | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Payroll taxes payable | ||||||||
| Related party loan (note 11) | ||||||||
| Promissory notes payable (note 8) | ||||||||
| Convertible promissory note, net (note 9) | - | |||||||
| Loan payable (note 19) | ||||||||
| Current lease liability (note 18) | ||||||||
| Total Current Liabilities | ||||||||
| Long Term – Lease Liability (note 18) | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity (Deficit) | ||||||||
| Series A B Preferred Stock, $ par value, shares authorized, Series A and Series B issued and outstanding, respectively (note 10) | - | |||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively (note 10) | ||||||||
| Additional paid-in capital | ||||||||
| Share subscriptions receivable | ( | ) | ( | ) | ||||
| Share subscriptions payable | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Cumulative translation adjustment | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity (Deficit) | ||||||||
| Total Liabilities and Shareholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes form an integral part of these consolidated financial statements.
| 21 |
Worksport Ltd.
Consolidated Statements of Operations and Comprehensive Loss
December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Net Sales | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross Profit (Loss) | ( | ) | ||||||
| Operating Expenses | ||||||||
| General and administrative | ||||||||
| Sales and marketing (including non-cash expense of 2021 - $ | ||||||||
| Professional fees (including non-cash expense of 2021 - $ | ||||||||
| Loss on foreign exchange | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | |||||
| Other Income (Expense) | ||||||||
| Interest expense (note 9) | ( | ) | ( | ) | ||||
| Interest income | - | |||||||
| Bad debt expense | ( | ) | - | |||||
| Gain on settlement of debt | ||||||||
| Total other (expense) | ( | ) | ( | ) | ||||
| Net Loss | ( | ) | ( | ) | ||||
| Loss per Share (basic and diluted) | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Shares (basic and diluted) | ||||||||
The accompanying notes form an integral part of these consolidated financial statements
| 22 |
Worksport Ltd.
Consolidated Statements of Shareholders’ Deficit
December 31, 2021 and 2020
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Issuance for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Issuance for prepaid services and subscriptions payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance from subscriptions payable | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of shares from Reg-A | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Share issuance cost | - | - | - | - | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of reserved shares | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| Warrants issuance for services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Conversion of convertible promissory note to shares (note 9 and 22) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Warrants issuance in connection to convertible promissory note (note 9 and 22) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Share issuance in connection to convertible promissory note (note 9) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Issuance of Preferred Stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock split provision | - | - | - | ( | ) | - | - | |||||||||||||||||||||||||||||||||
| Conversion of preferred stock to common stock | ( | ) | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Public offering | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||
| Share issuance cost | - | - | - | - | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||
| Issuance of shares from private placement | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Warrants issuance for services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Conversion of convertible promissory note to shares (note 9) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Warrant exercise (note 22) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Loan repayment (note 8 and 19) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements
| 23 |
Worksport Ltd.
Consolidated Statements of Cash Flows
December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Bad debt expense | - | |||||||
| Shares, options and warrants issued for services | ||||||||
| Depreciation and amortization | ||||||||
| Interest on lease liability | ||||||||
| Wages and salaries | - | |||||||
| Accrued interest | ||||||||
| Amortization on OID interest | ||||||||
| Gain/(loss) on settlement of debt | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Changes in operating assets and liabilities (note 14) | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of investment (note 18) | - | ( | ) | |||||
| Purchase of intangible assets | ( | ) | - | |||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Repayment of lease liability | ( | ) | ( | ) | ||||
| Proceeds from issuance of common shares, net of issuance cost | ||||||||
| Proceeds from warrant exercise | - | |||||||
| Proceeds from share subscriptions | - | |||||||
| Proceeds from loan payable | - | |||||||
| Proceeds from promissory notes | - | |||||||
| Shareholder Assumption of Debt | ( | ) | ||||||
| Repayments on loan payable | ( | ) | - | |||||
| Repayments on promissory notes (note 9) | - | ( | ) | |||||
| Net cash provided by financing activities | ||||||||
| Change in cash | ||||||||
| Cash and cash equivalents - beginning of year | ||||||||
| Cash and cash equivalents end of year | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Supplemental Disclosure of non-cash activities | ||||||||
Shares issued for purchase of software | $ | $ | ||||||
| Shares and warrants issued to service providers and prepaid services expense | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| Conversion of preferred Stock to common stock | $ | $ | ||||||
| Shares issued for share subscriptions payable | $ | $ | ||||||
| Shares issued for loan repayment | $ | $ | ||||||
| Conversion of convertible promissory note to common stock | $ | $ | ||||||
| Convertible promissory note – equity discount | $ | $ | ||||||
| Convertible promissory note – original issue discount | $ | $ | ||||||
| Stock split provision | $ | $ | ||||||
| Reverse stock split | $ | $ | ||||||
The accompanying notes form an integral part of these consolidated financial statements.
| 24 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
1. Nature of Operations and Reverse Acquisition Transaction
Worksport Ltd. (the “Company”) was incorporated in the State of Nevada on April 2, 2003. During the year ended December 31, 2014, the Company completed a reverse acquisition transaction (the “Reverse Acquisition”) with TruXmart Ltd. (“TruXmart”). On May 2, 2018, Truxmart legally changed its name to Worksport Ltd. (“Worksport”). Worksport designs and distributes truck tonneau covers in Canada and the United States. on May 5, 2021 Terravis Energy Inc. was incorporated in the State of Colorado. On August 20, 2021, the Company was issued common shares at par value of $per share for a controlling interest in Terravis Energy, Inc.
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
2. Basis of Presentation and Business Condition
a) Statement of Compliance
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as issued by the Financial Accounting Standards Board (“FASB”).
b) Basis of Measurement
The Company’s financial statements have been prepared on the accrual basis.
c) Consolidation
The Company’s consolidated financial statements consolidate the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions, balances and unrealized gains or losses from intercompany transactions have been eliminated upon consolidation.
d) Functional and Presentation Currency
These consolidated financial statements are presented in United States Dollars. 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 Dollar were converted to United States Dollar 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 and comprehensive loss.
e) Use of Estimates
The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
f) 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 December 31, 2021, the Company had working capital of $
During
the year ended December 31, 2021 the Company through its Reg-A public offering, private placement offering, unwritten public offering
and exercises of warrants had raised in aggregate of approximately $
Based
on the Company’s future operating plans, existing cash of $
| 25 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
2. Basis of Presentation and Business Condition (continued)
g) Reclassification
Certain
amounts in the prior period Consolidated Statements of Cash Flows for the year ended December 31, 2020 have been reclassified to conform
with current period presentation. The Company reclassified $
3. Significant Accounting Policies
Cash and Cash Equivalents - Cash and cash equivalents includes cash on account and demand deposits with maturities of three months or less.
Receivables - Trade accounts receivable are stated at the amount the Company expects to collect. Receivables are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, allowances may be required.
The
Company offers credit terms on the sale of the Company’s products to a significant majority of the Company’s customers and
requires no collateral from these customers. The Company performs ongoing credit evaluations of customers’ financial condition
and maintains an allowance for doubtful accounts receivable based upon the Company’s historical experience and a specific review
or accounts receivable at the end of each period. As at December 31, 2021 and 2020, the Company had
Inventory - Inventory is stated at the lower of cost or net realizable value, with cost being determined by a weighted average basis. Cost includes the cost of materials plus direct labor applied to the product.
Warranties - The Company offers limited warranties against defective products. Customers who are not satisfied with their purchase may attempt to have their purchases reimbursed outside past the warranty period.
Revenue Recognition – In accordance with ASC 606 Revenue from Contracts with Customers, sales are recognized when products are shipped, with no right of return but reimbursement maybe offered for defective products and the title and risk of loss has passed to unaffiliated customers or when they are delivered based on the terms of the sale, there is an identifiable contract with a customer with defined performance obligations, the transaction price is determinable, and the entity has fulfilled its performance obligation. Revenue related to shipping and handling costs billed to customers is included in net sales and the related shipping and handling costs are included in cost of products sold.
Property and Equipment - Capital assets are recorded at cost and are depreciated using the straight-line method over the following estimated useful lives:
| Furniture and equipment | |
| Automobile | |
| Computers | |
| Patents | |
| Leasehold improvements |
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or performance completion date.
