Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
1.
Nature of Operations and Reverse Acquisition Transaction
Worksport
Ltd. (the “Company”) was incorporated in the State of Nevada on April 2, 2003. During the year ended December 31, 2014, the
Company completed a reverse acquisition transaction (the “Reverse Acquisition”) with TruXmart Ltd. (“TruXmart”).
On May 2, 2018, Truxmart legally changed its name to Worksport Ltd. (“Worksport”). Worksport designs and distributes truck
tonneau covers in Canada and the United States. on May 5, 2021 Terravis Energy Inc. was incorporated in the State of Colorado.
On August 20, 2021, the Company was issued 100
common shares at par value of $0.0001
per share for a controlling interest in Terravis
Energy, Inc.
On
May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State
in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per
share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change
was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA
declared the 1 for 20 reverse stock split effective on August 4, 2021. These consolidated financial statements including, prior period
comparative share amounts, have been retrospectively restated to reflect this reverse split.
2.
Basis of Presentation and Business Condition
a)
Statement of Compliance
The
Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”) as issued by the Financial Accounting Standards Board (“FASB”).
b)
Basis of Measurement
The
Company’s financial statements have been prepared on the accrual basis.
c)
Consolidation
The
Company’s consolidated financial statements consolidate the accounts of the Company and its wholly owned subsidiaries. All
intercompany transactions, balances and unrealized gains or losses from intercompany transactions have been eliminated upon consolidation.
d)
Functional and Presentation Currency
These
consolidated financial statements are presented in United States Dollars. The functional currency of the Company and its subsidiaries
are United States Dollar. For purposes of preparing these consolidated financial statements, transactions denominated in Canadian Dollar
were converted to United States Dollar at the spot rate. Transaction gains and losses resulting from fluctuations in currency exchange
rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying consolidated
statement of operations and comprehensive loss.
e)
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
f)
Business condition
The
Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s
ability to continue as a going concern within one year after the date the financial statements are issued.
As
of December 31, 2021, the Company had working capital of $32,235,216 (2020 – working capital deficiency of $33,289) and an accumulated
deficit of $20,849,805 (2020 - $12,866,033). As of December 31, 2021, the Company had cash and cash equivalents of $28,567,333 (2020
- $1,107,812). Based on its current operating plans, the Company believes it has sufficient level of funding for anticipated operations,
capital expenditures and debt repayments for a period of at least 12 months from the issuance date of this Annual Report.
During
the year ended December 31, 2021 the Company through its Reg-A public offering, private placement offering, unwritten public offering
and exercises of warrants had raised in aggregate of approximately $32,500,000.
Based
on the Company’s future operating plans, existing cash of $28,567,333, combined with possible warrants exercises of approximately
$38,500,000; management believes the Company have sufficient funds to meet its contractual obligations and working capital requirements
for the next 12 months and the foreseeable future.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
2.
Basis of Presentation and Business Condition (continued)
g)
Reclassification
Certain
amounts in the prior period Consolidated Statements of Cash Flows for the year ended December 31, 2020 have been reclassified to conform
with current period presentation. The Company reclassified $31,193 of changes from accounts payable and accrued liabilities under operating
assets and liabilities to repayment of lease liability under financing activities. This reclassification resulted in a decrease in net
cash used by operating activities from $726,304 to $695,112 and decrease in net cash provided by financing activities from $1,838,850
to $1,807,657. This reclassification did not have any effect on the reported results of operations.
3.
Significant Accounting Policies
Cash
and Cash Equivalents - Cash and cash equivalents includes cash on account and demand deposits with maturities of three months or
less.
Receivables
- Trade accounts receivable are stated at the amount the Company expects to collect. Receivables are reviewed individually for collectability.
If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments,
allowances may be required.
The
Company offers credit terms on the sale of the Company’s products to a significant majority of the Company’s customers and
requires no collateral from these customers. The Company performs ongoing credit evaluations of customers’ financial condition
and maintains an allowance for doubtful accounts receivable based upon the Company’s historical experience and a specific review
or accounts receivable at the end of each period. As at December 31, 2021 and 2020, the Company had no allowance for doubtful accounts.
Inventory
- Inventory is stated at the lower of cost or net realizable value, with cost being determined by a weighted average basis. Cost
includes the cost of materials plus direct labor applied to the product.
Warranties
- The Company offers limited warranties against defective products. Customers who are not satisfied with their purchase may attempt
to have their purchases reimbursed outside past the warranty period.
Revenue
Recognition – In
accordance with ASC 606 Revenue from Contracts with Customers, sales are recognized when products are shipped, with no right
of return but reimbursement maybe offered for defective products and the title and risk of loss has passed to unaffiliated customers
or when they are delivered based on the terms of the sale, there is an identifiable contract with a customer with defined performance
obligations, the transaction price is determinable, and the entity has fulfilled its performance obligation. Revenue related to shipping
and handling costs billed to customers is included in net sales and the related shipping and handling costs are included in cost of products
sold.
Property
and Equipment - Capital
assets are recorded at cost and are depreciated using the straight-line method over the following estimated useful lives:
Schedule of Estimated Useful Lives of Property and Equipment
Furniture
and equipment |
5
years |
Automobile |
5
years |
Computers |
3
years |
Patents |
25
years |
Leasehold
improvements |
15
years |
Share-based
payments - The Company offers a share option plan for its directors, officers, employees and consultants. ASC 718 “Compensation
– Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which
employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other
equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including
grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That
expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the
requisite service period (usually the vesting period).
Measurement
of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods
or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the
earlier of the performance commitment date or performance completion date.
Income
Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax financial income, and between the tax bases of assets and liabilities and
their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated financial statements
at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized
or settled as prescribed in FASB ASC 740. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Tax
positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained
upon examination by the tax authorities.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
3.
Significant Accounting Policies (continued)
Foreign
Currency Translation - Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange
rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into
the functional currency using at the historical exchange rates in effect at the dates of the transactions. All exchange gains and losses
are included in the statement of operations and comprehensive loss.
Financial
Instruments - Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 825, Disclosures about Fair
Value of Financial Instruments, requires disclosures of the fair value of financial instruments. The carrying value of the Company’s
current financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
and shareholder loan, approximates their fair values because of the short-term maturities of these instruments.
Measurement
- The Company initially measures its financial instrument at fair value, except for certain non-arm’s length transactions.
The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for investments in equity
instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in earnings for
the period in which they occur.
Financial
assets measured at amortized cost include cash and cash equivalents, accounts receivable, related party receivable, other receivables
and share subscriptions receivable. Financial liabilities measured at amortized cost include accounts payable and accrued liabilities,
and promissory note payable.
