UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
Quarterly Period Ended:
Commission
File No.
(Exact Name of Small Business Issuer as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
Telephone Number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| The
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant
was required to submit post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 15, 2025, the Registrant had shares of common stock, par value $ per share, issued and outstanding.
Worksport Ltd.
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Worksport Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivable | ||||||||
| Inventory (Note 3) | ||||||||
| Prepaid expenses and deposits (Note 6) | ||||||||
| Total current assets | ||||||||
| Investments (Note 11) | ||||||||
| Property and equipment, net (Note 4) | ||||||||
| Operating lease right-of-use assets (Note 12) | ||||||||
| Intangible assets, net (Note 5) | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities and other | ||||||||
| Accrued compensation | ||||||||
| Long-term debt, current portion (Note 13) | ||||||||
| Lease liability, current portion (Note 12) | ||||||||
| Total current liabilities | ||||||||
| Lease liability, excluding current portion (Note 12) | ||||||||
| Long-term debt, excluding current portion (Note 13) | ||||||||
| Total liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| Series A & B Preferred Stock, $ par value, shares authorized, Series A and Series B issued and outstanding, respectively (Note 7) | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively (Note 7) | ||||||||
| Additional paid-in capital | ||||||||
| Share subscriptions receivable | ( | ) | ( | ) | ||||
| Share subscriptions payable | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Cumulative translation adjustment | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements which form an integral part of the Condensed Consolidated Financial Statements.
| 3 |
Worksport Ltd.
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three Months Ended March 31, 2025 and 2024
(Unaudited)
| Three Months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Sales and marketing | ||||||||
| Professional fees | ||||||||
| Gain on foreign exchange | ( | ) | ( | ) | ||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Rental income | ||||||||
| Other | ( | ) | ||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share (basic and diluted) | $ | ) | $ | ) | ||||
| Weighted average number of shares (basic and diluted) | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements which form an integral part of the Condensed Consolidated Financial Statements.
| 4 |
Worksport Ltd.
Condensed Consolidated Statements of Shareholders’ Equity
For the Three Months Ended March 31, 2025 and 2024
(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, 2024 | | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | |||||||||||||||||||||||||||||||||||||||
| Shares issued (Note 7) | - | |||||||||||||||||||||||||||||||||||||||
| Warrant exercise | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Issuance for services and subscriptions payable | - | |||||||||||||||||||||||||||||||||||||||
| Shares issued (Note 7) | - | |||||||||||||||||||||||||||||||||||||||
| Warrant Exercise (Note 15) | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements which form an integral part of the Condensed Consolidated Financial Statements.
| 5 |
Worksport Ltd.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2025 and 2024
(Unaudited)
| 2025 | 2024 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Shares, options and warrants issued for services | ||||||||
| Depreciation and amortization | ||||||||
| Change in operating lease | ||||||||
| ( | ) | ( | ) | |||||
| Changes in operating assets and liabilities (Note 10) | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Shareholder assumption of debt | ( | ) | ||||||
| Proceeds from warrant exercise | ||||||||
| Proceeds from line of credit | ||||||||
| Repayments on line of credit | ( | ) | ||||||
| Repayments on long-term debt | ( | ) | ||||||
| Proceeds from issuance of common share, net of issuance cost | ||||||||
| Net cash received from financing activities | ||||||||
| Change in cash | ||||||||
| Cash, restricted cash and cash equivalents - beginning of period | ||||||||
| Cash, restricted cash and cash equivalents end of period | $ | $ | ||||||
| Supplemental Disclosure of cash flow information | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements which form an integral part of the Condensed Consolidated Financial Statements.
| 6 |
Worksport Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the fiscal year ended December 31, 2024. All references to years in these financial statements are fiscal years.
Reclassifications
– Certain prior year amounts have been reclassified to conform to current year’s presentation. The Company reclassified research
and development of $
Recent accounting pronouncements
Recent accounting pronouncements adopted
In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We adopted this standard for the year ended December 31, 2024, and applied the amendments retrospectively to all prior periods presented. Refer to Note 17, Segment Reporting. The adoption of this standard did not have a material effect on the financial statements and related disclosures.
Recent accounting pronouncements not yet adopted
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on the financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures” to enhance disclosure of specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the face of the income statement. ASU 2024-03 is effective beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on the financial statements and related disclosures.