Income Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income, and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities.
| 26 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
3. Significant Accounting Policies (continued)
Foreign Currency Translation - Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using at the historical exchange rates in effect at the dates of the transactions. All exchange gains and losses are included in the statement of operations and comprehensive loss.
Financial Instruments - Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 825, Disclosures about Fair Value of Financial Instruments, requires disclosures of the fair value of financial instruments. The carrying value of the Company’s current financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and shareholder loan, approximates their fair values because of the short-term maturities of these instruments.
Measurement - The Company initially measures its financial instrument at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for investments in equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in earnings for the period in which they occur.
Financial assets measured at amortized cost include cash and cash equivalents, accounts receivable, related party receivable, other receivables and share subscriptions receivable. Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, and promissory note payable.
Related Party Transactions - All transactions with related parties are in the normal course of operations and are measured at the exchange amount.
Intangible
Assets and Impairment – Patents and other intangibles are amortized using the straight-line method over their estimated useful
lives. Intangible assets, such as trademarks with indefinite live are not amortized. Intangible assets are evaluated for impairment at
least annually or when events or circumstances arise that indicate the existence of impairment. The Company evaluates the recoverability
of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount
may not be recoverable. When indicators of impairment exist, the Company measures the carrying amount of the asset against the estimated
undiscounted future cash flows associated with it. Should the sum of the expected future cash flows be less than the carrying value of
the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the
carrying value of the asset exceeds its fair value. The evaluation of asset impairment requires the Company to make assumptions about
future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ
from assumed and estimated amounts. During the years ended December 31, 2021 and 2020, the Company had
Lease Accounting - On January 1, 2019, the Company adopted the new accounting standards ASC 842 that requires lessees to recognize operating leases on the balance sheet as right-of-use assets and lease liabilities based on the value of the discounted future lease payments. Expanded disclosures about the nature and terms of lease agreements are required prospectively and are included in Note 18.
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. Management is currently evaluating the impact the adoption of this new guidance will have on its consolidated financial statements and does not anticipate a material impact.
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application. Management is currently evaluating the impact the adoption of this new guidance will have on its consolidated financial statements and does not anticipate a material impact.
| 27 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
4. Inventory
Inventory consists of the following at December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Finished goods | $ | $ | ||||||
| Promotional items | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
5. Property and Equipment
Major classes of property and equipment at December 31, 2021 and 2020 are as follows:
| 2021 | ||||||||||||||||||||||||||||
| Equipment | Furniture | Product molds | Computers | Leasehold Improvements | Automobile | Total | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| Balance – January 1, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| Balance – December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||||||||||
| Balance – January 1, 2021 | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
| Additions | ( | ) | ( | ) | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Balance – December 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||
| Net amount as at December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| 2020 | ||||||||||||||||||||||||||||
| Equipment | Furniture | Product molds | Computers | Leasehold Improvements | Automobile | Total | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| Balance – January 1, 2020 | $ | $ | - | $ | $ | $ | $ | - | $ | |||||||||||||||||||
| Additions | - | - | - | - | - | - | - | |||||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||||||||||
| Balance – January 1, 2020 | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
| Additions | ( | ) | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Balance – December 31, 2020 | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
| Net amount as at December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
During
the years ended December 31, 2021 and 2020, the Company recognized depreciation expense of $
| 28 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
6. Intangible Assets
Intangible
assets consist of costs incurred to establish the Worksport Tri-Fold and Smart Fold patent technology, Worksport trademarks, as well
as the Company’s website and sales CRM system. The patent was issued in 2014 and 2019. The patent will be amortized on a straight-line
basis over its useful life of
| 2021 | ||||||||||||||||||||
| Patent | Website | Trademarks | Software | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Balance – January 1, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
| Additions | ||||||||||||||||||||
| Balance – December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||
| Balance – January 1, 2021 | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||
| Additions | ( | ) | ( | ) | ||||||||||||||||
| Balance – December 31, 2021 | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||
| Net amount as at December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
| 2020 | ||||||||||||||||||||
| Patent | Website | Trademarks | Software | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Balance – January 1, 2020 | $ | $ | $ | | $ | - | $ | |||||||||||||
| Additions | | |||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | $ | |||||||||||||||
| Accumulated Amortization | ||||||||||||||||||||
| Balance – January 1, 2020 | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||
| Additions | ( | ) | ( | ) | ||||||||||||||||
| Balance – December 31, 2020 | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||
| Net amount as at December 31, 2020 | $ | $ | $ | $ | $ | |||||||||||||||
Amortization of the patent over the next five years and beyond December 31, 2021 is as follows:
| 2022 | $ | |||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 and later | $ |
| 29 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
7. Prepaid expenses and deposits
As of December 31, 2021 and 2020 prepaid expenses and deposits consists of the following:
| 2021 | 2020 | |||||||
| Consulting, services and advertising | $ | $ | ||||||
| Insurance | ||||||||
| Deposit | ||||||||
| $ | $ | |||||||
As
of December 31, 2021 prepaid expense and deposit consists of $
8. Promissory Notes
The following tables shows the balance of the notes payable as of December 31, 2021 and 2020:
| Balance as at December 31, 2019 | $ | |||
| Reclassification | ||||
| Balance as at December 31, 2020 | $ | |||
| Repayment | ( | ) | ||
| Balance as at December 31, 2021 | $ |
During
the year ended December 31, 2020, the Company reclassified $
During
the year ended December 31, 2016, the Company issued a secured promissory note in the amount of $
During
the year ended December 31, 2016, the Company issued secured promissory notes in the amount of $
During
the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $
During
the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $
The amounts repayable under promissory notes and secured promissory notes at December 31, 2021 and 2020 are as follows:
| 2021 | 2020 | |||||||
| Balance owing | $ | $ | ||||||
| Less amounts due within one year | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
| 30 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
9. Convertible Promissory Notes
On
February 25, 2020, the Company entered into an agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”),
pursuant to which the Company issued to Leonite a secured convertible promissory note in the aggregate principal amount of $
The
note carries an original issue discount of $
The
Company amortized $
10. Shareholders’ Equity (Deficit)
During year ended December 31, 2021, the following transactions occurred:
During
the year ended December 31, 2021, the Company issued a total of (pre-stock split )
common shares relating to the Reg-A public offering. Of the shares issued (pre-stock split of )
common shares valued at $were from share subscription payable and
(pre-stock split of ) common shares
were cancelled and refunded valued at $
During
the year ended December 31, 2021, the Company had a underwriters’ public offering for units consisting of 1 common share and 1 warrant
at $per unit. In addition, the Company has granted
the underwriter of the offering the option to purchase warrants and/or an additional common shares for 45 days after the closing of
the option. During the year ended December 31, 2021, the underwriter purchased common shares at $per share and additional warrants (refer to note 22).
A cumulative post-stock split
common shares were issued in connection with offering for $
During
the year ended December 31, 2021 the Company raised $
During the ended year ended December 31, 2021 warrants were exercised for (pre-stock split of and post-stock split of ) common shares. As of December 31, 2021, common shares were issued valued at $. Refer to note 22.
During
the year ended December 31, 2021, the Company entered into a loan settlement agreement with a loan holder to issue (pre-stock split of )
common shares at $per share for all outstanding loan principal
and interest valued at $
During
the year ended December 31, 2021 the Company entered into a promissory notes payable settlement agreement with a note holder to issue
(pre-stock split of )
common shares valued at $per share for a total value of $
During
the year ended December 31, 2021 the Company entered into a settlement agreement with the convertible promissory note holder to settle
all outstanding principal and interest. The Company issued (pre-stock split of )
common shares at $per share valued at $
During the year ended December 31, 2021 the Company issued (pre-stock split of ) 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.
| 31 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
10. Shareholders’ Equity (Deficit) (continued)
During
the year ended December 31, 2021, the Company entered into consulting agreements with third party consultants for post-stock split
shares of common stock valued at $
During
the year ended December 31, 2021, the Company issued (pre-stock split of )
common shares valued at $
During
the year ended December 31, 2021, the Company granted and issued post-stock split
restricted shares valued at $of the Company to consultants for services to
be rendered over a period of 12 and 24 months. Upon issuance of the restricted shares vested immediately and
issued. As of December 31, 2021, the Company recognized consulting and advertising expense of $
During
the year ended December 31, 2021, the Company granted post-stock split
restricted shares of the Company to directors of the Company. Upon being granted of the restricted shares vested immediately,
shall vest on January 1, 2022. As of December
31, 2021 the Company recognized consulting expense of $
Refer to note 22 and 23 for additional shareholders’
equity (deficit) for consulting expense of $
During
the year ended December 31, 2021, the Company completed a share consolidation of the Company’s issued and outstanding common shares
based on twenty (20) pre-consolidation shares to one (1) post-consolidation share. As a result of the share consolidation a anti-dilution
clause was triggered resulting in the Company issuing common shares valued at $
During year ended December 31, 2020, the following transactions occurred:
During
the year ended December 31, 2020, the Company issued (pre-stock split of common shares at $per share for $
During
the year ended December 31, 2020, the Company entered into a share subscription agreement with a consultant of the Company for
(pre-stock split of )
common shares valued at $for prepaid consulting services. The Company
also entered into two prepaid advertising services agreement for (pre-stock split of )
and (pre-stock split of
) common
shares at $and $per share for $
During the year ended December 31, 2020, the Company entered into a share subscription agreement with a consultant of the Company for (pre-stock split of ) common shares valued at $for prepaid consulting services. As of December 31, 2020, no shares have been issued. As of December 31, 2020, the Company has expensed $from prepaid expenses. Subsequent to year ended December 31, 2020 the Company issued (pre-stock split of ) common shares.