Related
Party Transactions - All transactions with related parties are in the normal course of operations and are measured at the exchange amount.
Intangible
Assets and Impairment – Patents and other intangibles are amortized using the straight-line method over their estimated useful
lives. Intangible assets, such as trademarks with indefinite live are not amortized. Intangible assets are evaluated for impairment at
least annually or when events or circumstances arise that indicate the existence of impairment. The Company evaluates the recoverability
of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount
may not be recoverable. When indicators of impairment exist, the Company measures the carrying amount of the asset against the estimated
undiscounted future cash flows associated with it. Should the sum of the expected future cash flows be less than the carrying value of
the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the
carrying value of the asset exceeds its fair value. The evaluation of asset impairment requires the Company to make assumptions about
future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ
from assumed and estimated amounts. During the years ended December 31, 2021 and 2020, the Company had no impairment losses related to
intangible assets.
Lease
Accounting - On January 1, 2019, the Company adopted the new accounting standards ASC 842 that requires lessees to recognize operating
leases on the balance sheet as right-of-use assets and lease liabilities based on the value of the discounted future lease payments.
Expanded disclosures about the nature and terms of lease agreements are required prospectively and are included in Note 18.
Recent
Accounting Pronouncements
In
October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
(Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities
(deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer
applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December
15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is
also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business
combinations for which the acquisition date occurred during the fiscal year of adoption. Management is currently evaluating the impact
the adoption of this new guidance will have on its consolidated financial statements and does not anticipate a material impact.
In
November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information
about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting
model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the
balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the
significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. The
disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that
are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date
of initial application. Management is currently evaluating the impact the adoption of this new guidance will have on its consolidated
financial statements and does not anticipate a material impact.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
4.
Inventory
Inventory
consists of the following at December 31, 2021 and 2020:
Schedule of Inventory
| |
2021 | | |
2020 | |
Finished goods | |
$ | 427,794 | | |
$ | 32,358 | |
Promotional items | |
| 728 | | |
| 552 | |
Raw materials | |
| 73,250 | | |
| 7,893 | |
Inventory | |
$ | 501,772 | | |
$ | 40,803 | |
5.
Property and Equipment
Major
classes of property and equipment at December 31, 2021 and 2020 are as follows:
Schedule of Property and Equipment
| |
Equipment | | |
Furniture | | |
Product molds | | |
Computers | | |
Leasehold Improvements | | |
Automobile | | |
Total | |
| |
2021 | |
| |
Equipment | | |
Furniture | | |
Product molds | | |
Computers | | |
Leasehold Improvements | | |
Automobile | | |
Total | |
Cost | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance – January 1, 2021 | |
$ | 10,047 | | |
$ | - | | |
$ | 65,708 | | |
$ | 1,162 | | |
$ | 23,371 | | |
$ | - | | |
$ | 100,288 | |
Additions | |
| 526,935 | | |
| 97,795 | | |
| 4,500 | | |
| 32,258 | | |
| 344,862 | | |
| 95,434 | | |
| 1,101,784 | |
Balance – December 31, 2021 | |
$ | 536,982 | | |
$ | 97,795 | | |
$ | 70,208 | | |
$ | 33,420 | | |
$ | 368,233 | | |
$ | 95,434 | | |
$ | 1,202,072 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated Depreciation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance – January 1, 2021 | |
$ | (5,410 | ) | |
$ | - | | |
$ | - | | |
$ | (1,162 | ) | |
$ | (2,204 | ) | |
$ | - | | |
$ | (8,777 | ) |
Additions | |
| (27,191 | ) | |
| (6,366 | ) | |
| - | | |
| (4,616 | ) | |
| (13,825 | ) | |
| (12,499 | ) | |
| (64,497 | ) |
Balance – December 31, 2021 | |
$ | (32,601 | ) | |
$ | (6,366 | ) | |
$ | - | | |
$ | (5,778 | ) | |
$ | (16,029 | ) | |
$ | (12,499 | ) | |
$ | (73,273 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net amount as at December 31, 2021 | |
$ | 504,381 | | |
$ | 91,429 | | |
$ | 70,208 | | |
$ | 27,641 | | |
$ | 352,203 | | |
$ | 82,935 | | |
$ | 1,128,799 | |
| |
2020 | |
| |
Equipment | | |
Furniture | | |
Product molds | | |
Computers | | |
Leasehold Improvements | | |
Automobile | | |
Total | |
Cost | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance – January 1, 2020 | |
$ | 10,047 | | |
$ | - | | |
$ | 65,708 | | |
$ | 1,162 | | |
$ | 23,371 | | |
$ | - | | |
$ | 100,288 | |
Additions | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Balance – December 31, 2020 | |
$ | 10,047 | | |
$ | - | | |
$ | 65,708 | | |
$ | 1,162 | | |
$ | 23,371 | | |
$ | - | | |
$ | 100,288 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated Depreciation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance – January 1, 2020 | |
$ | (3,785 | ) | |
$ | - | | |
$ | - | | |
$ | (1,162 | ) | |
$ | (646 | ) | |
$ | - | | |
$ | (5,593 | ) |
Additions | |
| (1,626 | ) | |
| - | | |
| - | | |
| - | | |
| (1,558 | ) | |
| - | | |
| (3,184 | ) |
Balance – December 31, 2020 | |
$ | (5,410 | ) | |
$ | - | | |
$ | - | | |
$ | (1,162 | ) | |
$ | (2,204 | ) | |
$ | - | | |
$ | (8,777 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net amount as at December 31, 2020 | |
$ | 4,636 | | |
$ | - | | |
$ | 65,708 | | |
$ | - | | |
$ | 21,167 | | |
$ | - | | |
$ | 91,511 | |
During
the years ended December 31, 2021 and 2020, the Company recognized depreciation expense of $64,497 and $3,184, respectively. All current
property and equipment, as well as any future purchases of property and equipment have been pledged as security for the notes payable
disclosed in note 8.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
6.
