As submitted to the Securities and Exchange Commission on May 14, 2021

 

Registration No. 333-___________

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

WORKSPORT LTD.
(Exact name of Registrant as specified in its charter)

 

Nevada   3714   65-0782227

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

414-3120 Rutherford Rd.

Vaughan, Ontario, Canada L4K 0B1

(888) 554-8789

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

American Corporate Enterprises, Inc.

123 West Nye Ln, Ste 129

Carson City, NV 89706

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Please send copies of all communications to:

 

Ross Carmel, Esq.

Philip Magri, Esq.

Carmel, Milazzo & Feil LLP

55 W 39th Street, 18th Floor

New York, NY 10018

Tel: 212-658-0458

Fax: 646-838-1314

 

Joseph Lucosky, Esq.

Steven A. Lipstein, Esq.

Lucosky Brookman LLP

101 Wood Avenue Smith

Woodbridge, NJ 08830

Tel: 732-395-4400

Fax: 732-395-4401

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

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 [  ]
Non-accelerated filer [X] Smaller reporting company [X]
    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 7(a)(2)(B) of the Securities Act. [  ]

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered (1)   Proposed Maximum Aggregate Offering Price     Amount of Registration Fee  
Units consisting of shares of Common Stock, par value $0.0001 per share, and Warrants to purchase shares of Common Stock, par value $0.0001 per share (2)   $ [●]     $ [●]  
Common Stock included as part of the Units     -       -  
Warrants to purchase shares of Common Stock included as part of the Units (3)     -       -  
Shares of Common Stock issuable upon exercise of the Warrants (4)(5)   $ [●]     $ [●]  
Representative’s Warrants (6)     -       -  
Shares of Common Stock issuable upon exercise of the Representative’s Warrants (7)   $ [●]     $ [●]  
Total   $ 15,000,000 (8)(9)   $ 1,637  

 

(1) In the event of a stock split, stock dividend, or similar transaction involving our Common Stock, the number of shares registered shall automatically be increased to cover the additional shares of Common Stock issuable pursuant to Rule 416 under the Securities Act.
(2) Includes Common Stock and/or Warrants that may be issued upon exercise of a 45-day option granted to the underwriter to cover over-allotments, if any.
(3) In accordance with Rule 457(i) under the Securities Act, because the shares of the Registrant’s Common Stock underlying the Warrants are registered hereby, no separate registration fee is required with respect to the Warrants registered hereby.
(4) There will be issued Warrants to purchase one share of Common Stock for every one share of Common Stock offered. The Warrants are exercisable at a per share price equal to 110% of the Common Stock public offering price.
(5) Includes shares of Common Stock which may be issued upon exercise of additional Warrants which may be issued upon exercise of 45-day option granted to the underwriter to cover over-allotments, if any.
(6) No additional registration fee is payable pursuant to Rule 457(g) under the Securities Act.
(7) The Representative’s Warrants are exercisable into a number of shares of Common Stock equal to 7% of the number of shares of Common Stock sold in this offering, excluding upon exercise the option to purchase additional securities, at an exercise price equal to 110% of the public offering price per Unit.
(8) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(9) Includes the aggregate offering price of the additional shares of Common Stock and/or Warrants, or combination of both, that the underwriters have the option to purchase to cover over allotments, if any, within 45 days of this offering.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 
 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and the Company is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED [●], 2021

 

[●] Units

Each Unit Consisting of

One Share of Common Stock and

One Warrant to Purchase One Share of Common Stock

 

 

WORKSPORT LTD.

 

 

 

This is a firm commitment underwritten public offering of [●] units (the “Units”), based on an assumed public offering price of $ [●] per Unit, of Worksport Ltd., a Nevada corporation (the “Company,” “we,” “us,” “our”). Each Unit consists of one share of common stock, $0.001 par value per share (“Common Stock”), and one warrant (each, a “Warrant” and collectively, the “Warrants”) to purchase one share of Common Stock at an exercise price of $ [●] per share, constituting [●]% of the price of each Unit sold in this offering. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of Common Stock and the Warrants comprising the Units are immediately separable and will be issued separately in this offering. Each Warrant offered hereby is immediately exercisable on the date of issuance and will expire three years from the date of issuance.

 

We are a fully reporting company under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Common Stock is currently quoted on the OTCQB Marketplace (the “OTCQB”) under the symbol “WKSP.” As of [●], 2021, the last reported sales price for our Common Stock as quoted on the OTCQB was $ [●] per share ($ [●] per share assuming a reverse stock split of 1-for-[●]). There is currently no public market for the offered Warrants. We have applied to list our Common Stock and Warrants on the Nasdaq Capital Market under the symbol “WKSP”, and “WKSPW”, respectively. There can be no assurance that we will be successful in listing our Common Stock or Warrants on the Nasdaq Capital Market. Prices of our Common Stock as reported on the OTCQB may not be indicative of the prices of our Common Stock if our Common Stock were traded on the Nasdaq Capital Market.

 

The offering price of the Units will be determined by us and Maxim Group LLC (“Maxim”), as representative of the underwriters, taking into consideration several factors as described between the underwriters and us at the time of pricing, considering our historical performance and capital structure, prevailing market conditions, and overall assessment of our business, and will not be based upon the price of our Common Stock on the OTCQB. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the actual public offering price for our Common Stock and the Warrants.

 

Unless otherwise noted and other than in our financial statements and the notes thereto, the share and per share information in this prospectus reflects a proposed reverse stock split of the outstanding Common Stock and treasury stock of the Company at an assumed 1-for-[●] ratio to occur immediately following the effective date but prior to the closing of the offering.

 

Investing in our securities involves a high degree of risk. See Risk Factorsbeginning on page 8 of this prospectus. You should carefully consider these risk factors, as well as the information contained in this prospectus, before you invest.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

      Per Unit       Total  
Offering price   $ [●]     $ [●]  
Underwriting discount and commissions (1)   $ [●]     $ [●]  
Proceeds to us before offering expenses (2)   $ [●]     $ [●]  

 

(1) We have also agreed to issue Warrants to purchase shares of our Common Stock to the underwriter and to reimburse the underwriter for certain expenses. See “Underwriting” on page 57 for additional information regarding total underwriter compensation.
(2) The amount of offering proceeds to us presented in this table does not give effect to any exercise of the: (i) Over-Allotment Option (if any) we have granted to the underwriters as described below and (ii) Representative Warrants being issued to the underwriters in this offering.

 

We have granted a 45-day option to the underwriters, exercisable one or more times in whole or in part, to purchase up to an additional 15% of the shares of Common Stock and/or [●] additional Warrants at a price from us in any combination thereof at the public offering price per share of Common Stock and per Warrant, respectively, less, in each case, the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any.

 

The underwriter expects to deliver the securities against payment to the investors in this offering on or about __________, 2021.

 

Sole Book-Running Manager
 
Maxim Group LLC

 

The date of this prospectus is __________________, 2021.

 

i

 

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 1
SUMMARY OF THE OFFERING 3
SUMMARY FINANCIAL DATA 5
RISK FACTORS 7
USE OF PROCEEDS 22
CAPITALIZATION 24
DETERMINATION OF OFFERING PRICE 25
MARKET FOR OUR COMMON STOCK 25
DILUTION 26
BUSINESS 27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 35
DESCRIPTION OF PROPERTY 40
DIRECTORS, EXECUTIVE OFFICERS & CORPORATE GOVERNANCE 41
EXECUTIVE COMPENSATION 45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 47
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 48
DESCRIPTION OF SECURITIES 49
SHARES ELIGIBLE FOR FUTURE SALE 54
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS 55
UNDERWRITING 57
LEGAL MATTERS 61
EXPERTS 61
WHERE YOU CAN FIND MORE INFORMATION 62

 

You should rely only on information contained in this prospectus. We have not, and the underwriter has not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted.

 

For investors outside the United States: Neither we nor the underwriter have taken any action that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities covered hereby and the distribution of this prospectus outside of the United States.

 

The information in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.

 

Neither we nor the underwriter have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

 

ii

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees of future performance. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of their dates.

 

We cannot predict all the risks and uncertainties that may impact our business, financial condition or results of operations. Accordingly, the forward-looking statements in this prospectus should not be regarded as representations that the results or conditions described in such statements will occur or that our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this prospectus and include information concerning possible or projected future results of our operations, including statements about potential acquisition or merger targets, strategies or plans; business strategies; prospects; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results; and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to a variety of factors and risks, including, but not limited to, those set forth under “Risk Factors” starting page 8 of this prospectus.

 

Many of those risks and factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. All subsequent written and oral forward-looking statements concerning other matters addressed in this prospectus and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this prospectus.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

CAUTIONARY NOTE REGARDING INDUSTRY DATA

 

Unless otherwise indicated, information contained in this prospectus concerning our company, our business, the services we provide and intend to provide, our industry and our general expectations concerning our industry are based on management estimates. Such estimates are derived from publicly available information released by third party sources, as well as data from our internal research, and reflect assumptions made by us based on such data and our knowledge of the industry, which we believe to be reasonable.

 

iii

 

 

 

PROSPECTUS SUMMARY

 

This summary highlights certain information appearing elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our securities and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information included elsewhere in this prospectus. Before you make an investment decision, you should read this entire prospectus carefully, including the risks of investing in our securities discussed under the section of this prospectus entitled “Risk Factors” and similar headings. You should also carefully read our financial statements, and the exhibits to the registration statement of which this prospectus is a part.

 

Overview

 

The Company designs and distributes pickup truck covers called tonneau covers throughout the United States and Canada. Tonneau covers, described below are useful aftermarket accessories that provide security and protection for cargo to personal pickup truck owners.

 

The Company, Franchise Holdings International, Inc. (“FNHI”), was incorporated in the state of Nevada on April 2, 2003.

 

Worksport Ltd. was formed in 2011 in Ontario, Canada (“Worksport Ontario”).

 

In December 2014, FNHI acquired 100% of the outstanding equity of Worksport Ontario pursuant to which Worksport Ontario became a wholly-owned subsidiary of FNHI. Since acquiring Worksport Ontario, the Company has abandoned all previous business plans and has focused on developing the tonneau business.

 

In May 2020, FNHI changed its name to Worksport Ltd. The Company’s Common Stock is currently quoted on the OTCQB under the symbol “WKSP.” All references to “Worksport,” “WKSP,” or “the Company” as used herein refers to the consolidated operations of the Company and Worksport Ontario.

 

Products

 

We have developed soft vinyl tonneau covers and hard aluminum tonneau covers. Covers are offered in three or four-panel options. Once installed, our tonneau covers latch against the bed of the truck and fold up against the back window of the truck cab.

 

Our current products include the SC (Soft Cover) SC3 (Tri-panel), SC3pro (Tri-panel with cable latching system) and TC (Tough Cover) TC3 lines.

 

We are currently developing the SC4 (Soft Cover, Four-Panel), TC4 (Hard Cover, Four-Panel with cable latching system) and the TerraVis system.

 

TerraVis is being developed as a two component system that consists of a solar tonneau cover and portable core battery, chargeable by the solar cover.

 

All of our products are manufactured in China according to our specifications, schematics and blueprints.

 

Intellectual Property

 

The Company currently holds a collection of intellectual property rights relating to certain aspects of its parts and accessories, and services. This includes patents, trademarks, service marks, and trade secrets in the U.S. and various foreign countries.

 

The Market and Competition

 

Our revenue is directly proportional to sales of pickup trucks. We distribute our tonneau covers through wholesalers and online retail channels in Canada and the United States. We will also provide our tonneau covers for private labels and Original Equipment Manufacturers.

 

 

1

 

 

 

Our largest competitor is Truck Hero which has acquired upwards of 13 independent tonneau cover brands in North America. Truck Hero’s products directly compete with our products.

 

Business Strategy

 

Our business plan moving forward is to sell our products to the 60,000 existing auto parts retailers throughout the United States. Our products are currently being distributed to 17,000 of these stores. We also plan to eventually expand to other markets outside the United States and Canada.

 

Listing on the Nasdaq Capital Market

 

Our Common Stock is currently quoted on the OTCQB Market under the symbol “WKSP.” In connection with this offering, we have applied to list our Common Stock and the Warrants offered in the offering on the Nasdaq Capital Market (“Nasdaq”) under the symbols “WKSP” and “WKSPW”, respectively. If our listing application is approved, we expect to list our Common Stock and the Warrants offered in the offering on Nasdaq upon consummation of the offering, at which point our Common Stock will cease to be traded on the OTCQB Market. No assurance can be given that our listing application will be approved. This offering will occur only if Nasdaq approves the listing of our Common Stock and Warrants. Nasdaq listing requirements include, among other things, a stock price threshold. As a result, prior to effectiveness, we will need to take the necessary steps to meet Nasdaq listing requirements, including but not limited to a reverse split of our outstanding Common Stock. If Nasdaq does not approve the listing of our Common Stock, we will not proceed with this offering. There can be no assurance that our Common Stock will be listed on the Nasdaq.

 

Reverse Stock Split

 

On April 15, 2021, the Company’s Board of Directors (the “Board”) and majority stockholder approved a reverse stock split of the Common Stock within the range of 1-for-10 to 1-for-30 of our issued and outstanding shares of Common Stock and authorized the Board, in its discretion, to determine the final ratio, effective date, and date of filing of the certificate of amendment to our articles of incorporation, as amended, in connection with the reverse stock split. Unless otherwise noted, the share and per share information in this prospectus reflects, other than in our financial statements and the notes thereto, a proposed reverse stock split of the outstanding Common Stock and treasury stock of the Company at an assumed 1-for [●] ratio to occur immediately following the effective date but prior to the closing of the offering.

 

Principal Risks

 

We are subject to various risks discussed in detail under “Risk Factors” starting on page 8 of this prospectus and which include risks related to the following:

 

  our going concern and history of losses;
     
  the ongoing COVID-19 pandemic;
     
  our ability to compete;
     
  our reliance on a small number of customers for the majority of our sales;
     
  our ability to successfully protect our intellectual property rights, and claims of infringement by others;
     
  the effectiveness of our sales and marketing efforts;
     
  our ability to retain key management personnel;
     
  failure to remedy material weaknesses in internal accounting controls and failure to implement proper and effective internal controls;
     
  our need to raise additional capital;
     
  cybersecurity threats and incidents;
     
  the dilution of our shares as a result of the issuance of additional shares in connection with financing arrangements;
     
  the volatility of our stock price;
     
  the decline in the price of our stock due to offers or sales of substantial number of shares;
     
  limited trading volume and price fluctuations of our stock;
     
  the immediate and substantial dilution of the net tangible book value of our Common Stock;
     
  the speculative nature of Warrants;
     
  provisions in the Warrants may discourage a third party from acquiring us;
     
  our ability to meet the initial or continuing listing requirements of the Nasdaq Capital Market; and
     
  we intend to effect a reverse stock split of our outstanding Common Stock immediately following the effective date but prior to the closing of the offering; however, the reverse stock split may not increase our stock price sufficiently and we may not be able to list our Common Stock on the Nasdaq Capital Market in which case this offering may not be completed.

 

 

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SUMMARY OF THE OFFERING

 

Issuer:   Worksport Ltd.
     
Offered Securities:   [●] Units, each Unit consisting of one share of our Common Stock and one Warrant to purchase one share of our Common Stock. Each Warrant will have an exercise price of $ [●] per share ([●]% of the assumed public offering price of one Unit), is exercisable immediately and will expire three (3) years from the date of issuance. The Units will not be certificated or issued in stand-alone form. The shares of our Common Stock and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately in this offering.
     
Offering Price per Unit:   $ [●] per Unit, based on the closing price of our Common Stock on [●], 2021.
     
Over-Allotment Option:   We have granted a 45-day option to the underwriter to purchase up to [●] additional shares of Common Stock and/or [●] Warrants at the public offering price per share of Common Stock and per Warrant, respectively, less, in each case, the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any.
     
Description of the Warrants:   The exercise price of the Warrants is $ [●] per share ([●]% of the assumed public offering price of one Unit). Each Warrant is exercisable for one share of Common Stock, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Common Stock as described herein. A holder may not exercise any portion of a Warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99% of the outstanding Common Stock after exercise, as such percentage ownership is determined in accordance with the terms of the Warrants, except that upon notice from the holder to us, the holder may waive such limitation up to a percentage, not in excess of 9.99%. Each Warrant will be exercisable immediately upon issuance and will expire three (3) years after the initial issuance date. The terms of the Warrants will be governed by a Warrant Agreement, dated as of the effective date of this offering, between us and EQ Shareowner Services, as the warrant agent (the “Warrant Agent”). This prospectus also relates to the offering of the shares of Common Stock issuable upon exercise of the Warrants. For more information regarding the Warrants, you should carefully read the section titled “Description of Securities-Warrants” on page 51 of this prospectus.
     