During
the year ended December 31, 2020, the Company entered into an advertising service agreement to issue (pre-stock split of )
common shares and warrants.
During the year ended December 31, 2020, the Company entered into a share subscription agreement with a consultant of the Company for (pre-stock split of ) common shares valued at $. During the year ended December 31, 2020, the Company issued (pre-stock split of ) common shares from shares of subscription payable with a combined value of $. (pre-stock split of ) of the common shares issued from subscription payable valued at $relates to the anti-dilution feature triggered on March 5, 2019, as noted below.
During
the year ended December 31, 2020, the Company entered into a settlement to fulfill a debt purchase agreement entered in 2017 for (pre-stock split of )
shares valued at $
During
the year ended December 31, 2020, the Company initiated a Reg-A public offering at $per share and warrant. As of December 31, 2020,
the Company raised $
During
the year ended December 31, 2020, the issued warrants for services valued at $
During
the year ended December 31, 2020, the Company reached a legal settlement agreement with an investor. In accordance with the settlement
agreement, (pre-stock split of ),
reserved shares were released and returned to the Company valued at $
| 32 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
10. Shareholders’ Equity (Deficit) (continued)
During
the year ended December 31, 2020, the Company issued (pre-stock split of )
common shares at $per common share pursuant to the conversion of
the convertible promissory note (note 9) with a value of $
During the year ended December 31, 2020, the Company issued (pre-stock split of ) shares in connection with the issuance of convertible promissory note (note 8) at $per share.
During
the year ended December 31, 2020,
For
the year ended December 31, 2021 and 2020, the Company was authorized to issue shares of its common stock with a par value of
$.
All shares were ranked equally with regards to the Company’s residual assets. During 2021 and 2020, the Company was authorized
to issue
shares of its Series A and
Series B Preferred Stock with a par value of
$.
11. Related Party Transactions
During
the year ended December 31, 2021, the Company recorded salaries expense of $
During
the years ended December 31, 2021 and 2020, the Company’s CEO paid on behalf of the Company $
During
the year ended December 31, 2021, the Company paid a director of the Company $
During
the year ended December 31, 2021, the Company paid $
Refer to note 10 and 23 for additional related party transactions.
12. Income Taxes
a) The income tax expense for the year ended December 31, 2021 and 2020 is reconciled per the schedule below:
| 2021 | 2020 | |||||||
| Net loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Amortization | ||||||||
| Non-deductible portion of meals and entertainment | ||||||||
| Expenses paid in shares | ||||||||
| Interest on lease liability | ||||||||
| Lease payments | ( | ) | ( | ) | ||||
| Gain/(loss) on Settlement of Debt | ( | ) | ||||||
| Adjusted net loss for tax purposes | ( | ) | ( | ) | ||||
| Statutory rate | % | % | ||||||
| ( | ) | ( | ) | |||||
| Increase in valuation allowance | ||||||||
| Provision for income taxes | $ | $ | ||||||
| 33 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
12. Income Taxes (continued)
b) Deferred Income Tax Assets
The tax effects of temporary differences that give rise to the deferred income tax assets at December 31, 2021 and 2020 are as follows:
| 2021 | 2020 | |||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Deferred tax assets not recognized | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
c) Cumulative Net Operating Losses
The Company has non-capital losses carried forward of approximately $10,197,000 available to reduce future years’ taxable income. These losses will expire as follows:
| United States | Canada | Total | ||||||||||
| 2034 | $ | $ | $ | |||||||||
| 2035 | ||||||||||||
| 2036 | ||||||||||||
| 2037 | ||||||||||||
| 2038 | ||||||||||||
| 2039 | ||||||||||||
| 2040 | ||||||||||||
| 2041 | ||||||||||||
| $ | $ | $ | ||||||||||
Due to change in ownership provisions of the Tax Reform Act of 1986, net operation loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
The Company complies with the provisions of FASB ASC 740 in accounting for its uncertain tax positions. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accruals for interest and tax penalties at December 31, 2021 and 2020.
The Company does not expect the amount of unrecognized tax benefits to materially change within the next twelve months.
The Company is required to file income tax returns in the U.S. and Canadian Federal jurisdictions, as well as the states of New York, New Jersey, and Utah and in the province of Ontario. The Company is no longer subject to income tax examinations by tax authorities for tax years ending before December 31, 2018.
13. Financial Instruments
Credit Risk
The
Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce its credit risk, the Company has
adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit
balances. The Company incurred bad debt expense of $
Currency Risk
The Company is exposed to currency risk on its sales and purchases denominated in Canadian Dollars. The Company actively manages these risks by adjusting its pricing to reflect currency fluctuations and purchasing foreign currency at advantageous rates.
| 34 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
13. Financial Instruments (continued)
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company relies on cash flows generated from operations, as well as injections of capital through the issuance of the Company’s capital stock to settle its liabilities when they become due.
Interest Rate Risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities.
Concentration of Supplier Risk
The Company purchases all of its inventory from one supplier source in Asia. The Company carries significant strategic inventories of these materials to reduce the risk associated with this concentration of suppliers. Strategic inventories are managed based on demand. To date, the Company has been able to obtain adequate supplies of the materials used in the production of its products in a timely manner from existing sources. The loss of this key supplier or a delay in shipments could have an adverse effect on its business.
Concentration of Customer Risk
The following table includes the percentage of the Company’s sales to significant customers for the fiscal years ended December 31, 2021 and 2020. A customer is considered to be significant if they account for greater than 10% of the Company’s annual sales:
| 2021 | 2020 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
| Customer C | % | - | % | |||||
| % | % | |||||||
The
loss of any of these key customers could have an adverse effect on the Company’s business. At December 31, 2021 customer A represented
14. Changes in Cash Flows from Operating Assets and Liabilities
The changes to the Company’s operating assets and liabilities for the years ended December 31, 2021 and 2020 are as follows:
| 2021 | 2020 | |||||||
| Decrease (increase) in accounts receivable | $ | ( | ) | $ | ( | ) | ||
| Decrease (increase) in other receivable | ( | ) | ( | ) | ||||
| Decrease (increase) in inventory | ( | ) | ||||||
| Decrease (increase) in prepaid expenses and deposits | ( | ) | ||||||
| Increase (decrease) in lease liability | ( | ) | ||||||
| Increase (decrease) in taxes payable | ||||||||
| Increase (decrease) in accounts payable and accrued liabilities | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | |||
| 35 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
15. Commitments and contingencies
During the year ended December 31, 2021 the Company entered into an amended agreement to reserve an additional common shares for consulting services. During the year ended December 31, 2020 the Company entered into an agreement with a third-party advisor to reserve for issuance post-stock split common shares for consulting services. As of December 31, 2021, post-stock split common shares were issued to the third party.
During the year ended December 31, 2021 the Company entered into an agreement with a third-party advisor to reserve for sale and issuance post-stock split common shares for consulting services at a $per share.
During the year ended December 31, 2020 the Company (defendant) is currently in an ongoing legal proceeding with a promissory notes payable holder (plaintiff). As of December 31, 2021, the outcome of the legal proceeding is uncertain.