The company considers the applicability and impact of all ASUs. ASUs not listed were assessed and determined to be either not applicable or had or are expected to have an immaterial impact on the financial statements and related disclosures.
| 7 |
2. Going Concern
As
of March 31, 2025, the Company had $
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the three months
ended March 31, 2025, the Company had net losses of $
The
Company has historically operated at a loss, although that may change as sales volumes increase and margins improve. As of March 31,
2025, the Company had cash and cash equivalents of $
The
Company has successfully raised cash, and it is positioned to do so again if deemed necessary or strategically advantageous. During
the year ended December 31, 2021, the Company, through its Reg-A public offering, private placement offering, underwritten public
offering, and exercises of warrants, raised an aggregate of approximately $
On
November 2, 2023, the Company consummated a registered direct offering pursuant to which the Company issued
shares of common stock and
pre-funded warrants to an institutional investor for a total
net proceeds of $
On
March 20, 2024, the Company consummated a registered direct offering pursuant to which the Company issued shares of common stock
and pre-funded warrants to the same institutional investor as in the Company’s registered direct offering on November 2,
2023, for a total net proceeds of $
On
May 29, 2024, Worksport sent an inducement letter to a shareholder offering an option to exercise their warrants at a reduced exercise
price of $
On December 13, 2024, the Company filed a Prospectus Supplement to amend Amendment No. 1 to the prospectus supplement dated as of November 5, 2024, prospectus supplement dated as of October 13, 2022, and the prospectus dated as of October 13, 2022 to increase the maximum amount of shares that we are eligible to sell pursuant to the Sales Agreement under General Instruction I.B.6. to $ of shares of our common stock not including whatever had been sold prior to this filing date.
| 8 |
On
February 27, 2025, Worksport entered into a warrant inducement agreement with a shareholder to exercise of their
To date, the Company’s principal sources of liquidity consist of net proceeds from public and private securities offerings and cash exercises of outstanding warrants. Management is focused on transitioning towards revenue as its principal source of liquidity by growing existing product offerings as well as the Company’s customer base. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot provide assurances it will be able to raise additional capital on acceptable terms, or at all.
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. Still, certain factors indicate the existence of a material uncertainty that cast substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments could be material.
3. Inventories
Inventories, net of reserves, consists of:
| March 31, 2025 | December 31, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Work in progress | ||||||||
| Inventories, net | $ | $ | ||||||
4. Property and Equipment
Property and equipment consist of:
| March 31, 2025 | December 31, 2024 | |||||||
| Building | $ | $ | ||||||
| Manufacturing equipment | ||||||||
| Land | ||||||||
| Leasehold improvements | ||||||||
| Product molds | ||||||||
| Warehouse equipment | ||||||||
| Electrical equipment | ||||||||
| Automobile | ||||||||
| Furniture | ||||||||
| Computers | ||||||||
| Property and equipment, at cost | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the three months ended March 31, 2025 and 2024
was $
| 9 |
5. Intangible Assets
Intangible assets consist of costs incurred to establish the patent rights related to the quick latch and soft vinyl quad-fold tonneau cover technologies, Worksport trademarks, licenses, and software costs. The Company’s utility patents and design registrations were issued between 2014 and 2025. The patents and software are amortized on a straight-line basis over their useful life. The Company’s trademark, licenses, and other indefinite life intangible assets are reassessed every year for impairment. The Company determined that impairment is not necessary for the prior year ended December 31, 2024 and for the three months ended March 31, 2025.
The components of intangible assets are as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| Software | $ | $ | ||||||
| License | ||||||||
| Patent | ||||||||
| Trademark | ||||||||
| Other | ||||||||
| Intangible assets, gross carrying amount | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense for the three months ended March 31, 2025 and 2024 was $
Estimated amortization of the patent and software over the next five calendar years and beyond March 31, 2025 is as follows:
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| 2028 | $ | |||
| 2029 | $ | |||
| Thereafter | $ |
6. Prepaid Expenses and Deposits
Prepaid expenses and deposits consist of:
| March 31, 2025 | December 31, 2024 | |||||||
| Consulting, services and advertising | $ | $ | ||||||
| Insurance | ||||||||
| Deposits | ||||||||
| Prepaid expenses and deposits | $ | $ | ||||||
7. Shareholders’ Equity
During three months ended March 31, 2025, the following transactions occurred:
During
the three months ended March 31, 2025, the Company sold shares of common stock for total gross proceeds of $
The
Company recognized consulting expense of $
During
the three months ended March 31, 2025, in connection with the inducement of warrants at $
| 10 |
Refer to Note 15, Warrants and Note 16, Equity Compensation for additional disclosures related to shareholders’ equity.
During three months ended March 31, 2024, the following transactions occurred:
During
the three months ended March 31, 2024, the Company sold shares of common stock for a total net proceeds of $
The
Company recognized consulting expense of $
During
the three months ended March 31, 2024, the Company closed a sale of shares of common stock for net proceeds of $
8. Income Taxes
The
effective tax rate for the three months ended March 31, 2025 and 2024 was
9. Financial Instruments and Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows:
Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.
Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, revolving line of credit, and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value because of the short-term nature of these instruments. The Company’s revolving line of credit is based on a variable interest rate and is reflected in the financial statements at carrying value which approximates fair value at March 31, 2025. The Company’s long-term debt is based on a fixed interest rate, and its carrying amount approximates fair value at March 31, 2025. The fair value of the revolving line of credit and long-term debt is classified as Level 2 within the fair value hierarchy and is estimated based on quoted market prices.
| 11 |
10. Changes in Cash Flows from Operating Assets and Liabilities
The changes to the Company’s operating assets and liabilities for the three months ended March 31, 2025 and 2024 are as follows:
| 2025 | 2024 | |||||||
| Decrease (increase) in accounts receivable | $ | ( | ) | $ | ||||
| Decrease (increase) in other receivable | ( | ) | ||||||
| Decrease (increase) in inventory | ( | ) | ( | ) | ||||
| Decrease (increase) in prepaid expenses and deposits | ( | ) | ||||||
| Increase (decrease) in accounts payable and accrued liabilities | ||||||||
| $ | ( | ) | $ | ( | ) | |||
11. Investments
| a) | During
the three months ended March 31, 2025, $ |
12. Leases
During
the year ended December 31, 2022, the Company signed a lease agreement for approximately
During
the year ended December 31, 2023, the Company signed a lease agreement for office space to be used as an R&D facility pursuant to
a
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
| 12 |
The Company’s right-of-use asset and lease liability as of March 31, 2025, and December 31, 2024, are as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| Right-of-use asset | $ | $ | ||||||
| Current lease liability | $ | $ | ||||||
| Long-term lease liability | $ | $ | ||||||
The following is a summary of the Company’s total lease costs:
| March 31, 2025 | March 31, 2024 | |||||||
| Operating lease cost | $ | $ | ||||||
The following is a summary of cash paid during the three months ended March 31, 2025 and 2024 for amounts included in the measurement of lease liabilities:
| March 31, 2025 | March 31, 2024 | |||||||
| Operating cashflow | $ | $ | ||||||
The following are future minimum lease payments as of March 31, 2025:
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total future minimum lease payments | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of future payments | ||||
| Current portion | ||||
| Long term portion | $ | |||
13. Indebtedness
Long-term debt consists of:
| March 31, 2025 | December 31, 2024 | |||||||
| Revolving Credit Facility (a) | $ | $ | ||||||
| Other (b) | ||||||||
| Less deferred debt issuance cost | ( | ) | ( | ) | ||||
| Less current installments | ( | ) | ( | ) | ||||
| Long-term debt | $ | $ | ||||||
| a) | ||
| For collateral, the lender holds a first position on the
Company’s major asset classes (accounts receivable, the factory in New York, and inventory) other than the Company’s
equipment. A non-usage fee of | ||
| b) |
For the three months ended March 31, 2025, loss per share is $ (basic and diluted) compared to that of the three months ended March 31, 2024, of $ (basic and diluted) using the weighted average number of shares of (basic and diluted) and (basic and diluted), respectively.
There are shares authorized with and shares issued and outstanding, at March 31, 2025 and 2024, respectively. 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 of March 31, 2025, the Company has warrants convertible to common shares, restricted stock to be issued, and stock options exercisable for common shares for a total underlying common shares of . As of March 31, 2024, the Company has warrants convertible to common shares, restricted stock to be issued, and stock options exercisable for common shares for a total underlying common shares of .
| 13 |
15. Warrants
On
February 27, 2025, the Company entered into a warrant inducement agreement (the “Inducement”) with the holder of existing
warrants to purchase an aggregate
During
the year ended December 31, 2024, in connection with the sale of shares of common stock, the Company also sold pre-funded
warrants and issued warrants exercisable for a total of
During
the year ended December 31, 2024, the Company closed a sale of shares of common stock. In connection with the sale of common stock
the Company issued warrants. The warrants have an exercise price of $
During
the year ended December 31, 2024,
During
the year ended December 31, 2023, in connection with the sale of shares of common stock the Company also sold pre-funded
warrants and warrants convertible for
On
May 9, 2024, the Company entered into a warrant inducement agreement (the “Inducement”) with the holder of existing warrants
to purchase an aggregate
During
the year ended December 31, 2023, the Company and a stock options holder agreed to cancel all stock options in exchange for extending
the exercisable period of
During
the year ended December 31, 2022, the Company and a warrant holder reached an agreement to extend the exercisable period of
During
the year ended December 31, 2021, the Company issued
As of March 31, 2025, the Company has the following warrants outstanding:
| Exercise price | Number outstanding | Remaining Contractual Life (Years) | Expiry date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
The average remaining contractual life of outstanding warrants that expire is years.
| March 31, 2025 | December 31, 2024 | |||||||||||||||
| Number of warrants | Weighted average price | Number of warrants | Weighted average price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Issuance | $ | $ | ||||||||||||||
| Expired | ( | ) | $ | ( | ) | $ | ||||||||||
| Exercise | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Balance, end of period | $ | $ | ||||||||||||||
Under the Company’s 2015, 2021 and 2022 Equity Incentive Plans,
All equity-settled, share-based payments are ultimately recognized as an expense in the statement of operations with a corresponding credit to “Additional Paid in Capital.” If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different than that estimated on vesting.
| 14 |
Performance Share Units
On May 1, 2023, the Company and Steven Rossi reached an agreement to modify restricted stock units and performance stock units (“PSUs”) issued on November 11, 2022, and December 29, 2021, respectively, and replace them with stock options, as described below.
On November 11, 2022, and PSUs granted on December 29, 2021, as described below, were modified to include new terms pertaining to the PSU vesting schedule. as measured using the volume weighted average of the Company’s common stock for ten (10) consecutive trading days, with over $of trading volume on each of those days. The fair value of the PSUs was estimated to be $. As of March 31, 2025, PSUs of the remaining PSUs had vested.
