0001096275 true 12/31 2021 Q2 This Amendment No. 1 to the Form 10-Q (this "Amendment") amends the Quarterly Report on Form 10-Q of Worksport Ltd. for the period ended June 30, 2021, filed on August 16, 2021 (the "Form 10-Q") for the sole purpose of amending non-material language contained in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment. This Amendment does not reflect events that may have occurred subsequent to the original filing date. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

Amendment No. 1

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarterly Period Ended: June 30, 2021

 

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

 

For the transition period from __________ to __________

 

Commission File No. 001-40681

 

 

Worksport Ltd.

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

 

Nevada   35-2696895
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification Number)

 

414-3120 Rutherford Rd

Vaughan, Ontario, Canada L4K 0B1

(Address of Principal Executive Offices, Including Zip Code)

 

Registrant’s Telephone Number, including area code: (888) 554-8789

 

With copies to:

Ross Carmel, Esq.

Philip Magri, Esq.

Carmel, Milazzo & Feil LLP

55 W 39th Street, 18th Floor

New York, NY 10018

Tel: 212-658-0458

Fax: 646-838-1314

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:   Trading Symbol(s)   Name of each exchange on which registered:
Common Stock   WKSP   NASDAQ CAPITAL MARKET
Warrants   WKSPW   NASDAQ CAPITAL MARKET

 

Indicate by check mark whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter year that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter year that the registrant was required to submit and post such files. Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition year for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No

 

As of August 16, 2021 11,453,446 shares of Common Stock outstanding.

 

 

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 to the Form 10-Q (this “Amendment”) amends the Quarterly Report on Form 10-Q of Worksport Ltd. for the period ended June 30, 2021, filed on August 16, 2021 (the “Form 10-Q”) for the sole purpose of amending non-material language contained in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment.

 

This Amendment does not reflect events that may have occurred subsequent to the original filing date.

 

 
 

 

WORKSPORT LTD.

 

TABLE OF CONTENTS

 

  Page
PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements.  
Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020 (Unaudited) 3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (Unaudited) 4
Condensed Consolidated Statements of Cash Flow for the six months ended June 30, 2021 and 2020 (Unaudited) 5
Condensed Consolidated Statement of Shareholders’ Deficit for the three and six months ended June 30, 2020 and 2021 (Unaudited) 6
Notes to the Condensed Consolidated Financial Statements (Unaudited) 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
   
Item 4. Controls and Procedures 19
   
PART II OTHER INFORMATION  
   
Item 1. Legal Proceedings 20
   
Item 1A. Risk Factors 20
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
   
Item 3. Defaults Upon Senior Securities 20
   
Item 4. Mine Safety Disclosures 20
   
Item 5. Other Information 20
   
Item 6. Exhibits 21
   
SIGNATURES 22

 

2

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Worksport Ltd.

Condensed Consolidated Balance Sheets

(Unaudited)

 

    June 30, 2021     December 31, 2020  
Assets                
Current Assets                
Cash and cash equivalents   $ 12,266,597     $ 1,107,812  
Accounts receivable net     106,283       122,787  
Other receivable     56,348       167,836  
Inventory (note 3)     73,435       40,803  
Prepaid inventory (note 3)     179,713       -  
Prepaid expenses and deposits     435,536       245,526  
Related party receivable (note 7)     2,538       -  
Total Current Assets     13,120,450       1,684,764  
Investment     24,423       24,423  
Property and Equipment, net     340,934       91,511  
Right-of-use asset, net (note 10)     631,753       38,506  
Intangible Assets, net     298,114       62,948  
Total Assets   $ 14,415,674     $ 1,902,152  
                 
Liabilities and Shareholders’ Deficit                
Current Liabilities                
Accounts payable and accrued liabilities   $ 906,640     $ 971,667  
Payroll taxes payable     51,186       48,216  
Related party loan (note 7)     -       23,393  
Promissory notes payable (note 4)     263,211       367,058  
Convertible promissory note, net (note 5)     -       98,982  
Loan payable (note 11)     28,387       184,854  
Current lease liability (note 10)     213,775       23,883  
Total Current Liabilities     1,463,199       1,718,053  
Long Term – Lease Liability (note 10)     420,369       14,624  
Total Liabilities     1,883,568       1,732,677  
                 
Shareholders’ Equity (Deficit)                
Series A & B Preferred Stock, $0.0001 par value, 100,100 shares authorized, 100 Series A and 0 Series B issued and outstanding, respectively (note 6)     -       1  
Common stock, $0.0001 par value, 299,000,000 shares authorized, 11,148,292 and 3,820,618 shares issued and outstanding, respectively (note 6)     1,115       382  
Additional paid-in capital     26,609,130       12,665,854  
Share subscriptions receivable     (1,577 )     (1,577 )
Share subscriptions payable     833,229       379,428  
Accumulated deficit     (14,901,211 )     (12,866,033 )
Cumulative translation adjustment     (8,580 )     (8,580 )
Total Shareholders’ Equity (Deficit)     12,532,106       169,475  
Total Liabilities and Shareholders’ Equity (Deficit)   $ 14,415,674     $ 1,902,152  

 

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

 

3

 

 

Worksport Ltd.

Condensed Consolidated Statements of Operations

For the three and six months ended June 30, 2021 and 2020

(Unaudited)

 

                 
    Three Months ended June 30     Six Months ended June 30,  
    2021     2020     2021     2021  
                         
Net Sales   $ 186,239     $ 66,102     $ 193,889     $ 107,129  
Cost of Goods Sold     137,333       58,883       197,554       85,894  
Gross Profit (Loss)     48,906       7,219       (3,665 )     21,235  
                                 
Operating Expenses                                
General and administrative     272,022       12,824       406,306       46,730  
Sales and marketing     165,156       7,921       327,807       10,747  
Professional fees     410,485       119,469       1,057,599       228,934  
(Gain) loss on foreign exchange     3,799       282       9,005       (7,444 )
Total operating expenses     851,462       140,496       1,800,717       278,967  
Loss from operations     (802,556 )     (133,277 )     (1,804,382 )     (257,732 )
                                 
Other Income (Expense)                                
Interest expense (note 5)     (18,100 )     (58,908 )     (249,000 )     (86,719 )
Gain (loss) on settlement of debt     8,997       -       18,204       -  
Total other income (expense)     (9,103 )     (58,908 )     (230,796 )     (86,719 )
                                 
Net Loss   $ (811,659 )   $ (192,185 )   $ (2,035,178 )   $ (344,451 )
                                 
Loss per Share (basic and diluted)   $ (0.08 )   $ (0.08 )   $ (0.27 )   $ (0.15 )
Weighted Average Number of Shares (basic and diluted)     9,827,576       2,466,875       7,505,625       2,360,511  

 

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

 

4

 

 

Worksport Ltd.