Intangible Assets
Intangible
assets consist of costs incurred to establish the Worksport Tri-Fold and Smart Fold patent technology, Worksport trademarks, as well
as the Company’s website and sales CRM system. The patent was issued in 2014 and 2019. The patent will be amortized on a straight-line
basis over its useful life of 25 years. The Company’s sales CRM system is currently in testing and development which is expected
to be completed in 2022, as such no amortization has been recorded. The Company’s trademark and website are reassessed every year
for amortization/impairment; the Company has determined that amortization/impairment is not necessary for the current year ended December
31, 2021. The change in intangible assets for the years ending December 31, 2021 and 2020 are as follows:
Schedule of Change in Intangible Assets
| |
| Patent | | |
| Website | | |
| Trademarks | | |
| Software | | |
| Total | |
| |
2021 | |
| |
Patent | | |
Website | | |
Trademarks | | |
Software | | |
Total | |
Cost | |
| | |
| | |
| | |
| | |
| |
Balance – January 1, 2021 | |
$ | 58,706 | | |
$ | 3,500 | | |
$ | 5,150 | | |
$ | - | | |
$ | 67,356 | |
Additions | |
| 4,000 | | |
| 25,951 | | |
| - | | |
| 502,534 | | |
| 532,485 | |
Balance – December 31, 2021 | |
$ | 62,706 | | |
$ | 29,451 | | |
$ | 5,150 | | |
$ | 502,534 | | |
$ | 599,841 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated Depreciation | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance – January 1, 2021 | |
$ | (4,408 | ) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (4,408 | ) |
Additions | |
| (2,380 | ) | |
| - | | |
| - | | |
| - | | |
| (2,380 | ) |
Balance – December 31, 2021 | |
$ | (6,788 | ) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (6,788 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net amount as at December 31, 2021 | |
$ | 55,918 | | |
$ | 29,451 | | |
$ | 5,150 | | |
$ | 502,534 | | |
$ | 593,053 | |
| |
2020 | |
| |
Patent | | |
Website | | |
Trademarks | | |
Software | | |
Total | |
Cost | |
| | |
| | |
| | |
| | |
| |
Balance – January 1, 2020 | |
$ | 51,250 | | |
$ | 3,500 | | |
$ | 4,644 | | |
$ | - | | |
$ | 59,394 | |
Additions | |
| 7,456 | | |
| - | | |
| 506 | | |
| - | | |
| 7,962 | |
Balance – December 31, 2020 | |
$ | 58,706 | | |
$ | 3,500 | | |
$ | 5,150 | | |
$ | - | | |
$ | 67,356 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated Amortization | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance – January 1, 2020 | |
$ | (2,249 | ) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (2,249 | ) |
Additions | |
| (2,159 | ) | |
| - | | |
| - | | |
| - | | |
| (2,159 | ) |
Balance – December 31, 2020 | |
$ | (4,408 | ) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (4,408 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net amount as at December 31, 2020 | |
$ | 54,298 | | |
$ | 3,500 | | |
$ | 5,150 | | |
$ | - | | |
$ | 62,948 | |
Amortization
of the patent over the next five years and beyond December 31, 2021 is as follows:
Schedule of Amortization of Patent
| |
| | |
2022 | |
$ | 2,348 | |
2023 | |
$ | 2,348 | |
2024 | |
$ | 2,348 | |
2025 | |
$ | 2,348 | |
2026 | |
$ | 2,348 | |
2027 and later | |
$ | 42,558 | |
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
7.
Prepaid expenses and deposits
As
of December 31, 2021 and 2020 prepaid expenses and deposits consists of the following:
Schedule of Prepaid Expenses and Deposits
| |
2021 | | |
2020 | |
Consulting, services and advertising | |
$ | 4,328,389 | | |
$ | 227,986 | |
Insurance | |
| 3,041 | | |
| 3,035 | |
Deposit | |
| 384,065 | | |
| 14,505 | |
Prepaid
expenses and deposits, net | |
$ | 4,715,495 | | |
$ | 245,526 | |
As
of December 31, 2021 prepaid expense and deposit consists of $4,328,389 in prepaid consulting, services and advertising for third party
consultants through the issuance of shares and stock options.
8.
Promissory Notes
The
following tables shows the balance of the notes payable as of December 31, 2021 and 2020:
Schedule of Notes Payable
Balance as at December 31, 2019 | |
$ | 267,881 | |
Reclassification | |
| 99,177 | |
Balance as at December 31, 2020 | |
$ | 367,058 | |
Repayment | |
| (103,847 | ) |
Balance as at December 31, 2021 | |
$ | 263,211 | |
During
the year ended December 31, 2020, the Company reclassified $99,177 from
accounts payable to promissory notes and from promissory notes to other receivable. The terms of the note is under
negotiation and is currently due on demand.
During
the year ended December 31, 2016, the Company issued a secured promissory note in the amount of $73,452 ($123,231 Canadian Dollars),
respectively. During the year ended December 31, 2018, the Company issued two additions to the original unsecured promissory note of
July 2016, totaling $22,639 ($30,884 Canadian dollars). The secured promissory note bears interest at a rate of 18% per annum. The payment
terms of the original note including these additions are due “upon completion of going public on the Canadian Securities Exchange,
with no change in interest rate. The secured promissory note is secured by all present and after-acquired property and assets of the
Company. During the year ended December 31, 2019, the Company extended the maturity dates of the secured promissory notes to be due on
April 1, 2021. As at December 31, 2021, principal balance owing was $96,091 ($123,231 Canadian Dollars) (2020 - $96,091 ($123,231 Canadian
Dollars)). As of December 31, 2021, the accrued interest on this note payable was $66,380 ($86,284 Canadian Dollars) (2020 - 48,770 ($64,102
Canadian Dollars)) included in accounts payable and accrued liabilities. As of December 31, 2021, the Company and the secured promissory
note holder are in dispute.
During
the year ended December 31, 2016, the Company issued secured promissory notes in the amount of $79,000. The secured promissory notes
bears interest at a rate of 18% per annum, payable monthly. The secured promissory notes are secured by all present and after-acquired
property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of all secured promissory
notes to be due on April 1, 2021. As at December 31, 2021 principal balance owing was $79,000 (2020 - $79,000). As of December 31, 2021,
the accrued interest on this note payable was $45,181 (2020 – $31,000) included in accounts payable and accrued liabilities. As
of December 31, 2021, the Company and the secured promissory note holder are in dispute.
During
the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $53,848
($67,700
Canadian Dollars). The
secured promissory notes were due in October and November 2018 and
bears interest at a rate of 12%
per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December
31, 2019, the Company extended the maturity date of the secured promissory notes to November 3, 2020. During the year ended December
31, 2021, the Company and promissory note holders reached an agreement to repay $62,905
($80,108
Canadian Dollars) in cash for outstanding
principal of $53,848
and interest of $14,740.
As a result of the Company recognized a gain on settlement of debt of $5,682.
As of December 31, 2021 the secured promissory notes has been settled.
During
the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $60,000.