On December 29, 2021, the Company granted and PSUs to the Company’s Chief Executive Officer and a director, respectively. The fair value of the PSUs was estimated to be $.
Stock Options
The Company uses the Black-Scholes option pricing model to determine fair value of stock options on the grant date.
During the three months ended March 31, 2025, the Company issued stock options to a director with an exercise price of $ and an expiration date of Marh 7, 2035.
On
July 23, 2024, the Company engaged in stock option repricing for certain employees, executive officers, and members of the board of directors
of the Company.
During the year ended December 31, 2024, the Company issued stock options to employees and directors with exercise prices ranging from $ to $ and expiration dates ranging from February 1, 2029 to November 19, 2034. Of these stock options, were subsequently cancelled.
| March 31, 2025 | December 31, 2024 | |||||||||||||||
Number of stock | Weighted average | Number of stock | Weighted average | |||||||||||||
| options | price | options | price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Forfeited | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Balance, end of period | $ | $ | ||||||||||||||
| Range of Exercise | Weighted average | Weighted average | Exercisable on | |||||||||||||||||
| prices | Outstanding | life (years) | exercise price | March 31, 2025 | ||||||||||||||||
| Stock options | $ | - | $ | |||||||||||||||||
| 15 |
| March 31, 2025 | December 31, 2024 | |||||||||||||||
Number of stock | Weighted average | Number of stock | Weighted average | |||||||||||||
| options | price | options | price | |||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
| Range of | Weighted average | Weighted average | Exercisable on | |||||||||||||||||
| Exercise prices | Outstanding | life (years) | exercise price | March 31, 2025 | ||||||||||||||||
| Stock options | $ | $ | ||||||||||||||||||
17. Segment Reporting
The Company manages its business on a product basis and operates in the following two reporting segments for financial reporting purposes: (1) Hard Tonneau Covers and (2) Soft Tonneau Covers. The accounting policies of both reporting segments are the same as those described in Note 1, Description of Business and Summary of Significant Accounting Policies.
The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer, who regularly reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance of the Company’s reporting segments. The CODM primarily focuses on net income to evaluate its reporting segments. The CODM also uses net income for evaluating pricing strategy and to assess the performance for determining the compensation of certain employees. Significant segment expenses reviewed, which represent the differences between segment revenue and segment net loss, consist of the following:
| For the three months ended March 31, 2025 | For the three months ended March 31, 2024 | |||||||||||||||||||||||||||||||
| Hard Tonneau Covers | Soft Tonneau Covers | Corporate / Eliminations | Consolidated | Hard Tonneau Covers | Soft Tonneau Covers | Corporate / Eliminations | Consolidated | |||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Less: Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Selling, general and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
The following table presents the Company’s net sales disaggregated by geographic area:
| 2025 | 2024 | |||||||||||||||||||||||
| Hard Tonneau Covers | Soft Tonneau Covers | Consolidated | Hard Tonneau Covers | Soft Tonneau Covers | Consolidated | |||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Canada | ||||||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
No
asset information has been provided for the reported segments as the CODM does not regularly review asset information by reportable segment.
As of March 31, 2025 and December 31, 2024, assets held in the U.S. accounted for
18. Commitments and Contingencies
There are no legal proceedings except for routine litigation incidental to the business.
19. Subsequent Events
The Company has evaluated subsequent events through May 15, 2025. The following events occurred after the three months ended March 31, 2025:
| ● | On
April 1, 2025, the Company signed a lease agreement for |
| 16 |
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 December 31st and the associated quarters, months and periods of those fiscal years. Each of the terms “Company” and “Worksport” as used herein refers collectively to Worksport Ltd. and its subsidiaries, unless otherwise stated.
On March 18, 2025, the Company effected a 1-for-10 reverse stock split of its common stock. All share and per share information has been retroactively adjusted for all period presented.
The following discussion should be read in conjunction with the Company’s Annual Report Form 10-K for the fiscal year ended December 31, 2024 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 27,2025 and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.
OVERVIEW
Worksport Ltd., through its subsidiaries, designs, develops, manufactures, and owns the intellectual property on a variety of tonneau covers, solar integrations, portable power systems, and clean heating & cooling solutions. Additionally, Worksport’s hard-folding cover, designed and manufactured in the United States, is compatible with all major truck models and is gaining traction with newer truck makers including the EV sector. Worksport seeks to capitalize on the growing shift of consumer mindsets towards clean energy integrations and power grid independence with its proprietary solar solutions, mobile energy storage systems (ESS), and Cold-Climate Heat Pump (CCHP) technology.
Rising Popularity of Electric Vehicles
Electric Vehicles (EVs) have been increasing in consumer interest, whether that interest takes the form of vehicle pre-orders, sales, or investments. As we begin marketing our Worksport SOLIS and COR, we plan to market the SOLIS as a must-have accessory for electric light duty vehicle owners while simultaneously riding the coattails of EV popularity to promote our other products (COR and conventional tonneau covers) to the very large population of Americans that have an interest in EVs without the funds to purchase them. Further, participating in the EV space allows us to target consumers with an interest in cutting-edge technologies – a great market in which to promote our COR portable power system. Notably, the COR & SOLIS are compatible with existing internal combustion engine vehicles and will not rely on the rapid adoption of EVs.