Condensed Consolidated Statements of Cash Flows

For the six Months Ended June 30, 2021 and 2020

(Unaudited)

 

    2021     2020  
Operating Activities                
Net Loss   $ (2,035,178 )   $ (344,451 )
Adjustments to reconcile net loss to net cash from operating activities:                
Shares and warrants issued for services     1,106,025       69,210  
Depreciation and amortization     38,014       13,157  
Interest on lease liability     6,704       2,789  
Accrued interest     24,691       -  
Amortization of debt discount     -       42,038  
Amortization on OID interest     211,340       3,735  
Gain on settlement of debt     (18,203 )     -  
Adjustments to reconcile net loss to net cash from operating activities total     (666,607 )   (213,522 )
Changes in operating assets and liabilities (note 8)     (329,319 )     (16,031 )
Net cash used in operating activities     (995,926 )     (229,553 )
                 
Cash Flows from Investing Activities                
Loan receivable     (5,507 )     -  
Purchase of investment     -       (8,764 )
Purchase of intangible assets     (23,700 )     -  
Purchase of property and equipment     (257,305 )     -  
Net cash used in investing activities     (286,512 )     (8,764 )
                 
Financing Activities                
Repayment of lease liability    

(35,063

)     -  
Proceeds from issuance of common shares, net of issuance cost     6,928,617       -  
Proceeds from warrant exercise     5,636,505       -  
Proceeds from loan payable     -       60,836  
Repayment of loan payable     (62,905 )     -  
Proceeds from promissory notes     -       182,500  
Shareholder assumption of debt     (25,931 )     4,099  
Net cash provided by financing activities     12,441,223       247,435  
Change in cash     11,158,785       9,118  
Cash and cash equivalents - beginning of year     1,107,812       11,993  
Cash and cash equivalents end of year   $ 12,266,597     $ 21,111  
Supplemental disclosure of cash flow information:                
Interest paid   $ 9,737     $ 7,400  
Supplemental Disclosure of non-cash investing and financing Activities                
Shares issued for purchase of software   $ 212,671     $ -  
Shares issued to service providers   $ 1,192,279     $ -  
Cashless warrant exercise   $ 51,901     $ -  
Shares issued for share subscriptions payable   $ 76,830     $ 1,035,660  
Shares issued for loan repayment   $

174,500

    $ -  
Conversion of convertible promissory note to common stock   $ 368,320     $ -  
Convertible promissory note – equity discount   $ -     $ 182,500  
Convertible promissory note – original issue discount   $ -     $ 16,215  
Conversion of preferred stock to common stock   $ 171     $ -  
Reverse stock split   $ 21,182     $ -  

 

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

 

5

 

 

Worksport Ltd.

Condensed Consolidated Statements of Shareholders’ Deficit

For the Three Months Ended June 30, 2020 and 2021

(Unaudited)

 

    Shares     Amount     Shares     Amount     Capital     Receivable     Payable     Deficit     Adjustment     (Deficit)  
   

 

Preferred Stock 

   

Common Stock

   

Additional Paid-in

   

 

Share Subscriptions

   

Share Subscription

    Accumulated     Cumulative Translation     Total Stockholders’ Equity  
    Shares     Amount     Shares     Amount     Capital     Receivable     Payable     Deficit     Adjustment     (Deficit)  
Balance at April 1, 2020     -       -       2,450,329     $ 245     $ 9,797,341     $ (1,577 )   $ 1,315,923     $ (11,830,679 )   $ (8,580 )   $ (727,327 )
Issuance for prepaid services     -       -       78,667       8       136,792       -       -       -       -       136,800  
Issuance for prepaid services and subscriptions payable     -       -       107,500       11       67,177       -       (67,188 )     -       -       -  
Issuance of Series A Preferred Stock     1,000       1       -       -       89       -       -       -       -       90  
Net loss     -       -       -       -       -       -       -       (192,185 )     -      

(192,185

)
Balance at June 30, 2020     1,000     $ 1       2,636,496     $ 264     $ 10,001,399     $ (1,577 )   $ 1,248,735     $ (12,022,864 )   $ (8,580 )   $ (782,622 )
                                                                                 
Balance at April 1, 2021     1,000     $ 1       8,138,199     $ 814     $ 22,554,768     $ (1,577 )   $ 372,131     $ (14,089,552 )   $ (8,580 )   $ 8,828,005  
Conversion of preferred stock to common stock     (900 )     (1 )     1,717,535       172       (171 )     -       -       -       -       -  
Consulting Service for share subscriptions     -       -       -       -       -       -       225,923       -       -       225,923  
Issuance for services and subscriptions payable     -       -       97,100       9       585,363       -       -       -       -       585,372  
Share issuance cost     -       -       -       -       (64,824 )     -       -       -       -       (64,824 )
Issuance of shares from private placement     -       -       516,000       52       1,031,948       -       (32,000 )     -       -       1,000,000  
Warrant exercise (note 14)     -       -       581,404       58       2,325,556       -       378,785       -       -       2,704,399  
Loan repayment (note 11)     -       -       98,054       10       176,490       -       (111,610 )     -       -       64,890  
Net loss     -       -       -       -       -       -       -       (811,659 )     -       (811,659 )
Balance at June 30, 2021     100       -       11,148,292     $ 1,115     $

26,609,130

    $ (1,577 )   $ 833,229     $ (14,901,211 )   $ (8,580 )   $ 12,532,106  

 

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

 

6

 

 

Worksport Ltd.

Condensed Consolidated Statements of Shareholders’ Deficit

For the Six Months Ended June 30, 2020 and 2021

(Unaudited)

 

   

 

Preferred Stock 

   

 

Common Stock

   

 

Additional Paid-in

   

 

Share Subscriptions

   

 

Share Subscription

   

 

 

Accumulated

   

 

Cumulative Translation

    Total Stockholders’ Equity  
    Shares     Amount     Shares     Amount     Capital     Receivable     Payable     Deficit     Adjustment     (Deficit)  
Balance at January 1, 2020     -       -       2,095,340     $ 210     $ 8,646,404     $ (1,577 )   $ 2,159,395     $ (11,678,413 )   $ (8,580 )   $ (882,561 )
Issuance for prepaid services     -       -       78,667       8       136,792       -       -       -       -       136,800  
Issuance for prepaid services and subscriptions payable     -       -       107,500       11       67,177       -       57,812       -       -       125,000  
Issuance of share subscriptions payable     -       -       222,942       22      

510,978

      -       (511,000 )     -       -       -  
Warrants issuance in connection to convertible promissory note (note 5 and 10)     -       -       -       -       59,110       -       -       -       -       59,110  
Share issuance in connection to convertible promissory note (note 5)     -       -       22,500       2       123,388       -       -       -       -       123,390  
Issuance for settlement of payables     -       -      

