Worksport Ltd 10-K

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information. Our common stock is quoted on the OTCQB under the symbol “ WKSP.” The table below sets forth the high and low closing prices of our common stock during the two most recent fiscal years. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions. Fiscal Year Ended December 31, 2020 2019 High Low High Low First Quarter $ 0.563 $ 0.026 $ 2.000 $ 0.006 Second Quarter $ 0.130 $ 0.050 $ 0.300 $ 0.055 Third Quarter $ 0.480 $ 0.060 $ 0.130 $ 0.071 Fourth Quarter $ 0.166 $ 0.145 $ 0.115 $ 0.044 The closing price of our common stock as reported on April 13, 2021 was $0.30 per share. 11 Holders As of April 13, 2021, we had approximately 232 holders of record of our common stock and we had 163,074,698 shares of common stock outstanding. Transfer Agent Our transfer agent is EQ by Equiniti located at is 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209. Their phone number is (303) 282-4800. Dividend Policy We have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable future. The payment of dividends on our common stock is within the discretion of our Board of Directors. Equity Incentive Plan We adopted an equity incentive plan on June 5, 2015 (the “Plan” ). The Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) non-statutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 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 administers the Plan. Up to 100,000,000 shares may be issued under the Plan. No other stock options or similar instruments have been granted to any of our officers or directors pursuant to the Plan. Unregistered Sales of Equity Securities During the nine-months ended September 30, 2020 the Company issued 2,413,022 shares of common stock at $0.07 per share for $168,910 for consulting services. During the nine-months ended September 30, 2020, the Company issued 2,520,434 shares of common stock pursuant to the conversion of the convertible promissory note with a value of $226,839. During the nine-months ended September 30, 2020, the Company entered into a share subscription agreement with a consultant of the Company for 4,000,000 shares of common stock valued at $250,000. During the nine-months ended September 30, 2020 the Company issued 1,333,333 and 240,000 shares of common stock at $0.09 and $0.07 per share for $120,000 and $16,800, respectively, for prepaid advertising services. During the nine-months ended September 30, 2020 the Company entered into a share subscription agreement with a consultant of the Company for 4,000,000 shares of common stock valued at $125,000 for prepaid consulting services. As of September 30, 2020, the Company issued 2,150,000 shares with a value of $67,188. During the nine-months ended September 30, 2020, the Company issued a consultant 5,686,978 shares of common stock of subscription payable with a value of $648,147. During the nine-months ended September 30, 2020, the Company issued 458,834 shares of common stock pursuant to a subscription payable with a value of $55,000. 12 During the nine-months ended September 30, 2020, the Company issued 450,000 shares in connection with the issuance of convertible promissory note at $0.27 per share. During the nine-months ended September 30, 2020, the Company entered into a settlement to fulfill a debt purchase agreement entered in 2017 for 4,100,000 shares valued at $856,080. As of September 30, 2020, the Company has issued 4,100,000 shares. During the nine-months ended September 30, 2020, Steven Rossi (the Company’s CEO) was issued 1,000 Series A Preferred Shares at $0.09 per share. The Series A Preferred Shares are entitled to 51% of the voting power of the Corporation. On October 7, 2020, the Company issued 2,900,000 shares of common stock for $145,000. On October 7, 2020, the Company issued 2,291,667 shares of common stock for $275,000. During the year ended December 31, 2020, the Company completed two unregistered sales of equity securities, all pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act. The Company raised an aggregate of $250,000 in exchange for 4,000,000 shares of shares of common stock. The shares of common stock described above were not registered under the Securities Act of 1933 and are restricted securities. The Company relied upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933 in connection with the issuance of these shares. The persons who acquired these shares were sophisticated investors and were provided full information regarding the Company’s business and operations. There was no general solicitation in connection with the offer or sale of these securities. The persons who acquired these shares acquired them for their own accounts. The certificates representing these shares will bear a restricted legend providing that they cannot be sold except pursuant to an effective registration statement or an exemption from registration. No commission was paid to any person in connection with the issuance of these shares. Item 6. Selected Financial Data Not Applicable Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Note Regarding Forward-Looking Statements The following discussion contains forward-looking statements regarding us, our business, prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitation, our ability to successfully develop new products and services for new markets; the impact of competition on our revenues, changes in law or regulatory requirements that adversely affect or preclude clients from using us for certain applications; delays our introduction of new products or services; and our failure to keep pace with our competitors. When used in this discussion, words such as “believes,” “anticipates,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business. 13 Results of Operations Revenue For the year ended December 31, 2020, total revenues were $346,144, compared to $1,926,405 for the year ended December 31, 2019. Total revenues decreased by approximately 82% due to the COVID-19 pandemic and the loss of a significant customer during the year ended December 31, 2020. As a result of the COVID-19 pandemic, factory output decreased, shipping costs increased and the ability to distribute products to dealers, wholesalers and retailers was constrained due to labor shortages. For the year ended December 31, 2020 total revenues generated in Canada decreased 56% from $65,842 USD to $28,917 USD for the same period in 2019. For the year ended December 31, 2020, total revenue generated in the United States decreased 83% from $1,860,563 USD to $317,227 for the same period in 2019. For the year ended December 31, 2020, online revenues of increased from $174,793 in 2019 to $337,053, an increase of 93%. Online revenue accounted for 90% of total revenue for the year ended December 31, 2020 compared to 8% for the year ended December 31, 2019. For the year ended December 31, 2020, revenues based on distributors decreased from $64,610 in 2019 to $29,699. For the year ended December 31, 2020, private label revenues decreased from $1,912,40 to $0. 