Common Stock Outstanding    
     
Immediately Before the Offering (1):   [●] shares
     
Immediately After the Offering (2):   [●] shares
     
Use of Proceeds:   We estimate that we will receive net proceeds of approximately $ [●] million from our sale of Units in this offering, after deducting underwriting discounts and estimated offering expenses payable by us. We intend to use the net proceeds of this offering to provide funding for the following purposes: [●], marketing and sales and working capital. See “Use of Proceeds” on page 23.

 

 

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Representative’s Warrants:   The registration statement of which this prospectus is a part also registers for sale Warrants (the “Representative’s Warrants”) to purchase [●] shares of our Common Stock (based on an offering price of $ [●] per share) to Maxim Group LLC (the “Representative”), as a portion of the underwriting compensation in connection with this offering. The Representative’s Warrants will be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days following the closing date of this offering and expiring five years from the effective date of the offering at an exercise price of $ [●] ([●] % of the assumed public offering price per Unit). Please see “Underwriting-Representative’s Warrants” on page 59 of this prospectus for a description of these Warrants.
     
Underwriter Compensation:   In connection with this offering, the underwriter will receive an underwriting discount equal to 7 % of the gross proceeds from the sale of Units in the offering. We will also reimburse the underwriter for certain out-of-pocket actual expenses related to the offering and the representative of the underwriter shall be entitled to a non-accountable expense allowance equal to one percent (1%) of the public offering price. See “Underwriting” starting on page 57 of this prospectus.
     
Proposed Nasdaq Capital Market    
Trading Symbols and Listings:   Our Common Stock is presently quoted on the OTCQB under the symbol “WKSP.” We have applied to have our Common Stock and the Warrants offered in the offering listed on the Nasdaq Capital Market under the symbols “WKSP” and “WKSPW,” respectively. No assurance can be given that such listings will be approved or that a trading market will develop for our Common Stock and the Warrants.
     
Lock-Up Agreements:   We and our directors, officers and certain stockholders have agreed with the underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Common Stock or securities convertible into Common Stock for a period of [120] days in the case of us or [180] days in the case of our officers, directors and certain stockholders after the date of this prospectus. See “Underwriting-Lock-Up Agreements” on page 60 of this prospectus.
     
Reverse Stock Split:   On April 15, 2021, our Board and majority stockholder approved a reverse stock split of the Common Stock within the range of 1-for-10 to 1-for-30 of our issued and outstanding shares of our Common Stock and authorized the Board, in its discretion, to determine the final ratio. We intend to effectuate the reverse split of our Common Stock in a ratio to be determined by the Board prior to consummation of this offering. Unless otherwise stated and other than in our financial statements and the notes thereto, all share and per share information in this prospectus reflects a proposed reverse stock split of the outstanding Common Stock and treasury stock of the Company at an assumed 1-for [●]ratio to occur immediately following the effective date but prior to the closing of the offering.
     
Dividends:   We do not anticipate paying dividends on our Common Stock for the foreseeable future.
     
Risk Factors:   Investing in our securities involves a high degree of risk and purchasers of our securities may lose their entire investment. See “Risk Factors” starting on page 8 and the other information included and incorporated by reference into this prospectus for a discussion of risk factors you should carefully consider before deciding to invest in our securities.

 

The actual number of Units we will offer will be determined based on the actual public offering price and the reverse split ratio will be determined based on the stock price.

 

 

4

 

 

 

(1) The number of shares of Common Stock to be outstanding immediately before this offering excludes:

 

  1,000,000 shares of Common Stock reserved for equity awards available for grant under our equity incentive plan that was effective July 5, 2015 (the “2015 Plan”);
     
  25,000,000 shares of Common Stock reserved for equity awards reserved for equity awards available for grant under our 2021 Equity Plan (the “2021 Plan”);

 

(2) The number of shares of Common Stock to be outstanding immediately following this offering excludes:

 

  1,000,000 shares of Common Stock reserved for equity awards available for grant under the 2015 Plan;
     
  25,000,000 shares of Common Stock reserved for equity awards reserved for equity awards available for grant under the 2021 Plan;
     
  [●] shares of Common Stock issuable upon the conversion of Warrants underlying the Units in this Offering;
     
  [●] shares of Common Stock issuable upon the exercise of the Representative’s Warrants; and
     
  [●] shares of Common Stock issuable upon the exercise of the underwriter’s over-allotment option to purchase 15% of additional shares of Common Stock and/or Warrants, in any combination thereof, from us in this offering to cover over-allotments, if any (the “Over-Allotment Option”).

 

Except as otherwise indicated, all information in this prospectus assumes:

 

no exercise of the Representative’s Warrants; and
   
no exercise of the Over-Allotment Option;

 

SUMMARY FINANCIAL DATA

 

The following tables summarize our financial data. We derived the summary financial statement data for the years ended December 31, 2020 and 2019 set forth below from our audited financial statements and related notes contained in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the information presented below together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements, the notes to those statements and the other financial information contained in this prospectus. Share amounts, per share data, share prices, exercise prices and conversion rates have been retroactively adjusted to reflect an assumed reverse stock split of outstanding Common Stock on a 20 to 1 basis, to occur following the date of this prospectus but prior to the closing of this offering.

 

Summary of Operations in U.S. Dollars

 

    Years ended December 31,  
    2020     2019  
Net Sales   $ 346,144     $ 1,926,405  
                 
OPERATING EXPENSES                
General and administrative     201,929       238,841  
Sales and marketing     148,008       50,159  
Professional fees     679,654       515,279  
Loss (gain) on foreign exchange     3,796       (27,881 )
Operating loss     (986,239 )     (537,851 )
                 
OTHER INCOME     (201,381 )     178,817  
                 
NET LOSS     (1,187,620 )     (359,034 )
                 
                 
Loss per common share (basic and diluted)   $

(0.02

)   $ (0.01 )

 

 

5

 

 

 

Balance Sheet in U.S. Dollars

 

    As of December 31, 2020
    Actual      As Adjusted  
Cash   $ 1,107,812       $     
Total Current Assets     1,684,764          
Total Assets     1,902,152          
                 
Total Current Liabilities     1,718,053       1,718,053  
Total Non-Current Liabilities                
Total Liabilities     1,732,677       1,732,677  
                 
Working Capital (Deficit)     (33,289 )        
                 
Additional paid-in capital     12,658,596          
                 
Accumulated Deficit     (12,866,033 )        
                 
Total Stockholders’ Equity (Deficit)   $ 169,475       $     

 

The as adjusted column in the balance sheet data above gives effect to the sale of securities for cash in this offering at the assumed public offering price of $ [●] per Unit, after deducting underwriting discounts and commissions and estimated offering expenses payable by us (of 7% underwriters discount, [●]% non-accountable expense and $ [●] of estimated offering costs), in the total amount of $ [●], as if the sale had occurred on December 31, 2020.

 

Each $1.00 increase (decrease) in the assumed public offering price of $ [●] per Unit, would increase (decrease) our stockholders’ equity, as adjusted, after this offering by approximately $ [●] million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of securities we are offering. An increase (decrease) of [●] in the number of Units offered by us at the assumed offering price of $ [●] per Unit would increase (decrease) our stockholders’ equity, as adjusted, after this offering by approximately $ [●], assuming that the assumed public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

6

 

 

RISK FACTORS

 

Any investment in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below and all information contained in this prospectus, before you decide whether to purchase our securities. If any of the following risks or uncertainties actually occurs, our business, financial condition, results of operations and prospects would likely suffer, possibly materially. In addition, the trading price of our securities could decline due to any of these risks or uncertainties, and you may lose part or all of your investment.

 

Risks Related to Our Business:

 

Our business, results of operations and financial condition may be adversely impacted by the recent COVID-19 pandemic.

 

The novel strain of the coronavirus (COVID-19) has spread globally and has resulted in authorities imposing, and businesses and individuals implementing, numerous unprecedented measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns. Due to the impact of COVID-19 around the world, the Company’s sales decreased significantly for the first and second quarter of 2020 as governments around the world entered a lockdown to prevent the spread of COVID-19.

 

Increased current unemployment and loss of income, as well as any further disruptions from an uptick in new infections related to COVID-19 may materially harm out business prospects. As COVID-19 confirmed cases increase, the Company will have difficulty acquiring new customers, sales and growth. The loss of a significant customer during late 2019 had contributed to the Company’s significant decrease in sales in 2020. Due to this significant loss the Company’s sales and expenses decreased before the COVID-19 pandemic was declared.

 

Our future growth may be limited.

 

The Company’s ability to achieve its expansion objectives and to manage its growth effectively depends upon a variety of factors, including the Company’s ability to internally develop products, to attract and retain skilled employees, to successfully position and market its products, to protect its existing intellectual property, to capitalize on the potential opportunities it is pursuing with third parties, and sufficient funding. To accommodate growth and compete effectively, the Company will need working capital to maintain adequate inventory levels, develop additional procedures and controls and increase, train, motivate and manage its work force. There is no assurance that the Company’s personnel, systems, procedures and controls will be adequate to support its potential future operations. There is no assurance that the Company will generate revenues from its prospective sales partners and be able to capitalize on additional third party manufacturers.

 

7

 

 

We rely on third parties for our production which may hinder our ability to grow.

 

The Company purchases all of its inventory from one supplier source in China. The Company has no written agreement with this supplier. The Company carries significant strategic inventories of these materials to reduce the risk associated with this concentration of suppliers. Strategic inventories are managed based on demand. To date, the Company has been able to obtain adequate supplies of the materials used in the production of its products in a timely manner from existing sources. The loss of this key supplier or a delay in shipments could have an adverse effect on its business.

 

We rely on a small number of customers for the majority of our sales.

 

The following table includes the percentage of the Company’s sales to significant customers for the year ended December 31, 2020 and 2019, as well as the balance included in revenue and accounts receivable for each significant customer as at December 31, 2020 and 2019. A customer is considered to be significant if they account for greater than 10% of the Company’s annual sales.

 

    2020     2019  
    $     %     $     %  
Customer A     0       -       1,912,401       89  
Customer B     190,313       51       0       -  
Customer C     97,514       26       67,018       3  
Total     287,827       77       1,979,419       92  

 

The loss of any of these key customers could have an adverse effect on the Company’s business. Fifty-one percent (51%) and twenty-six percent (26%) of our total revenue for the year ended December 31, 2020 were from sales to, respectively, Customers B and C. The loss of these Customers would have a material adverse effect on the Company’s revenue.

 

We will need additional financing in order to grow our business.

 

From time to time, in order to expand operations to meet customer demand, the Company will need to incur additional capital expenditures. These capital expenditures are intended to be funded from third party sources, including the incurring of debt and/or the sale of additional equity securities. In addition to requiring additional financing to fund capital expenditures, the Company may require additional financing to fund working capital, research and development, sales and marketing, general and administrative expenditures and operating losses. The incurrence of debt creates additional financial leverage and therefore an increase in the financial risk of the Company’s operations. The sale of additional equity securities will be dilutive to the interests of current equity holders. In addition, there can be no assurance that such additional financing, whether debt or equity, will be available to the Company or that it will be available on acceptable commercial terms. Any inability to secure such additional financing on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of the Company.

 

8

 

 

We rely on key personnel.

 

The Company’s success also will depend in large part on the continued service of its key operational and management personnel, including executive staff, research and development, engineering, marketing and sales staff. Most specifically, this includes Steven Rossi, the Company’s President and Chief Executive Officer, who oversees new product development (in lieu of a research and development department) as well as implementation of new products developed, key customer acquisition and retention, overall management and future growth. The Company faces intense competition from its competitors, customers and other companies throughout the industry. Any failure on the Company’s part to hire, train and retain a sufficient number of qualified professionals could impair the business of the Company.

 

We depend on intellectual property rights that may be infringed upon or infringe upon the intellectual property rights of others.

 

The Company’s success depends to a significant degree upon its ability to develop, maintain and protect proprietary products and technologies. The Company has 14 granted patents and 13 trademarks. However, patents provide only limited protection of the Company’s intellectual property. The assertion of patent protection involves complex legal and factual determinations and is therefore uncertain and potentially expensive. The Company cannot provide assurance that patents will be granted with respect to its pending patent application, that the scope of any patents it might obtain will be sufficiently broad to offer meaningful protection, or that it will develop additional proprietary products that are patentable. In fact, any patents which might issue from the Company’s two pending provisional patent applications with the USPTO could be successfully challenged, invalidated or circumvented. This could result in the Company’s pending patent rights failing to create an effective competitive barrier. Losing a significant patent or failing to get a patent issued from a pending patent application the Company considers significant, could have a material adverse effect on the Company’s business.

 

We may not be able to protect our intellectual property rights throughout the world, which could negatively impact our business.

 

Filing, prosecuting and defending patents covering our current and any future product candidates and technology platforms in all countries throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we or our licensors have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents, and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

 

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

 

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.

 

9

 

 

Our patents might not protect our technology from competitors, in which case we may not have any advantage over competitors in selling any products that we may develop.

 

Our commercial success will depend in part on our ability to obtain additional patents and protect our existing patent position, as well as our ability to maintain adequate intellectual property protection for our technologies, product candidates, and any future products in the United States and other countries. If we do not adequately protect our technology, product candidates and future products, competitors may be able to use or practice them and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. The laws of some foreign countries do not protect our proprietary rights to the same extent or in the same manner as U.S. laws, and we may encounter significant problems in protecting and defending our proprietary rights in these countries. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies, product candidates and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.

 

Certain aspects of our technologies are protected by the U.S., Canadian pending patents, and Patent Cooperation Treaty. In addition, we have a number of new patent applications pending. There is no assurance that the applications still pending or which may be filed in the future will result in the issuance of any patents. Furthermore, there is no assurance as to the breadth and degree of protection any issued patents might afford us. Disputes may arise between us and others as to the scope and validity of these or other patents. Any defense of the patents could prove costly and time-consuming and there can be no assurance that we will be in a position, or will deem it advisable, to carry on such a defense. A suit for patent infringement could result in increasing costs, delaying or halting development, or even forcing us to abandon a product candidate. Other private and public concerns, including universities, may have filed applications for, may have been issued, or may obtain additional patents and other proprietary rights to technology potentially useful or necessary to us. We are not currently aware of any such patents, but the scope and validity of such patents, if any, and the cost and availability of such rights are impossible to predict.

 

Any trademarks we may obtain may be infringed or successfully challenged, resulting in harm to our business.

 

We expect to rely on trademarks as one means to distinguish any of our product candidates that are approved for marketing from the products of our competitors. We have not yet selected trademarks for our product candidates and have not yet begun the process of applying to register trademarks for our current or any future product candidates. Once we select trademarks and apply to register them, our trademark applications may not be approved. Third parties may oppose our trademark applications or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe our trademarks, and we may not have adequate resources to enforce our trademarks.

 

Much of our intellectual property is protected as trade secrets or confidential know-how, not as a patent.

 

We consider proprietary trade secrets to be important to our business. Much of our intellectual property pertains to our manufacturing system, certain aspects of which may not be suitable for patent filings and must be protected as trade secrets.. This type of information must be protected diligently by us to protect its disclosure to competitors, since legal protections after disclosure may be minimal or non-existent. Accordingly, much of the value of this intellectual property is dependent upon our ability to keep our trade secrets..

 

To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally, and is using, trade secrets and is expensive, time-consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

 

10

 

 

In addition, in some cases a regulator considering our application for product candidate approval may require the disclosure of some or all of our proprietary information. In such a case, we must decide whether to disclose the information or forego approval in a particular country. If we are unable to market our product candidates in key countries, our opportunities and value may suffer.

 

Failure to obtain or maintain trade secret protection could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of such trade secrets..

 

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

 

We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and employees.

 

Intellectual property rights do not necessarily address all potential threats to our business.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business. The following examples are illustrative:

 

  others may be able to make compounds or formulations that are similar to our product candidates but that are not covered by the claims of any patents, should they issue, that we own or license;
  others may be able to develop technologies that are similar to our technology platforms but that are not covered by the claims of any patents, should they issue, that we own or license;
  we or our licensors might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or license;
  we or our licensors might not have been the first to file patent applications covering certain of our inventions;
  others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
  it is possible that our pending patent applications will not lead to issued patents;
  issued patents that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
  our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
  we may not develop additional proprietary technologies that are patentable; and
  the patents of others may have an adverse effect on our business.

 

11

 

 

We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and cause us to incur substantial costs.

 

Companies, organizations or individuals, including our competitors, may own or obtain patents, trademarks or other proprietary rights that would prevent or limit our ability to make, use, develop or sell our vehicles or components, which could make it more difficult for us to operate our business. The automotive aftermarket has been characterized by significant litigation and other proceedings regarding patents, patent applications and other intellectual property rights. The situations in which we may become parties to such litigation or proceedings may include:

 

  litigation or other proceedings we may initiate against third parties to enforce our patent rights or other intellectual property rights;
     
  litigation or other proceedings we or our licensee(s) may initiate against third parties seeking to invalidate the patents held by such third parties or to obtain a judgment that our products do not infringe such third parties’ patents; and
     
  litigation or other proceedings, third parties may initiate against us to seek to invalidate our patents.