109,548

      11       457,461       -       (457,472 )     -       -       -  
Issuance of Preferred Stock     1,000       1       -       -       89       -       -       -       -       90  
Net loss     -       -       -       -       -       -       -       (344,451 )     -       (344,451 )
Balance at June 30, 2020     1,000     $ 1       2,636,496     $ 264     $

10,001,399

    $ (1,577 )   $ 1,248,735     $ (12,022,864 )   $ (8,580 )   $ (782,622 )
                                                                                 
Balance at January 1, 2021     1,000     $ 1       3,820,618     $ 382     $ 12,665,854     $ (1,577 )   $ 379,428     $ (12,866,033 )   $ (8,580 )   $ 169,475  
Conversion of preferred stock to common stock     (900 )     (1 )     1,717,535       172       (171 )     -       -       -       -       -  
Consulting Service for share subscriptions     -       -       -       -       -       -       337,145       -       -       337,145  
Issuance for services and subscriptions payable     -       -       413,158       42       1,155,238       -       (241,559 )     -       -       913,721  
Issuance of shares from Reg-A     -       -       1,502,409       150      

3,003,171

      -       (32,700 )     -       -       2,970,621  
Share issuance cost     -       -       -       -       (123,984 )     -       -       -       -       (123,984 )
Issuance of shares from private placement     -       -       2,040,990       204       4,081,776       -       -       -       -       4,081,980  
Warrants issuance for services     -       -       -       -       37,000       -       -       -       -       37,000  
Conversion of convertible promissory note to shares (note 5)     -       -       204,622       20       368,298       -       -       -       -       368,318  
Cashless warrant exercise (note 14)     -       -       39,512       4       (4 )     -       -       -       -       -  
Warrant exercise (note 14)     -       -       1,311,394       131       5,245,460       -       390,915       -       -       5,636,506  
Loan repayment (note 11)     -       -       98,054       10       176,492       -       -       -       -       176,502  
Net loss     -       -       -       -       -       -       -       (2,035,178 )     -       (2,035,178 )
Balance at June 30, 2021     100       -       11,148,292     $ 1,115     $ 26,609,130     $ (1,577 )   $ 833,229     $ (14,901,211 )   $ (8,580 )     12,532,106  

 

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

 

7

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1. Basis of Presentation and Business Condition

 

a) Interim Financial Information

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary in order to make the financial statements not misleading and for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the six-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on April 13, 2021.

 

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

 

b) Functional and Reporting Currency

 

Effective January 1, 2020, the Company changed the functional currency of its subsidiary to United States dollars given the increasing prevalence of U.S. dollar-denominated activities of the subsidiary over time. The change in functional currency from Canadian dollars to United States dollars is accounted for prospectively from January 1, 2020. The subsidiary’s balance sheet was converted from Canadian dollars to United States dollars using the year ended December 31, 2019 United States dollar balance as the opening for January 1, 2020 in accordance to ASC 830. These condensed interim financial statements are presented in United States Dollars. The functional and presentation currency of the Company and its subsidiary is the United States Dollar. As a result of the change in functional currency the Company recognized a loss on foreign exchange of $29,940.

 

c) Use of Estimates

 

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

 

d) Business condition

 

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

 

As of June 30, 2021, the Company had working capital of $11,657,250 and an accumulated deficit of $14,901,211. As of June 30, 2021, the Company had cash and cash equivalents of $12,266,597. Based on its current operating plans, the Company believes it has sufficient level of funding for anticipated operations, capital expenditures and debt repayments for a period of at least 12 months from the issuance date of this Annual Report.

 

During the six month ended June 30, 2021 the Company through its Reg-A public offering, private placement offering, and exercises of warrants had raised in aggregate of approximately $12,700,000. In addition, as of August 2021 the Company has approximately 2,500,000 (50,000,000 pre-stock split) warrants exercisable at $4 ($0.20 pre-stock split) per warrant compare to an average share price of approximately $4.30 ($0.22 pre-stock split) per share, anticipating additional warrant exercises.

 

Based on the Company’s future operating plans, existing cash of $12,266,597 combined with possible warrants exercises of approximately $10,000,000; management believes the Company have sufficient funds to meet its contractual obligations and working capital requirements for the next 12 months and the foreseeable future.

 

8

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

2. Significant Accounting Policies

 

The accounting polices used in the preparation of these condensed consolidated interim financial statements are consistent with those of the Company’s audited financial statements for the year ended December 31, 2020 in addition to:

 

Property and Equipment During the six month ended June 30, 2021 the Company purchased an automobile. As such the Company has updated its accounting policy of its capital assets. Capital assets are recorded at cost and are amortized using the straight-line method over the following estimated useful lives:

 

  Automobile 5 years

 

3. Inventory

 

Inventory consists of the following at June 30, 2021 and December 31, 2020:            
    2021     2020  
Finished goods   $ 64,990     $ 32,358  
Promotional items     552       552  
Raw materials     7,893       7,893  
Inventory   $ 73,435     $ 40,803  
Prepaid inventory   $ 179,713     $ -  

 

4. Promissory Notes

 

The following tables shows the balance of the notes payable as of June 30, 2021 and December 31, 2020:

 

Balance as at December 31, 2019   $ 267,881  
Reclassification     99,177  
Balance as at December 31, 2020   $ 367,058  
Repayment     (103,847 )
Balance as at June 30, 2021   $ 263,211  

 

During the year ended December 30, 2020, the Company reclassified $88,120 from accounts payable to promissory notes. The terms of the note is under negotiation and is currently due on demand.

 

During the year ended December 30, 2020, the Company reclassified a debit balance of $11,058 from notes payable to other receivable.

 

During the year ended December 31, 2016, the Company issued a secured promissory note in the amount of $73,452 ($123,231 Canadian Dollars). During the year ended December 31, 2018, the Company issued two additions to the original unsecured promissory note of July 2016, totaling $22,639 ($30,884 Canadian dollars). The secured promissory note bears interest at a rate of 18% per annum. The payment terms of the original note including these additions are due “upon completion of going public on the Canadian Securities Exchange, with no change in interest rate. The secured promissory note is secured by all present and after-acquired property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of the secured promissory notes to be due on April 1, 2021. As at June 30, 2021, principal balance owing was $96,091 ($123,231 Canadian Dollars) (December 31, 2020 - $96,091 ($123,231 Canadian Dollars)). As of June 30, 2021, the accrued interest on this note payable was $57,582 ($75,102 Canadian Dollars) (December 31, 2020 - $48,770 ($64,102 Canadian Dollars)) included in accounts payable and accrued liabilities. As of June 30, 2021, the Company and the secured promissory note holder are in dispute.