The
secured promissory notes are due in August and November 2018 and
bear interest at a rate of 12%
per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December
31, 2019 the Company extended the maturity dates of this secured promissory note to November
3, 2020. During the year ended December 31, 2019,
the Company made a principal repayment of $10,000.
During the year ended December 31, 2021 the Company and secured promissory note holder agreed to repay all outstanding principal and
interest through the issuance of 36,048
post-stock split
common shares valued at $0.09
per share. As at December 31, 2021, the Company
had recorded principal and interest of $73,886
as a result of the share repayment the Company
recognized a gain on settlement of $8,997.
As of December 31, 2021 the secured promissory notes has been repaid in full.
The
amounts repayable under promissory notes and secured promissory notes at December 31, 2021 and 2020 are as follows:
Schedule of Secured Notes Payable
| |
2021 | | |
2020 | |
Balance owing | |
$ | 263,211 | | |
$ | 367,058 | |
Less amounts due within one year | |
| (263,211 | ) | |
| (367,058 | ) |
Long-term portion | |
$ | - | | |
$ | - | |
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
9.
Convertible Promissory Notes
On
February 25, 2020, the Company entered into an agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”),
pursuant to which the Company issued to Leonite a secured convertible promissory note in the aggregate principal amount of $544,425
to be paid in tranches. As additional consideration
for the purchase of the note, (i) the Company issued to Leonite 22,500
post-stock split
common shares, and (ii) the Company issued to Leonite a five-year
warrant to purchase 45,000
post-stock split common shares at an exercise
price of $2.00
per share (subject to adjustment), which may
be exercised on a cashless basis.
The
note carries an original issue discount of $44,425
to cover Leonite’s legal fees, accounting
fees, due diligence fees and/or other transactional costs incurred in connection with the purchase of the note. Therefore, the purchase
price of the note was $500,000.
On February 28, 2020, the Company recorded $198,715,
$182,500
principal and $16,215
original issue discount. On September 1, 2020
the Company recorded an additional $310,322,
$285,000
principal and $25,322
original issue discount. As of December 31, 2020,
the Company has recorded $509,037,
$467,500
principal and $41,537
original issue discount. Furthermore, the Company
issued 22,500
post-stock split
shares of common stock valued at $123,390
and a debt-discount related to the warrants valued
at $344,110.
During the year ended December 31, 2020 Leonite converted $226,839
of convertible promissory note into 126,022
post-stock split
common shares at $1.80
per share. The original value of the convertible
note converted was $182,565
as a result the Company recognized a loss of
$44,274
on settlement of debt. During the year ended
December 31, 2021 Leonite converted its remaining outstanding principal and interest into common shares. Leonite received 204,622
common shares at $1.80
per share valued at $368,318.
The original value of the convertible note converted
including interest was $325,667.
As a result the Company recognized a loss of $42,651
on settlement of debt. In connection with the
settlement the Company expensed the remaining $148,027
of the original debt discount to interest expense.
As of December 31, 2021 the convertible promissory note has been settled.
The
Company amortized $58,146 (2020 - $11,677) of financing costs related to the shares and warrants for the year ended December 31, 2021.
The remaining net balance of the note as at December 31, 2021 is $0 (2020 - $12,715) comprised of principal of $0 (2020 - $183,538) and
net of unamortized debt discount of $0 (2020 - $170,823).
10.
Shareholders’ Equity (Deficit)
During
year ended December 31, 2021, the following transactions occurred:
During
the year ended December 31, 2021, the Company issued a total of 1,502,410
(pre-stock split 30,048,199)
common shares relating to the Reg-A public offering. Of the shares issued 15,500
(pre-stock split of 310,000)
common shares valued at $31,200
were from share subscription payable and 750
(pre-stock split of 15,000) common shares
were cancelled and refunded valued at $1,500.
The Company raised $3,003,321
and incurred share issuance cost of $123,984.
During
the year ended December 31, 2021, the Company had a underwriters’ public offering for 3,272,727
units consisting of 1 common share and 1 warrant
at $5.50
per unit. In addition, the Company has granted
the underwriter of the offering the option to purchase 490,909
warrants and/or an additional 490,909
common shares for 45 days after the closing of
the option. During the year ended December 31, 2021, the underwriter purchased 210,909
common shares at $5.49
per share and additional 490,909
warrants (refer to note 22).
A cumulative 3,483,636
post-stock split
common shares were issued in connection with offering for $21,805,361
incurring share issuance costs of $4,335,908.
As of December 31, 2021 the Company issued on aggregate of 4,986,046
post-stock split common shares for public offerings incurring total issuance cost of $4,459,892.
During
the year ended December 31, 2021 the Company raised $4,081,980
through private placement offerings of 2,040,990
units for 1 common share and 2 warrants at $2
per unit. As such the Company issued 2,040,990
(pre-stock split of 40,819,800)
common shares in connection with the private offering.
During
the ended year ended December 31, 2021 2,488,721
warrants were exercised for 2,287,511
(pre-stock split of 32,468,420 and post-stock
split of 664,090) common shares. As of December
31, 2021, 2,287,511
common shares were issued valued at $8,454,564.
Refer to note 22.
During
the year ended December 31, 2021, the Company entered into a loan settlement agreement with a loan holder to issue 62,006
(pre-stock split of 1,240,111)
common shares at $1.80
per share for all outstanding loan principal
and interest valued at $111,610.
As of the date of the settlement the Company had $157,787
loan payable, resulting in the Company recognized a gain on
settlement of $46,176.
Refer to note 19. As of December 31, 2021 the Company issued 62,006
common shares.
During
the year ended December 31, 2021 the Company entered into a promissory notes payable settlement agreement with a note holder to issue
36,048
(pre-stock split of 720,960)
common shares valued at $1.80
per share for a total value of $64,890.
As of the date of the settlement the Company had $73,886
promissory notes payable, resulting in the Company
recognized a gain on settlement of $8,997.
Refer to note 8. As of December 31, 2021 the Company issued 36,048
common shares.
During
the year ended December 31, 2021 the Company entered into a settlement agreement with the convertible promissory note holder to settle
all outstanding principal and interest. The Company issued 204,622
(pre-stock split of 4,092,440)
common shares at $1.80
per share valued at $368,318.
As of the date of the settlement the Company had $325,667
convertible promissory note, resulting in the
Company recognizing a loss of $42,651
on settlement of debt. Refer to note 9.
During
the year ended December 31, 2021 the Company issued 1,717,535
(pre-stock split of 34,350,700)
common shares to Steve Rossi, the Company’s Chief Executive Officer and Director, in connection with his Employment Agreement in
consideration for Mr. Rossi agreeing to amend the Series A Certificate of Designation to eliminate the Series A Preferred Stock conversion
rights and returning 900 Series A Preferred Stock to the Company.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
10.