 

If third parties initiate litigation claiming that our products infringe their patent or other intellectual property rights, we will need to defend against such proceedings.

 

The costs of resolving any patent litigation or other intellectual property proceeding, even if resolved in our favor, could be substantial. Many of our potential competitors will be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. In some instances, competitors may proceed with litigation or other proceedings pertaining to infringement of their intellectual property as a means to hinder or devaluate the target defendant company, with no intention of the matter being resolved in their favor. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other intellectual property proceedings may also consume significant management time and costs. Substantial additional costs may be evident in the event that litigation or other proceedings were initiated against the Company because Worksport would have to seek legal defense or counsel in the province (Canada) or state (U.S.) where the litigation or legal proceedings were filed. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage, and a decrease in our revenue which would adversely affect our business, prospects, financial condition and operating results.

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

 

In order to protect our proprietary technology and processes, we also rely in part on confidentiality agreements with our employees, consultants, outsource manufacturers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

 

There are risks associated with outsourced production that may result in decrease in our profit.

 

The possibility of delivery delays, product defects and other production-side risks stemming from outsourcers cannot be eliminated. In particular, inadequate production capacity among outsourced manufacturers could result in the Company being unable to supply enough product amid periods of high product demand, the opportunity costs of which could be substantial.

 

12

 

 

We may not be successful in our potential business combinations.

 

The Company may, in the future, pursue acquisitions of other complementary businesses and technology licensing arrangements. We have been approached by competitors to license one or more of our tonneau cover products. The Company may also pursue strategic alliances and joint ventures that leverage its core products and industry experience to expand its product offerings and geographic presence. The Company has limited experience with respect to acquiring other companies and limited experience with respect to forming collaborations, strategic alliances and joint ventures. If the Company were to make any acquisitions, it may not be able to integrate these acquisitions successfully into its existing business and could assume unknown or contingent liabilities. Integrating an acquired company also may require management resources that otherwise would be available for ongoing development of the Company’s existing business.

 

We have competition for our market share which could harm our sales.

 

We participate in the automotive aftermarket equipment industry which is highly competitive for a relatively limited customer base. Companies that compete in this market are Truck Hero Group, Tonno Pro and Rugged Liner. Our current competitors are significantly better funded and have a longer operating history than us.

 

In addition, some of our competitors sell their products at prices lower than ours and we compete primarily on the basis of product quality, features, value, service, and customer relationships. Our competitive success also depends on our ability to maintain a strong brand and the belief that customers will need our products and services to meet their growth requirements. Alternatively, in the case of generic competition, they may be of equal or better quality and are sold at substantially lower prices than the Company’s products. At times, competitors may also release a generic or re-branded version of a current and successful product at a substantially reduced price in efforts to increase revenues or market share. As a result, if the Company fails to maintain its competitive position, this could have a material adverse effect on its business, cash flow, results of operations, financial position and prospects.

 

We may not have sufficient product liability insurance to cover potential damages.

 

The existence of any defects, errors or failures in our products or the misuse of our products could also lead to product liability claims or lawsuits against us. While we had insurance coverage of $2,000,000 for the year ended December 31, 2020 we have no assurance this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available at economical prices, if at all. To that extent, product liability insurance is conditional and up for further investigation. A successful product liability claim could result in substantial costs for us. Even if we are fully insured as it relates to a claim, a claim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and results of operations.

 

We may produce products of inferior quality which would cause us to lose customers.

 

Although we make an effort to ensure the quality of our light truck tonneau cover products, they could from time to time contain defects, anomalies or malfunctions that are undetectable at the time of shipment. These defects, anomalies or malfunctions could be discovered after our products are shipped to customers, resulting in the return or exchange of our products, customers’ claims for compensatory damages or discontinuation of the use of our products, which could negatively impact our operating results. We do not presently have product recall (or similar function) insurance that protects a company against broad-scale product manufacturing defects, engineering defects and the costs related to a broad product recall such as shipping, replacement or repairs. Even if in place, there is no guarantee that the full costs of any reimbursements or claims, lawsuits or litigation would be covered by such insurance.

 

13

 

 

Risks Associated with Manufacturing in China

 

Evolving U.S. trade regulations and policies with China may in the future have a material and adverse effect on our business, financial condition and results of operations.

 

Our products are sourced from China. Any restrictions or tariffs imposed on products that we or our suppliers import for sale in the United States would adversely and directly impact our cost of goods sold. In addition, changes in U.S. trade regulations and policies could have an adverse impact on trade relations between the United States and certain foreign countries, which could materially and adversely affect our relationships with our international suppliers and reduce the supply of goods available to us. Further, we cannot predict the extent to which the United States will adopt changes to existing trade regulations and policies, which creates uncertainties in planning our sourcing strategies and forecasting our margins. If additional tariffs are imposed on our products, or other retaliatory trade measures are taken, our costs could increase and we may be required to raise our prices, which could materially and adversely affect our results.

 

There are risks associated with outsourced production in China and their laws which may have a material adverse effect on our financial stability.

 

The Company purchases all of its inventory from one supplier source in China. Changes in Chinese laws and regulations, or their interpretation, or the imposition of confiscatory taxation or restrictions are matters over which the Company has no control. While the current leadership, (and the Chinese government), have been pursuing economic reform policies that encourage private economic activity and greater economic decentralization, there is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

 

For example, the Chinese government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited and, in turn, our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. If our business ventures with Chinese manufacturers were unsuccessful, or other adverse circumstances arise from these transactions, we face the risk that the parties to these ventures may seek ways to terminate the transactions. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination.

 

Any rights we may have to specific performance, or to seek an injunction under Chinese law are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations, in such guises as currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises.

 

In that context, we may have to evaluate the feasibility of acquiring alternative or fallback manufacturing capabilities to support the production of our existing and future tonneau cover products. Such development could adversely affect our cost structure inasmuch as we would be required to support sales at an acceptable cost—and might have relatively limited time to so adapt. We have not manufactured these products in the past—and are not expecting to do so in the foreseeable future. That is because developing these technological capabilities and building or purchasing a facility will increase our expenses with no guarantee that we will be able to recover our investment in our manufacturing capabilities.

 

We engage in cross border sales transactions which present tax risks among other obstacles.

 

Cross border sales transactions carry a risk of changes in import tax and/or duties related to the import and export of our product, which can result in pricing changes, which will affect revenues and earnings. Cross border sales transactions carry other risks including, but not limited to, changing regulations, wait times, customs inspection and lost or damaged product

 

14

 

 

We are subject to foreign currency risk which may adversely affect our net profit.

 

The Company is subject to foreign exchange risk as it manufactures its products in China, markets extensively in both Canadian and U.S. markets, most of the Company’s employees reside in Canada and, to date, the Company has raised funds in Canadian Dollars. Meanwhile, the Company reports results of operations in U.S. Dollars (USD or U.S.$). Since our Canadian customers pay in Canadian Dollar, the Company is subject to gains and losses due to fluctuations in the USD relative to the Canadian Dollar. While having our products manufactured in China, our manufacturers are paid in USD to better avoid the relatively greater fluctuation of the Chinese Yuan (RMB). Any large fluctuations in the exchange between the RMB and USD may cause product costs to increase, therefore affecting revenues and profits, potentially adversely.

 

Risks Related to Our Stockholders and Purchasing Units.

 

We have identified material weaknesses in our internal control over financial reporting. Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.

 

Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we maintain internal control over financial reporting that meets applicable standards. We may err in the design or operation of our controls, and all internal control systems, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, there can be no assurance that all control issues have been or will be detected.

 

In prior periods we identified certain material weaknesses in our internal controls. Specifically, we did not maintain effective controls over the control environment. Our weaknesses related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America. Furthermore, we have not developed and effectively communicated to our employees the accounting policies and procedures necessary to maintain effective controls over the control environment. and lack staffing in accounting and finance operations.

 

If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial information and operating results, which could result in a negative market reaction and a decrease in our stock price.

 

We have a large number of authorized but unissued shares of our Common Stock which will dilute your ownership position when issued.

 

Our authorized capital stock consists of 299,000,000 shares of Common Stock, of which approximately 89,000,000 remain available for issuance. Our management will continue to have broad discretion to issue shares of our Common Stock in a range of transactions, including capital-raising transactions, mergers, acquisitions and other transactions, without obtaining stockholder approval, unless stockholder approval is required under law or, if our Common Stock is listed on Nasdaq, under Nasdaq Rule 5635(b) which requires stockholder approval for change of control transactions where a stockholder acquires 20% of a Nasdaq-listed company’s Common Stock or securities convertible into Common Stock, calculated on a post-transaction basis. If our management determines to issue shares of our Common Stock from the large pool of authorized but unissued shares for any purpose in the future and is not required to obtain stockholder approval, your ownership position would be diluted without your further ability to vote on that transaction.

 

15

 

 

An active, liquid, and orderly market for our Common Stock or Warrants may not develop.

 

Our Common Stock is expected to trade on Nasdaq as of the effective date of the registration statement of which this prospectus forms a part. In addition, we are seeking a listing on Nasdaq for our Warrants. An active trading market for our Common Stock or Warrants may never develop or be sustained. If an active market for our Common Stock or Warrants does not continue to develop or is not sustained, it may be difficult for investors to sell shares of our Common Stock or Warrants without depressing the market price and investors may not be able to sell the shares of our Common Stock or Warrants at all. An inactive market may also impair our ability to raise capital by selling our Common Stock or Warrants and may impair our ability to acquire other businesses, applications, or technologies using our Common Stock or Warrants as consideration, which, in turn, could materially adversely affect our business.

 

While we are seeking to list our Common Stock and Warrants on Nasdaq, there is no assurance that either of such securities will be listed on Nasdaq .

 

While we are seeking to list our Common Stock and Warrants on Nasdaq, we cannot ensure that either of such securities will be accepted for listing on Nasdaq. Should our Warrants be rejected for listing on Nasdaq, we will seek to have our Warrants quoted on the OTC Markets, in which event the trading price of our Warrants could suffer, the trading market for our Warrants may be less liquid, and our Warrant price may be subject to increased volatility. If we fail to have our Warrants quoted on the OTC Markets, there will be no public market for our Warrants.

 

The Warrants may not have any value.

 

Each Warrant will have an exercise price equal to the per share public offering of our Units and will expire on the third anniversary of the date they first become exercisable. In the event our Common Stock price does not exceed the exercise price of the Warrants during the period when the Warrants are exercisable, the Warrants may not have any value.

 

Shares of our Common Stock may continue to be subject to illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange.

 

While we have applied to have our Common Stock and Warrants listed for trading on the Nasdaq Capital Market in connection with this offering, we cannot assure you that our application will be approved or even if approved, that we will maintain listing on Nasdaq or another national exchange. Our Common Stock is currently quoted on the OTCQB, which is not an exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our Common Stock and may limit your ability to sell your shares, any of which could result in you losing some or all of your investments.

 

Sales of a substantial number of shares of our Common Stock in the public market could cause the price of our Common Stock to fall.

 

Sales of a substantial number of shares of our Common Stock in the public market or the perception that these sales might occur could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock. In addition, the sale of substantial amounts of our Common Stock could adversely impact its price.

 

16

 

 

The market valuation of our business may fluctuate due to factors beyond our control and the value of your investment may fluctuate correspondingly.

 

The market valuation of smaller reporting companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies. Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:

 

  changes in securities analysts’ estimates of our financial performance, although there are currently no analysts covering our stock;
     
  fluctuations in stock market prices and volumes, particularly among securities of smaller reporting companies;
     
  changes in market valuations of similar companies;
     
  announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;
     
  variations in our quarterly operating results;
     
  fluctuations in related commodities prices; and
     
  additions or departures of key personnel.

 

As a result, the value of your investment in us may fluctuate.

 

The price of our Common Stock could be volatile and could decline following this offering at a time when you want to sell your holdings

 

Numerous factors, many of which are beyond our control, may cause the market price of our Common Stock to fluctuate significantly. These factors include:

 

  quarterly variations in our results of operations or those of our competitors;
     
  delays in end-user deployments of products;
     
  announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;
     
  intellectual property infringements;
     
  our ability to develop and market new and enhanced products on a timely basis;
     
  commencement of, or our involvement in, litigation;
     
  major changes in our Board of Directors or management;
     
  changes in governmental regulations;
     
  changes in earnings estimates or recommendations by securities analysts;
     
  the impact of the COVID-19 pandemic on capital markets;
     
  our failure to generate material revenues;
     
  our public disclosure of the terms of this financing and any financing which we consummate in the future;
     
  any acquisitions we may consummate;
     
  short selling activities;
     
  changes in market valuations of similar companies; and
     
  general economic conditions and slow or negative growth of end markets.

 

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources.

 

Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies, such as the uncertainty associated with the COVID-19 pandemic. These market fluctuations may adversely affect the price of our Common Stock and other interests in our Company at a time when you want to sell your interest in us.

 

17

 

 

Future sales or perceived sales of our Common Stock could depress our stock price.

 

This prospectus covers [●] shares of Common Stock and [●] shares of Common Stock issuable upon the exercise of Warrants. If the holders of these shares were to attempt to sell a substantial amount of their holdings at once, the market price of our Common Stock could decline. Moreover, the perceived risk of this potential dilution could cause stockholders to attempt to sell their shares and investors to short the Common Stock, a practice in which an investor sells shares that he or she does not own at prevailing market prices, hoping to purchase shares later at a lower price to cover the sale. As each of these events would cause the number of shares of our Common Stock being offered for sale to increase, our Common Stock market price would likely further decline. All of these events could combine to make it very difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

 

Our Common Stock may be affected by limited trading volume and price fluctuations, which could adversely impact the value of our Common Stock.

 

Our Common Stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our Common Stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our Common Stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our Common Stock will be stable or appreciate over time.

 

Provisions in our articles of incorporation and bylaws could discourage a change in control, or an acquisition of us by a third party, even if the acquisition would be favorable to you, thereby adversely affecting existing stockholders.

 

Our articles of incorporation and bylaws contain provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our Company, even when these attempts may be in the best interests of our stockholders. For example, our articles of incorporation authorize our Board of Directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of Common Stock. These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.

 

Because we do not intend to pay cash dividends on our shares of Common Stock, any returns will be limited to the value of our shares.

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price that stockholders may be able to realize if they sell their shares.

 

Risks Relating to this Offering and our Reverse Stock Split

 

Investors in this offering will experience immediate and substantial dilution in net tangible book value.

 

The public offering price will be substantially higher than the net tangible book value per share of our outstanding shares of Common Stock. As a result, investors in this offering will incur immediate dilution of $ [●] per share based on the assumed public offering price of $ [●] per Unit. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” on page 26 of this prospectus for a more complete description of how the value of your investment will be diluted upon the completion of this offering.

 

18

 

 

Participation in this offering by certain of our directors and their affiliates would reduce the available public float for our shares.

 

It is possible that one or more of our directors or their affiliates or related parties could purchase Common Stock and Warrants in this offering at the public offering price and on the same terms as the other purchasers in this offering. However, these persons or entities may determine not to purchase any shares or Warrants in this offering, or the underwriter may elect not to sell any shares or Warrants in this offering to such persons or entities. Any purchases by our directors or their affiliates or related parties would reduce the available public float for our shares because such stockholders would be restricted from selling the Common Stock and Warrants by a lock-up agreement they have entered into with the underwriter and by restrictions under applicable securities laws. As a result, any purchase of Common Stock and Warrants by such stockholders in this offering may reduce the liquidity of our Common Stock relative to what it would have been had these Common Stock and Warrants been purchased by investors that were not affiliated with us.

 

Our management will have broad discretion over the use of proceeds from this offering and may not use the proceeds effectively.

 

Our management will have broad discretion over the use of proceeds from this offering. We intend to use the net proceeds from this offering to provide funding for the following purposes: research and development; engineering, operations, quality inspection, information technology and sales force expansion; marketing and sales and working capital. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not improve our operating results or enhance the value of our securities.

 

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including amount of cash used in our operations, which can be highly uncertain, subject to substantial risks and can often change. Our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering.

 

The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

 

Even if the reverse stock split achieves the requisite increase in the market price of our Common Stock, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement of the Nasdaq Capital Market.

 

Even if the reverse stock split achieves the requisite increase in the market price of our Common Stock to be in compliance with the minimum bid price of the Nasdaq Capital Market, there can be no assurance that the market price of our Common Stock following the reverse stock split will remain at the level required for continuing compliance with that requirement. It is not uncommon for the market price of a company’s Common Stock to decline in the period following a reverse stock split. If the market price of our Common Stock declines following the effectuation of the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our Common Stock outstanding, such as negative financial or operational results, could adversely affect the market price of our Common Stock and jeopardize our ability to meet or maintain the Nasdaq Capital Market’s minimum bid price requirement.

 

19

 

 

Even if the reverse stock split increases the market price of our Common Stock and we meet the initial listing requirements of the Nasdaq Capital Market, there can be no assurance that we will be able to comply with the continued listing standards of the Nasdaq Capital Market, a failure of which could result in a de-listing of our Common Stock.