During
the year ended December 31, 2020, the Company reached a legal settlement with a supplier in which the Company is obligated to pay $
16. 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
17. Investment
During
the year ended December 31, 2019, the Company entered into an agreement to purchase shares for $
18. Lease Liabilities
During
the year ended December 31, 2021 the Company entered into a second lease agreement for warehouse space to commence on June 1, 2021 and
end on
The
Company has accounted for its leases upon adoption of ASC 842 whereby it recognizes a lease liability and a right-of-use asset at the
date of initial application, beginning January 1, 2019. The lease liability is measured at the present value of the remaining lease payments,
discounted using the Company’s incremental borrowing rate of
The Company’s right-of-use asset for the years ended December 31, 2021 and 2020 as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Right-of-use asset | $ | $ | ||||||
| Current lease liability | $ | $ | ||||||
| Long-term lease liability | $ | $ | ||||||
The components of lease expense are as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Amortization of right-of-use | $ | $ | ||||||
| Interest on lease liability | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
| 36 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
18. Lease Liabilities (continued)
Maturities of lease liability are as follows:
Future minimum lease payments as of December 31, 2021,
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total future minimum lease payments | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of future payments | ||||
| Current portion | ||||
| Long term portion | $ | |||
19. Loan payable
During
the year ended December 31, 2020 the Company received loans of $,
$and $from a unrelated third party with an interest
rate of %
per annum with a maturity date of , and respectively. During the year ended December
31, 2021 the Company agreed to repay the outstanding principal and interest through the issuance of post-stock split
common shares valued at $per share. During the year ended December 31,
2021, the Company accrued interest expense of $
During
the year ended December 31, 2020 the Company received $
20. 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 year ended December 31, 2021, the Company recognized
CEWS of $
For the year ended December 31 2021, loss per share is $() (basic and diluted) compared to the year ended December 31, 2020 of $() (basic and diluted) using the weighted average number of shares of (basic and diluted) and (basic and diluted) respectively.
There
are shares authorized, and shares issued and outstanding, as at December 31, 2021 and
2020 respectively. As of December 31, 2021, the Company has shares to be issued. The computation of loss per share is based on
the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.”
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 December 31, 2021 the Company has warrants convertible to
| 37 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
22. Warrants
During
the year ended December 31, 2021, a total of
During
the year ended December 31, 2021, the Company issued and
During
the year ended December 31, 2021 the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company
will issue an additional
During the year ended December 31, 2021 the Company issued representative warrants to the Company’s underwriters. The representative warrants are not exercisable until January 30, 2022. The representative warrants are exercisable for common shares at $per share until August 3, 2024. As of December 31, 2021 the Company has not valued the representative warrants.
During the year ended December 31, 2021 warrants expired
As of December 31, 2021, the Company has the following warrants outstanding:
| Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||
| Number of warrants | Weighted average price | Number of warrants | Weighted average price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Issuance | $ | $ | ||||||||||||||
| Expired | ( | ) | $ | $ | ||||||||||||
| Exercise | ( | ) | $ | ( | ) | $ | ||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
| 38 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
Under the Company’s Equity Incentive Plan .
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.” If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different to that estimated on vesting.
On December 29, 2021 the Company granted and performance stock units (“PSU”) to the Company’s Chief Executive Officer and a director, respectively. . As of December 31, 2021, no PSUs have been vested and the Company recognized $ to stock based compensation expense.
On
August 6, 2021, the Company granted options to directors, advisors and officers with an exercise price of $ and an expiry
date of . . The Company recognized $
| Year ended | ||||
| December 31, 2021 | ||||
| Discount rate | % | |||
| Expected volatility | % | |||
| Expected life (years) | ||||
| Expected dividend yield | % | |||
| Exercise price | $ | |||
| Stock price | $ | |||
On
July 23, 2021, the Company granted options to a director with an exercise price of $ and an expiry date of .
The stock options will vest on January 1, 2022. . The Company
recognized $
| Year ended | ||||
| December 31, 2021 | ||||
| Discount rate | % | |||
| Expected volatility | % | |||
| Expected life (years) | ||||
| Expected dividend yield | % | |||
| Exercise price | $ | |||
| Stock price | $ | |||
On
September 1, 2021, the Company granted options to a consultant with an exercise price of $ and an expiry date of . . The fair value of the options
on grant date was estimated to be $. The Company recognized $
| Year ended | ||||
| December 31, 2021 | ||||
| Discount rate | % | |||
| Expected volatility | % | |||
| Expected life (years) | ||||
| Expected dividend yield | % | |||
| Exercise price | $ | |||
| Stock price | $ | |||
| 39 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
On
October 7 and November 2, 2021, the Company granted and options respectively, to advisors with an exercise price of $
and $. The options will expiry on and respectively. The stock options will vest on January 1, 2022.
The fair value of the options on grant date was estimated to be $. The Company recognized $
| Year ended | ||||
| December 31, 2021 | ||||
| Discount rate | % | |||
| Expected volatility | % | |||
| Expected life (years) | ||||
| Expected dividend yield | % | |||
| Exercise price | $ | |||
| Stock price | $ | |||
| Year ended | ||||
| December 31, 2021 | ||||
| Discount rate | % | |||
| Expected volatility | % | |||
| Expected life (years) | ||||
| Expected dividend yield | % | |||
| Exercise price | $ | |||
| Stock price | $ | |||
On
December 29, 2021, the Company granted stock options to members of the board for a total of options with an exercise price
of $. The options will expiry on . . The fair value of
the options on grant date was estimated to be $. The Company recognized $
| Year ended | ||||
| December 31, 2021 | ||||
| Discount rate | % | |||
| Expected volatility | % | |||
| Expected life (years) | ||||
| Expected dividend yield | % | |||
| Exercise price | $ | |||
| Stock price | $ | |||
| Year ended December 31, 2021 | ||||||||
| Number of options | Weighted Average Price | |||||||
| Balance, beginning of period | $ | |||||||
| Granted | $ | |||||||
| Balance, end of period | $ | |||||||
| Range of Exercise prices | Number outstanding | Weighted average life (years) | Weighted average exercise price | Number exercisable on December 31, 2021 | ||||||||||||||||||||
| Stock options | $ | - | $ | |||||||||||||||||||||
As of December 31, 2021, no stock options has been vested.
| 40 |
Worksport Ltd.
Notes to the Consolidated Financial Statements
December 31, 2021 and 2020
24. COVID-19
The outbreak of the coronavirus, specifically identified as “COVID-19,” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak 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 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.
25. Subsequent Events
The Company has evaluated subsequent events through March 31, 2022 which is the date the financial statements were available to be issued and the following events after year end occurred:
| ● | On
February 17, 2022, Worksport appointed Tom DiNanno to its Board of Advisors for a monthly fee of $ | |
| ● | Worksport agreed to issue shares of common stock to employees/consultants. Additionally, Worksport has agreed to issue Stock Options of Terravis Energy, Inc., a Worksport subsidiary, to Lorenzo Rossi and Steven Rossi in the amount of and options, respectively. | |
| ● | Worksport agreed to issue Common Shares to Zenfar Investments Ltd on January 13, 2022 for manufacturing consulting services rendered per agreement signed on March 3, 2021. | |
| ● | Worksport agreed to issue Common Shares to Exchange Listing LLC on March 18, 2022 for capital markets and strategic advisory services rendered per agreement signed on January 26, 2022. | |
| ● | Worksport
has initiated final steps towards closing on the West Seneca production facility it began looking into in 2021, applying for a mortgage
and initiating a Phase 2 Environmental Assessment. We are seeking to purchase the property for $ |
| 41 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on our management’s evaluation (with the participation of the individuals serving as our principal executive officer and principal financial officer) of our disclosure controls and procedures as required by Rules 13a-15 and 15d-15 under the Exchange Act, each of the individuals serving as our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2021, the end of the period covered by this report.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including the individuals serving as our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.
Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was not effective based on those criteria due to material weaknesses in our internal control over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
We did not design written policies and procedures at a sufficient level of precision to support the operating effectiveness of the controls to prevent and detect potential errors. We also did not maintain adequate documentation to evidence the operating effectiveness of certain control activities. Lastly, we did not maintain appropriate access to certain systems and did not maintain appropriate segregation of duties related to processes associated within those systems.