Shareholders’ Equity (Deficit) (continued)
During
the year ended December 31, 2021, the Company entered into consulting agreements with third party consultants for 380,000
post-stock split
shares of common stock valued at $1,648,700
for consulting services. As of December 31, 2021,
the Company issued 370,000
post-stock split common shares
valued at $1,562,700
to the third-party consultants for services received.
The remaining 10,000
post-stock split common share will be expensed
throughout the term of the agreement as the Company accrues the stock payable. As of December 31, 2021, the Company recorded $66,329
to
share subscriptions payable for the outstanding 10,000 post-stock split common shares. As of December 31, 2021 the Company expensed
$337,091 to advertising and consulting and capitalized $502,534 to intangible assets.
During
the year ended December 31, 2021, the Company issued 259,808
(pre-stock split of 5,196,160)
common shares valued at $741,159
for consulting and prepaid services, $241,559
were issued from share subscriptions payable.
As of December 31, 2021 the Company consulting expense of $497,752. During the same period the Company issued 150,000
(pre-stock split of 3,000,000) common shares
valued at $390,000
for consulting services. During the same period
the Company issued 3,350
(pre-stock split of 67,000)
common shares for employee compensation valued at $24,121.
During
the year ended December 31, 2021, the Company granted and issued 775,000
post-stock split
restricted shares valued at $4,121,000
of the Company to consultants for services to
be rendered over a period of 12 and 24 months. Upon issuance 775,000
of the restricted shares vested immediately and
issued. As of December 31, 2021, the Company recognized consulting and advertising expense of $796,000
and $3,325,000
to prepaid expense.
During
the year ended December 31, 2021, the Company granted 45,000
post-stock split
restricted shares of the Company to directors of the Company. Upon being granted 15,000
of the restricted shares vested immediately,
30,000
shall vest on January 1, 2022. As of December
31, 2021 the Company recognized consulting expense of $258,618
to share subscriptions payable. As of December
31, 2021, the restricted shares have not been issued.
Refer to note 22 and 23 for additional shareholders’
equity (deficit) for consulting expense of $37,000 related to warrant issuance and $1,551,111 to share subscriptions payable for consulting
and advertising expense related to stock options.
During
the year ended December 31, 2021, the Company completed a share consolidation of the Company’s issued and outstanding common shares
based on twenty (20) pre-consolidation shares to one (1) post-consolidation share. As a result of the share consolidation a anti-dilution
clause was triggered resulting in the Company issuing 237,500 common shares valued at $86,687.
During
year ended December 31, 2020, the following transactions occurred:
During
the year ended December 31, 2020, the Company issued 120,651 (pre-stock split of 2,413,022)
common shares at $0.07
per share for $168,910
for consulting services.
During
the year ended December 31, 2020, the Company entered into a share subscription agreement with a consultant of the Company for 200,000
(pre-stock split of 4,000,000)
common shares valued at $125,000
for prepaid consulting services. The Company
also entered into two prepaid advertising services agreement for 66,667 (pre-stock split of 1,333,333)
and 12,000 (pre-stock split of
240,000) common
shares at $0.09
and $0.07
per share for $120,000
and $16,800
respectively. As of December 31, 2020, the Company
has expensed $215,164
from prepaid expenses. As of December 31, 2020,
the Company issued 186,167 (pre-stock split of 3,723,333)
common shares from share subscriptions payable
for services render. Subsequent to year ended December 31, 2020, the Company issued the remaining 92,500 (pre-stock split of 1,850,000)
common shares valued at $67,188.
During
the year ended December 31, 2020, the Company entered into a share subscription agreement with a consultant of the Company for 62,308
(pre-stock split of 1,246,154)
common shares valued at $162,000
for prepaid consulting services. As of December
31, 2020, no shares have been issued. As of December 31, 2020, the Company has expensed $18,900
from prepaid expenses. Subsequent to year ended
December 31, 2020 the Company issued 62,308 (pre-stock split of 1,246,154)
common shares.
During
the year ended December 31, 2020, the Company entered into an advertising service agreement to issue 11,250 (pre-stock split of 225,000)
common shares and warrants. The
warrants are convertible at a ratio of 1:1 and are exercisable until December 31, 2021, at $0.20 per
warrant. The shares valued at $21,747
have been included in share subscriptions payable.
The warrants valued at $16,503
have been included in additional paid in capital.
Subsequent to year ended December 31, 2020, the Company issued 11,250 (pre-stock split of 225,000)
common shares.
During
the year ended December 31, 2020, the Company entered into a share subscription agreement with a consultant of the Company for 200,000
(pre-stock split of 4,000,000)
common shares valued at $250,000.
During the year ended December 31, 2020, the Company issued 566,874 (pre-stock split of 11,337,479)
common shares from shares of subscription
payable with a combined value of $1,123,147.
284,349 (pre-stock split of 5,686,978)
of the common shares issued from subscription
payable valued at $648,147
relates to the anti-dilution feature triggered
on March 5, 2019, as noted below.
During
the year ended December 31, 2020, the Company entered into a settlement to fulfill a debt purchase agreement entered in 2017 for 205,000
(pre-stock split of 4,100,000)
shares valued at $856,080.
As of December 31, 2020, the Company has issued 205,000 (pre-stock split of 4,100,000)
shares from share subscriptions payable.
During
the year ended December 31, 2020, the Company initiated a Reg-A public offering at $0.10
per share and warrant. As of December 31, 2020,
the Company raised $1,017,617
incurring share issuance cost of $55,004.
As of December 31, 2020, the Company issued 498,065 (pre-stock split of 9,961,301)
common shares valued at $996,301.
As of December 31, 2020, the Company has 16,350 (pre-stock split of 327,000)
common shares valued at $32,701
to be issued.
During
the year ended December 31, 2020, the issued 100,000 warrants for services valued at $12,600. Refer to note 22.
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
(pre-stock split of 25,000,000),
reserved shares were released and returned to the Company valued at $325,000.
This transaction resulted in a gain on debt settlement of $229,142.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
10.
Shareholders’ Equity (Deficit) (continued)
During
the year ended December 31, 2020, the Company issued 126,022 (pre-stock split of 2,520,434)
common shares at $0.09
per common share pursuant to the conversion of
the convertible promissory note (note 9) with a value of $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 issued 22,500 (pre-stock split of 450,000)
shares in connection with the issuance of convertible
promissory note (note 8) at $0.27
per share.