 

During the year ended December 31, 2016, the Company issued secured promissory notes in the amount of $79,000. The secured promissory notes bears interest at a rate of 18% per annum, payable monthly. The secured promissory notes are secured by all present and after-acquired property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of all secured promissory notes to be due on April 1, 2021. As at June 30, 2021 principal balance owing was $79,000 (December 31, 2020 - $79,000). As of June 30, 2021, the accrued interest on this note payable was $38,032 (December 31, 2020 – $31,000) included in accounts payable and accrued liabilities. As of June 30, 2021, the Company and the secured promissory note holder are in dispute.

 

During the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $53,848 ($67,700 Canadian Dollars). The secured promissory notes were due in October and November 2018 and bears interest at a rate of 12% per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December 31, 2019, the Company extended the maturity date of the secured promissory notes to November 3, 2020. During the six months ended June 30, 2021, the Company and promissory note holders reached an agreement to repay $62,905 ($80,108 Canadian Dollars) for outstanding principal of $53,848 and interest of $14,740. As a result of the Company recognized a gain on settlement of debt of $5,682. As of June 30, 2021 the secured promissory notes has been repaid in full.

 

9

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

4. Promissory Notes (continue)

 

During the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $60,000. The secured promissory notes are due in August and November 2018 and bear interest at a rate of 12% per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December 31, 2019 the Company extended the maturity dates of this secured promissory note to November 3, 2020. During the year ended December 31, 2019, the Company a principal repayment of $10,000. During the quarter ended June 30, 2021 the Company and secured promissory note holder agreed to repay all outstanding principal and interest through the issuance of 36,048 (720,966 pre-stock split) common shares valued at $0.09 per share. As at June 30, 2021, the Company had recorded principal and interest of $73,886 as a result of the share repayment the Company recognized a gain on settlement of $8,997. As of June 30, 2021 the secured promissory notes has been repaid in full.

 

The amounts repayable under promissory notes and secured promissory notes at June 30, 2021 and December 31, 2020:

 

    June 30, 2021     December 31, 2020  
Balance owing   $ 263,211     $ 367,058  
Less amounts due within one year     (263,211 )     (367,058 )
Long-term portion   $

-

    $ -  

 

5. Convertible Promissory Notes

 

On February 25, 2020, the Company entered into an agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which the Company issued to Leonite a secured convertible promissory note in the aggregate principal amount of $544,425 to be paid in tranches. As additional consideration for the purchase of the note, (I) the Company issued to Leonite 22,500 (450,000 pre-stock split) common shares, and (ii) the Company issued to Leonite a five-year warrant to purchase 45,000 (900,000 pre-stock split) common shares at an exercise price of $2.00 ($0.10 pre-stock split) per share (subject to adjustment), which may be exercised on a cashless basis. Refer to note 14 for warrant valuation.

 

The note carries an original issue discount of $44,425 to cover Leonite’s legal fees, accounting fees, due diligence fees and/or other transactional costs incurred in connection with the purchase of the note. Therefore, the purchase price of the note was $500,000. On February 28, 2020, the Company recorded $198,715, $182,500 principal and $16,215 original issue discount. On September 1, 2020 the Company recorded an additional $310,322, $285,000 principal and $25,322 original issue discount. As of June 30, 2021, the Company has recorded $509,037, $467,500 principal and $41,537 original issue discount. Furthermore, the Company issued 22,500 (450,000 pre-stock split) shares of common stock valued at $123,390 and a debt-discount related to the warrants valued at $344,110. During the year ended December 31, 2020 Leonite converted $226,839 of convertible promissory note into 126,022 ( 2,520,434 pre-stock split) common shares at $1.80 ($0.09 pre-stock split) per share. The original value of the convertible note converted was $182,565 as a result the Company recognized a loss of $44,274 on settlement of debt. During the six months ended June 30, 2021 Leonite converted its remaining outstanding principal and interest into common share. Leonite received 204,622 (4,092,431 pre-stock split) common shares at $1.80 ($0.09 pre-stock split) per share valued at $368,319. The original value of the convertible note converted including interest was $325,667. As a result the Company recognized a loss of $42,651 on settlement of debt. In connection with the settlement the Company expensed the remaining $148,027 of the original debt discount to interest expense. As of June 30, 2021 the convertible promissory note has been repaid in full.

 

The Company amortized $58,146 (2020 - $11,677) of financing costs related to the shares and warrants for the six months ended June 30, 2021. The remaining net balance of the note at June 30, 2021 is $0 (2020 - $12,715) comprised of principal of $0 (2020 - $183,538) and net of unamortized debt discount of $0 (2020 - $170,823).

 

10

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

6. Shareholders’ Equity (Deficit)

 

During the six months ended June 30, 2021 the Company issued a total of 1,502,409 (30,048,199 pre-stock split) common shares relating to the Reg-A public offering. Of the shares issued 15,500 (312,000 pre-stock split) common shares valued at $31,200 were from share subscription payable and 750 (15,000 pre-stock split) common shares were cancelled and refunded valued at $1,500. The Company incurred share issuance cost of $123,984.

 

During the same period 1,409,122 (28,182,451 pre-stock split) Reg-A public offering warrants were exercised for 1,409,122 (28,182,451 pre-stock split) common shares. As of June 30, 2021 1,311,394 (26,227,876 pre-stock split) common shares were issued valued at $5,245,592. Subsequent to June 30, 2021 the remaining 97,729 (1,954,575 pre-stock split) common shares valued at $390,915 were issued.

 

During the six months ended June 30, 2021 the Company raised $4,081,980 through private placement offerings for 2,040,990 (40,819,800 pre-stock split) common shares and warrants.

 

During the six months ended June 30, 2021 the Company entered into consulting agreements with third party consultants for 370,000 (7,400,000 pre-stock split) shares of common stock valued at $1,588,000 for consulting services. The services will be expensed throughout the term of the agreement as the Company accrues the stock payable. As of June 30, 2021 the Company recorded $337,145 in share subscriptions payable.

 

During the six months ended June 30, 2021 the Company issued 259,808 (5,196,154 pre-stock split) common shares valued at $741,159 for consulting services, $241,559 were issued from share subscriptions payable. During the same period the Company issued 150,000 (3,000,000 pre-stock split) common shares valued at $390,000 for consulting services. During the same period the Company issued 3,350 (67,000 pre-stock split) common shares for employee compensation valued at $24,121.

 

During the six months ended June 30, 2021 the Company entered into a loan settlement agreement with a loan holder to issue 62,006 (1,240,111 pre-stock split) common shares at $1.80 ($0.09 pre-stock split) per sharefor all outstanding loan principal and interest valued at $111,611. As of the date of the settlement the Company had $157,787 loan payable, resulting in the Company recognized a gain on settlement of $46,176. Refer to note 11. As of June 30, 2021 the Company issued 62,006 (1,240,111 pre-stock split) common shares.