These control deficiencies resulted in several immaterial misstatements to the preliminary financial statements that were corrected and/or deemed immaterial in the aggregate prior to issuance of the financial statements. These control deficiencies create a reasonable possibility that a material misstatement to the financial statements will not be prevented or detected on a timely basis, and there we concluded that the deficiencies represent material weaknesses in our internal control over financial reporting and our internal control over financial reporting was not effective as of December 31, 2021.
| 42 |
Remediation Plan
During the year ended December 31, 2021, we continued to enhance our internal control over financial reporting in an effort to remediate the material weaknesses described above.
Our remediation process includes, but not limited to:
| ● | Investing in IT systems to enhance our operational and financial reporting and internal controls. | |
| ● | Enhancing the organizational structure to support financial reporting processes and internal controls. | |
| ● | Providing guidance, education and training to employees relating to our accounting policies and procedures. | |
| ● | Further developing and documenting detailed policies and procedures regarding business processes for significant accounts, critical accounting policies and critical accounting estimates. | |
| ● | Establishing effective general controls over IT systems to ensure that information produced can be relied upon by process level controls is relevant and reliable. |
We expect to remediate these material weaknesses in the first half of 2022. However, we may discover additional material weaknesses that may require additional time and resources to remediate.
Attestation Report on Internal Control over Financial Reporting.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowed under the Jobs Act for emerging growth companies.
Changes in Internal Control over Financial Reporting
Other than with respect to the remediation efforts discussed above, there was no change in our internal control over financial reporting that occurred during the fourth quarter of 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Although we have altered some work routines due to the COVID-19 pandemic, the changes in our work environment, including remote work arrangements, have not materially impacted our internal controls over financial reporting and have not adversely affected the Company’s ability to maintain operations.
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Set forth below is a list of the names, ages and positions of our executive officers and directors:
| Name: | Age | Position(s): | Director or Executive Officer Since: | |||
| Steven Rossi | 36 | Chief
Executive Officer, President, Secretary,Chair of the Board of Directors |
November 7, 2014 | |||
| Michael Johnston | 41 | Chief Financial Officer (Principal Financial and Accounting Officer) |
December 5, 2017 | |||
| Lorenzo Rossi | 67 | Director | December 9, 2014 | |||
| Craig Loverock | 51 | Independent Director* | April 22, 2019 | |||
| William Caragol | 55 | Independent Director# | June 30, 2021 | |||
| Ned L. Siegel | 70 | Independent Director† | June 30, 2021 |
* Audit Committee Chair
# Compensation Committee Chair
† Nominating and Corporate Governance Chair
| 43 |
A brief description of the background and business experience of our executive officers and directors for the past five years is as follows:
Steven Rossi has served as the Chief Executive Officer, President. Secretary and Chair of the Board of Directors of the Company since November 7, 2014. Mr. Rossi founded Worksport Ontario, the wholly owned operating company of the Company, in 2011. Prior to that, he founded two auto-related companies, 2230164 Ontario, Inc. and Scrap my Junk Car, in 2005 and 2006, respectively, and managed their respective operations for five years. Since founding Worksport Ontario in 2011, Mr. Rossi has been granted 14 different patents across the United States and Canada. He has licensed all patents to Worksport on an exclusive basis. Mr. Rossi attended the University of Toronto from 2005 to 2007, majoring in Life Science. Through his prior experiences, Steven possesses the knowledge and experience in establishing and managing auto-related companies that aids him in efficiently and effectively identifying and executing the Company’s strategic priorities. As our Chief Executive Officer, President, Chair and founder, Mr. Rossi brings to the Board extensive knowledge of the Company’s products, structure, history, and culture as well as years of expertise in the industry and is qualified to be a member of the Company’s Board of Directors.
Michael Johnston CPA, CA, has been serving as the Chief Financial Officer of the Company since December 5, 2017. Mr. Johnston is a partner at Toronto’s Forbes Andersen LLP, Chartered Professional Accountants, and offers over 12 years of experience with both private and public companies. His responsibilities include assisting the Steven Rossi in developing new business, maintaining operating budgets and ensuring adequate cash flow. Mr. Johnston was appointed by the Board for his extensive knowledge of the Company’s products and his financial and accounting expertise. Mr. Johnston holds a graduate degree from the University of Western Ontario.
Lorenzo Rossi has been serving as a director of the Company since December 9, 2014. Since 2005, he has been the Computer Science Communications Technology Department Head at the Cardinal Carter Academy for the Arts of the Toronto Catholic District Schools. Lorenzo received a Master of Education in 1995 from the University of Toronto and a Bachelor of Arts from Laurentian University in 1977. The Board believes that Mr. Rossi’s professional experience qualifies him to serve on our Board.
Craig Loverock, CPA, CA, has been serving as a member of the Board of the Company since April 22, 2019. Mr. Loverock has also served as the Chair of the Audit Committee since April 22, 2019. Mr. Loverock is a licensed CPA (Chartered Professional Accountant) and received his Chartered Accountant designation from the Institute of Chartered Accountants, Ontario in 1997, and has over 24 years’ experience in accounting and finance roles in Canada, the United States and England. Mr. Loverock has been the Chief Financial Officer and Corporate Secretary at Contagious Gaming Inc. since November 30, 2015, and currently serves as the Chief Financial Officer of Sproutly Canada, Inc. From October 2014 to May 2015, he served as the Chief Financial Officer of VoiceTrust Inc. From November 2012 to October 2014, he served as the Chief Financial Officer and Chief Compliance officer of Quartz Capital Group Ltd. The Board believes that Mr. Loverock’s vast professional experience, education, and professional credentials qualify him to serve as a member of the Company’s Board of Directors, and as a member of the Board’s committees.
William Caragol was appointed a director June 30, 2021. Mr. Caragol is the Chief Financial Officer of Mainz Biomed, N.V. (NASDAQ: MYNZ), since July of 2021. From 2018 to the present, Mr. Caragol has also been Managing Director of Quidem LLC, a corporate advisory firm. Since 2015, Mr. Caragol has been Chairman of the Board of Thermomedics, Inc., a medical diagnostic equipment company. Mr. Caragol, since February 2021, is also on the Board of Directors and is Chairman of the Audit Committee of Greenbox POS (NASDAQ: GBOX) and from 2012 to 2018, Mr. Caragol was Chairman and CEO of PositiveID, a holding company that was publicly traded that had a portfolio of products in the fields of bio detection systems, molecular diagnostics, and diabetes management products. Mr. Caragol earned a B.S. in business administration and accounting from Washington Lee University and is a member of the American Institute of Certified Public Accountants. The Board believes that Mr. Caragol’s vast experience as a member of severally publicly traded companies’ board of directors, his education, and professional credentials qualify him to serve as a member of the Company’s Board Directors, and as a member of the Board’s committees.
| 44 |
Ambassador Ned L. Siegel was appointed a director June 30, 2021. Ambassador Seigel is the President of The Siegel Group, a multi-disciplined international business management advisory firm he founded in 1997 in Boca Raton, Florida, specializing in real estate, energy, utilities, infrastructure, financial services, oil gas and cyber secure technology. Mr. Ambassador Siegel has served since 2013 as Of Counsel to the law firm of Wildes Weinberg, P.C. From October 2007 until January 2009, he served as the United States Ambassador to the Commonwealth of The Bahamas. Prior to his Ambassadorship, in 2006, he served with Ambassador John R. Bolton at the United Nations in New York, as the Senior Advisor to the U.S. Mission and as the United States Representative to the 61st Session of the United Nations General Assembly. From 2003 to 2007, Mr. Ambassador Siegel served on the Board of Directors of the Overseas Private Investment Corporation (OPIC), which was established to help U.S. businesses invest overseas, fostering economic development in new and emerging markets, complementing the private sector in managing the risk associated with foreign direct investment and supporting U.S. foreign policy. Appointed by Governor Jeb Bush, Mr. Ambassador Siegel served as a Member of the Board of Directors of Enterprise Florida, Inc. (EFI) from 1999-2004. EFI is the state of Florida’s primary organization promoting statewide economic development through its public-private partnership.
Ambassador Siegel presently serves on the Board of Directors of the following companies: CIM City, U.S. Medical Glove Company, Global Supply Team, Moveo, LLC and the Caribbean Israel Leadership Coalition (CILC), Caribbean Israel Venture Services, Inc. He also presently serves on the following Advisory Boards: Usecrypt, Brand Labs International (BLI), Elminda Ltd., Findings, and Sol Chip Ltd and Maridose, LLC.