During
the year ended December 31, 2020, Steven Rossi (the Company’s CEO) was issued 1,000 Series A Preferred Shares at $0.09 per share
equal to 299,000 common shares voting rights for services rendered.
For
the year ended December 31, 2021 and 2020, the Company was authorized to issue 299,000,000
shares of its common stock with a par value of
$0.0001.
All shares were ranked equally with regards to the Company’s residual assets. During 2021 and 2020, the Company was authorized
to issue 100
shares of its Series A and 100,000
Series B Preferred Stock with a par value of
$0.0001.
Series
A preferred Stock have voting rights equal to 299 shares of common stock, per share of preferred stock. Series B preferred Stock
have voting rights equal to 10,000 shares of common stock, per share of preferred stock.
11.
Related Party Transactions
During
the year ended December 31, 2021, the Company recorded salaries expense of $410,573
(2020 - $64,903)
related to services rendered to the Company by its CEO. During the same period the Company recorded salaries expense of $125,707
to an officer of the Company and director.
During
the years ended December 31, 2021 and 2020, the Company’s CEO paid on behalf of the Company $12,154 ( 2020- repayment of
$5,245). As of December 31, 2021, the Company has a payable of $35,547 (2020 - $23,393).
During
the year ended December 31, 2021, the Company paid a director of the Company $50,000 for services rendered from 2015 to 2020.
During
the year ended December 31, 2021, the Company paid $59,203 to a U.S.-based corporation which the Company’s CEO and director is
also a stockholder.
Refer
to note 10 and 23 for additional related party transactions.
12.
Income Taxes
a)
The income tax expense for the year ended December 31, 2021 and 2020 is reconciled per the schedule below:
Schedule of Reconciliation of Income Tax
| |
2021 | | |
2020 | |
Net loss before income taxes | |
$ | (7,897,086 | ) | |
$ | (1,187,620 | ) |
Amortization | |
| 211,737 | | |
| 26,962 | |
Non-deductible portion of meals and entertainment | |
| 19,899 | | |
| 586 | |
Expenses paid in shares | |
| 3,828,713 | | |
| 415,666 | |
Interest on lease liability | |
| 35,265 | | |
| 5,039 | |
Lease payments | |
| (163,918 | ) | |
| (31,292 | ) |
Gain/(loss) on Settlement of Debt | |
| 18,204 | | |
| (184,868 | ) |
Adjusted net loss for tax purposes | |
| (3,947,186 | ) | |
| (955,527 | ) |
Statutory rate | |
| 26.00 | % | |
| 25.60 | % |
Income tax benefit | |
| (1,026,435 | ) | |
| (244,658 | ) |
Increase in valuation allowance | |
| 1,026,435 | | |
| 244,658 | |
Provision for income taxes | |
$ | - | | |
$ | - | |
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
12.
Income Taxes (continued)
b)
Deferred Income Tax Assets
The
tax effects of temporary differences that give rise to the deferred income tax assets at December 31, 2021 and 2020 are as follows:
Schedule of Deferred Income Tax Assets
| |
2021 | | |
2020 | |
Net operating loss carry forwards | |
$ | 2,358,455 | | |
$ | 1,365,333 | |
Deferred tax assets not recognized | |
| (2,358,455 | ) | |
| (1,365,333 | ) |
Net deferred tax asset | |
$ | - | | |
$ | - | |
c)
Cumulative Net Operating Losses
The
Company has non-capital losses carried forward of approximately $10,197,000
available to reduce future years’ taxable
income. These losses will expire as follows:
Schedule of Cumulative Non-capital Losses
| |
United States | | |
Canada | | |
Total | |
2034 | |
$ | 53,000 | | |
$ | 183,000 | | |
$ | 236,000 | |
2035 | |
| 161,000 | | |
| 368,000 | | |
| 529,000 | |
2036 | |
| 868,000 | | |
| 262,000 | | |
| 1,130,000 | |
2037 | |
| 1,472,000 | | |
| 59,000 | | |
| 1,531,000 | |
2038 | |
| 431,000 | | |
| 520,000 | | |
| 951,000 | |
2039 | |
| 372,000 | | |
| 193,000 | | |
| 565,000 | |
2040 | |
| 237,000 | | |
| 718,000 | | |
| 955,000 | |
2041 | |
| 1,300,000 | | |
| 3,000,000 | | |
| 4,300,000 | |
Non-capital losses carried forward Total | |
$ | 4,894,000 | | |
$ | 5,303,000 | | |
$ | 10,197,000 | |
These
net operating loss carryforwards of approximately $10,197,000 may be offset against future taxable income for the years 2022 through
2041. No tax benefit from continuing or discontinued operations have been reported in the December 31, 2021 consolidated financial statements
since the potential tax benefit is offset by a valuation allowance of the same amount.
Due
to change in ownership provisions of the Tax Reform Act of 1986, net operation loss carryforwards for Federal income tax reporting purposes
are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future
years.
The
Company complies with the provisions of FASB ASC 740 in accounting for its uncertain tax positions. ASC 740 addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740,
the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that
the Company has no significant uncertain tax positions requiring recognition under ASC 740.
The
Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The
Company had no accruals for interest and tax penalties at December 31, 2021 and 2020.
The
Company does not expect the amount of unrecognized tax benefits to materially change within the next twelve months.
The
Company is required to file income tax returns in the U.S. and Canadian Federal jurisdictions, as well as the states of New York, New
Jersey, and Utah and in the province of Ontario. The Company is no longer subject to income tax examinations by tax authorities for tax
years ending before December 31, 2018.
13.
Financial Instruments
Credit
Risk
The
Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce its credit risk, the Company has
adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit
balances. The Company incurred bad debt expense of $62,329
during the year ended December 31, 2021 and
$0 for
the year ended December 31, 2020.
Currency
Risk
The
Company is exposed to currency risk on its sales and purchases denominated in Canadian Dollars. The Company actively manages these risks
by adjusting its pricing to reflect currency fluctuations and purchasing foreign currency at advantageous rates.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
13.
Financial Instruments (continued)
Liquidity
Risk
Liquidity
risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company relies
on cash flows generated from operations, as well as injections of capital through the issuance of the Company’s capital stock to
settle its liabilities when they become due.
Interest
Rate Risk
The
Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities.
Concentration
of Supplier Risk
The
Company purchases all of its inventory from one supplier source in Asia. 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.