 

The Nasdaq Capital Market requires that the trading price of its listed stocks remain above one dollar in order for the stock to remain listed. If a listed stock trades below $1.00 for more than 30 consecutive trading days, then it is subject to delisting from the Nasdaq Capital Market. In addition, to maintain a listing on the Nasdaq Capital Market, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, and certain corporate governance requirements. If we are unable to satisfy these requirements or standards, we could be subject to delisting, which would have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the minimum bid price requirement, or prevent future non-compliance with the listing requirements.

 

The reverse stock split may decrease the liquidity of the shares of our Common Stock.

 

The liquidity of the shares of our Common Stock may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following the reverse stock split, especially if the market price of our Common Stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

 

Following the reverse stock split, the resulting market price of our Common Stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our Common Stock may not improve.

 

Although we believe that a higher market price of our Common Stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our Common Stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our Common Stock may not necessarily improve.

 

There is no assurance that once listed on the Nasdaq Capital Market we will not continue to experience volatility in our share price.

 

The OTCQB, where our Common Stock is currently quoted, is an inter-dealer, over-the-counter market that provides significantly less liquidity than the Nasdaq Capital Market. Our stock is thinly traded due to the limited number of shares available for trading on the OTCQB, thus causing large swings in price. As such, investors and potential investors may find it difficult to obtain accurate stock price quotations, and holders of our Common Stock may be unable to resell their securities at or near their original offering price or at any price. Our public offering price per Unit may vary from the market price of our Common Stock after the offering. If an active market for our stock develops and continues, our stock price may nevertheless be volatile. If our stock experiences volatility, investors may not be able to sell their Common Stock at or above the public offering price per Unit. Sales of substantial amounts of our Common Stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our Common Stock and our stock price may decline substantially in a short period of time. As a result, our stockholders could suffer losses or be unable to liquidate their holdings. No assurance can be given that the price of our Common Stock will become less volatile when listed on the Nasdaq Capital Market.

 

20

 

 

Risks Related to the Warrants

 

Warrants are speculative in nature.

 

The Warrants offered in this offering do not confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of our Common Stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire the Common Stock and pay an exercise price of $ [●] per share ([●]% of the assumed public offering price per Unit), prior to three years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. In addition, there is no established trading market for the Warrants and, although we have applied to list the Warrants on Nasdaq, there can be no assurance that an active trading market will develop.

 

The Warrants may not have any value and if an active, liquid trading market for the Warrants does not develop, you may not be able to sell your Warrants quickly or at or above the price you paid for them.

 

The Warrants issued in this offering will be immediately exercisable and expire three years from issuance. The Warrants will have an initial exercise price equal to $ [●]. In the event that our Common Stock price does not exceed the exercise price of the Warrants during the period when the Warrants are exercisable, the Warrants may not have any value.

 

Prior to this offering, there has been no public market for any of our Warrants. We have applied to list the Warrants on the Nasdaq Capital Market. However, there can be no assurance that such listing will be approved. An active trading market may not develop for the Warrants to be sold in this offering or, if developed, may not be sustained, and the market for the Warrants may be highly volatile or may decline regardless of our operating performance. The lack of an active market may impair your ability to sell your Warrants at the time you wish to sell them or at a price that you consider reasonable.

 

Since the warrants are executory contracts, they may have no value in a bankruptcy or reorganization proceeding.

 

In the event a bankruptcy or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised warrants are executory contracts that are subject to rejection by us with the approval of the bankruptcy court. As a result, holders of the warrants may, even if we have sufficient funds, not be entitled to receive any consideration for their warrants or may receive an amount less than they would be entitled to if they had exercised their warrants prior to the commencement of any such bankruptcy or reorganization proceeding.

 

Holders of our warrants will have no rights as a Common Stockholder until they acquire our Common Stock.

 

Until investors acquire shares of our Common Stock upon exercise of the warrants being offered in this offering, they will have no rights with respect to our Common Stock such as voting rights or the right to receive dividends. Upon exercise of such warrants, holders will be entitled to exercise the rights of a Common Stockholder only as to matters for which the record date occurs after the exercise date.

 

Provisions of the Warrants offered by this prospectus could discourage an acquisition of us by a third party.

 

Certain provisions of the Warrants offered by this prospectus could make it more difficult or expensive for a third party to acquire us. The Warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the Warrants. These and other provisions of the Warrants offered by this prospectus could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.

 

21

 

 

We may amend the terms of the warrants in a way that may be adverse to holders with the approval by the holders of a majority of the then outstanding warrants.

 

Our warrants will be issued in physical certificated form under a Warrant Agreement. The Warrant Agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. All other modifications or amendments, including any amendment to increase the exercise price of the warrants or shorten the exercise period of the warrants, shall require the written consent of the registered holders of a majority of the then outstanding warrants.

 

Our outstanding warrants may have an adverse effect on the market price of our Common Stock and make it more difficult to effect a business combination.

 

We will be issuing warrants to purchase shares of Common Stock as part of this offering. To the extent we issue shares of Common Stock to effect a future business combination, the potential for the issuance of a substantial number of additional shares upon exercise of these warrants could make us a less attractive acquisition vehicle in the eyes of a target business. Such securities, when exercised, will increase the number of issued and outstanding ordinary shares and reduce the value of the shares issued to complete the business combination. Accordingly, our warrants may make it more difficult to effectuate a business combination or increase the cost of acquiring a target business. Additionally, the sale, or even the possibility of sale, of the shares of Common Stock underlying the warrants could have an adverse effect on the market price for our securities or on our ability to obtain future financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.

 

USE OF PROCEEDS

 

We estimate that the net proceeds from this offering will be approximately $ [●] million after deducting estimated underwriting discounts and estimated offering expenses payable by us. If the underwriter’s over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $ [●] million. We intend to use the net proceeds from this offering, and any proceeds from the exercise of Warrants, for the following purposes:

 

Proceeds:     Amount:  
Gross Proceeds   $  [●]  
Discounts     [●]  
Fees and Expenses     [●]  
Net Proceeds   $  [●]  
         
Uses:        
Product Inventory   $  [●]  
Marketing     [●]  
Research & Development     [●]  
Working Capital     [●]  
Total   $  [●]  

 

22

 

 

In the event the Warrants underlying the Units are exercised, and the Company receives up to an additional $ [●] in gross funding, it would be used as follows:

 

Proceeds:     Amount  
Gross Proceeds   $  [●]  
Discounts     [●]  
Fees and Expenses     [●]  
Net Proceeds   $  [●]  
         
Uses:        
Product Inventory   $  [●]  
Marketing     [●]  
Research & Development     [●]  
Working Capital     [●]  
Total   $  [●]  

 

The proceeds from this offering would satisfy the Company’s cash requirements for the next [●] months.

 

The amounts and timing of our actual expenditures will depend on numerous factors, including the status of our product sales and marketing efforts, the amount of proceeds received from the exercise of the Warrants, and the amount of cash generated through our existing strategic collaborations and any additional strategic collaborations into which we may enter.

 

The actual allocation of proceeds realized from this offering will depend upon our operating revenues and cash position and our working capital requirements and may change.

 

Therefore, as of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. Accordingly, we will have discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the proceeds of this offering.

 

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and US government securities. We anticipate that the proceeds from this offering will enable us to further grow the business and increase cash flows from operations.

 

23

 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of December 31, 2020:

 

  on an actual basis; and
  on an as adjusted basis to reflect the (i) [●], (ii) [●], and (iii) issuance and sale by us of [●] of Units in this offering at the assumed public offering price of $ [●] per Unit, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the receipt by us of the proceeds of such sale, our repayment of certain loans from the proceeds of this offering.

 

You should consider this table in conjunction with “Use of Proceeds” above as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes to those financial statements for the fiscal year ended December 31, 2020 and 2019 included elsewhere in this prospectus.

 

    As of December 31, 2020  
   

Audited,

Actual

    Unaudited, As Adjusted (1)  
Cash and Cash Equivalents   $ 1,107,812       $  
Total Current Assets     1,684,764          
Total Current Liabilities     1,718,053       1,718,053  
Total Long-Term Liabilities     14,624       14,624  
                 
Stockholders’ Equity:                
Series A & B Preferred Stock, $0.0001 par value, 1,100,000 shares authorized, 1,000 Series A and 0 Series B shares issued and outstanding, respectively     1          
Common Stock, $0.0001 par value, 299,000,000 shares authorized, 76,412,359 issued and outstanding actual, and [●] shares issued and outstanding, as adjusted     7,640          
Additional paid-in capital     12,658,596          
Accumulated Deficit     (12,866,033 )        
Total Stockholders’ Equity   $ 169,475       $  

 

(1) The as adjusted information discussed above is illustrative only and will be further adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

The above discussion and table are based on [●] shares outstanding as of December 31, 2020 and do not include, as of that date:

 

1,000,000 shares of Common Stock reserved for equity awards available for grant under our equity incentive plan that was effective July 5, 2015 (the “2015 Plan”);

 

25,000,000 shares of Common Stock reserved for equity awards reserved for equity awards available for grant under 2021 Equity Plan (the “2021 Plan”);

 

[●] shares of Common Stock issuable upon the conversion of warrants;

 

[●] shares of Common Stock issuable upon the exercise of the Representative’s Warrants; and

 

[●] shares of Common Stock issuable upon the exercise of the underwriter’s over-allotment option to purchase additional shares and/or Warrants from us in this offering.

 

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DETERMINATION OF OFFERING PRICE

 

The offering price of the Units has been negotiated between the underwriter and us considering our historical performance and capital structure, prevailing market conditions, and overall assessment of our business. Each Unit consists of one share of our Common Stock and a Warrant to purchase one share of our Common Stock at an exercise price equal to $ [●] which is [●]% of the assumed public offering price per Unit.

 

MARKET FOR OUR COMMON STOCK

 

Our Common Stock is currently quoted on the OTCQB under the trading symbol “WKSP.” Quotations on the OTCQB reflect inter-dealer prices, without retail mark-up, mark-down commission, and may not represent actual transactions. On [●], 2021, the last reported sale price of our Common Stock was $ [●] per share.

 

Holders

 

As of [●], 2021, we had approximately [●] stockholders of record of our Common Stock. The number of stockholders of record does not include certain beneficial owners of our Common Stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

 

Dividend Policy

 

We have never paid or declared any cash dividends on our Common Stock, and we do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.

 

Transfer Agent

 

The transfer agent for our Common Stock is EQ Shareowner Services, 1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN 55120, equiniti.com/us. Our transfer agent will also be the Warrant Agent.

 

25

 

 

DILUTION

 

If you invest in our Units in this offering, your interest will be diluted to the extent of the difference between the assumed public offering price per share of Common Stock that is part of the Unit and the as adjusted net tangible book value per share of Common Stock immediately after this offering.

 

Our net tangible book value is the amount of our total tangible assets less our total liabilities. Our net tangible book value as of December 31, 2020 was $( [●] ), or $( [●]) per share of Common Stock.

 

After giving effect to (i) [●], (ii) [●] and (iii) [●], our pro forma net tangible book value as of December 31, 2020 would have been $([●]), or $([●]) per share.

 

Pro forma as adjusted net tangible book value is our net tangible book value after taking into account the effect of the sale of Units in this offering at the assumed public offering price of $ [●] per Unit and after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us. Our pro forma as adjusted net tangible book value as of December 31, 2020 would have been approximately $ [●], or $ [●] per share. This amount represents an immediate increase in as adjusted net tangible book value of approximately $ [●] per share to our existing stockholders, and an immediate dilution of $ [●] per share to new investors participating in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the public offering price per share paid by new investors.

 

The following table illustrates this per share dilution:

 

Assumed public offering price per share (attributing no value to the Warrants)   $  
Net tangible book value per share as of December 31, 2020   $  
Pro forma net tangible book value per share as of December 31, 2020   $  
Increase in as adjusted net tangible book value per share after this offering   $  
Pro forma as adjusted net tangible book value per share after giving effect to this offering   $  
Dilution in as adjusted net tangible book value per share to new investors   $  

 

A $1.00 increase (decrease) in the assumed public offering price of $ [●] per Unit would increase (decrease) the as adjusted net tangible book value per share by $ [●], and the dilution per share to new investors in this offering by $ [●], assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

The information above assumes that the underwriter does not exercise its over-allotment option. If the underwriter exercises its over-allotment option in full, the as adjusted net tangible book value will increase to $ [●] per share, representing an immediate increase to existing stockholders of $ [●] per share and an immediate dilution of $ [●] per share to new investors.

 

26

 

 

The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding Warrants having a per share exercise price less than the per share offering price to the public in this offering.

 

We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

The above discussion and table are based on [●] shares outstanding as of December 31, 2020. The discussion and table do not include (except as otherwise indicated), as of that date:

 

1,000,000 shares of Common Stock reserved for equity awards available for grant under our equity incentive plan that was effective July 5, 2015 (the “2015 Plan”);

 

25,000,000 shares of Common Stock reserved for equity awards reserved for equity awards available for grant under 2021 Equity Plan (the “2021 Plan”);

 

[●] shares of Common Stock issuable upon the conversion of warrants;

 

[●] shares of Common Stock issuable upon the exercise of the Representative’s Warrants; and[●] shares of Common Stock issuable upon the exercise of the underwriter’s over-allotment option to purchase additional shares and/or Warrants from us in this offering.

 

BUSINESS

 

Overview

 

The Company designs and distributes pickup truck covers called tonneau covers throughout the United States and Canada. Tonneau covers, described below are useful aftermarket accessories that provide security and protection for cargo to personal pickup truck owners.

 

The Company, Franchise Holdings International, Inc. (“FNHI”), was incorporated in the state of Nevada on April 2, 2003.

 

Worksport Ltd. was formed in 2011 in Ontario, Canada (“Worksport Ontario”).

 

In December 2014, FNHI acquired 100% of the outstanding equity of Worksport Ontario pursuant to which Worksport Ontario became a wholly-owned subsidiary of FNHI. Since acquiring Worksport Ontario, the Company has abandoned all previous business plans and has focused on developing the tonneau business.

 

In May 2020, FNHI changed its name to Worksport Ltd. The Company’s Common Stock is currently quoted on the OTCQB under the symbol “WKSP.” All references to “Worksport,” “WKSP,” or “the Company” as used herein refers to the consolidated operations of the Company and Worksport Ontario.

 

General

 

The Company designs and distributes pickup truck covers called tonneau covers throughout the United States and Canada. Tonneau covers, described below, are useful aftermarket accessories that provide security and protection for cargo to personal pickup truck owners.

 

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Products

 

We have developed soft vinyl tonneau covers and hard aluminum tonneau covers. Covers are offered in three or four-panel options. Once installed, our tonneau covers latch against the bed of the truck and fold up against the back window of the truck cab.

 

Our current products include the SC (Soft Cover) SC3, SC3pro and TC (Tough Cover) TC3 lines.

 

SC3

 

The SC3 was Worksport’s first product introduced in 2011 and is fitted with a powder coated lightweight aluminum frame and rear cam latches. The tri-fold cover is ultra-violet (UV) protected vinyl tri-layer material that seals around the truck bed with a rubber gasket designed to protect cargo from moisture and debris.

 

 

SC3pro

 

The SC3pro was introduced in 2012 and has been upgraded from the SC3 to include our patented “Smart Latch” system. The SC3pro offers the same features as the SC3; however, the Smart Latch system allows the operator to open the cover by simply pulling a release cable.

 

TC3

 

The TC3 was introduced in 2011 but offers a 14 millimeter thick aluminum tri-cover panel with a honey-comb core coated in a durable black scratch-resistant powder coating. The TC3 is fitted with the same frame as the SC3 and seals and latches the same as the SC3.

 

Products in Production

 

Worksport is currently developing the following products:

 

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SC4

 

The SC4 is estimated to launch in the third quarter of 2021. We believe that this will be the first vinyl wrapped tonneau cover to fold in four sections. This cover will also allow its users full bed access by being foldable upwards toward the rear window of the truck. This cover will be more compact when folded parallel to the back window of the truck which will reduce wind resistance and rear window obstruction.

 

TC4

 

The TC4 is currently in the design stage with an estimated to launch in the fourth quarter of 2021. The TC4 design will fold with four sections, and rotate toward the truck cab’s rear window, allowing full bed access. The cover will have three locking points, with two latching points that are cable operated. The cover will be made using FRP (fiberglass reinforced polymer) panels with a matte black silicate surface, for a durable, matt-black finish.

 

Like the SC3pro, TC4 will offer a cable operated latching system. Options on the TC4 will include expandable cargo division and storage solutions.

 

TERRAVIS

 

We are currently developing a two component system called the TerraVis that consists of a solar tonneau cover and portable core battery.

