Worksport .(WKSP) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2020, covering balance sheets, operations, cash flows, and shareholders' deficit, highlighting going concern risk and new financing Condensed Consolidated Balance Sheets As of March 31, 2020, total assets increased to $682,220 from $481,308, while total liabilities grew to $1,409,547, and shareholders' deficit improved to $(727,327) Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $452,345 | $253,685 | | Total Assets | $682,220 | $481,308 | | Total Current Liabilities | $1,364,075 | $1,324,684 | | Total Liabilities | $1,409,547 | $1,363,869 | | Total Shareholders' Deficit | $(727,327) | $(882,561) | Condensed Consolidated Statements of Operations Net sales for Q1 2020 sharply declined to $41,027 from $572,278 in Q1 2019, resulting in a widened net loss of $192,266 Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net Sales | $41,027 | $572,278 | | Gross Profit | $14,016 | $139,330 | | Loss from operations | $(164,455) | $(87,314) | | Net Loss | $(192,266) | $(126,473) | | Basic and Diluted Loss per Share | $(0.00) | $(0.005) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $181,035 in Q1 2020, while financing activities provided $188,817, leading to a slight cash decrease Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(181,035) | $(38,539) | | Net cash used in investing activities | $(8,765) | $0 | | Net cash provided by financing activities | $188,817 | $25,951 | | Change in cash | $(983) | $(3,423) | Consolidated Statement of Shareholders' Deficit Shareholders' deficit improved from $(882,561) to $(727,327) in Q1 2020, driven by non-cash activities like stock issuance and warrant related to convertible notes - The total stockholders' deficit improved from $(882,561) on January 1, 2020, to $(727,327) on March 31, 2020[14] - Key activities impacting shareholders' equity included issuing 2,000,000 shares for services ($40,000), warrants related to a convertible note ($59,110), and shares for settlement of payables[14] Notes to the Condensed Consolidated Financial Statements Notes disclose a 'going concern' issue due to a $192,266 net loss and $10.96 million accumulated deficit, functional currency change, new financing, customer concentration, and COVID-19 impact - The company's ability to continue as a going concern is in substantial doubt due to a net loss of $192,266 for the quarter and an accumulated deficit of $10,961,172 as of March 31, 2020[18] - Effective January 1, 2020, the company changed the functional currency of its subsidiary from Canadian dollars to United States dollars[16] - On February 25, 2020, the company issued a secured convertible promissory note to Leonite Capital LLC for an aggregate principal amount of $544,425, along with 450,000 common shares and 900,000 warrants[38] Customer Sales Concentration Q1 2020 vs Q1 2019 | Customer | 2020 Sales % | 2019 Sales % | | :--- | :--- | :--- | | Customer A | 37.5% | - | | Customer B | 34.5% | - | | Customer C | 14.8% | 12.7% | | Customer D | - | 79.2% | - Subsequent to the quarter end, the company changed its name to Worksport Ltd, issued preferred stock, and anticipates that sales will remain low in Q2 2020 due to the impact of COVID-19[52] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes a 93% Q1 2020 revenue decline to COVID-19, leading to a $192,266 net loss despite improved gross margin, with liquidity reliant on financing activities COVID-19 Impact COVID-19 significantly disrupted manufacturing and sales in the US, Canada, and China, leading to anticipated low sales and material uncertainty for future financial performance - The company expects a disruption to its manufacturing with a significant reduction in sales due to lockdown orders in the United States, Canada, and China[57] - The pandemic presents material uncertainty and risk with respect to the company's performance, financial condition, results of operations, and cash flows[58] Results of Operations Q1 2020 revenue decreased 93% to $41,027 due to COVID-19, resulting in a 52% increased net loss of $192,266, despite gross margin improving to 34% Financial Performance Summary | Metric | Q1 2020 | Q1 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | $41,027 | $572,278 | -93% | | Cost of Sales | $27,011 | $432,948 | -94% | | Gross Margin % | 34% | 24% | +10 p.p. | | Net Loss | $(192,266) | $(126,473) | +52% | Liquidity and Capital Resources Cash remained stable at $11,010 in Q1 2020, with operations primarily funded by $182,500 from a convertible promissory note and $6,317 from shareholder loans - Cash remained stable, moving from $11,993 at year-end 2019 to $11,010 at March 31, 2020[71] - Financing activities in Q1 2020 included $182,500 from a convertible promissory note and $6,317 from shareholder loans[72] Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' Worksport, Ltd. is exempt from providing quantitative and qualitative disclosures about market risk - The company is exempt from providing quantitative and qualitative disclosures about market risk because it qualifies as a "smaller reporting company"[76] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2020, due to limited employees and lack of a formal audit committee - The CEO and CFO concluded that the company's disclosure controls and procedures are not effective as of March 31, 2020[78] - The ineffectiveness is attributed to a limited number of employees, which prohibits a segregation of duties, and the lack of a formal audit committee[79] PART II. OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings, nor are any contemplated or threatened - The company is not a party to any material or legal proceeding[82] Risk Factors As a smaller reporting company, Worksport is not required to provide risk factor disclosures in this Form 10-Q, referring to its 2019 Form 10-K - As a smaller reporting company, the registrant is not required to provide information on risk factors in this report[83] Unregistered Sales of Equity Securities and Use of Proceeds The company did not complete any unregistered sales of equity securities during the three months ended March 31, 2020 - During the three months ended March 31, 2020, the Company did not complete any unregistered sale of equity securities[84] Defaults Upon Senior Securities The company confirms there have been no defaults upon its senior securities - There have been no defaults upon senior securities[85] Mine Safety Disclosures This item is not applicable to the company's business operations - Not applicable[86] Other Information As a 'smaller reporting company,' Worksport is not required to provide information under this item - As a "smaller reporting company," the company is not required to provide the information in this Item[87] Exhibits This section lists exhibits filed with the Form 10-Q, including Articles of Incorporation, By-Laws, CEO/CFO certifications, and XBRL documents - The report includes exhibits such as CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL Instance Documents[89]