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. Cost of Sales For the year ended December 31, 2020 total cost of sales decreased by 82% from $1,687,857 to $298,996 for the year ended December 31, 2019. The decrease in cost of sales directly relates to the decrease in revenues generated. Cost of sales, as a percentage of sales, was approximately 82% and 88% for the years ended December 31, 2020 and 2019, respectively. The decrease in percentage of sales resulted in a gross margin increase from 12% for the years ended December 31, 2019 to 14% for the year ended December 31, 2020. This increase in gross margin is related to the fluctuation in foreign exchange rates between the Canadian Dollar and the United States dollars for purposes of financial reporting as well as the decrease in the overall cost of goods sold, especially associated with warehousing and fulfillment. Shipping and freight costs accounted for 28% of total cost of sales during the year ended December 31, 2020, compared to 3% in 2019. This increase is primarily attributed to an increase in international shipping expense. 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 certain distributors or retailers are able to pick up product directly from one of Worksport’s stocking warehouses. 14 Operating Expenses For the year ended December 31, 2020 general and administrative expenses were $201,929 compared to $238,841 for the year ended December 31, 2019. Material changes in general and administrative expenses consisted of the following: ● Wages decreased from $72,081 for the year ended December 31, 2019 compared to $66,182 for the year ended December 31, 2020. ● General expenses decreased from $127,396 for the year ended December 31, 2019 compared to $108,197 for the year ended December 31, 2020. The decrease was due to a decrease in the Company’s operations as a result of COVID-19. ● Shipping and freight charges decreased by 35% or $9,312 to $17,329 for the year ended December 31, 2020 compared to $26,641 year ended December 31, 2019. The decrease was a result of decreased Company operations due to COVID-19 resulting in decrease shipping cost being incurred. ● Professional fees which include accounting, legal fees, consulting fees, and listing and filing fees, increased from $515,279 for the year ended December 31, 2019 to $679,654 for the year ended December 31, 2020–an increase of 32%. Accounting and audit fees decreased by 33% from $173,434 in 2019 to $115,957in 2020. Consulting fees increased by 194% or from $260,556 in 2019 to $394,864 2020. Legal fees decreased from $124,373 in 2019 to $104,648 in 2020. Other Income and Expenses During the year ended December 31, 2020 a convertible promissory note was converted into 2,520,434 shares of common stock at $0.09 per share for $226,839. The original value of the convertible promissory note converted was $182,565 as a result of the conversion the Company recognized a loss of $44,274 on settlement of debt. During the year ended December 31, 2020, the Company reached a legal settlement agreement with an investor. In accordance with the settlement agreement, 4,166,667 post-stock split (25,000,000 pre-stock split), reserved shares were released and returned to the Company. This transaction resulted in a gain on debt settlement of $229,142. During the year ended December 31, 2019, the Company reached a legal settlement agreement (the “unwinding” ) with an individual investor to dissolve the Debt Settlement and Mutual Release Agreement entered into on January 12, 2018. In accordance with the settlement agreement, 19,055,551 pre-stock split, reserved shares were released and returned to the Company. In addition, 5,944,449 pre-stock split (990,742 post-stock split) shares already issued were returned to the Company’s treasury, and cancelled, reducing the companies issued and outstanding shares accordingly. This transaction resulted in a gain on debt settlement of $250,778. The Company closed the unwinding in August 2019. Net Loss Net loss for the year ended December 31, 2020 was $1,187,620 compared to a net loss of $359,034 for the year ended December 31, 2019 which is a of 231% increase in net loss when compared year over year. The increase in net loss was a result of the following: ● Increase in operating expenses from $776,398 for 2019 to $1,033,387 for 2020. An increase of $256,989 or 33%. ● Decrease in gross profit from $238,548 for 2019 to $47,148 for 2020. A decrease of $191,400 or 80%. Liquidity and Capital Resources At December 31, 2020, we had $1,107,812 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 15 Since the Company’s acquisition of Worksport in fiscal 2014, it has never generated a profit. The Company had an accumulated deficit of $12,866,033 as of December 31, 2020. During the year ended December 31, 2020, the Company completed a Reg-A offering in which $1,107,812 was raised. During the year ended December 31, 2020, the Company completed two private offerings of equity securities, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act in which an aggregate of $250,000 was raised. Cash increased from $11,993 at December 31, 2019 to $1,107,812 at December 31, 2020, an increase of $1,095,818 or 9,137%. The increase in cash was primarily due to funds raised from the Company’s public Reg-A offering. As of December 31, 2020, the Company had cash and cash equivalents of $1,107,812 and a working capital deficiency of $33,289. Net cash used by operating activities for the year ended December 31, 2020 was $726,304, compared to cash used in operations for the year ended December 31, 2019 of $2,157. The primary difference was due to the Company’s Net Loss as a result of operating expenses and interest expense. Net cash used in investing activities for the year ended December 31, 2020 was $16,727 compared to $124,048 during the same period in 2019. The decrease in investing activities was primarily attributable to a significant decrease in the purchase of property and equipment. Net cash provided by financing activities was $1,838,850 for the year ended December 31, 2020 compared to $117,841 for the year ended December 31, 2019. The increase in net cash provided by financing activities was primarily due to the Company’s Reg-A offering and private offerings. In January and February 2021, in connection with the Company’s Reg-A public offering, the Company raised approximately $3,000,000 in additional capital. During February 2021, approximately 12,000,000 warrants were exercised at $0.20 per warrant for an approximate value of $2,400,000. Subsequent to year ended December 31, 2020, the Company raised approximately $900,000 in connection with a private offering of its common stock. 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 $1,107,812, additional funds of approximately $6,300,000 raised subsequent to the year ended December 31, 2020; 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 The Company does not have any off-balance sheet arrangements with any party. 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. 16 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. 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. Not applicable. 17