 

The TerraVis tonneau cover will be the charging component of the TerraVis and is part of a larger proprietary system which uses mono-crystalline high efficiency solar panels, rather than our standard FRP or Aluminum rigid panels. The system will generate up to 1000-watts of low voltage DC current. The power will then be stored in an integrated, scalable Lithium Iron Phosphate (LiFeP04) battery bank, that can expand to over 6 kilowatts (kw) of energy storage. These components all combine to form the TerraVis System, referenced above. The energy can be stored and inverted to two 2000-watt 110V AC outlets or used to re-charge the vehicle’s onboard battery systems as emergency.

 

Based on our TC4 design, our TerraVis cover is designed to provide portable power for pickup trucks and add driving range to next-generation EV (Electric Vehicle) pickups by generating solar charge power. While folded over the bed of the truck, the TerraVis cover is designed to charge power banks and portable batteries, turning any truck into a mobile micro-grid power station.

 

 

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TerraVis will be designed with integrated track systems within the bed of the truck. These tracks can be used for a variety of add-on options such as, chrome trim, tie downs, cargo cleats, textile storage bags, seating, cargo racks, sliding system and others.

 

The TerraVis COR will be the battery component of TerraVis and will be available to the broader consumer market as a stand-alone mobile power system for off-grid power. This will be a modular, scalable, portable power system. Chargeable via the TerraVis solar panel tonneau cover, any solar panel, or wall outlet. the TerraVis COR is the battery pack that will produce power from the modular Worksport COR battery packs and provide DC powder to charge mobile devices, as well as invert the power to 2000 watts of A/C power to power job sites, camp sites, or where power may not be conveniently available.

 

Our sales efforts for our TerraVis System will be focused on the North American markets, for companies such as Rivian, Workhorse, Atlis, Bollinger, Tesla, Hercules, as well as GM and Ford trucks.

 

Manufacturing

 

All Worksport products are manufactured in a facility located Meizhou, China according to our specifications, schematics and blueprints. We believe that production at the factory can be increased within 30 days to facilitate volumes up to 10 times the current output without any adverse effects on quality or craftsmanship.

 

We are currently in the process of establishing manufacturing presence within North America (the United States, Canada and Mexico). Management is hopeful that an agreement can be reached between respective governments and that a new facility can be built sometime in 2021. Management believes that having manufacturing capability in North America will increase quality control and production efficiency.

 

Intellectual Property

 

The Company currently holds a broad collection of intellectual property rights relating to certain aspects of its parts and accessories, and services. This includes patents, trademarks, service marks, and trade secrets. Although the Company believes the ownership of such intellectual property rights is an important factor in its business and that its success does depend in part on such ownership, the Company relies primarily on the innovative skills, technical competence and marketing abilities of its personnel.

 

Patents

 

Our current intellectual portfolio consists of: four (4) issued U.S. utility patents, four (4) completed international Patent Cooperation Treaty (“PCT”) application, one (1) issued Canadian utility and pending divisional patent application. We also in the process of preparing five (5) U.S. provisional patent applications and one (1) U.S. design patent application. Our patents and applications relate, among others, to:

 

  Storage bag use for a tonneau cover;
  Tonneau system for use with a pickup truck;
  Latches and rails for use in tonneau truck covers; and
  Portable power systems.

 

Granted U.S. patents will expire between 2032 and 2039, excluding any patent term extensions that might be available following the grant of marketing authorizations. If issued, pending applications would expire in 2041, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations.

 

All patents issued to our Chief Executive Officer, Steven Rossi, have been assigned to the Company or will be assigned to the Company upon being issued by the USPTO.

 

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Trademarks

 

The Company has 15 trademarks in various states of pending, registered and allowed in the United States, Canada, China, the United Kingdom and Canada.

 

Government Regulation

 

Other than standard business licenses, no permits or regulatory approvals are required to distribute Worksport products to clients in any of the areas in which we operate.

 

The Market

 

Our revenue is directly proportional to sales of pickup trucks. The following graph shows sales of specialty equipment retail sales of aftermarket automotive accessories in the United States in billions from 2016, through the third quarter of 2019 and estimates those sales into 2023.

 

 

The worldwide COVID-19 pandemic has not critically affected the pickup truck market. In 2020, new vehicle sales were under 15 million, with light trucks accounting for approximately 74% of total sales in the United States.

 

This current growth trend is fueled by a decade average of strong overall economic performance, including an ongoing decade average decline in unemployment and growth in consumer spending. A strong economy paired with rising consumer confidence suggest that consumers are willing to spend capital on discretionary items, such as specialty automotive parts. While new vehicle sales have leveled off, they still remain at near-record highs—close to 15 million per year. Recently announced tariffs on imported steel, aluminum, etc. and other policy changes could affect the economy and the automotive industry, however, demand continues to remain strong for new pickup trucks in North America.

 

The Statista Market Outlook suggests that pickup trucks will continue to be the number one selling vehicle in North America. Pickup truck upgrades are the largest sector of the specialty equipment industry, accounting for 27% of total retail dollars (about $12.03 Billion). In the United States alone, there are over 158.6 million registered light trucks. Despite the growth of crossover vehicles (CUV) overall, full-size pickups remain the most common vehicle subtype on the road today. This is likely driven by the continued popularity of domestic half-ton pickups (e.g., Ford F-150, Chevrolet Silverado, Ram 1500) throughout the United States, especially in the U.S. southern states.

 

While there is increasing interest in electrification by automakers, less than 1% of light vehicles are electrified thus far. This will be the decade where mass adoption takes place. The electric pickup truck market is very promising. Under the push of EV’s worldwide and legal policies in states like California banning non-eco truck sales by 2035, we believe that a sizable amount of customers will be looking to purchase and upgrade to newer trucks. EV pickup truck sales are suggested to grow at a 58% change of annual growth rate (CAGR) between 2020 and 2030.

 

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The top registered make and models of pickup trucks in the United States are shown below.

 

Top Registered Models1

 

Model:   Number in Millions:  
GM Full-Size Pickup     17.6  
Ford F-Series     15.6  
Ram Pickup     7.6  
Toyota Tacoma     3.2  
Ford Ranger     2.3  
Chevrolet Silverado 2500     2.1  
Toyota Tundra     2.0  

 

Of the roughly 56 million pickups in the United States today, nearly 60% of them are either GM Full-Size or Ford F-Series, and account for almost 12% of all vehicles on the road. The Ram Pickup is third. All three brands are ideal target markets for our products.

 

2020 New Pickup Truck Sales in the United States by Month (All Models)

 

 

With 2020 year-end sales for the most popular pickup trucks of approximately 780,000 units, the Ford F-Series was the best-selling light truck in the United States. The Ford F-Series is a series of full-size pickup trucks, the most popular variant being the F-1502. The 14th generation of this model was released in 2020.

 

 

1 Pickup Trucks - United States.” Statista, Statista Inc.

2 https://www.caranddriver.com/news/g32006077/best-selling-cars-2020/

 

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Pickup truck sales growth in the U.S. increased in 2019, compared with 2018. U.S. pickup truck sales came to around 3.13 million units in 2019, compared to 2.9 million units in 2018.1 With the exception of Toyota pickups, light trucks built by U.S.-based automakers continue to be favorites among U.S. vehicle buyers.

 

Distribution

 

We distribute our tonneau covers are through wholesalers and online retail channels in Canada and the United States. We will also provide our tonneau covers for private labels and Original Equipment Manufacturers.

 

The specialty equipment (aftermarket) consists of three major types of customers which include master warehouse distributors, dealers and wholesalers, and retail end consumers. Master warehouse distributors will stock and distribute products to their customers, which are usually local dealers and wholesalers. Dealers and wholesalers are local stores which sell products to some businesses and retail consumers in their area and online. Dealers will purchase most of their products from their local distributor who will deliver to them regularly. Retail end consumers are simply the end users of the products.

 

Market Projections1

 

Revenue in the Pickup trucks market segment is projected to reach US$66,187m in 2021.
Revenue is expected to show an annual growth rate (CAGR 2021-2025) of 5.16%, resulting in a projected market volume of US$80,946m by 2025.
Pickup trucks market segment unit sales are expected to reach 2,715.0K vehicles in 2025.

 

The following table includes the percentage of the Company’s sales to significant customers for the year ended December 31, 2020 and 2019, as well as the balance included in revenue and accounts receivable for each significant customer as at December 31, 2020 and 2019.

 

    2020     2019  
    $     %     $     %  
Customer A     0       -       1,912,401       89  
Customer B     190,313       51       0       -  
Customer C     97,514       26       67,018       3  
Total     287,827       77       1,979,419       92  

 

The Original Manufacturing Market (OEM) consists of vehicle manufactures with corporate offices and distribution points globally. Specifically, within North America, Worksport’s target customers in OEM markets include but are not limited to:

 

  Toyota Motor Co;
  Lordstown Motors Corp;
  Rivian;
  Ford Motor Co;
  Nissan Motor Co;
  General Motors; and
  FCA Automotive (Ram Trucks).

 

Worksport currently has two OEM partnerships with the electric-truck manufacturers, Hercules Electric Vehicles and Atlis Motor Vehicles. These partnerships are currently in the development stage whereby we intend to work with these companies to explore integrating our TerraVis solar tonneau cover with Hercules and Atlis’ EV pickup truck models.

 

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Competition

 

In our estimation, for many years, consumers looking to purchase tonneau covers have had a limited amount of options available to them and mostly consisted of:

 

  1. Soft Folding & Roll-up covers (Vinyl covers);
  2. Solid one piece caps and lids (Plastic & Fiberglass);
  3. Retractable Covers (Plastic & Aluminum); and
  4. Hard Folding & Standing Covers (Aluminum and FRP).

 

Solid one piece covers and retractable covers are the least desirable because of their limited functionality and overall cost. We believe that consumers want a less cumbersome tonneau cover with high functionality and at a lower cost.

 

That is why the most popular covers in today’s market are soft and hard folding/rolling tonneau covers and the biggest growth opportunity in the tonneau cover market is the aggressively priced hard folding tonneau cover market niche.

 

Our largest competitor is Truck Hero which has acquired upwards of 13 independent tonneau cover brands in North America. Truck Hero’s products directly compete with our products.

 

Our second largest competitor is Truck Accessory Group (TAG), however, TAG’s products do not directly compete with those of ours.

 

We believe that by being independent, aggressively priced, innovative, and operationally sound, we will be able to grow revenues with minimal sales effort while continuing to develop our relationships with our larger clients.

 

Furthermore, we believe our Company is currently the only independent Business-to-Business (B2B) producer of tonneau covers in the United States and Canada that does not sell directly to customers (B2C). Worksport believes that we can expand our current customer base throughout our current and future markets and is evaluating entering various B2C channels to boost sales of new products.

 

Our business plan moving forward is to sell our products to the 60,000 existing auto parts retailers throughout the United States. Our products are currently being distributed to 17,000 of these stores.

 

The Company also plans to eventually expand to other markets outside the United States and Canada. We intend to generate revenue in new markets from the automotive specialty equipment markets and global Original Equipment Manufacturers.

 

Our goal is to become the leader in the tonneau cover market through innovation. Our main objective is to design and engineer our products to better suit today’s new, dynamic, and innovative models of light trucks and electric trucks with TerraVis.

 

Employees

 

We currently employ four full-time employees inclusive of our Chief Executive Officer. We intend to hire additional employees as operations grow. We rely on independent contractors for additional labor as needed.

 

Executive Offices

 

Our principal executive offices and warehouse is located at 3120 Rutherford Road, Suite 414, Vaughan, Ontario, Canada L4K 0B2.

 

We lease this 3,600 square foot space at a price of $2,222 per month that commenced August 1, 2019 and ends July 31, 2022.

 

Our main telephone number is (888) 554-8789. Our main website is www.worksport.com, the contents of which are not incorporated by reference into this prospectus.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and notes thereto appearing elsewhere in this prospectus. Our financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this prospectus, including those set forth under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

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.

 

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 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.

 

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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 $1,912,400 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.

 

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 $115,957 in 2020. Consulting fees increased by 194% or from $260,556 in 2019 to $394,864 2020. The increase in Consulting fees was a result of hiring a factory management company in China, a marketing firm and up-listing consultants. Legal fees decreased from $124,373 in 2019 to $104,648 in 2020.

 

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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

 

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.

 

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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.

 

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.

 

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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. Disclosure of Financial Difficulties

 

The Company has disclosed going concerns opinions in 2014, 2015, 2016, 2017, 2018, and 2019. The Company has sourced required capital to maintain existence while growing since 2014 in revenues and gross profits. The Company will continue to focus on financing its operations through the profits from the sale of its products as well as by raising capital through debt or equity transactions.

 

Plan of Operations

 

Over the course of the next 12 months, the Company will continue to manufacture quality, functional, and competitively priced tonneau covers for prominent pickup trucks in Canada and the U.S. Worksport will focus its attention on raising capital for its marketing and sales endeavors to increase brand awareness so that the Company can expand its wholesaler dealer network in both Canada and the U.S. Furthermore, the Company’s business development, sales and marketing teams will focus on expanding the Company’s current roster of third party online retailers.

 

Milestones

 

The business objectives that the Company expects to accomplish are described below, followed by a description of the significant events that must occur for the business objectives, the time periods during which each of the events is expected to occur and the costs related to each event.

 

1. The Company intends to increase customer base, sales, and establish new product market place.

 

Description:

 

  Significant event: a. Acquire and establish a factory lease for Canadian Manufacturing
    b. Retrofit- and re-tool said factory
    c. Purchase supply and inventory for production
       
  Time period: a. Q2 2021
    b. Q3 2021
    c. Q4 2021
       
  Costs: a. Approximately $150,000 yearly cost
    b. Approximately $550,000 initial capital expense
    c. Approximately $200,000 resource / inventory expense
       
  Risk:  

No real reasonable risks are present in this event. The Company is also looking to pursue interest-free loan support from the

Government in this matter.

 

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2. The Company intends to continue to design, develop and manufacture innovative products.

 

Description: As a more long-term series of goals, management continually maintains a strong focus on continuous improvement and innovation. The TC4 hard folding cover will be a highly strategic step forward in the Company’s hard folding tonneau cover offering. Management believes that the North American market has significant demand for hard folding covers. Management is also accelerating plans to further develop its TerraVis™ product offering. The TerraVis™ product will require manufacturing partnerships with solar panel producers, as well as Lithium Iron Phosphate battery producers. Management will be focused on forging those partnerships to bring the model closer to launch.

 

  Significant event: a. Finalize Development of TC4
    b. Establish Supply Partnerships for TerraVis
       
  Time period: a. Q4 2021
    b. Q2 2021
       
  Costs: a. Approximately USD$25,000 and residual commissions
    b. Approximately USD$25,000 (prototype costs)
       
  Risk:   No real reasonable risks are present in this event.

 

3. Additional Capital Raise Through the Exercise of Warrants

 

The Company has recently completed a Regulation-A offering where $6,300,000 was raised from the sale of Units consisting of Common Stock and warrants. The warrants can be exercised for an approximate total amount of $5,700,000 until February of 2022.

 

DESCRIPTION OF PROPERTY

 

Our principal executive offices and warehouse is located at 3120 Rutherford Road, Suite 414, Vaughan, Ontario, Canada L4K 0B2.

 

We lease this 3,600 square foot space at a price of $2,222 per month that commenced August 1, 2019 and ends July 31, 2022.

 

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DIRECTORS, EXECUTIVE OFFICERS & CORPORATE GOVERNANCE

 

Set forth below is a list of the names, ages and positions of our directors and executive officers.

 

 

Name:   Position(s):   Age:   Director or Executive Officer Since:  
Steven Rossi  

Chief Executive Officer, President, Secretary,

Chair of the Board of Directors, Audit Committee Member

  35   November 7, 2014  
               
Michael Johnston   Chief Financial Officer   40   December 5, 2017  
               
Lorenzo Rossi   Director   67   December 9, 2014  
               
Craig Loverock   Director, Chair of Audit Committee   50   April 22, 2019  

 

A brief description of the background and business experience of our executive officers and directors for the past five years is as follows:

 

Steven Rossi, age 35, has served as the Chief Executive Officer, President. Secretary and Chair of the Board of Directors of the Company since November 7, 2014 and as a member of the Audit Committee since April 22, 2019. Mr. Rossi founded Worksport Ontario, the wholly-owned operating company of the Company, in 2011. Prior to that, he founded two auto-related companies, 2230164 Ontario, Inc. and Scrap my Junk Car, in 2005 and 2006, respectively, and managed their respective operations for five years. Since founding Worksport Ontario in 2011, Mr. Rossi has been granted 14 different patents across the United States and Canada. He has licensed all patents to Worksport on an exclusive basis. Mr. Rossi attended the University of Toronto from 2005 to 2007, majoring in Life Science. Through his prior experiences, Steven possesses the knowledge and experience in establishing and managing auto-related companies that aids him in efficiently and effectively identifying and executing the Company’s strategic priorities. As our Chief Executive Officer, President, Chair and founder, Mr. Rossi brings to the Board extensive knowledge of the Company’s products, structure, history, and culture as well as years of expertise in the industry.