Ambassador Siegel received a B.A. from the University of Connecticut in 1973 and J.D. from the Dickinson School of Law in 1976. In December 2014, he received an honorary degree of Doctor of Business Administration from the University of South Carolina.
The Board believes that Mr. Ambassador Siegel’s vast professional experience, education, and professional credentials qualify him to serve as a member of the Company’s Board Directors, and as a member of the Board’s committees.
Advisory Board
The following members comprise our Advisory Board:
| Name: | Age | |
| Yosi Behar | 78 | |
| Sengkee Ahn | 51 | |
| Mike Timmons | 46 | |
|
Thomas DiNanno |
54 |
Yosi Behar joined the Company’s Advisory Board on October 7, 2021. As Founder of The Behar Group, Yosi Behar has been an active real estate representative and broker in Ontario, Canada for over 40 years with overwhelming success. He has coordinated and completed numerous transactions for such companies as Bell Canada, Runnymede Development Corporation Limited, Imperial Oil, Sun Life Assurance Company of Canada, Tribute Homes, Royop Corporation, Petro-Canada, Royal Bank of Canada, The Bank of Montreal, Liberty Developments, Minuk Construction, and Metrus Development. His current mandates include acting as real estate advisor for Volvo Canada, Volkswagen, Land Rover/Jaguar, Lexus/Toyota, Honda/Acura, Hyundai, Mazda, BMW, Mercedes-Benz, Subaru, Kia, Mitsubishi, Ford, General Motors, Chrysler, and Nissan. He prides himself on his impeccable reputation for service, integrity, perseverance, and loyalty to his valued clientele.
Sengkee Ahn joined the Company’s Advisory Board on June 30, 2021. Sengkee Ahn has almost three decades of experience advising and working with some of the wealthiest organizations and individuals in Canada. He currently serves as Managing Director at a large Canadian Chartered Bank. Previously, Mr. Ahn was the CFO for one of the largest alternative nicotine companies in North America and, before that, was Senior Vice President of Corporate Development for a large cannabis company in Southwestern Ontario. He spent over 20 years at RBC and CIBC, holding various senior positions in wealth management, Capital Markets, and Commercial Banking.
Mike Timmons joined the Company’s Advisory Board on June 30, 2021. Mike Timmons is The Executive Vice President for AXC., a high-end truck accessory brand focused on providing the finest thermal formed products manufactured in the USA. Previously, Mike Timmons was VP of Jeep Off-Road for Truck Hero, Inc, leading brands like Rugged Ridge and Omix-ADA where he developed oversaw core business practices that improved branding and new product development approaches.
| 45 |
Thomas DiNanno joined the Company’s Advisory Board on February 17, 2022. Thomas DiNanno has held several key U.S. Government positions with focuses in areas of national security and infrastructure. His experience and expertise are intended to influence the Company’s ongoing efforts in the government sector. Mr. DiNanno is a contributing advisor to Hudson Institute, a 501(c)(3) organization that guides public policy makers and global leaders in government and business through publications, conferences, policy briefings, and recommendations. Prior to joining Hudson Institute, he served as a professional staff member on the House Permanent Select Committee on Intelligence as well as acting Assistant Secretary of State of the Arms Control, Verification and Compliance Bureau from 2018-2021. Mr. DiNanno has served in several key government capacities, including Assistant Administrator for the Department of Homeland Security’s Federal Emergency Management Agency (FEMA), where he oversaw National Preparedness initiatives and grants focused on counterterrorism.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until their resignation or removal in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until removed by the Board of Directors.
Members of our advisory board do not have any voting power and serve at the pleasure of the Board.
Family Relationships
Lorenzo Rossi and Steven Rossi are father and son. Other than the foregoing, there are no other family relationships between any of our directors or executive officers.
Involvement in Legal Proceedings
To our knowledge, there have been no material legal proceedings that would require disclosure under the federal securities laws that are material to an evaluation of the ability of our director or executive officers.
Code of Business Conduct and Ethics
Our Board has adopted a written code of business conduct and ethics (“Code”) that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. Our investor webpage, investworksport.com, displays a current copy of the Code and all disclosures that are required by law in regard to any amendments to, or waivers from, any provision of the Code.
Director Independence and Board Committees
An “independent director” is defined generally as a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship which in the opinion of the Company’s Board, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Steven Rossi, Lorenzo Rossi, Craig Loverock, William Caragol and Ned L. Siegel serve as members of our Board of Directors. Our Board has determined that Craig Loverock, William Caragol and Ned L. Siegel are “independent directors” as defined in the Nasdaq listing rules and under Rule 10-A-3(b)(1) of the Exchange Act and applicable SEC rules.
Audit Committee. We currently have a standing Audit Committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have at least three members of the Audit Committee, all of whom must be independent and financially literate, and one member of the Audit Committee must qualify as an “audit committee financial expert” as defined in applicable SEC rules. Messrs. Craig Loverock, William Caragol and Ned L. Siegel serve as members of our Audit Committee. Mr. Loverock serves as the Audit Committee Chairman. Craig Loverock qualifies as an “audit committee financial expert” under the SEC rules.
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We have adopted an Audit Committee charter, which details the purpose and principal functions of the Audit Committee, including:
| ● | appoint, compensate, and oversee the work of any registered public accounting firm employed by us; | |
| ● | resolve any disagreements between management and the auditor regarding financial reporting; | |
| ● | pre-approve all auditing and non-audit services; | |
| ● | retain independent counsel, accountants, or others to advise the Audit Committee or assist in the conduct of an investigation; | |
| ● | seek any information it requires from employees-all of whom are directed to cooperate with the Audit Committee’s requests-or external parties; | |
| ● | meet with our officers, external auditors, or outside counsel, as necessary; and | |
| ● | oversee that management has established and maintained processes to assure our compliance with all applicable laws, regulations and corporate policy. |
Compensation Committee. We have a standing Compensation Committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have at least two members of the Compensation Committee, all of whom must be independent. William Caragol, Craig Loverock and Ned L. Siegel serve as members of or Compensation Committee. Mr. Caragol serves as the Compensation Committee Chairman.
We have adopted a Compensation Committee charter, which details the purpose and responsibility of the Compensation Committee, including:
| ● | discharge the responsibilities of the Board relating to compensation of our directors, executive officers and key employees; | |
| ● | assist the Board in establishing appropriate incentive compensation and equity-based plans and to administer such plans; | |
| ● | oversee the annual process of evaluation of the performance of our management; and | |
| ● | perform such other duties and responsibilities as enumerated in and consistent with Compensation Committee’s charter. |
The Compensation Committee charter permits the committee to retain or receive advice from a compensation consultant and outlines certain requirements to ensure the consultants independence or certain circumstances under which the consultant need not be independent. However, as of the date hereof, the Company has not retained such a consultant.
Nominating and Governance Committee. We have a standing Nominating and Corporate Governance Committee. Craig Loverock, William Caragol and Ned L. Siegel serves as members of the Nominating and Corporate Governance. Ned L. Siegel serves as the Nominating and Corporate Governance Committee Chairman.
We have adopted a Nominating and Governance Committee charter, which details the purpose and responsibilities of the Nominating and Governance Committee, including:
| ● | assist the Board by identifying qualified candidates for director nominees, and to recommend to the Board of Directors the director nominees for the next annual meeting of stockholders; | |
| ● | lead the Board in its annual review of its performance; | |
| ● | recommend to the Board director nominees for each committee of the Board; and | |
| ● | develop and recommend to the Board corporate governance guidelines applicable to us. |
Meetings of the Board of Directors
During its fiscal year ended December 31, 2021, the Board met from time to time informally and acted by written consent on numerous occasions.
Indemnification and Limitation on Liability of Directors
Our articles of incorporation limit the liability of our directors to the fullest extent permitted by Nevada law. Nothing contained in the provisions will be construed to deprive any director of his right to all defenses ordinarily available to the director nor will anything herein be construed to deprive any director of any right he may have for contribution from any other director or other person.
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At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Equity Incentive Plans
In July 2015, the Board of Directors and stockholders adopted the Company’s 2015 Equity Incentive Plan (the “2015 Plan”), effective as of July 5, 2015. The 2015 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2015 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock. The Board reserved 500,000 shares of Common Stock issuable upon the grant of awards under the 2015 Plan. Pursuant to the 2015 Plan, a Stock Option for 30,000 shares was granted to each Craig Loverock, Ned L. Siegel, and William Caragol on December 29th.