Regulatory Environment Favoring Electric Vehicles
The Build Back Better Bill was a strong indication of upcoming and favorable U.S. regulations. Many regulations that improve North America’s EV charging infrastructure or provide grants to businesses operating in the EV space would benefit us. While we are primarily focused on the light duty vehicle market, our energy products are particularly useful for electric light duty pickup trucks and, therefore, are positioned to benefit greatly from any bill that increases the prevalence of such vehicles. However, President Donald Trump has signed an executive order titled Unleashing American Energy in which he has indicated his administration will be reversing the electric vehicle mandates of Joe Biden’s former administration, and he has further paused billions of dollars in funding allocated towards electric vehicle charging stations. The future of the U.S.’s regulatory environment surrounding electric vehicles is uncertain.
Limited Competitive Landscape
Our conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, making them strong and competitive products in an otherwise consolidated and saturated market. The Worksport COR, however, operates in a much wider yet unsaturated market. The global Portable Power Station market is quickly growing, and the competitive landscape is far from consolidated. The solar tonneau cover market is in its infancy, and it’s a market in which we have first-mover advantage. To ensure we do not fall behind future competitors, we are highly focused on protecting our intellectual property both domestically and abroad.
Economic Conditions and Market Trends
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.
Climate Change
Climate change threatens to cause many foreseeable as well as unforeseeable ramifications. In cautious preparation for those that are foreseeable, we have strategically begun domestic manufacturing operations in Western New York – an economically growing region not immediately threatened by climate change to the same extent as other regions and possibly one that may benefit from future population migrations within the U.S. Further, we intend to lower our own carbon footprint by investing in energy-saving measures in our factory in West Seneca, NY. Considering climate change may also exacerbate geopolitical tensions, we are working to diversify our supply chain and lower our reliance on any particular region or country for raw materials in order to lower our exposure to climate change-induced economic or political instability.
| 17 |
We believe our Worksport SOLIS and Worksport COR products will be received positively by the public for their resilience to, and even increased utility as a result of, Climate Change. However, we acknowledge the potentially negative environmental impacts of poor battery recycling and increasing demand for precious metals. We are actively researching ways to lower such environmental impacts.
Inflation
Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions and tariffs. Increasing prices of the component materials for parts of our goods may impact the availability, quality and price of our products as suppliers search for alternatives to existing materials and increase the prices they charge. Our suppliers may also fail to provide consistent quality of product as they may substitute lower cost materials to maintain pricing levels. Rapid and significant changes in commodity prices may negatively affect our profit margins, and it may be difficult to mitigate worsened margins through customer pricing actions and cost reduction initiatives.
Additionally, as central banks and the U.S. Federal Reserve increase interest rates to combat global inflation, the cost of debt financing increases. The U.S. Federal Reserve has begun to decrease interest rates in 2024, but they may persist at an elevated level for the foreseeable future. Our $6,000,000 line of credit and our $1,487,000 in equipment financing both have floating interest rates, meaning we are susceptible to variable debt interest costs as a result of changes in interest rates.
High interest rates have also resulted in a shift in institutional holdings away from micro-cap equities, which has negatively influenced our stock’s trading volume. We continue to forge relationships with institutional investors and analysts in order to maintain a healthy trading volume.
Gasoline Prices and Supply Chain Issues
We faced significantly higher ocean freight, trucking, and container handling costs as well as last mile delivery costs in 2021 and 2022 than we did in previous years – all of which have increased our products’ landed costs. Higher oil and gasoline prices further increased these costs, and while such prices have come down from their 2022 highs, we continue to closely monitor gasoline and shipping costs. While the Freight Rate Index has significantly increased from late 2023 through mid-2024 as a result of Houthi attacks against cargo ships in the Red Sea and the concurrent decline in activity across the Panama Canal, the shipping routes used by Worksport have not faced dramatic price hikes. Regardless, Worksport is closely monitoring international shipping costs.
Our transition towards domestic manufacturing and assembly is anticipated to largely offset these higher costs, as we believe we will be less exposed to higher international shipping costs. We are also identifying North American suppliers of our products’ components and will prioritize transport by rail when possible to avoid high trucking costs.
Geopolitical Conditions
In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen. It is not possible to predict the broader consequences of these conflicts, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as whether any counter measures or retaliatory actions in response, including, for example, potential cyberattacks or the disruption of energy exports, are likely to cause regional instability and geopolitical shifts, which could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. These situations remain uncertain, and while it is difficult to predict the impact of any of the foregoing, the conflicts and actions taken in response to these conflicts could increase our costs, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.