 

Michael Johnston CA, CPA, age 40, has been serving as the Chief Financial Officer of the Company since December 5, 2017. Mr. Johnston is a partner at Toronto’s Forbes Andersen LLP, Chartered Professional Accountants, and offers over 12 years of experience with both private and public companies. His responsibilities includes assisting the Steven Rossi in developing new business, maintaining operating budgets and ensuring adequate cash flow. Mr. Johnston was appointed by the Board for his extensive knowledge of the Company’s products and his financial and accounting expertise. Mr. Johnston holds a graduate degree from the University of Western Ontario.

 

Lorenzo Rossi, age 67, has been serving as a director of the Company since December 9, 2014. Since 2005, he has been the Computer Science & Communications Technology Department Head at the Cardinal Carter Academy for the Arts of the Toronto Catholic District Schools. Lorenzo received a Master of Education in 1995 from the University of Toronto and a Bachelor of Arts from Laurentian University in 1977. Mr. Rossi’s professional experience qualifies him to serve on our Board.

 

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Craig Loverock, CPA, CA, age 50, has been serving as a member of the Board of the Company since April 22, 2019. Mr. Loverock has served as the chair of the Audit Committee since his appointment. Mr. Loverock is a licensed CPA (Chartered Professional Accountant) and received his Chartered Accountant designation from the Institute of Chartered Accountants, Ontario in 1997, and has over 24 years’ experience in accounting and finance roles in Canada, the United States and England. Mr. Loverock has been the Chief Financial Officer and Corporate Secretary at Contagious Gaming Inc. since November 30, 2015, and currently serves as the Chief Financial Officer of Sproutly Canada, Inc. From October 2014 to May 2015, he served as the Chief Financial Officer of VoiceTrust Inc. From November 2012 to October 2014, he served as the Chief Financial Officer and Chief Compliance officer of Quartz Capital Group Ltd. From January 2010 to November 2012, he provided Chief Financial Officer consulting services to a number of high-growth businesses. Mr. Loverock finance and accounting experience qualifies him to serve on our Board.

 

Term of Office

 

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until their resignation or removal in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until removed by the Board of Directors.

 

Family Relationships

 

Mr. Lorenzo Rossi is the father of Mr. Steven Rossi. There are no other family relationships between any of our directors or executive officers.

 

Involvement in Legal Proceedings

 

To our knowledge, there have been no material legal proceedings that would require disclosure under the federal securities laws that are material to an evaluation of the ability of our director or executive officers.

 

Code of Business Conduct and Ethics

 

Our Board plans to adopt a written code of business conduct and ethics (“Code”) that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. We intend to post on our website a current copy of the Code and all disclosures that are required by law in regard to any amendments to, or waivers from, any provision of the Code.

 

Director Independence and Board Committees

 

We are not currently required under the Securities and Exchange Act to maintain any committees of our Board.

 

Nasdaq listing standards require that a majority of our Board be independent within one year of our initial public offering. An “independent director” is defined generally as a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship which in the opinion of the Company’s Board, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Steven Rossi, Lorenzo Rossi and Craig Loverock serve as member of our Board of Directors. Our Board has determined that Craig Loverock is an “independent director” as defined in the Nasdaq listing standard and applicable SEC rules.

 

Pursuant to Nasdaq listing rules we will establish three standing committees–an Audit Committee in compliance with Section 3(a)(58)(A) of the Exchange Act, a Compensation Committee and a Nominating and Governance Committee, each comprised of independent directors. Under Nasdaq Listing Rule 5615(b)(1), a company listing in connection with its initial public offering is permitted to phase in its compliance with the independent committee requirements. We do not intend to rely on the phase-in schedules set forth in Nasdaq Listing Rule 5615(b)(3).

 

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Audit Committee. We currently have a standing Audit Committee. Craig Loverock and Steven Rossi serve as members of our current Audit Committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have at least three members of the Audit Committee, all of whom must be independent and financially literate, subject to certain phase-in provisions, and one member of the Audit Committee must qualify as an “audit committee financial expert” as defined in applicable SEC rules. Craig Loverock meets the independent director standard under Nasdaq listing rules and under Rule 10-A-3(b)(1) of the Exchange Act and qualifies as an “audit committee financial expert” under the SEC rules. Steve Rossi does not qualify as an independent director due to this executive position with the Company. Upon the effectiveness of the registration statement of which this prospectus forms a part, Mr. Rossi will resign from the Audit Committee and we will appoint two independent directors to the Audit Committee.

 

We will adopt an Audit Committee charter, which will detail the purpose and principal functions of the Audit Committee, including:

 

  appoint, compensate, and oversee the work of any registered public accounting firm employed by us;
  resolve any disagreements between management and the auditor regarding financial reporting;
  pre-approve all auditing and non-audit services;
  retain independent counsel, accountants, or others to advise the Audit Committee or assist in the conduct of an investigation;
  seek any information it requires from employees-all of whom are directed to cooperate with the Audit Committee’s requests-or external parties;
  meet with our officers, external auditors, or outside counsel, as necessary; and
  oversee that management has established and maintained processes to assure our compliance with all applicable laws, regulations and corporate policy.

 

Compensation Committee. Upon the effectiveness of the registration statement of which this prospectus forms a part, we will establish a Compensation Committee of the Board. Under the Nasdaq listing standards and applicable SEC rules, we are required to have at least two members of the Compensation Committee, all of whom must be independent, subject to certain phase-in provisions.

 

We will adopt a Compensation Committee charter, which will detail the purpose and responsibility of the Compensation Committee, including:

 

  discharge the responsibilities of the Board relating to compensation of our directors, executive officers and key employees;
  assist the Board in establishing appropriate incentive compensation and equity-based plans and to administer such plans;
  oversee the annual process of evaluation of the performance of our management; and
  perform such other duties and responsibilities as enumerated in and consistent with Compensation Committee’s charter.

 

The Compensation Committee charter will permit the committee to retain or receive advice from a compensation consultant and will outline certain requirements to ensure the consultants independence or certain circumstances under which the consultant need not be independent. However, as of the date hereof, the Company has not retained such a consultant.

 

Nominating and Governance Committee. Upon the effectiveness of the registration statement of which this prospectus forms a part, we will establish a Nominating and Governance Committee of the Board that will be comprised of independent directors.

 

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We will adopt a Nominating and Governance Committee charter, which will detail the purpose and responsibilities of the Nominating and Governance Committee, including:

 

  assist the Board by identifying qualified candidates for director nominees, and to recommend to the Board of Directors the director nominees for the next annual meeting of stockholders;
  lead the Board in its annual review of its performance;
  recommend to the Board director nominees for each committee of the Board; and
  develop and recommend to the Board corporate governance guidelines applicable to us.

 

Meetings of the Board of Directors

 

During its fiscal year ended December 31, 2020, the Board met from time to time informally and acted by written consent on numerous occasions.

 

Indemnification and Limitation on Liability of Directors

 

Our articles of incorporation limit the liability of our directors to the fullest extent permitted by Nevada law. Nothing contained in the provisions will be construed to deprive any director of his right to all defenses ordinarily available to the director nor will anything herein be construed to deprive any director of any right he may have for contribution from any other director or other person.

 

At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Equity Incentive Plans

 

In July 2015, the Board of Directors and stockholders adopted the Company’s 2015 Equity Incentive Plan (the “2015 Plan”), effective as of July 5, 2015. The 2015 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) non-statutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2015 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock. The Board will administer the 2015 Plan until the Compensation Committee is established. The Board reserved 100,000,000 shares of Common Stock issuable upon the grant of awards under the 2015 Plan. No awards have granted to any of our officers or directors pursuant to the 2015 Plan.

 

On April 15, 2021, the Board of Directors and majority stockholder adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) non-statutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2021 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock The Board will administer the 2021 Plan until the Compensation Committee is established. The Board reserved 25,000,000 shares of Common Stock issuable upon the grant of awards under the 2021 Plan. No awards have granted to any of our officers or directors pursuant to the 2021 Plan.

 

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EXECUTIVE COMPENSATION

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers during the years ended December 31, 2020 and 2019 in all capacities for the accounts of our executives, including the principal executive officer and principal financial officer.

 

Summary Compensation Table

 

Name and Position   Year     Salary ($)     All Other Compensation     Total ($)  
Steven Rossi, Chief Executive Officer, President and Chair of the Board     2020     $ 87,030     $         0     $ 87,030  
      2019     $ 65,589     $ 0     $ 65,589  
                                 
Michael Johnston, Chief Financial Officer     2020     $ 0     $ 0     $ 0  
      2019     $ 0     $ 0     $ 0  

 

Employment Agreements

 

We entered into an employment agreement with Steve Rossi, our Chief Executive Officer effective May 10, 2021 (the “Employment Agreement”).

 

The term of the Employment Agreement commenced on May 10, 2021 (the “Effective Date”) and continues until the fifth (5th) anniversary thereof (the “Initial Term”), unless terminated earlier pursuant to the terms of the Employment Agreement; provided that, on such fifth (5th) anniversary of the Effective Date and each third annual anniversary thereafter (such date and each annual anniversary thereof, a “Renewal Date”), the Employment Agreement will be automatically renewed, upon the same terms and conditions, for successive periods of three (3) years (each, a “Renewal Term”), unless either party provides written notice of its intention not to extend the term of the Agreement at least 90 days prior to the applicable Renewal Date.

 

Mr. Rossi’s annual base salary will be $300,000 (“Base Salary”) and Mr. Rossi shall be entitled to annual bonus (“Bonus”) equal to 50% of his Base Salary, provided that certain performance goals are met. The performance goals will be established on an annual basis by the Compensation Committee of the Board of Directors of the Company.

 

The Employment Agreement may be terminated by the Company with or without “Cause” (as defined below) or by the Executive with or without “Good Reason” (as defined below).

 

The term “Cause” includes discharge by Company on account of the occurrence of one or more of the following events:

 

(i) Executive’s continued refusal or failure to perform (other than by reason of Disability) Executive’s material duties and responsibilities to Company;

 

(ii) a material breach of the Employment Agreement;

 

(iii) an intentional and material breach of the Confidential Information, Assignment of Intellectual Property and Restricted Activities sections of the Employment Agreement;

 

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(iv) willful, grossly negligent or unlawful misconduct by Executive which causes material harm to Company or its reputation;

 

(v) any conduct engaged in that is materially detrimental to the business or reputation of Company;

 

(vi) Company is directed in writing by regulatory or governmental authorities to terminate the employment of Executive or Executive engages in activities that (i) are not approved or authorized by the Board, and (ii) cause actions to be taken by regulatory or governmental authorities that have a material adverse effect on Company; or

 

(vii) a conviction, plea of guilty, or plea of nolo contendere by Executive, of or with respect to a criminal offense which is a felony or other crime involving dishonesty, disloyalty, fraud, embezzlement, theft or similar action(s) (including, without limitation, acceptance of bribes, kickbacks or self-dealing), or the material breach of Executive’s fiduciary duties with respect to Company.

 

The term “Good Reason” generally includes a reduction in the Base Salary, a reduction in job title, position or responsibility, a material breach by the Company of the Employment Agreement, or a material relocation in worksite.

 

In the event the Employment Agreement is terminated by the Company other than for Cause or by Mr. Rossi for Good Reason, Mr. Rossi will receive an amount equal to his Base Salary at the rate in effect as of the date immediately preceding such termination until the earlier of (i) the expiration date of the Term or (ii) the first anniversary of the date of termination; provided that if the date of termination is after the first anniversary of the Effective Date, Mr. Rossi will receive the Base Salary and accrued benefits for 18 months following the effective date of termination. The Rossi shall also be entitled to receive earned but not paid Bonuses and a any pro-rata portion of the amount of Executive’s Bonus for the year in which termination occurs that would have been payable based on actual performance determined under the terms of the Bonus as then in effect for such year, and expenses incurred through the date of termination and any other benefits accrued but not paid. Notwithstanding the foregoing, Mr. Rossi’s right to receive any unearned compensation is conditioned on Mr. Rossi execution and delivery to the Company a general release of claims.

 

If the date of termination for Good Reason is after the end of a calendar year but prior to such time as Mr. Rossi’s Bonus, if any, is paid, then Mr. Rossi will receive a Bonus as determined by the Compensation Committee prorated for the time of employment during such year of termination.

 

Mr. Rossi has the right under the Employment Agreement to terminate his employment for other than Good Reason upon 30 days’ written notice to the Company. If Mr. Rossi terminates the Employment Agreement for other than Good Reason, Mr. Rossi will receive an amount equal to his base salary, earned but not paid plus expenses incurred through the date of termination and any other benefits accrued but not paid.

 

If a Change in Control (as defined below) occurs and Mr. Rossi’s employment is terminated by the Company for any reason other than Cause or disability or Mr. Rossi terminates for Good Reason, Mr. Rossi will receive a non-prorated severance equal to two times his Base Salary and Bonus for the year of termination and all vested and accrued benefits up to the date of termination. If Mr. Rossi holds any non-vested option awards at the date of termination in connection with a Change in Control, all options not vested will vest and become exercisable until the earlier of three years following termination or the expiration of the options as granted. If Mr. Rossi holds any restricted securities at the date of termination in connection with a Change in Control, all restrictions will lapse and all such securities will be unrestricted, vested and immediately payable. All of Mr. Rossi’s performance-based goals will also be deemed met in connection with termination by Change in Control in calculating bonus and other awards.

 

The term “Change in Control” generally means a transaction that occurs whereby more than 50% of the Company’s voting power is acquired by a third party, the consummation involving the Company of a merger, consolidation, reorganization or business combination or the sale of substantially all of the Company’s assets to a third party.

 

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Pursuant to the clawback provisions of the Employment Agreement, any amounts payable under the Employment Agreement are subject to any policy (whether in existence as of the Effective Date or later adopted) established by the Company providing for clawback or recovery of amounts that were paid to Mr. Rossi. The Company will make any determination for clawback or recovery in its sole discretion and in accordance with any applicable law or regulation.

 

The Employment Agreement provides that the Company shall indemnify M. Rossi to the fullest extent permitted by law for all amounts (including, without limitation, judgments, fines, settlement payments, expenses and reasonable out-of-pocket attorneys’ fees) incurred or paid by Executive in connection with any action, suit, investigation or proceeding, or threatened action, suit, investigation or proceeding, arising out of or relating to the performance by Executive of services for, or the acting by Executive as a director, officer or Executive of, Company, or any subsidiary of the Company.

 

In addition to the foregoing, pursuant to the terms of the Employment Agreement, Mr. Rossi agreed to the Company amending the Series A Preferred Stock’s Certificate of Designation to eliminate his right convert such his Series A Preferred Stock into 51% of the outstanding Common Stock of the Company. In consideration for Mr. Rossi agreeing to terminate his conversion rights, the Company issued Mr. Rossi an aggregate of 34,350,697 unregistered shares of Common Stock equal to 25% of the outstanding shares of Common Stock as of the Effective Date.

 

Compensation of Directors

 

Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of the date of this Registration Statement by (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding Common Stock, (b) directors, (c) our executive officers, and (d) all executive officers and directors as a group. Beneficial ownership is determined according to the rules of the SEC, and generally means that person has beneficial ownership of a security if he or she possesses sole or shared voting or investment power of that security and includes options, warrants and other securities convertible or exercisable into shares of Common Stock, provided that such securities are currently exercisable or convertible or exercisable or convertible within 60 days of the date hereof. Each director or officer, as the case may be, has furnished us with information with respect to their beneficial ownership. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their Common Stock.

 

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Name and Address of Beneficial Owner(1)   Number of Shares of Common Stock Beneficially Owned       Percentage of Common Stock Beneficially Owned (2)  
Directors and Executive Officers:                  
                   
Steven Rossi (3)
-CEO, President, Chairman
    49,850,761   (4)     25.0 %
                   
Michael Johnston
-CFO
    0          
                   
Lorenzo Rossi
-Director
    0          
                   
Craig Loverock
-Director
    0          
                   
All officers and directors as a group (4 persons)(2)(4)     49,850,761         25.0 %
                   
5% or More Stockholders:                  
                   
None                  

 

(1) Unless otherwise indicated, the address for each person is c/o Worksport Ltd., 414-3120 Rutherford Rd, Vaughan, Ontario, Canada L4K 0B1.

 

(2) Based on 199,403,045 shares of Common Stock outstanding as of May 13, 2021. Any shares of Common Stock not outstanding which are issuable upon the exercise or conversion of other securities held by a person within the next 60 days are considered to be outstanding when computing such person’s ownership percentage of Common Stock but are not when computing anyone else’s ownership percentage.

 

(3) Mr. Rossi also owns 100 shares of Series A Preferred Stock entitling him to 51% of the voting power of the Company.

 

(4) Includes 34,506,697 shares of common stock issued to Mr. Rossi pursuant to his Employment Agreement. See “Executive Compensation—Employment Agreements” on page 46.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Except as disclosed herein, no director, executive officer, stockholder holding at least 5% of shares of our Common Stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years.