Concentration
of Customer Risk
The
following table includes the percentage of the Company’s sales to significant customers for the fiscal years ended December 31,
2021 and 2020. A customer is considered to be significant if they account for greater than 10% of the Company’s annual sales:
Schedule of Significant Customer Risk Percentage
| |
2021 | | |
2020 | |
| |
2021 | | |
2020 | |
Customer A | |
| 33.40 | % | |
| 26.10 | % |
Customer B | |
| 29.30 | % | |
| 51.00 | % |
Customer C | |
| 14.90 | % | |
| - | % |
Concentration of revenues | |
| 77.60 | % | |
| 77.10 | % |
The
loss of any of these key customers could have an adverse effect on the Company’s business. At December 31, 2021 customer A represented
33.4% at $106,988 of the Company’s revenue compare to 26.1% at $190,313 of Company revenue in 2020. Customer B represented 29.3%
of the Company’s revenue at $93,622 compared to 2020 of 51% or $190,313. Customer C represented 14.90% or $47,604 of the Company’s
revenue compared to 2020 of 0% or $0.
14.
Changes in Cash Flows from Operating Assets and Liabilities
The changes to the Company’s operating assets and liabilities for
the years ended December 31, 2021 and 2020 are as follows:
Schedule of Changes in Operating Assets and Liabilities
| |
2021 | | |
2020 | |
Decrease (increase) in accounts receivable | |
$ | (2,228 | ) | |
$ | (119,813 | ) |
Decrease (increase) in other receivable | |
| (16,883 | ) | |
| (121,396 | ) |
Decrease (increase) in inventory | |
| (460,969 | ) | |
| 72,353 | |
Decrease (increase) in prepaid expenses and deposits | |
| (382,067 | ) | |
| 43,201 | |
Increase (decrease) in lease liability | |
| (2,111 | ) | |
| 3,475 | |
Increase (decrease) in taxes payable | |
| 63,973 | | |
| 11,372 | |
Increase (decrease) in accounts payable and accrued liabilities | |
| 187,510 | | |
| (59,284 | ) |
Changes in operating assets and liabilities | |
$ | (612,775 | ) | |
$ | (170,092 | ) |
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
15.
Commitments and contingencies
During
the year ended December 31, 2021 the Company entered into an amended agreement to reserve an additional 7,500
common shares for consulting services. During
the year ended December 31, 2020 the Company entered into an agreement with a third-party advisor to reserve for issuance 5,000
post-stock split
common shares for consulting services. As of December 31, 2021, 12,500
post-stock split
common shares were issued to the third party.
During
the year ended December 31, 2021 the Company entered into an agreement with a third-party advisor to reserve for sale and issuance 15,000
post-stock split
common shares for consulting services at a $0.001
per share.
During
the year ended December 31, 2020 the Company (defendant) is currently in an ongoing legal proceeding with a promissory notes payable
holder (plaintiff). As of December 31, 2021, the outcome of the legal proceeding is uncertain.
During
the year ended December 31, 2020, the Company reached a legal settlement with a supplier in which the Company is obligated to pay $6,037
per month beginning on March 1, 2020 for four months until the settlement amount of $24,148 has been fully paid on June 1, 2020. As of
December 31, 2020, the Company has completed all payments.
16.
Reverse Stock Split
On
May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State
in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per
share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change
was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA
declared the 1 for 20 reverse stock split effective on August 4, 2021. These consolidated financial statements including, prior period
comparative share amounts, have been retrospectively restated to reflect this reverse split.
17.
Investment
During
the year ended December 31, 2019, the Company entered into an agreement to purchase 10,000,000 shares for $50,000. The shares have been
issued to the Company. The Company’s investment accounts for a 10% equity stake in a privately owned US based mobile phone development
company. As of December 31, 2021, the Company had advanced a total of $24,423 and is advancing tranches of capital as required
by the Company.
18.
Lease Liabilities
During
the year ended December 31, 2021 the Company entered into a second lease agreement for warehouse space to commence on June 1, 2021 and
end on May 31, 2024 with monthly lease payments of $19,910. During the year ended December 31, 2019, the Company signed a lease agreement
for warehouse space to commence on August 1, 2019 and end on July 31, 2022 with monthly lease payments of $2,221.
The
Company has accounted for its leases upon adoption of ASC 842 whereby it recognizes a lease liability and a right-of-use asset at the
date of initial application, beginning January 1, 2019. The lease liability is measured at the present value of the remaining lease payments,
discounted using the Company’s incremental borrowing rate of 10%. The Company has measured the right-of-use asset at an amount
equal to the lease liability.
The
Company’s right-of-use asset for the years ended December 31, 2021 and 2020 as follows:
Schedule Right-of-use Asset
| |
December 31, 2021 | | |
December 31, 2020 | |
Right-of-use asset | |
$ | 515,819 | | |
$ | 38,506 | |
| |
| | | |
| | |
Current lease liability | |
$ | 212,929 | | |
$ | 22,883 | |
Long-term lease liability | |
$ | 316,988 | | |
$ | 14,624 | |
The
components of lease expense are as follows:
Schedule of Components of Lease Expense
| |
December 31, 2021 | | |
December 31, 2020 | |
Amortization of right-of-use | |
$ | 144,864 | | |
$ | 21,619 | |
Interest on lease liability | |
$ | 34,796 | | |
$ | 5,039 | |
Total lease cost | |
$ | 179,660 | | |
$ | 26,658 | |
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
18.
Lease Liabilities (continued)
Maturities
of lease liability are as follows:
Future
minimum lease payments as of December 31, 2021,
Schedule of Future Minimum Lease Payments
| |
| |
2022 | |
| 254,469 | |
2023 | |
| 238,918 | |
2024 | |
| 99,549 | |
Total future minimum lease payments | |
| 592,936 | |
Less: amount representing interest | |
| (63,019 | ) |
Present value of future payments | |
| 529,917 | |
Current portion | |
| 212,929 | |
Long term portion | |
$ | 316,988 | |
19.
Loan payable
During
the year ended December 31, 2020 the Company received loans of $32,439,
$10,000
and $108,000
from a unrelated third party with an interest
rate of 10%
per annum with a maturity date of December
31, July
22 and August
31, 2021 respectively. During the year ended December
31, 2021 the Company agreed to repay the outstanding principal and interest through the issuance of 62,006
post-stock split
common shares valued at $1.80
per share. During the year ended December 31,
2021, the Company accrued interest expense of $1,319
(2020 - $6,028).
As of the date of the settlement agreement the Company had $150,439
principal and $7,348
interest outstanding, resulting in the Company
recognizing a gain on settlement of $46,176
for the year ended December 31, 2021.
During
the year ended December 31, 2020 the Company received $28,387 ($40,000 CDN) interest free from the Government of Canada as part of the
COVID-19 small business relief program. Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness
of 25 percent. As of December 31, 2021 loan payable outstanding is $28,387 ($40,000 CDN).