While we do not have any direct operations or significant sales in the Middle East, geopolitical tensions and ongoing conflicts in the region, particularly between Israel and Hamas, may lead to global economic instability and fluctuating energy prices that could materially affect our business. It is not possible to predict the broader consequences of the Israel-Hamas war, including related geopolitical tensions, and the measures and actions taken by other countries in respect thereof, which could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. While it is difficult to predict the impact of any of the foregoing, the Israel-Hamas war may increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition and results of operations.
Foreign Currencies
We are subject to foreign exchange risk as we manufacture certain products and components in China, market extensively in both Canadian and U.S. markets, employ people residing in both the U.S. and Canada and, to date, have raised funds in Canadian Dollars. Meanwhile, we report results of operations in U.S. Dollars. Since our Canadian customers pay in Canadian Dollars, we are subject to gains and losses due to fluctuations in the USD relative to the Canadian Dollar. Our manufacturers in China are paid in USD to better avoid the relatively greater fluctuation of the Chinese Yuan. To the extent the U.S. dollar strengthens against any of these foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our operations.
Tariffs
Worksport’s hard tonneau covers—led by the AL3 and AL4 models—are manufactured in the U.S. using predominantly American aluminum, providing strong resilience against tariffs. Soft covers, currently sourced from China, account for a minor portion of revenue, with domestic sourcing options actively under review. The upcoming SOLIS solar cover will be built in the U.S., with solar panels expected to be sourced from India, a country maintaining relatively stable trade relations with the U.S. For the COR portable power system, Worksport is working with its international battery supplier and U.S.-based partners to mitigate tariff exposure and evaluate onshore manufacturing opportunities.
| 18 |
Business Developments
The following highlights recent material developments in our business in the three months ended March 31, 2025:
| ● | On February 4, 2025, the Company announced it had begun production of its new flagship product line: the AL4 Hardcover. |
| ● | On February 11, 2025, the Company announced that its subsidiary, Terravis Energy, had achieved a major industry milestone by unveiling its AetherLux™ heat pump system, which eliminates the need for Defrost Cycles, and operates at temperatures as low as -57°F and as high as +131°F – both of which are large shortcomings of other heat pumps on the market. | |
| ● | On February 25, 2026 the Company announced that its dealer network has expanded by 30% in the first two months of 2025, and, following an ongoing production ramp-up driven by strong early feedback, initial models of its AL4 Premium Tonneau Cover were now officially available for purchase at www.worksport.com |
| ● | On February 27, 2025, the Company entered into a warrant inducement agreement (the “Inducement”) with the holder of existing warrants to purchase an aggregate 1,295,000 shares at a revised price of $5.20 in consideration for the Company to issue new warrants to purchase up to 1,424,500 additional shares of common stock at an exercise price of $6.502 each – resulting in gross proceeds of approximately $6,734,000 received by the Company. |
| ● | On March 18, 2025, Worksport effectuated a 1-for-10 reverse stock split of its common stock. The Company’s common stock continues to trade on the Nasdaq under the Company’s existing trading symbol, “WKSP”, and a new CUSIP number, 98139Q308, was assigned as a result of the reverse stock split. |
| ● | Through March 31, 2025, the Company has sold and issued 22,725 shares of common stock in consideration for net proceeds of $185,874 under the ATM Agreement. |
CRITICAL ACCOUNTING POLICIES
On a regular basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including revenue recognition, inventory valuation, reviews for impairment of long-lived assets, and income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1, Description of Business and Significant Accounting Policies included in Item 1, Financial Statements of this report for further information regarding Financial Accounting Standards Board issued Accounting Standards Updates (“ASU”).
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended March 31, 2025 compared to the Three Months Ended March 31, 2024
Net sales
For the three months ended March 31, 2025, net sales were $2,240,005, as compared to $512,637 for the three months ended March 31, 2024. Year-over-year net sales increased by approximately 337%. For the three months ended March 31, 2025, net sales generated in U.S. was $2,227,549, as compared to $474,654 for the same period in 2024, an increase of 369%. For the three months ended March 31, 2025, revenue generated in Canada was $12,456, compared to $20,007 for the same period in 2024, a decrease of 38%.
| 19 |
Net sales increased during the three months ended March 31, 2025 compared to the same period the prior year due to further branding and marketing efforts resulting in higher direct to consumer sales as well as implementation of our distributor, wholesaler, and jobber sales strategy leading to increases in our business to business sales channels.
We distribute our hard tonneau covers and soft tonneau covers in the U.S. and Canada through an expanding network of wholesalers, private labels, distributors, and other online retailers, including eBay, Amazon, Walmart, and our own e-Commerce platform hosted on Shopify. Distribution via each aforementioned channel is expected to increase during 2025. We have pursued and will continue to pursue relationships with Original Equipment Manufacturers with the intention of distributing through them as well.
We currently work closely with a large Canadian and a large U.S. distributor as well as online retailers to grow our customer base. We are progressing well in conversations with three other major distributors with strong market presences, which will allow us to promote to dealers and sell to jobbers in strategic regions. Lastly, we are in closing discussions with a network of nationwide U.S. dealers capable of bringing our product to all U.S. continental states.