 

Transactions with Related Persons

 

During the year ended December 31, 2019 and 2020, the Company recorded salaries expense of $65,589 and $87,030, respectively, related to services rendered to the Company by its major stockholder and CEO.

 

Controlling Persons

 

Mr. Rossi owns 100% of the outstanding shares of Series A Preferred Stock of the Company. The shares of Series A Preferred Stock collectively has 51% voting power of the outstanding securities of the Company which thereby renders Mr. Rossi the ability to terminate and vote for board of directors. The Company is not aware of any other agreements or understandings by a person or group of persons that could be construed as a controlling person.

 

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Related Person Transaction Policy

 

Prior to this offering, we have not had a formal policy regarding approval of transactions with related parties. We expect to adopt a related person transaction policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions. For purposes of our policy only, a related person transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and any related person are, were or will be participants in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year end. Transactions involving compensation for services provided to us as an employee or director are not covered by this policy. A related person is any executive officer, director or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons.

 

Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to our Audit Committee, or, if Audit Committee approval would be inappropriate, to another independent body of our Board of Directors, for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable us to identify any existing or potential related person transactions and to effectuate the terms of the policy. In addition, under our code of business conduct and ethics, our employees and directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related person transactions, our Audit Committee, or other independent body of our Board of Directors, will take into account the relevant available facts and circumstances including, but not limited to:

 

  the risks, costs and benefits to us;
  the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated;
  the availability of other sources for comparable services or products; and
  the terms available to or from, as the case may be, unrelated third parties or to or from employees generally.

 

The policy requires that, in determining whether to approve, ratify or reject a related person transaction, our Audit Committee, or other independent body of our Board of Directors, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our stockholders, as our Audit Committee, or other independent body of our Board of Directors, determines in the good faith exercise of its discretion.

 

DESCRIPTION OF SECURITIES

 

We are offering Units in this offering at an assumed public offering price of $ [●] per Unit. Each Unit consists of one share of our Common Stock and one Warrant to purchase one share of our Common Stock at an exercise price equal to $ [●], which is 100% of the assumed public offering price per Unit (each a “Warrant” and together, the “Warrants”). Our Units will not be certificated and the shares of our Common Stock and the Warrants part of such Units are immediately separable and will be issued separately in this offering. We are also registering the shares of Common Stock issuable upon exercise of the Warrants. These securities are being issued pursuant to an underwriting agreement between us and the underwriters. You should review the underwriting agreement and the form of Warrant, each filed as exhibits to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the Warrants.

 

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General

 

Effective May 18, 2021, the Company amended and restated its Articles of Incorporation with the Nevada Secretary of State such that the Company is authorized to issue 299,000,000 shares of Common Stock, $0.0001 par value, and 1,100,000 share of “blank check” Preferred Stock , $0.0001 per share.

 

This description is intended as a summary and is qualified in its entirety by reference to our amended and restated articles of incorporation and amended and restated bylaws, which are filed, or incorporated by reference, as exhibits to the registration statement of which this prospectus forms a part.

 

Common Stock

 

Holders of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available for dividend payments. All outstanding shares of Common Stock are fully paid and nonassessable, and the shares of Common Stock to be issued upon completion of this offering will be fully paid and nonassessable. The holders of Common Stock have no preferences or rights of cumulative voting, conversion, or pre-emptive or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of Common Stock will be entitled to share ratably in any of our assets remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any.

 

Exchange Listing. We have applied to list our Common Stock on the Nasdaq Capital Market under the symbol “WKSP.” No assurance can be given that our listing application will be approved.

 

Warrants

 

Overview. The following summary of certain terms and provisions of the Warrants offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the warrant agent agreement (the “Warrant Agent Agreement”) between us the Warrant Agent, and the form of Warrant, both of which are filed as exhibits to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the Warrant Agent Agreement, including the annexes thereto, and form of Warrant.

 

The Warrants issued in this offering entitle the registered holder to purchase one share of our Common Stock at a price equal to $ [●] per share (based on an assumed public offering price of $ [●] per share), subject to adjustment as discussed below, immediately following the issuance of such Warrant and terminating at 5:00 p.m., New York City time, three years after the closing of this offering. As described below, we have applied to list the Warrants on the Nasdaq Capital Market under the symbol “WKSPW.”

 

The exercise price and number of shares of Common Stock issuable upon exercise of the Warrants may be adjusted in certain circumstances, including in the event of a stock dividend or recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for issuances of Common Stock at prices below its exercise price.

 

Exercisability. The Warrants are exercisable at any time after their original issuance and at any time up to the date that is three (3) years after their original issuance. The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, by utilizing the exercise form on the reverse side of the Warrant certificate completing and executing as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of Warrants being exercised. Under the terms of the Warrant Agreement, we must use our best efforts to maintain the effectiveness of the registration statement and current prospectus relating to Common Stock issuable upon exercise of the Warrants until the expiration of the Warrants. If we fail to maintain the effectiveness of the registration statement and current prospectus relating to the Common Stock issuable upon exercise of the Warrants, the holders of the Warrants shall have the right to exercise the Warrants solely via a cashless exercise feature provided for in the Warrants, until such time as there is an effective registration statement and current prospectus relating to Common Stock issuable upon exercise of the Warrants.

 

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Exercise Limitation. A holder may not exercise any portion of a Warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99% of the outstanding Common Stock after exercise, as such percentage ownership is determined in accordance with the terms of the Warrant, except that upon prior notice from the holder to us, the holder may waive such limitation up to a percentage not in excess of 9.99%.

 

Exercise Price. The exercise price per whole share of Common Stock purchasable upon exercise of the Warrants is $ [●] per share (based on an assumed public offering price of $ [●] per Unit) or 100% of the public offering price of the Common Stock. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.

 

Fractional Shares. No fractional shares of Common Stock will be issued upon exercise of the Warrants. If, upon exercise of the Warrant, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, pay a cash adjustment in respect of such fraction in an amount equal to such fraction multiplied by the exercise price. If multiple Warrants are exercised by the holder at the same time, we shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the exercise price.

 

Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.

 

Exchange Listing. We have applied to list our Warrants on the Nasdaq Capital Market under the symbol “WKSPW.” No assurance can be given that our listing application will be approved.

 

Warrant Agent; Global Certificate. The Warrants will be issued in registered form under a Warrant Agent Agreement between the Warrant Agent and us. The Warrants shall initially be represented only by one or more global warrants deposited with the Warrant Agent, as custodian on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. Our transfer agent, EQ Shareowner Services, will serve as the Warrant Agent.

 

Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the holders of the Warrants will be entitled to receive the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction.

 

Rights as a Stockholder. The Warrant holders do not have the rights or privileges of holders of Common Stock or any voting rights until they exercise their Warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.

 

Governing Law. The Warrants and the Warrant Agent Agreement are governed by New York law.

 

Representative’s Warrants. The registration statement of which this prospectus is a part also registers for sale the Representative’s Warrants, as a portion of the underwriting compensation in connection with this offering. The Representative’s Warrants will be exercisable for four and one-half year period commencing 180 days following the effective date of the registration statement of which this prospectus is a part at an exercise price of $ [●] ([●] % of the assumed public offering price per Unit). Please see “Underwriting-Representative’s Warrants” on page 59 of this prospectus for a description of the Warrants we have agreed to issue to the underwriter in this offering, subject to the completion of the offering.

 

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Preferred Stock

 

We are authorized to issue up to 1,000,000 shares of Preferred Stock. Our Board of Directors has the authority, without further stockholder authorization, to issue from time to time shares preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. Although we have no present plans to issue additional shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of Common Stock, could adversely affect the rights and powers, including voting rights, of the Common Stock, and could have the effect of delaying, deterring or preventing a change of control of us or an unsolicited acquisition proposal.

 

Series A Preferred Stock

 

We are authorized to issue 100 shares of Series A Preferred Stock, par value $0.0001 per share.

 

The holders of the Series A Preferred stock are not entitled to dividends or to receive distributions in the event of liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary.

 

The Series A Preferred Stock is entitled to 51% of the total power of the Company regardless of the number of shares of Series A Preferred Stock that are outstanding.

 

As of May 13, 2021, there were 100 shares of Series A Preferred Stock outstanding, all of which was owed by Steve Rossi.

 

Series B Preferred Stock

 

We are authorized to issue up to 100,000 shares of our Series B Preferred Stock, $0.0001 par value.

 

The holders of the Series B Preferred Stock are entitled to receive dividends upon payment of any dividend on the Common Stock of the Corporation as if the Series B Preferred Stock had been converted into Common Stock.

 

In the event of liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series B Preferred Stock is entitled to receive prior and in preference to any distribution of the assets of the Corporation to the holders of the Common Stock an amount per share equal to the price per share actually paid to the Corporation upon the initial issuance of Series B Preferred Stock plus any declared but unpaid dividends.

 

The Series B Preferred Stock is non-redeemable and each outstanding share of Series B Preferred Stock is entitled to 10,000 votes per one share of Common Stock on any matter put forth to the holders of the Common Stock.

 

As of May 13, 2021, there were no Series B Preferred Stock shares outstanding.

 

Nevada Anti-Takeover Statutes

 

The following provisions of the Nevada Revised Statutes (“NRS”) could, if applicable, have the effect of discouraging takeovers of our Company.

 

Transactions with Interested Stockholders. The NRS prohibits a publicly traded Nevada company from engaging in any business combination with an interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless, prior to that date, the Board of Directors of the corporation approved either the business combination itself or the transaction that resulted in the stockholder becoming an interested stockholder.

 

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An “interested stockholder” is defined as any entity or person beneficially owning, directly or indirectly, 10% or more of the outstanding voting stock of the corporation and any entity or person affiliated with, controlling, or controlled by any of these entities or persons. The definition of “business combination” is sufficiently broad to cover virtually any type of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise benefit its own interests rather than the interests of the corporation and its stockholders.

 

In addition, business combinations that are not approved and therefore take place after the three year waiting period may also be prohibited unless approved by the Board of Directors and stockholders or the price to be paid by the interested stockholder is equal to the highest of (i) the highest price per share paid by the interested stockholder within the 3 years immediately preceding the date of the announcement of the business combination or in the transaction in which he or she became an interested stockholder, whichever is higher; (ii) the market value per common share on the date of announcement of the business combination or the date the interested stockholder acquired the shares, whichever is higher; or (iii) if higher for the holders of preferred stock, the highest liquidation value of the preferred stock.

 

Acquisition of a Controlling Interest. The NRS contains provisions governing the acquisition of a “controlling interest” and provides generally that any person that acquires 20% or more of the outstanding voting shares of an “issuing corporation,” defined as Nevada corporation that has 200 or more stockholders at least 100 of whom are Nevada residents (as set forth in the corporation’s stock ledger); and does business in Nevada directly or through an affiliated corporation, may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested stockholder of the corporation elects to restore such voting rights in whole or in part.

 

The statute focuses on the acquisition of a “controlling interest” defined as the ownership of outstanding shares sufficient, but for the control share law, to enable the acquiring person, directly or indirectly and individually or in association with others, to exercise (i) one-fifth or more, but less than one-third; (ii) one-third or more, but less than a majority; or (iii) a majority or more of the voting power of the corporation in the election of directors.

 

The question of whether or not to confer voting rights may only be considered once by the stockholders and once a decision is made, it cannot be revisited. In addition, unless a corporation’s articles of incorporation or bylaws provide otherwise (i) acquired voting securities are redeemable in whole or in part by the issuing corporation at the average price paid for the securities within 30 days if the acquiring person has not given a timely information statement to the issuing corporation or if the stockholders vote not to grant voting rights to the acquiring person’s securities; and (ii) if voting rights are granted to the acquiring person, then any stockholder who voted against the grant of voting rights may demand purchase from the issuing corporation, at fair value, of all or any portion of their securities.

 

The provisions of this section do not apply to acquisitions made pursuant to the laws of descent and distribution, the enforcement of a judgment, or the satisfaction of a security interest, or acquisitions made in connection with certain mergers or reorganizations.

 

Transfer Agent and Registrar

 

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. Our transfer agent will also be the Warrant Agent.

 

Penny Stock Regulation

 

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price of less than Five Dollars ($5.00) per share or an exercise price of less than Five Dollars ($5.00) per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As our Common Stock immediately following this offering may be subject to such penny stock rules, purchasers in this offering will in all likelihood find it more difficult to sell their Common Stock shares in the secondary market.

 

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Dividend Policy

 

We will not distribute cash to our Common Stock stockholders until Company generates net income. We currently intend to retain future earnings, if any, to finance the expansion of our business and for general corporate purposes. We cannot assure you that we will distribute any cash in the future. Our cash distribution policy is within the discretion of our Board of Directors and will depend upon various factors, including our results of operations, financial condition, capital requirements and investment opportunities.

 

SHARES ELIGIBLE FOR FUTURE SALE

 

Prior to this offering, only a limited public market for our Common Stock existed on the OTCQB. Future sales of substantial amounts of our Common Stock in the public market, including shares issued upon exercise of outstanding Warrants, or the anticipation of such sales, could adversely affect prevailing market prices of our Common Stock from time to time and could impair our ability to raise equity capital in the future.

 

Upon the closing of this offering, we will have [●] shares of our Common Stock outstanding (assuming no exercise of the underwriter’s option to purchase additional shares of Common Stock and/or Warrants). All of the shares sold in this offering will be freely tradable unless purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act.

 

Lock-Up

 

For further details on the lock-up agreements, see the section entitled “Underwriting–Lock-Up Agreements” on page 60 of this prospectus.

 

Rule 144

 

In general, under Rule 144 of the Securities Act, as in effect on the date of this prospectus, any person who is not our affiliate at any time during the preceding three months, and who has beneficially owned their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares of our Common Stock provided current public information about us is available, and, after owning such shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares of our Common Stock without restriction.

 

A person who is our affiliate or who was our affiliate at any time during the preceding three months, and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell within any three-month period a number of shares that does not exceed the greater of:

 

  1% of the number of shares of our Common Stock then outstanding; or
  the average weekly trading volume of our Common Stock during the four calendar weeks preceding the filing of a Notice of Proposed Sale of Securities pursuant to Rule 144 with respect to the sale.

 

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Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Rule 701

 

In general, under Rule 701 of the Securities Act, any of our employees, directors, consultants or advisors who purchased shares from us in connection with a qualified compensatory stock or option plan or other written agreement and in compliance with Rule 701, is eligible to resell those shares 90 days after the effective date of the registration statement of which this prospectus forms a part in reliance on Rule 144, but without compliance with the various restrictions, including the holding period, contained in Rule 144.

 

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

This section summarizes certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of our Common Stock. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder and administrative rulings and judicial decisions, all as currently in effect. These authorities may change at any time, possibly on a retroactive basis, or the U.S. Internal Revenue Service (the “IRS”), might interpret the existing authorities differently. In either case, the tax considerations of purchasing, owning or disposing of Common Stock could differ from those described below.

 

This discussion is addressed only to U.S. holders (defined below) which hold our shares of Common Stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all of the U.S. federal income tax considerations that might be relevant to a beneficial owner in light of such beneficial owner’s particular circumstances or to beneficial owners subject to special treatment under the U.S. federal income tax laws, including:

 

a broker, dealer or trader in securities, currencies, commodities, or notional principal contracts;
a bank, financial institution or insurance company;
a regulated investment company, a real estate investment trust or grantor trust;
a tax-exempt entity or organization, including an individual retirement account or Roth IRA as defined in Section 408 or 408A of the Code, respectively;
a person holding the Common Stock as part of a hedging, integrated, or conversion transaction or a straddle, or a person deemed to sell Common Stock under the constructive sale provisions of the Code;
a trader in securities that has elected the mark-to-market method of tax accounting for securities;
an entity that is treated as a partnership or other pass-through entity for U.S. federal income tax purposes;
a person who is a partner or investor in a partnership or other pass-through entity that holds the Common Stock;
a U.S. person whose “functional currency” is not the U.S. dollar;
a controlled foreign corporation or passive foreign investment company;
a qualified foreign pension fund or an entity that is wholly-owned by one or more qualified foreign pension funds; or
a U.S. expatriate.

 

For purposes of this discussion, a “U.S. holder” is a beneficial owner of a share of Common Stock that is, for U.S. federal income tax purposes:

 

an individual who is a citizen or resident of the United States;
a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust if (1) it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

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For purposes of this discussion, a “non-US holder” is a beneficial owner of a share of Common Stock that is (i) a foreign corporation, (ii) a nonresident alien individual, or (iii) a foreign estate or trust that in each case is not subject to US federal income tax on a net income basis on income or gain from a share of Common Stock.

 

If a partnership holds shares of Common Stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partnership holding shares of Common Stock or a partner therein should consult its own tax advisors as to the tax consequences of holding and disposing of shares of Common Stock.

 

You are urged to consult your tax advisor with respect to the application of the US federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our Common Stock arising under the US federal estate or gift tax rules or under the laws of any US state or local or any non-US or other taxing jurisdiction or under any applicable tax treaty.