 

During the six months ended June 30, 2021 the Company entered into a promissory notes payable settlement agreement with a note holder to issue 36,048 (720,996 pre-stock split) common shares valued at $1.80 ($0.09 pre-stock split) per sharefor a total value of $64,891. As of the date of the settlement the Company had $73,886 promissory notes payable, resulting in the Company recognized a gain on settlement of $8,997. Refer to note 4. As of June 30, 2021 the Company issued 36,048 (720,966 pre-stock split) common shares.

 

During the six months ended June 30, 2021 the Company entered into a settlement agreement with the convertible promissory note holder to settle all outstanding principal and interest. The Company issued 204,622 (4,092,431 pre-stock split) common shares at $1.80 ($0.09 pre-stock split) per sharevalued at $368,318. As of the date of the settlement the Company had $325,667 convertible promissory note, resulting in the Company recognized a loss of $42,651 on settlement of debt.During the same period the convertible promissory note holder exercised 39,512 (790,243 pre-stock split) warrants on a cashless basis for 39,512 (790,243 pre-stock split) common shares. Refer to note 5 and 14.

 

During the six months ended June 30, 2021 the Company issued 1,717,535 (34,350,697 pre-stock split) common shares to Steve Rossi, the Company’s Chief Executive Officer and Director, in connection with his Employment Agreement in consideration for Mr. Rossi agreeing to amend the Series A Certificate of Designation to eliminate the Series A Preferred Stock conversion rights and returning 900 Series A Preferred Stock to the Company.

 

During the six-months ended June 30, 2020 the Company issued 66,667 (1,333,333 pre-stock split) and 12,000 (240,000 pre-stock split) common shares at $1.80 ($0.09 pre-stock split) and $1.40 ($0.07 pre-stock split) per share for $120,000 and $16,800 respectively for prepaid advertising services. As of June 30, 2020 the Company has expensed $6,620 from prepaid expenses.

 

During the six-months ended June 30, 2020 the Company entered into a share subscription agreement with a consultant of the Company for 200,000 (4,000,000 pre-stock split) common shares valued at $125,000 for prepaid consulting services. As of June 30, 2020 the Company issued 107,500 (2,150,000 pre-stock split) shares with a value of $67,188. As of June 30, 2020 the Company has expensed $62,500 from prepaid expenses.

 

During the six-months ended June 30, 2020 the Company issued a consultant 200,000 (4,000,000 pre-stock split) common shares of subscription payable with a value of $456,000 relating to the anti-dilution feature triggered on March 5, 2019.

 

During the six-months ended June 30, 2020 the Company issued 22,942 (458,834 pre-stock split) common shares pursuant to a subscription payable with a value of $55,000.

 

During the six-months ended June 30, 2020 the Company issued 22,500 (450,000 pre-stock split) shares in connection with the issuance of convertible promissory note (note 5) at $5.40 ($0.27 pre-stock split) per share.

 

During the six-months ended June 30, 2020 the Company entered into a settlement to fulfill a debt purchase agreement entered in 2017 for 134,049 (2,680,981 pre-stock split) shares valued at $138,818. As of June 30, 2020 the Company has issued 109,548 (2,190,959 pre-stock split) shares.

 

11

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

6. Shareholders’ Equity (Deficit) (continued)

 

During the six-months ended June 30, 2020, Steven Rossi (the Company’s CEO) was issued 1,000 Series A Preferred Shares at $0.09 per share equal to 299,000 common shares voting rights.

 

As of June 30, 2021, the Company was authorized to issue 299,000,000 shares of its common stock with a par value of $0.0001. All shares were ranked equally with regards to the Company’s residual assets. During 2021, the Company was authorized to issue 100 shares of its Series A and 100,000 Series B Preferred Stock with a par value of $0.0001. Series A preferred Stock have voting rights equal to 0 shares of common stock, per share of preferred stock. Series B preferred Stock have voting rights equal to 10,000 shares of common stock, per share of preferred stock.

 

7. Related Party Transactions

 

During the six months ended June 30, 2021, the Company recorded salaries expense of $77,026 (2020 - $31,837) related to services rendered to the Company by its CEO.

 

During the six months ended June 30, 2021 the Company repaid $36,494 to the Company’s CEO and director. During the same period the Company’s CEO and director paid on behalf of the Company’s operating expense of $10,563 for a total net transaction $25,931. As of June 30, 2021 the Company has a receivable from related party of $2,538.

 

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

 

During the six months ended June 30, 2021, the Company paid $59,203 to a U.S.-based corporation which the Company’s CEO and director is also a stockholder.

 

8. Changes in Cash Flows from Operating Assets and Liabilities

 

The changes to the Company’s operating assets and liabilities for the six months ended June 30, 2021 and 2020 are as follows:

 

    2021     2020  
Decrease (increase) in accounts receivable   $ 16,504     $ (35,406 )
Decrease (increase) in other receivable     116,997       9,657  
Decrease (increase) in inventory and prepaid inventory     (212,344 )     60,136  
Decrease (increase) in prepaid expenses and deposits     (220,841 )     (20,925 )
Increase (decrease) in lease liability     1,823       (14,390 )
Increase (decrease) in payroll taxes payable     2,970       (14,061 )
Increase (decrease) in accounts payable and accrued liabilities     (34,428 )     (1,042 )
Changes in operating assets and liabilities   $ (329,319 )   $ (16,031 )

 

9. Commitments and contingencies

 

During the six months ended June 30, 2021 the Company entered into an amended agreement to reserve an additional 150,000 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 100,000 common shares for consulting services. As of June 30, 2021, 12,500 (250,000 pre-stock split) common shares were issued to the third party.

 

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 June 30, 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 $6,037 per month beginning on March 1, 2020 for four months until the settlement amount of $24,148 has been fully paid on June 1, 2020. As of December 31, 2020, the Company has completed all payments.

 

12

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

10. Lease Liabilities

 

During the six months ended June 30, 2021 the Company entered into a second lease agreement for warehouse space to commence on June 1, 2021 and end on May 31, 2024 with monthly lease payments of $19,910. During the year ended December 31, 2019, the Company signed a lease agreement for warehouse space to commence on August 1, 2019 and end on July 31, 2022 with monthly lease payments of $2,221.

 

The Company has accounted for its leases upon adoption of ASC 842 whereby it recognizes a lease liability and a right-of-use asset at the date of initial application, beginning January 1, 2019. The lease liability is measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate of 10%. The Company has measured the right-of-use asset at an amount equal to the lease liability.