Cost of Sales
Cost of sales increased by 288%, from $475,181 for the three months ended March 31, 2024, to $1,843,784 for the three months ended March 31, 2025. Our cost of sales, as a percentage of sales, was approximately 82% and 93% for the three months ended March 31, 2025 and 2024, respectively. The decrease in the cost of sales as a percentage of sales was primarily driven by improved production efficiencies resulting from the continued maturation of our manufacturing processes. As production volumes increased, we achieved greater economies of scale and more efficient overhead absorption, resulting in lower per-unit manufacturing costs. This improvement in operational throughput allowed fixed and semi-variable overhead costs to be allocated across a higher number of units, thereby reducing the cost of sales on a per-unit basis.
We provide our 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 offered to certain high-volume customers, and we also offer a “dock price” or “pickup program” whereby clients are able to pick up product directly from our stocking warehouse.
Operating Expenses
Operating expenses increased for the three months ended March 31, 2025 by $975,605, from $3,676,922 for the three months ended March 31, 2024 to $4,652,527, mainly due to the following factors:
| ● | Research and development expense decreased by $11,399, from $381,000 in 2024 to $369,601 in 2025. The decrease was related to developmental progress of our AL3 product line which required less R&D efforts as resources were shifted to normal-course production. | |
| ● | General and administrative expense increased by $695,463, from $2,293,318 in 2024 to $2,988,781 in 2025. The increase was related to a shift in overhead absorption driven by production volume requirements as well as an increase in labor costs to support production efforts. | |
| ● | Sales and marketing expense increased by $802,972, from $66,777 in 2024 to $869,749 in 2025. The increase in sales and marketing was primarily attributable to marketing campaigns to drive traffic and engagement to our online marketplace for direct to consumer sales. | |
| ● | Professional fees expense, which includes accounting, legal, and consulting fees, decreased from $943,778 in 2024 to $426,041 in 2025. The decrease in professional fees was primarily driven by reduced reliance on external consultants as the Company progressed from the planning and setup phase of its manufacturing operations to active production and scaling efforts, inclusive of marketing, as well as a reduction in non-cash expenditures relating to stock-based compensation for consultants. |
| 20 |
Other Income and Expenses
We reported net other expenses for the three months ended March 31, 2025 of $204,158, compared to $75,191 for three months ended March 31, 2024. The increase in net other expenses was attributed to increased interest expense on our line of credit and a reduction in rental income as a result of the completion of the term of our sublease agreement.
Net Loss
Net loss for the three months ended March 31, 2025 was $4,460,464, compared to a net loss of $3,714,657 for the three months ended March 31, 2024 – an increase of 20%. The increase in the net loss can be attributed to the increase in various operating expenses as we focus on expanding our operations, research and development, manufacturing, and supply chain.
Liquidity and Capital Resources
As of March 31, 2025 and December 31, 2024, we had $5,080,372 and $4,883,099, respectively in cash and cash equivalents. As of March 31, 2025, we had $2,858,700 of remaining available capacity on our revolving line of credit compared with $811,400 of remaining available capacity as of December 31, 2024. The increase in cash and cash equivalents and increase in the remaining available capacity on our revolving line of credit was primarily a result of our warrant inducement transaction on February 27, 2025. We have historically generated only limited gross profit and have relied primarily upon capital generated from public and private offerings of our securities to fund continuing operations. Since the Company’s acquisition of Worksport in 2014, it has never generated a profit. During the three months ended March 31, 2025, we had net losses of $4,460,464 (three months ended March 31, 2024 - $3,714,657). As of March 31, 2025, the Company had working capital of $7,936,250 (As of December 31, 2024 - $7,304,110) and had an accumulated deficit of $68,937,430 (As of December 31, 2024 - $64,476,966).
In their fiscal 2024 audit report, our independent auditors expressed that there is substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate cash flows from operations and obtain equity and/or debt financing. We intend to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund our capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps our management is taking will be successful.
To date, our principal sources of liquidity consist of net proceeds from public and private securities offerings and cash exercises of outstanding warrants. During the three months ended March 31, 2025, the Company received net proceeds of $6,570,415 from offerings. Management is focused on transitioning towards gross profit as our principal source of liquidity by growing our existing product offerings and customer base and realizing manufacturing efficiency improvements. We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot ensure that we will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, we believe our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements.
We have raised significant funds during the three months ended March 31, 2025 per the following public and private offerings:
Warrant Inducement
On February 27, 2025, we entered into a common stock warrant exercise inducement offer letter (the “Inducement Letter”) with a certain holder (the “Holder”) of existing warrants to purchase shares of our common stock at an exercise price of $5.198 per share, issued on May 29, 2024 (the “Existing Warrants”), pursuant to which the Holder agreed to exercise for cash its Existing Warrants to purchase an aggregate of 1,295,000 shares of the Company’s common stock at $5.198 per share, in consideration for the Company’s agreement to issue new warrants (the “Inducement Warrants”) having terms as described below, to purchase up to 1,424,500 shares of the Company’s common stock (the “Inducement Warrant Shares”). We received aggregate gross proceeds of approximately $6,731,400 from the exercise of the Existing Warrants by the Holder and the sale of the Inducement Warrants, before deducting placement agent fees and other offering expenses payable by us. We engaged Maxim Group LLC (“Maxim”) to act as our exclusive financial advisor in connection with the transactions summarized above and will pay Maxim a cash fee from the gross proceeds received from the exercise of the Existing Warrants. Each Inducement Warrant has an exercise price equal to $6.502 per share. The Inducement Warrants are exercisable at any time on or after the date that is six (6) months from the issuance date and will have a term of exercise of five and one half (5½) years following the date of issuance. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, subsequent rights offerings, pro rate distributions, reorganizations, a Fundamental Transaction (as defined in the Inducement Warrants) or similar events affecting our common stock and the exercise price.