 

Certain U.S. Federal Income Tax Considerations for U.S. Holders of Common Stock

 

Dividends on our Common Stock

 

We do not expect to declare or pay any distributions on our Common Stock in the foreseeable future. If we do make any distributions on shares of our Common Stock, however, such distributions will be includible in the gross income of a U.S. holder as ordinary dividend income to the extent paid out of current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Any portion of a distribution in excess of current or accumulated earnings and profits would be treated as a return of the holder’s tax basis in its Common Stock and then as gain from the sale or exchange of the Common Stock. Under current law, if certain requirements are met, a preferential U.S. federal income tax rate will apply to any dividends paid to a holder of Common Stock who is a U.S. individual.

 

Distributions to U.S. holders that are corporate stockholders, constituting dividends for U.S. federal income tax purposes, may qualify for the dividends received deduction, or DRD, which is generally available to corporate stockholders. No assurance can be given that we will have sufficient earnings and profits (as determined for U.S. federal income tax purposes) to cause any distributions to be eligible for a DRD. In addition, a DRD is available only if certain holding periods and other taxable income requirements are satisfied.

 

Sale of Common Stock

 

A U.S. holder of Common Stock will generally recognize gain or loss on the taxable sale, exchange, or other taxable disposition of such stock in an amount equal to the difference between such U.S. holder’s amount realized on the sale and its adjusted tax basis in the Common Stock sold. A U.S. holder’s amount realized should equal the amount of cash and the fair market value of any property received in consideration of its stock. The gain or loss should be capital gain or loss and should be long-term capital gain or loss if the Common Stock is held for more than one year at the time of disposition. The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations under the Code. Under current law, long-term capital gain recognized by an individual U.S. holder is generally eligible for a preferential U.S. federal income tax rate.

 

Information Reporting and Backup Withholding

 

Information reporting requirements generally will apply to payments of dividends on shares of Common Stock and to the proceeds of a sale of Common Stock unless a U.S. holder is an exempt recipient, such as a corporation. Backup withholding will apply to those payments if a U.S. holder fails to provide its correct taxpayer identification number and certification of exempt status, or fails to report in full dividend income. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

 

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UNDERWRITING

 

Maxim Group LLC is acting as the sole book-running manager and as representative of the underwriters of this offering (the “Representative”). Subject to the terms and conditions of an underwriting agreement between us and the Representative, we have agreed to sell to each underwriter named below, and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of our Common Stock and corresponding Warrants listed next to its name in the following table on a firm commitment basis:

 

Underwriter  

Number of Shares of

Common Stock

  Number of Warrants
             
Maxim Group LLC            
                      
Total            

 

The underwriters are committed to purchase all the shares of our Common Stock and corresponding Warrants offered by this prospectus if they purchase any shares of our Common Stock and corresponding Warrants. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated to purchase the shares of our Common Stock and/or Warrants covered by the underwriters’ over-allotment option described below. The underwriters are offering the shares of our Common Stock and corresponding Warrants, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel, or modify offers to the public and to reject orders in whole or in part.

 

Over-Allotment Option

 

We have granted to the underwriters an option, exercisable within 45 calendar days after the date of this prospectus, to purchase up to an additional [●] shares of our Common Stock and/or Warrants to purchase [●] shares of our Common Stock at the assumed public offering price listed on the cover page of this prospectus, less underwriting discounts. The underwriters may exercise this option only to cover over-allotments, if any, made in connection with this offering and may exercise this option to purchase additional shares of Common Stock and/or Warrants. To the extent the option is exercised and the conditions of the underwriting agreement are satisfied, we will be obligated to sell to the underwriters, and the underwriters will be obligated to purchase, these additional shares of our Common Stock and/or Warrants.

 

Discounts and Commissions

 

We have agreed to provide the underwriters with an underwriting discount equal to eight percent (8.0%) of the public offering price for all securities sold in this offering. We have also agreed to provide the Representative with a non-accountable expense allowance equal to one percent (1%) of the public offering price

 

The Representative has advised us that the underwriters propose to offer the shares of Common Stock and corresponding Warrants directly to the public at the public offering price set forth on the cover of this prospectus. In addition, the Representative may offer some of the shares of Common Stock and corresponding Warrants to other securities dealers at such price less a concession of up to $[●] per share of Common Stock and corresponding Warrant. After the offering to the public, the offering price and other selling terms may be changed by the Representative without changing the Company’s proceeds from the underwriters’ purchase of the shares of Common Stock and corresponding Warrants.

 

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The following table summarizes the public offering price, underwriting discounts, and proceeds before estimated offering fees and expenses to us assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of our Common Stock and/or Warrants. The underwriting discounts are equal to the public offering price per share and related Warrants less the amount per share the underwriters pay us for the shares of our Common Stock and Warrants.

 

          Total        
    Per Share     No Exercise     Full Exercise  
Public offering price   $     $               $              
Underwriting discount (1)   $                  $     $  
Proceeds to us, before fees and expenses (2)   $     $     $  

 

  (1) Assumes and underwriting discount of 7% of the public offering price for all securities sold in this offering.
  (2) We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, will be approximately $[●]. This figure includes expense reimbursements we have agreed to pay Maxim for reimbursement of its expenses related to the offering up to a maximum aggregate expense allowance of $ [●] (including any advance toward the maximum expense allowance). In accordance with FINRA Rule 5110, the reimbursement fee described in the preceding sentence is deemed underwriting compensation for this offering.

 

We have also agreed to indemnify the underwriters against certain liabilities, including civil liabilities under the Securities Act or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

 

Except as disclosed in this prospectus, the underwriters have not received, and will not receive, from us any other item of compensation or expense in connection with this offering considered by FINRA to be underwriting compensation under its rule of fair price. The underwriting discount was determined through an arms’ length negotiation between us and the underwriter.

 

Representative’s Warrants

 

We have agreed to issue to the Representative (or its designed affiliates) share Warrants (the “Representative’s Warrants”) to purchase up to a total of seven (7)% of the Securities sold in this offering. The Representative’s Warrants will be non-exercisable for six (6) months after the closing of this offering and will expire five(5) years after such closing date. The Representative’s Warrants will be exercisable at a price equal to 110.0% of the public offering price in connection with this offering. The Representative’s Warrants shall not be redeemable. The Company will register the shares of Common Stock underlying the Representative’s Warrants under the Securities Act and will file all necessary undertakings in connection therewith. The Representative’s Warrants may not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days following the closing of this offering, except that they may be assigned, in whole or in part, to any officer, manager or member of the Representative (or to officers, managers or members of any such successor or member), and to members of the underwriting syndicate or selling group. The Representative’s Warrants may be exercised as to all or a lesser number of shares of Common Stock for a period of five (5) years after the closing of this offering, will provide for cashless exercise and will contain provisions for one demand registration of the sale of the underlying shares of Common Stock at the Company’s expense, an additional demand registration at the Warrant holders’ expense, and unlimited “piggyback” registration rights at the Company’s expense. The Representative’s Warrants shall further provide for anti-dilution protection (adjustment in the number and price of such Warrants and the shares underlying such Warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.) when the public stockholders have been proportionally affected and otherwise in compliance with FINRA Rule 5110(f)(2)(G)(vi) and future issuance of common stock or common stock equivalents at prices (or with exercise and/or conversion prices) below the offering price.

 

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Right of First Refusal

 

For a period of twelve (12) months from the commencement of sales of the offering, the Representative is granted the right of first refusal to act as lead managing underwriter and book-running manager or minimally as co-lead manager and co-book runner and/or co-lead placement agent with at least 100% of the economics for any and all of our future public and private equity, equity-linked, convertible or debt (excluding commercial bank debt) offerings during such twelve (12) month period of the Company, or any successor to or any subsidiary of the Company.

 

Determination of Offering Price

 

Prior to this offering, there has only been limited public market for our Common Stock. The public offering price of the shares of Common Stock was determined by negotiation between us and the Representative. The principal factors considered in determining the public offering price of the shares of Common Stock, including the exercise price of the Warrants included:

 

the information in this prospectus and otherwise available to the underwriters, including our financial information;

 

the history and the prospects for the industry in which we compete;

 

the ability of our management;

 

the prospects for our future earnings;

 

the present state of our development and our current financial condition;

 

the general condition of the economy and the securities markets in the United States at the time of this offering;

 

the recent market prices of, and the demand for, publicly traded securities of generally comparable companies; and

 

other factors as were deemed relevant.

 

We cannot be sure that the public offering price will correspond to the price at which the shares will trade in the public market following this offering or that an active trading market for the shares will develop or continue after this offering.

 

Lock-Up Agreements

 

We and each of our officers and directors and any other holder(s) of three percent (3.0%) or more of the outstanding shares of Common Stock of the Company as of the effective date of the Registration Statement (and all holders of securities exercisable for or convertible into shares of Common Stock) have agreed to enter into customary “lock-up” agreements in favor of the Representative pursuant to which such persons and entities agreed for a period of six (6) months after the Offering is completed, that they shall neither offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any securities of the Company without the prior written consent of the Representative, including the issuance of shares of Common Stock upon exercise of currently outstanding options approved by the Representative.

 

The Representative may in its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the lock-up period. When determining whether or not to release shares from the lock-up agreements, the underwriters will consider, among other factors, the security holder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.

 

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Price Stabilization, Short Positions and Penalty Bids

 

In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our Common Stock. Specifically, the underwriters may over-allot in connection with this offering by selling more Units than are set forth on the cover page of this prospectus. This creates a short position in our Common Stock and/or Warrants for its own account. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares Common Stock and/or Warrants over-allotted by the underwriters is not greater than the number of shares of our Common Stock and/or Warrants that they may purchase in the over-allotment option. In a naked short position, the number of shares of our Common Stock and/or Warrants involved is greater than the number of shares Common Stock and/or Warrants in the over-allotment option. To close out a short position, the underwriters may elect to exercise all or part of the over-allotment option. The underwriters may also elect to stabilize the price of our Common Stock and/or Warrants or reduce any short position by bidding for, and purchasing, Common Stock in the open market.

 

The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in this offering because the underwriter repurchases that security in stabilizing or short covering transactions.

 

Finally, the underwriters may bid for, and purchase, shares of our Common Stock in market making transactions, including “passive” market making transactions as described below.

 

These activities may stabilize or maintain the market price of our Common Stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice.

 

In connection with this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market making transactions in our Common Stock immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:

 

a passive market maker may not effect transactions or display bids for our Common Stock in excess of the highest independent bid price by persons who are not passive market makers;

 

net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our Common Stock during a specified two-month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and

 

passive market making bids must be identified as such.

 

Electronic Distribution

 

A prospectus in electronic format may be made available on a website maintained by the representatives of the underwriters and may also be made available on a website maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives of the underwriters to underwriters that may make internet distributions on the same basis as other allocations. In connection with the offering, the underwriters or syndicate members may distribute prospectuses electronically. No forms of electronic prospectus other than prospectuses that are printable as Adobe® PDF will be used in connection with this offering.

 

The underwriters have informed us that they do not expect to confirm sales of shares offered by this prospectus to accounts over which they exercise discretionary authority.

 

Other than the prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.

 

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Affiliations

 

Certain of the underwriters and their affiliates may provide, from time to time, investment banking and financial advisory services to us in the ordinary course of business, for which they may receive customary fees and commissions.

 

Foreign Regulatory Restrictions on Purchase of our Shares

 

We have not taken any action to permit a public offering of our shares outside the United States or to permit the possession or distribution of this prospectus outside the United States. People outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to this offering of our shares and the distribution of this prospectus outside the United States.

 

Indemnification

 

We have agreed to indemnify the underwriters against liabilities relating to the offering arising under the Securities Act and the Exchange Act and to contribute to payments that the underwriters may be required to make for these liabilities.

 

Selling Restrictions

 

Canada. The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45 106 prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31 103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

 

Pursuant to Section 3A.3 of National Instrument 33 105 Underwriting Conflicts (NI 33 105), the underwriters are not required to comply with the disclosure requirements of NI 33 105 regarding underwriter conflicts of interest in connection with this offering.

 

LEGAL MATTERS

 

Certain legal matters in connection with the securities offered by this prospectus have been passed upon for the Company by Carmel, Milazzo & Feil LLP, New York, New York. Lucosky Brookman LLP is acting as counsel for the underwriter in this offering.

 

EXPERTS

 

Our financial statements as of December 31, 2020 and December 31, 2019 have been included in reliance on the report of Haynie & Company, CPA, an independent registered public accounting firm, as stated in its report incorporated by reference herein, and have been so incorporated in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the securities being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the Common Stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference. All filings we make with the SEC are available on the SEC’s web site at www.sec.gov.

 

We are subject to the periodic reporting requirements of the Exchange Act, and we will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information are available on the website of the SEC referred to above. We maintain a website at www.worksport.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge or at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We have not incorporated by reference into this prospectus the information contained in, or that can be accessed through, our website, and you should not consider it to be a part of this prospectus.

 

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INDEX TO FINANCIAL STATEMENTS

 

  Report of Independent Registered Public Accounting Firm  F-2
  Consolidated Balance Sheet at December 31, 2020 and 2019   F-3
  Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020 and 2019   F-4
  Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2020 and 2019   F-5
  Consolidated statements of Cash Flow for the year ended December 31, 2020 and 2019   F-6
  Notes to the Financial Statements   F-7

 

  F-1  
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Worksport Ltd.

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Worksport, LTD (the Company) as of December 31, 2020 and 2019, and the related statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of m000aterial misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters (CAM) communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Convertible Promissory Note

 

As discussed in Note 7 to the financial statements, the Company entered into a secured convertible promissory note which included an original issue discount and is convertible at a set price which was lower than market on the date of issuance. The promissory note was issued with warrants. The Company accounted for the conversion feature as a beneficial conversion feature. A discount was recorded for the beneficial conversion feature and the relative value of the warrants after considering the original issue discount.

 

We identified the conversion feature as a critical audit matter because accounting for such features is complex and requires management to consider alternative reporting models. Convertible debt also requires management to complete complex calculations and include significant disclosures in their notes to the financial statements. These matters involve a large degree of expertise and judgment on the part of management. In turn, it required us to use significant effort and judgment.

 

/s/ Haynie & Company

 

Salt Lake City, Utah

 

April 13 2021

 

We have served as the Company’s auditor since 2016.

 

  F-2  
 

 

Worksport Ltd. (formerly Franchise Holdings International, Inc.)

Consolidated Balance Sheets

December 31, 2020 and 2019

 

    2020     2019  
Assets                
Current Assets                
Cash and cash equivalents   $ 1,107,812     $ 11,993  
Accounts receivable net     122,787       2,974  
Other receivable     167,836       64,821  
Inventory (Note 4)     40,803       113,156  
Prepaid expenses and deposits     245,526       60,741  
Total Current Assets     1,684,764       253,685  
Investment (Note 18)     24,423       15,658  
Property and Equipment, net (Note 5)     91,511       94,695  
Right-of-use asset, net (Note 19)     38,506       60,125  
Intangible Assets, net (Note 6)     62,948       57,145  
Total Assets   $ 1,902,152     $ 481,308  
Liabilities and Shareholders’ Deficit                
Current Liabilities                
Accounts payable and accrued liabilities   $ 971,667     $ 969,321  
Payroll taxes payable     48,216       36,844  
Related party loan (Note 10)     23,393       28,638  
Promissory notes payable (Note 7)     367,058       267,881  
Convertible promissory note, net (Note 8)     98,982       -  
Loan payable (Note 20)     184,854       -  
Current lease liability (Note 19)     23,883       22,000  
Total Current Liabilities     1,718,053       1,324,684  
Long Term–Lease Liability (Note 19)     14,624       39,185  
Total Liabilities     1,732,677       1,363,869  
                 
Shareholders’ Equity (Deficit)                
Series A & B Preferred Stock, $0.0001 par value, 1,100,000 shares authorized, 1,000 Series A and 0 Series B issued and outstanding, respectively (Note 9)     1       -  
Common stock, $0.0001 par value, 299,000,000 shares authorized, 76,412,359 and 41,906,790 shares issued and outstanding, respectively (Note 9)     7,640       4,191  
Additional paid-in capital     12,658,596       8,642,423  
Share subscriptions receivable     (1,577 )     (1,577 )
Share subscriptions payable     379,428       2,159,395  
Accumulated deficit     (12,866,033 )     (11,678,413 )
Cumulative translation adjustment     (8,580 )     (8,580 )
 Total Shareholders’ Equity (Deficit)     169,475       (882,561 )
Total Liabilities and Shareholders’ Equity (Deficit)   $ 1,902,152     $ 481,308  

 

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

 

  F-3  
 

 

Worksport Ltd. (formerly Franchise Holdings International, Inc.)

Consolidated Statements of Operations and Comprehensive Loss

December 31, 2020 and 2019

 

    2020     2019  
             
Net Sales   $ 346,144     $ 1,926,405  
Cost of Goods Sold     298,996       1,687,857  
Gross Profit     47,148       238,548