 

The Company’s right-of-use asset for the six months ended June 30, 2021 and December 31, 2020 as follows:

    June 30, 2021     December 31, 2020  
Right-of-use asset   $ 631,753     $

38,506

 
                 
Current lease liability   $ 213,775     $ 23,883  
Long-term lease liability   $ 420,369     $ 14,624  

 

The components of lease expense are as follows:

 

   

June 30,

2021

   

June 30,

2020

 
Amortization of right-of-use   $ 28,927     $ 10,540  
Interest on lease liability   $ 6,704     $ 2,789  
Total lease cost   $ 35,631     $ 13,329  

 

Maturities of lease liability are as follows:

 

Future minimum lease payments as of June 30, 2021,

 

         
2021 (remainder of year)     132,788  
2022     254,469  
2023     238,918  
2024     99,549  
Total future minimum lease payments     725,724  
Less: amount representing interest     (91,580 )
Present value of future payments     634,144  
Current portion     213,775  
Long term portion   $ 420,369  

 

11. Loan payable

 

During the year ended December 31, 2020 the Company received loans of $32,439, $10,000 and $108,000 from a unrelated third party with an interest rate of 10% per annum with a maturity date of December 31, July 22 and August 31, 2021 respectively. During the six months ended June 30, 2021 the Company agreed to repay the outstanding principal and interest through the issuance of 62,006 (1,240,111 pre-stock split) common shares at $1.80 ($0.09 pre-stock split) per share. During the six month ended June 30, 2021, the Company accrued interest expense of $1,319 (2020 - $0). As of the date of the settlement agreement the Company had $150,439 principal and $7,348 interest outstanding, resulting in the Company recognizing a gain on settlement of $46,176 for the six month period ended June 30, 2021.

 

During the year ended December 31, 2020 the Company received $28,387 ($40,000 CDN) interest free from the Government of Canada as part of the COVID-19 small business relief program. Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25 percent. As of June 30, 2021 loan payable outstanding is $28,387 ($40,000 CDN).

 

13

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

12. Government Assistance

 

The Government of Canada is currently providing funding through the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs in order to provide financial relief to Canadian businesses affected by COVID-19. The CEWS program provides a reimbursement of salaries for eligible employers based on a decrease in revenues. The CERS program provides a reimbursement of rent expenses paid by eligible parties based on a decrease in revenues. During the three and six months ended June 30, 2021, the Company recognized CEWS of $51,606 ($63,905 CDN) and CERS of $4,971 ($6,000 CDN) as a reduction in general and administrative on the condensed consolidated statements of Operations.

 

13. Loss per Share

 

For the three and six months ended June 30, 2021, loss per Share is $(0.08) and $(0.27) (basic and diluted), compared to the three and six months ended June 30, 2020, of $(0.08) and $(0.15) (basic and diluted). Using the weighted average number of shares of 9,827,576 and 7,505,625 (basic and diluted) for the three and six months ended June 30, 2021 and 2,466,875 and 2,360,511 (basic and diluted) for the three and six months ended June 30, 2020.

 

There are 299,000,000 shares authorized, 11,148,292 and 2,636,496 shares issued and outstanding, as at June 30, 2021 and 2020 respectively. As of June 30, 2021, the Company has 619,395 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 June 30, 2021 the Company has 2,961,580 warrants convertible to 5,002,570 common shares for a total underlying common shares of 5,002,570. At June 30, 2020 the Company has 45,000 warrants convertible to 45,000 common shares and convertible promissory note convertible to 110,397 common shares for a total underlying common shares of 155,397.

 

14. Warrants

 

During the six months ended June 30, 2021, a total of 1,448,635 (28,972,694 pre-stock split) warrants were exercised for 1,448,635 (28,972,694 pre-stock split) common shares. 1,409,122 (28,182,451 pre-stock split) warrants were exercised at $4.00 ($0.20 pre-stock split) per share, the remaining 39,512 (790,243 pre-stock split) warrants were exercised on a cashless basis, refer to note 5. As of June 30, 2021 1,350,906 (27,018,120 pre-stock split) common shares were issued with the remaining 97,729 (1,954,575 pre-stock split) common shares issued subsequent to the period ended.

 

During the six months ended June 30, 2021, the Company issued 1,502,410 (30,048,199 pre-stock split) and 2,040,990 (40,819,800 pre-stock split) warrants convertible to 1 and 2 common shares each exercisable for a period of 12 and 18 months respectively. The warrants were issued in connection with the Reg-A public offering and private placement offering respectively. The exercise price of the warrants is $4.00 ($0.20 pre-stock split) per share.

 

During the six months ended June 30, 2021 the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company will issue an additional 150,000 warrants for a total of 250,000 warrants. The exercisable period of the warrants was also amended to a period of five years beginning on January 14, 2021. The warrants are convertible to 1 common share each exercisable at $2 per share.

 

As of June 30, 2021, the Company has the following warrants outstanding:

 

Exercise price     Number outstanding     Remaining Contractual Life (Years)     Expiry date
$ 4.00       563       0.42     December 1, 2021
$ 4.00       29,568       0.55     February 24, 2022
$ 40.00       12,500       4.55     January 14, 2026
$ 2.00       247       3.66     February 25, 2025
$ 2.40       3,125       3.72     March 20, 2025
$ 4.00       102,050       1.25     October 1, 2022
          148,079       1.76      

 

 

    June 30, 2021     December 31, 2020  
    Number of warrants     Weighted average price     Number of warrants     Weighted average price  
Balance, beginning of year     716,815     $ 4.00       -     $ -  
Issuance     3,643,400     $ 4.20       716,815     $ 4.00  
Exercise     (1,448,635 )   $ (4.00 )     -     $ -  
Balance, end of period     2,961,580     $ 4.20       716,815     $ 4.00  

 

14

 

 

Worksport Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

15. COVID-19

 

The recent outbreak of the novel 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 mining production activities or the ore and mining industry or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely. The management and board of the Company is constantly monitoring this situation to minimize potential losses

 

16. Subsequent Events

 

The Company has evaluated subsequent events through August 16, 2021 which is the date the financial statements were available to be issued and the following events after year end occurred:

 

  On May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA declared the 1 for 20 reverse stock split effective on August 4, 2021. These condensed interim financial statements including, prior period comparative share amounts, have been retrospectively restated to reflect this reverse split.
     
  On August 3, 2021 immediately following the share consolidation the anti-dilution feature dated January 1, 2021 came into effect. As part of the anti-dilution feature the Company is obligated to issue an additional 237,500 shares at $0.37 per share for a total of $86,688. The Company recognized a non-cash deemed dividend of $86,688 to retain earnings and share subscriptions payable.
     
  Subsequent to quarter ended June 30, 2021, 207,425 (4,148,500 pre-stock split) warrants were exercised for 207,425 (4,148,500 pre-stock split) common shares valued at $829,700.
     