ATM Shares
Pursuant to the At The Market Offering Agreement dated as of September 30, 2022 (“ATM Agreement”), with H.C. Wainwright & Co., LLC, as the sales agent, during the three month period ended March 31, 2025, we sold and issued a total of 22,725 shares of common stock in consideration for net proceeds of $185,874 under the ATM Agreement.
| 21 |
Consolidated Statement of Cash Flows
Cash increased from $4,883,099 at December 31, 2024, to $5,080,372 at March 31, 2025 – an increase of $197,273 or 4%. The increase was primarily due to capital raising through financing activities.
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2025 was $3,839,918, compared to $2,794,604 in 2024, primarily driven by the shift to production and distribution of hard tonneau covers.
Accounts receivable increased at March 31, 2025 by $25,362 and decreased by $306,778 in the prior period. The increase in accounts receivable was due to further development of our Distributor and Jobber customer network and relationships.
Inventory increased at March 31, 2025 by $583,116, and increased at March 31, 2024 by $2,908,354, as a result of stockpiling of finished goods and raw materials in preparation for the launch of our AL4 product line. Prepaid expenses and deposits increased by $192,071 at March 31, 2025, and decreased by $1,155,090 at March 31, 2024 due to timing of deposits from B2C customers prior to fulfillment of their orders at the end of the accounting period.
Accounts payable and accrued liabilities increased at March 31, 2025 by $390,691 compared to an increase of $729,303 at March 31, 2024.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2025 was $458,342 compared to $212,969 for the three months ended March 31, 2024. The increase in investing activities was primarily attributable to our purchase of cryptocurrency and website enhancements, both of which are classified as intangible assets. We also acquired additional tooling components for our COR production process.
| 22 |
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2025 was $4,495,533 compared to net cash used in financing activities of $3,178,775 for the three months ended March 31, 2024.
Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information in this Item.
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)) as of the end of the period covered by this Quarterly Report on Form 10-Q. 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 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 due to a material weakness in internal control over financial reporting.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We had the following material weakness in internal control over financial reporting, characterized by the following:
| ● | We have not designed written policies and procedures at a sufficient level of precision to support the operating effectiveness of the controls to prevent and timely detect potential errors. | |
| ● | We did not maintain adequate documentation to evidence the operating effectiveness of certain control activities. | |
| ● | We did not maintain appropriate access to certain systems and did not maintain appropriate segregation of duties related to processes associated with those systems. |
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 our periodic reports filed with the SEC are prepared in accordance with generally accepted accounting principles. 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.
| 23 |
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in lawsuits, claims, investigations, and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. We are not presently a party to any material pending or threatened legal proceedings, nor do we have any knowledge of any such pending claims.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect our business, financial condition, liquidity, or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Recent Sales of Unregistered Securities
| ● | In February 2025, we issued warrants (“Inducement Warrants”) to purchase an aggregate of 1,424,500 shares to certain investors in exchange for them exercising warrants that were issued to them in May 2024 (the “May 2024 Existing Warrants”) at an exercise price of $5.198 per share. Each Inducement Warrant has an exercise price of $6.502 and is exercisable six months after issuance, or August 27, 2025, until the five and a half-year anniversary from the date of issuance. We received proceeds of $6,731,410 before deducting placement agent fees and other offering expenses payable by us upon the exercise of the May 2024 Existing Warrants |
| ● | In February 2025, the Company issued 1,000 restricted shares with a value of $82,100 to an investor relations consultant. |
| ● | In March 2025, we issued 10,000 stock options to a director with an exercise price of $5.95 and an expiration date of March 27, 2035. |
(b) Use of Proceeds
Not applicable.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Securities Trading Plans
During the three months ended March 31, 2025, none of our Section 16 officers or directors (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in Section 408(c) of Regulation S-K).
Subsequent Events
| ● | On April 1, 2025, the Company signed a lease agreement for 12,500 square feet of office space to be used as an R&D facility pursuant to a three-year lease effective May 1, 2025, for an average monthly rent of $9,659. |
| 24 |
Item 6. Exhibits
| * | Filed herewith. |
| ** | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
| 25 |
SIGNATURES
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: May 15, 2025 | By: | /s/ Steven Rossi |
| Steven Rossi | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: May 15, 2025 | By: | /s/ Michael Johnston |
| Michael Johnston | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 26 |