On March 31, 2021, the Board of Directors and majority stockholder adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2021 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock. The Board reserved 1,250,000 shares of Common Stock issuable upon the grant of awards under the 2021 Plan. Pursuant to the 2021 Plan, 15,000 Stock Option shares and 15,000 RSUs were granted to each Craig Loverock, Ned L. Siegel, and William Caragol, on August 6th and September 6th, respectively. An additional 100,000 Stock Option shares were granted to Steven Rossi on August 6th, pursuant to the 2021 Plan. Worksport has filed an S-8 with the SEC to allow this and future compensation.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers during the years ended December 31, 2021 and 2020 in all capacities for the accounts of our executives, including the principal executive officer and principal financial officer.
Summary Compensation Table
| Name and Position | Year | Salary ($) | All Other Compensation | Total ($) | ||||||||||||
| Steven Rossi, Chief Executive Officer, | 2021 | $ | 240,000 | $ | 150,000 | $ | 390,000 | |||||||||
| President and Chair of the Board | 2020 | $ | 87,030 | $ | 0 | $ | 87,030 | |||||||||
| Michael Johnston, Chief Financial Officer | 2021 | 0 | 0 | 0 | ||||||||||||
| 2020 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Employment Agreements
We entered into an employment agreement with Steve Rossi, our Chief Executive Officer effective May 10, 2021 (the “Employment Agreement”).
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The term of the Employment Agreement commenced on May 10, 2021 (the “Effective Date”) and continues until the fifth (5th) anniversary thereof (the “Initial Term”), unless terminated earlier pursuant to the terms of the Employment Agreement; provided that, on such fifth (5th) anniversary of the Effective Date and each third annual anniversary thereafter (such date and each annual anniversary thereof, a “Renewal Date”), the Employment Agreement will be automatically renewed, upon the same terms and conditions, for successive periods of three (3) years (each, a “Renewal Term”), unless either party provides written notice of its intention not to extend the term of the Agreement at least 90 days prior to the applicable Renewal Date.
Mr. Rossi’s annual base salary will be $300,000 (“Base Salary”) and Mr. Rossi shall be entitled to annual bonus (“Bonus”) equal to 50% of his Base Salary, provided that certain performance goals are met. The performance goals will be established on an annual basis by the Compensation Committee of the Board of Directors of the Company.
The Employment Agreement may be terminated by the Company with or without “Cause” (as defined below) or by the Executive with or without “Good Reason” (as defined below).
The term “Cause” includes discharge by Company on account of the occurrence of one or more of the following events:
| (i) | Executive’s continued refusal or failure to perform (other than by reason of Disability) Executive’s material duties and responsibilities to the Company; | |
| (ii) | a material breach of the Employment Agreement; | |
| (iii) | an intentional and material breach of the Confidential Information, Assignment of Intellectual Property and Restricted Activities sections of the Employment Agreement; | |
| (iv) | willful, grossly negligent or unlawful misconduct by Executive which causes material harm to the Company or its reputation; | |
| (v) | any conduct engaged in that is materially detrimental to the business or reputation of the Company; | |
| (vi) | The Company is directed in writing by regulatory or governmental authorities to terminate the employment of Executive or Executive engages in activities that (i) are not approved or authorized by the Board, and (ii) cause actions to be taken by regulatory or governmental authorities that have a material adverse effect on the Company; or | |
| (vii) | a conviction, plea of guilty, or plea of nolo contendere by Executive, of or with respect to a criminal offense which is a felony or other crime involving dishonesty, disloyalty, fraud, embezzlement, theft or similar action(s) (including, without limitation, acceptance of bribes, kickbacks or self-dealing), or the material breach of Executive’s fiduciary duties with respect to the Company. |
The term “Good Reason” generally includes a reduction in the Base Salary, a reduction in job title, position or responsibility, a material breach by the Company of the Employment Agreement, or a material relocation in worksite.
In the event the Employment Agreement is terminated by the Company other than for Cause or by Mr. Rossi for Good Reason, Mr. Rossi will receive an amount equal to his Base Salary at the rate in effect as of the date immediately preceding such termination until the earlier of (i) the expiration date of the Term or (ii) the first anniversary of the date of termination; provided that if the date of termination is after the first anniversary of the Effective Date, Mr. Rossi will receive the Base Salary and accrued benefits for 18 months following the effective date of termination. The Rossi shall also be entitled to receive earned but not paid Bonuses and any pro rata portion of the amount of Executive’s Bonus for the year in which termination occurs that would have been payable based on actual performance determined under the terms of the Bonus as then in effect for such year, and expenses incurred through the date of termination and any other benefits accrued but not paid. Notwithstanding the foregoing, Mr. Rossi’s right to receive any unearned compensation is conditioned on Mr. Rossi execution and delivery to the Company a general release of claims.
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If the date of termination for Good Reason is after the end of a calendar year but prior to such time as Mr. Rossi’s Bonus, if any, is paid, then Mr. Rossi will receive a Bonus as determined by the Compensation Committee prorated for the time of employment during such year of termination.
Mr. Rossi has the right under the Employment Agreement to terminate his employment for other than Good Reason upon 30 days’ written notice to the Company. If Mr. Rossi terminates the Employment Agreement for other than Good Reason, Mr. Rossi will receive an amount equal to his base salary, earned but not paid plus expenses incurred through the date of termination and any other benefits accrued but not paid.
If a Change in Control (as defined below) occurs and Mr. Rossi’s employment is terminated by the Company for any reason other than Cause or disability or Mr. Rossi terminates for Good Reason, Mr. Rossi will receive a non-prorated severance equal to two times his Base Salary and Bonus for the year of termination and all vested and accrued benefits up to the date of termination. If Mr. Rossi holds any non-vested option awards at the date of termination in connection with a Change in Control, all options not vested will vest and become exercisable until the earlier of three (3) years following termination or the expiration of the options as granted. If Mr. Rossi holds any restricted securities at the date of termination in connection with a Change in Control, all restrictions will lapse and all such securities will be unrestricted, vested and immediately payable. All of Mr. Rossi’s performance-based goals will also be deemed met in connection with termination by Change in Control in calculating bonus and other awards.
The term “Change in Control” generally means a transaction that occurs whereby more than 50% of the Company’s voting power is acquired by a third party, the consummation involving the Company of a merger, consolidation, reorganization or business combination or the sale of substantially all of the Company’s assets to a third party.
Pursuant to the clawback provisions of the Employment Agreement, any amounts payable under the Employment Agreement are subject to any policy (whether in existence as of the Effective Date or later adopted) established by the Company providing for clawback or recovery of amounts that were paid to Mr. Rossi. The Company will make any determination for clawback or recovery in its sole discretion and in accordance with any applicable law or regulation.
The Employment Agreement provides that the Company shall indemnify M. Rossi to the fullest extent permitted by law for all amounts (including, without limitation, judgments, fines, settlement payments, expenses and reasonable out-of-pocket attorneys’ fees) incurred or paid by Executive in connection with any action, suit, investigation or proceeding, or threatened action, suit, investigation or proceeding, arising out of or relating to the performance by Executive of services for, or the acting by Executive as a director, officer or Executive of, Company, or any subsidiary of the Company.
In addition to the foregoing, pursuant to the terms of the Employment Agreement, Mr. Rossi amended the Company’s Series A Preferred Stock Certificate of Designation to eliminate his right convert such his Series A Preferred Stock into 51% of the outstanding Common Stock of the Company. In consideration for Mr. Rossi agreeing to terminate his conversion rights, the Company issued Mr. Rossi an aggregate of 1,717,535 unregistered shares of Common Stock.
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board has the authority to fix the compensation of directors.
During 2021 Steven Rossi, Craig Loverock, Bill Caragol, Ned L. Siegel were compensated for their services.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of the date of this report by (a) each stockholder who is known to us to beneficially own 5% or more of our Common Stock, (b) directors, (c) our executive officers, and (d) all executive officers and directors as a group. Beneficial ownership is determined according to the SEC rules, and generally means that person has beneficial ownership of a security if he or she possesses sole or shared voting or investment power of that security and includes options, warrants and other securities convertible or exercisable into shares of Common Stock, provided that such securities are currently exercisable or convertible or exercisable or convertible within 60 days of the date hereof. Each director or officer, as the case may be, has furnished us with information with respect to their beneficial ownership. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their Common Stock.