 

On August 6, 2021 the Company closed on a public offering whereby 3,272,727 Units were sold to Maxim Group LLC at a price of $5.12 per Unit. Each Unit consisted of one (1) share of common stock and one (1) warrant to purchase common stock at an exercise price of $6.05 per share. In addition, 490,909 warrants to purchase common stock were issued to the underwriter pursuant to the over-allotment option.

 

15

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this Form 10-Q are made based on current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, various factors, uncertainties, and risks should be specifically considered that could affect future results or operations. These factors, uncertainties and risks may cause actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. These risks and uncertainties described and other information contained in the reports filed with or furnished to the SEC should be carefully considered before making any investment decision with respect to the Company’s securities. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

 

Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company” and “Worksport” as used herein refers collectively to Worksport Ltd.. and its wholly owned subsidiaries, unless otherwise stated.

 

The following discussion should be read in conjunction with the 2020 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.

 

COVID-19

 

The Company believes that the COVID- 19 pandemic has had certain impacts on its business, but management does not believe there has been a material long-term impact from the effects of the pandemic on the Company’s business and operations, results of operations, financial condition, cash flows, liquidity or capital and financial resources.

 

During the six months ended June 30, 2021, aspects of the Company’s business continued to be affected by the COVID-19 pandemic with respect to its manufacturing practices and sales. Combined with decreased consumer confidence, Management expects the Company to generate less revenues than in previous periods.

 

The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on the global economy and demand for consumer products.

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

 

Revenue

 

For the three months ended June 30, 2021, revenue generated from sales was $186,239, compared to $66,102 for the three months ended June 30, 2020. Total revenues increased by approximately 182% compared to the same period in the prior year.

 

Revenue increased for the three months ended June 30, 2021 compared to the same period the prior year due to increased demand as Covid-19 restrictions were eased.

 

For the three months ended June 30, 2021 total revenues generated in Canada increased by 7,906% from $546 in the prior period to $43,713. For the three months ended June 30, 2021, total revenue generated in the United States increased by 117% from $65,556 in the prior period to $142,526. The increase in revenue generated in Canada and United States can be attributed to the easing of Covid-19 restrictions and the Company’s focus on acquiring new customers.

 

For the three months ended June 30, 2021, online revenues increased by 121% from $64,597 in the prior period to $142,561. Online revenue accounted for 77% of total revenue for the three months ended June 30, 2021 compared to 95.4% for the same period in 2020.

 

For the three months ended June 30, 2021, revenues based on distributors were $43,378 compared to $93 for the same period in 2020.

 

Worksport currently works with a total of nine dealers and distributors, however, given current market conditions Worksport plans to focus on online sales during 2021. Management believes that increasing sales through online retailers will continue to outpace the traditional distribution business model during 2021. Management further believes that online retailer’s customers tend to provide larger sales volumes, greater profit margins and greater protection against price erosion.

 

16

 

 

Cost of Sales

 

For the three months ended June 30, 2021 cost of sales increased by 133% from $58,883 in the prior period to $137,333. Cost of sales, as a percentage of sales, was approximately 74% for three months ended June 30, 2021 compare to 89% for the same period in 2020, respectively. The increase in cost of sales was primarily due to increased sales for the three months ended June 30, 2021 compare to the same prior period.

 

Shipping and freight costs accounted for 26% of total cost of sales during the three months ended June 30, 2021, compared to 28% for the same period in 2020. The decrease in the percentage of the cost of sales was due to the Company’s overall increase to cost of sales while maintaining comparable levels shipping and freight costs.

 

Gross Margin

 

Gross margin percentage for the three months ended June 30, 2021 was 26% compared to 11% for the same period in 2020. The increase in gross margin reflects the Company’s focus on enhancing its manufacturing and logistics supply chain in decreasing cost of sales.

 

Operating Expenses

 

Operating expenses increased for the three months ended June 30, 2021 by $710,966 from $140,496 in the prior periods to $851,462.

 

  General and administrative expense increased by $259,198 from $12,824 in the prior period to $272,022. The increase related to research and development and salaries as the Company seeks to expand its operations and products.
  The Company realized a loss on foreign exchange of $3,799 during the three months ended June 30, 2021, a increase of $3,517 compared to $282 during the prior period. The increase on loss on foreign exchange can be attributed to operating expenses denominated in the Canadian Dollar.
  Professional fees which include accounting, legal and consulting fees, increased from $119,469 for the three months ended June 30, 2020 to $410,485 for the three months ended June 30, 2021. The increase was due to the employment of various third party consultants to help expand the Company’s business operations.

 

Other Income and Expenses

 

Other income and expenses for the three months ended June 30, 2021 was $9,103 compared to $58,908 the prior period, a decrease of $49,805. The difference can be attributed to the Company’s decrease in interest expense.

 

Net Loss

 

Net loss for the three months ended June 30, 2021 was $811,659 compared to $192,185 for the three months ended June 30, 2020, a change of $619,474 or 322%. 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 and supply chain.

 

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

 

Revenue

 

For the six months ended June 30, 2021, revenue generated from sales was $193,889, compared to $107,129 for the six months ended June 30, 2020. Total revenues increased by approximately 81% compared to the same period in the prior year.

 

Revenue increased for the six months ended June 30, 2021 compared to the same period the prior year due to increased demand as Covid-19 restrictions were eased.

 

For the six months ended June 30, 2021 total revenues generated in Canada increased by 265% from $11,815 in the prior periods to $43,078. For the six months ended June 30, 2021, total revenue generated in the United States increased by 58% from $95,314 in the prior period to $150,811. The increase in revenue generated in Canada and United States can be attributed to the easing of Covid-19 restrictions and the Company’s focus on acquiring new customers.

 

For the six months ended June 30, 2021, online revenues increased by 93% from $83,654 in the prior period to $150,865. Online revenue accounted for 80% of total revenue for the six months ended June 30, 2021 compared to 83% for the same period in 2020.

 

For the six months ended June 30, 2021, revenues based on distributors were $42,724compared to $11,355 for the same period in 2020.

 

Worksport currently works with a total of nine dealers and distributors, however, given current market conditions Worksport plans to focus on online sales during 2021. Management believes that increasing sales through online retailers will continue to outpace the traditional distribution business model during 2021. Management further believes that online retailer’s customers tend to provide larger sales volumes, greater profit margins and greater protection against price erosion.

 

17

 

 

Cost of Sales

 

For the six months ended June 30, 2021 cost of sales increased by 130% from $85,894 in the prior periods to $197,554. Cost of sales, as a percentage of sales, was approximately 102% for six months ended June 30, 2021 compared to 80% for the same periods in 2020, respectively. The increase in cost of sales was primarily due to increased sales for the six months ended June 30, 2021 compare to the same prior period.

 

Shipping and freight costs accounted for 35% of total cost of sales during the six months ended June 30, 2021, compared to 23% for the same period in 2020. The increase in the percentage of the cost of sales was due to increased sales correlating in increased shipping expenses.

 

Gross Margin

 

Gross margin percentage for the six months ended June 30, 2021 was negative 2% compared to 20% for the same period in 2020. The decrease in gross margin reflects the Company’s increased costs of procuring inventory as the Company seeks to gain greater control over its manufacturing process.

 

Operating Expenses

 

Operating expenses increased for the six months ended June 30, 2021 by $1,521,750 from $278,967 in the prior periods to $1,800,717.

 

  General and administrative expense increased by $359,576 from $46,730 in the prior period to $406,306. The increase related to research and development and salaries as the Company seeks to expand its operations and products.
  The Company realized a loss on foreign exchange of $9,005 during the six months ended June 30, 2021, a decrease of $16,449 compared to a gain of $7,444 during the prior period. The increase on loss on foreign exchange can be attributed to operating expenses denominated in the Canadian Dollar.
  Professional fees which include accounting, legal and consulting fees, increased from $228,934 for the six months ended June 30, 2020 to $1,057,599 for the six months ended June 30, 2021. The increase was due to the employment of various third party consultants to help expand the Company’s business operations.

 

Other Income and Expenses

 

Other income and expenses for the six months ended June 30, 2021 was $230,796 compared to $86,719 the prior period, an increase of $144,077. The difference can be attributed to the Company’s increased interest expense.

 

Net Loss

 

Net loss for the six months ended June 30, 2021 was $2,035,178 compared to $344,451 for the six months ended June 30, 2020, a change of $1,690,727 or 491%. 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 and supply chain.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2021, the Company had $12,266,597 in 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 June 30, 2021 the Company had an accumulated deficit of $14,901,211.

 

Cash Flow Activities

 

Accounts receivable increased at June 30, 2020 by $35,406 and decreased at June 30, 2021 by $16,504. The decrease was due to the Company’s collection of receivables from customers. Other receivable decreased at June 30, 2021 and 2020 by $116,997 and $9,657 respectively, due to funds received from a sales tax refund and capital raised in the Reg-A offering.

 

Inventory decreased at June 30, 2020 by $60,136 and increased at June 30, 2021 by $212,344. Prepaid expenses increased by $220,841 at June 30, 2021 and increased at June 30, 2020 by $20,925, due to increased consulting and marketing expenditures during the quarter ended June 30, 2021.

 

Accounts payable and accrued liabilities decreased at June 30, 2021 and 2020 by $34,428 and $1,042 respectively.

 

Cash increased from $21,111 at June 30, 2020 to $12,266,597 at June 30, 2021, an increase of $12,245,486 or 58,005%. The increase in cash was primarily due to its warrants exercised, Reg A and private placement offerings which generated of approximately $12,300,000.

 

As of June 30, 2021, the Company had current assets of $13,120,449 and current liabilities of $1,684,764.

 

18

 

 

Operating Activities

 

Net cash used by operating activities for the six months ended June 30, 2021 was $995,926, compared to $229,553 in the prior period. The primary difference was due to the issuance of shares and warrants for services.

 

Investing Activities

 

Net cash used in investing activities for the six months ended June 30, 2021 was $286,512 compared to $8,764 in the prior period. The increase in investing activities was primarily due to the purchase of property and equipment of $257,305 and the advance of $5,507 of a short term receivable.

 

Financing Activities

 

Net cash provided by financing activities for the six months ended June 30, 2021 was $12,441,223 compared to $247,435 in the prior period.

 

During the six months ended June 30, 2021 the Company received $12,689,106 of proceeds from Reg-A public offering, private placement offering and exercises of warrants incurring share issuance cost of $123,984. During the six months ended June 30, 2021 the Company made repayment of $62,905 of promissory notes and repayment of $25,931 of shareholder loans.

 

During 2021, the Company intends to introduce several new tonneau covers as well as the TerraVis system. The Company anticipates that the introduction of these new products will improve the Company’s financial position.

 

Based on the Company’s future operating plans, existing cash of $12,266,597; management believes that the Company has sufficient funds to meet its contractual obligations and working capital requirements for the next 12 months and the foreseeable future.

 

Off-Balance Sheet Arrangements

 

None.

 

Critical Accounting Policies

 

Our discussion and analysis of results of operations and financial condition are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The accounting policies that we follow are set forth in Note 2 to our financial statements as included in the Form 10-K filed on April 13, 2021. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the financial statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not Applicable.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the quarter covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time years and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this quarterly report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Not Applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On January 1, 2021, the Company issued 12,500 (250,000 pre-stock split) shares of Common Stock and warrant to purchase 250,000 shares of Common Stock on or before January 1, 2026 at an exercise price of $2.00 per share to a third party for consulting services.

 

During the six months ended June 30, 2021 the Company issued 2,040,990 (40,819,800 pre-stock split) shares of common stock and warrants in a private offering for $4,081,980.

 

During the six months ended June 30, 2021 the Company issued 259,808 (5,196,154 pre-stock split) shares of common stock to third party consultants valued at $741,159.

 

During the six months ended June 30, 2021 the Company issued 150,000 (3,000,000 pre-stock split) shares of common stock to third party consultants valued at $390,000.

 

During the six months ended June 30, 2021 the Company issued 62,006 (1,240,111 pre-stock split) shares of common stock pursuant to a settlement agreement with a note holder valued at $111,610.

 

During the six months ended June 30, 2021 the Company issued 204,622 (4,092,431 pre-stock split) shares of common stock pursuant to a settlement agreement with a note holder valued at $368,320. During the same period the convertible promissory note holder exercised 39,512 (790,243 pre-stock split) warrants on a cashless basis for 39,512 (790,243 pre-stock split) shares common stock.

 

The shares and warrants listed herein were issued to the investors without registration under the Securities Act of 1933 based upon exemptions from registration provided under Section 4(2) of the Act and Regulation D promulgated thereunder. The issuances did not involve any public offering; no general solicitation or general advertising was used in connection with the offering.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not Applicable.

 

20

 

 

Item 6. Exhibits

 

EXHIBIT NO.   DESCRIPTION
     
31.1   Section 302 Certification of Chief Executive Officer
31.2   Section 302 Certification of Chief Financial Officer
32.1   Section 906 Certifications of Chief Executive Officer and Chief Financial Officer
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.

 

21

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  WORKSPORT LTD.
   
Dated: August 17, 2021 By: /s/ Steven Rossi
    Steven Rossi
    Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

    WORKSPORT LTD.
     
Dated: August 17, 2021 By: /s/ Michael Johnston
    Michael Johnston
    Chief Financial Officer and Accounting Officer

 

22

 

 

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