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| Name and Address of Beneficial Owner (1) | Number of Shares of Common Stock Beneficially Owned | Percentage of Common Stock Beneficially Owned (2) | ||||||
| Directors and Executive Officers: | ||||||||
| Steven Rossi (3) —CEO, President, and Chairman | 2,592,538 | 15.29 | % | |||||
| Michael Johnston —CFO | — | — | ||||||
| Lorenzo Rossi —Director | — | — | ||||||
| Craig Loverock —Director | 30,000 | 00.18 | % | |||||
| William Caragol —Director | 30,000 | 00.18 | % | |||||
| Ned L. Siegel —Director | 30,000 | 00.18 | % | |||||
| All officers and directors as a group (6 persons) | 2,682,538 | 15.82 | % | |||||
| 5% or More Stockholders: | ||||||||
| Prasad Bikkani (4) | 1,796,470 | 10.59 | % | |||||
| AI Media Data LLC (5) | 1,650,000 | 9.73 | % | |||||
| Leonite Fund I, LP (6) | 1,000,000 | 5.90 | % | |||||
(1) Unless otherwise indicated, the address for each person is c/o Worksport Ltd., 414-3120 Rutherford Rd, Vaughan, Ontario, Canada L4K 0B1.
(2) Based on 16,961,245 shares of Common Stock outstanding as of the date of this report.
(3) Mr. Rossi also owns 100 shares of Series A Preferred Stock entitling him to 51% of the voting power of the corporation. See “Description of Securities–Series A Preferred Stock.”
(4) Includes (i) 315,490 shares of Common Stock and 730,980 shares of Common Stock issuable upon the exercise of vested warrants held by Equity Trust Company, an entity of which Mr. Bikkani has voting and dispositive control, and (ii) 750,000 shares of Common Stock issuable upon the exercise of vested warrants held by Mr. Bikkani’s wife. The address for Mr. Bikkani is 3043 Forest Lake Dr. Westlake, OH 55145.
(5) Includes (i) 250,000 Restricted shares of Common Stock and 600,000 shares of Common Stock issuable upon the exercise of vested warrants, and (ii) 700,000 vested RSUs and 100,000 shares of Common Stock issuable upon the exercise of vested stock options held by AI Media Data LLC, an entity of which Mr. Wesley Van De Wiel is the control person. The address for Mr. Van De Wiel is Borodinstraat 164,5011 HE Tilburg, Noord Brabant -The Netherlands.
(6) Includes 1,000,000 shares of Common Stock issuable upon the exercise of vested warrants.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except as disclosed herein, no director, executive officer, stockholder holding at least 5% of shares of our Common Stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years.
Transactions with Related Persons
During the year ended December 31, 2021, the Company recorded salaries expense of $410,573 (2020 - $64,903) related to services rendered to the Company by its CEO. During the same period the Company recorded salaries expense of $125,707 to an officer of the Company and director.
During the year ended December 31, 2021, the Company’s CEO paid expenses on behalf of the Company of $12,154 (2020 - repayment of $5,245). As of December 31, 2021, the Company has payable of $35,547 (2020 - $23,393) owed to the Company’s CEO.
During the year ended December 31, 2021, the Company paid a director of the Company $50,000 for services rendered from 2015 to 2020.
During the year ended December 31, 2021, the Company paid $59,203 for consulting services relating to negotiations with manufacturers, to a U.S.-based corporation which the Company’s CEO and director is also a stockholder.
Controlling Persons
Mr. Rossi owns 100% of the outstanding shares of Series A Preferred Stock of the Company. The shares of Series A Preferred Stock collectively has 51% voting power of the outstanding securities of the Company which thereby renders Mr. Rossi the ability to terminate and vote for members of our Board of Directors. The Company is not aware of any other agreements or understandings by a person or group of persons that could be construed as a controlling person.
Related Person Transaction Policy
Under our policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to our Audit Committee, or, if Audit Committee approval would be inappropriate, to another independent body of our Board of Directors, for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable us to identify any existing or potential related person transactions and to effectuate the terms of the policy. In addition, under our code of business conduct and ethics, our employees and directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related person transactions, our Audit Committee, or other independent body of our Board of Directors, will take into account the relevant available facts and circumstances including, but not limited to:
| ● | the risks, costs and benefits to us; | |
| ● | the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated; | |
| ● | the availability of other sources for comparable services or products; and | |
| ● | the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. |
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The policy requires that, in determining whether to approve, ratify or reject a related person transaction, our Audit Committee, or other independent body of our Board of Directors, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our stockholders, as our Audit Committee, or other independent body of our Board of Directors, determines in the good faith exercise of its discretion.
Director Independence
An “independent director” is defined generally as a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship which in the opinion of the Company’s Board, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Steven Rossi, Lorenzo Rossi, Craig Loverock, William Caragol and Ned L. Siegel serve as members of our Board of Directors. Our Board has determined that Craig Loverock, William Caragol and Ned L. Siegel are “independent directors” as defined in the Nasdaq listing rules and under Rule 10-A-3(b)(1) of the Exchange Act and applicable SEC rules.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent auditor, Haynie Company billed an aggregate of $121,630 and $60,556 for the fiscal years ended December 31, 2021 and December 31, 2020, respectively, for professional services rendered for the audit of our annual financial statements and review of the financial statements included in our quarterly reports.
During the year ended December 31, 2021 and 2020, we engaged Haynie Company as our independent registered accounting firm. For the years ended December 31, 2021 and 2020, we incurred fees, as discussed below:
| Fiscal Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Audit Fees | $ | 95,400 | $ | 60,556 | ||||
| Audit-Related Fees (1) | $ | 26,230 | $ | - | ||||
| Total | $ | 121,630 | $ | 60,556 | ||||
| (1) | Fees incurred in conjunction with consents for various registration statements filed during years. |
Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements. All other fees relate to professional services rendered in connection with the review of the quarterly financial statements.
Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our Audit Committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project-based services and routine consultations. In addition, the Audit Committee may also pre-approve particular services on a case-by-case basis. Our Audit Committee approved all services that our independent accountants provided to us in the past two fiscal years.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
†Management compensatory plan.
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| (1) | Filed as an exhibit to the Company’s Form 10-Q filed April 24, 2009,. | |
| (2) | Filed as an exhibit to the Company’s Form 1-A filed on July 15, 2020. | |
| (3) | Filed as an exhibit to the Company’s Form 8-K filed on December 17, 2014. | |
| (4) | Filed as an exhibit to the Company’s Form S-1 filed on July 21, 2015 | |
| (5) | Filed as an exhibit to the Company’s Form 1-A/A filed on September 10, 2020 | |
| (6) | Filed as an exhibit to the Company’s Form 1-A/A filed on September 29, 2020 | |
| (7) | Filed as an exhibit to the Company’s Form 8-K filed on May 12, 2021. | |
| (8) | Filed as an exhibit to the Company’s Registration Statement on Form S-1 filed on May 14, 2021. | |
| (9) | Filed as an exhibit to the Company’s Form 8-K filed July 2, 2021. | |
| (10) | Filed as an exhibit to the Company’s Registration Statement on Form S-1/A filed on July 8, 2021. | |
| (11) | Filed as an exhibit to the Company’s Registration Statement on Form S-1/A filed on July 16, 2021, |
ITEM 16. FORM 10-K SUMMARY.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WORKSPORT LTD | |
| Dated: March 31, 2022 | /s/ Steven Rossi |
| Steven Rossi | |
| President, Chief Executive Officer, and Chairman of the Board of Directors (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Steven Rossi | President, Chief Executive Officer and |
March 31, 2022 | ||
| Steven Rossi | Chairman of the Board of Directors(Principal Executive Officer) | |||
| /s/ Michael Johnston | Chief Financial Officer |
March 31, 2022 | ||
| Michael Johnston | (Principal Financial Officer and Principal Accounting Officer) | |||
| /s/ Lorenzo Rossi | Director | March 31, 2022 | ||
| Lorenzo Rossi | ||||
| /s/ Craig Loverock | Director | March 31, 2022 | ||
| Craig Loverock | ||||
| /s/ William Caragol | Director | March 31, 2022 | ||
| William Caragol | ||||
| /s/ Ned L. Siegel | Director | March 31, 2022 | ||
| Ned L. Siegel |
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