20.
Government Assistance
The
Government of Canada is currently providing funding through the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency
Rent Subsidy (“CERS”) programs in order to provide financial relief to Canadian businesses affected by COVID-19. The CEWS
program provides a reimbursement of salaries for eligible employers based on a decrease in revenues. The CERS program provides a reimbursement
of rent expenses paid by eligible parties based on a decrease in revenues. During the year ended December 31, 2021, the Company recognized
CEWS of $125,812
($157,866
CDN) and CERS of $13,628
($16,974
CDN) as a reduction in general and administrative
expense on the consolidated statements of operations.
21.
Loss per Share
For
the year ended December 31 2021, loss per share is $(0.69) (basic and diluted) compared to the year ended December 31, 2020 of $(0.43)
(basic and diluted) using the weighted average number of shares of 11,504,147 (basic and diluted) and 2,734,531 (basic and diluted) respectively.
There
are 299,000,000 shares authorized, 16,951,034 and 3,820,619 shares issued and outstanding, as at December 31, 2021 and
2020 respectively. As of December 31, 2021, the Company has 221,667 shares to be issued. The computation of loss per share is based on
the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.”
Shares underlying the Company’s outstanding warrants and convertible promissory notes were excluded due to the anti-dilutive effect
they would have on the computation. As at December 31, 2021 the Company has 5,658,315 warrants convertible to 6,649,305 common shares,
45,000 restricted stock to be issued and 712,500 stock options exercisable for 712,500 common shares for a total underlying common shares
of 7,406,805. As at December 31, 2020 the Company has 12,436,301 warrants convertible to 12,436,301 common shares and convertible promissory
note convertible to 3,448,025 common shares for a total underlying common shares of 15,884,326.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
22.
Warrants
During
the year ended December 31, 2021, a total of 2,488,721
warrants were exercised for 2,287,511
common shares. 1,637,709
warrants were exercised at $4.00
per share, 317,000
warrants were exercised at $6.05
per share and 494,500
warrants were exercised on a cashless basis for
293,290
common shares. During the same period the
39,512
warrants were exercised on a cashless basis related
to a convertible promissory note, please refer to note 9. As of December 31, 2021 2,287,511
common shares were issued from warrant exercises.
During
the year ended December 31, 2021, the Company issued 1,502,409 and 2,040,990 warrants convertible to 1 and 2 common shares each exercisable
for a period of 12 and 18 months respectively. The warrants were issued in connection with the Reg-A public offering and private placement
offering respectively. The exercise price of the warrants is $4.00 per share. During the same period the Company issued 3,763,636 warrants
convertible to 1 common share at an exercise price of $6.05 per share exercisable for a period of 36 months. 3,272,727 warrants were
purchased through the underwritten public offering and 490,909 over-allotment warrants purchased by the underwriter. The warrants were
issued in connection with the underwritten public offering.
During
the year ended December 31, 2021 the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company
will issue an additional 150,000 warrants for a total of 250,000 warrants valued at $37,000. The exercisable period of the warrants was
also amended to a period of five years beginning on January 14, 2021. The warrants are convertible to 1 common share each exercisable
at $2 per share.
During
the year ended December 31, 2021 the Company issued 130,909
representative warrants to the Company’s
underwriters. The representative warrants are not exercisable until January 30, 2022. The representative warrants are exercisable
for 130,909
common shares at $6.05
per share until August 3, 2024. As of December
31, 2021 the Company has not valued the representative warrants.
During
the year ended December 31, 2021 26,815 warrants expired
As
of December 31, 2021, the Company has the following warrants outstanding:
Schedule
of Warrants Exercise Price
Exercise price | | |
Number outstanding | | |
Remaining Contractual Life (Years) | | |
Expiry date |
$ | 4.00 | | |
| 202,701 | | |
| 0.07 | | |
February 24, 2022 |
$ | 4.00 | | |
| 1,690,990 | | |
| 0.75 | | |
October 1, 2022 |
$ | 6.05 | | |
| 3,446,636 | | |
| 2.60 | | |
August 6, 2024 |
$ | 2.00 | | |
| 5,488 | | |
| 3.16 | | |
February 25, 2025 |
$ | 2.40 | | |
| 62,500 | | |
| 3.22 | | |
March 20, 2025 |
$ | 40.00 | | |
| 250,000 | | |
| 4.04 | | |
January 14, 2026 |
| | | |
| 5,658,315 | | |
| 2.31 | | |
|
Schedule
of Warrants Activity
| |
December 31, 2021 | | |
December 31, 2020 | |
| |
Number of warrants | | |
Weighted average price | | |
Number of warrants | | |
Weighted average price | |
Balance, beginning of year | |
| 716,815 | | |
$ | 4.00 | | |
| - | | |
$ | - | |
Issuance | |
| 7,457,036 | | |
$ | 4.30 | | |
| 716,815 | | |
$ | 4.00 | |
Expired | |
| (26,815 | ) | |
$ | 4.00 | | |
| - | | |
$ | - | |
Exercise | |
| (2,488,721 | ) | |
$ | (4.00 | ) | |
| - | | |
$ | - | |
Balance, end of period | |
| 5,658,315 | | |
$ | 4.30 | | |
| 716,815 | | |
$ | 4.00 | |
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
23.
Stock Options
Under
the Company’s Equity Incentive Plan the number of common shares reserved for issuance under the option plan shall not exceed
10% of the issued and outstanding common shares of the Company, have a maximum term of 10 years and vest at the discretion of the Board
of Directors.
All
equity-settled share-based payments are ultimately recognized as an expense in the statement of operations and comprehensive loss with
a corresponding credit to “Additional Paid in Capital.” If vesting periods or other non-market vesting conditions apply,
the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest.
Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous
estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized
in prior periods if share options ultimately exercised are different to that estimated on vesting.
On December 29, 2021 the Company granted 400,000
and 300,000 performance stock units (“PSU”) to the Company’s Chief Executive Officer and a director, respectively.
The PSU will vest in 5% increments according to a schedule that correlates with the Company’s stock price. The first 5% of the
PSUs vest upon the Company’s stock price closing at $3.00. 50% will have vested at a closing price of $16.50 and 100% will have
vested at a closing price of $31.50. As of December 31, 2021, no PSUs have been vested and the Company recognized $0 to stock based compensation
expense.
On
August 6, 2021, the Company granted 140,000 options to directors, advisors and officers with an exercise price of $5.50 and an expiry
date of August 6, 2026. The stock options will vest on January 1, 2022. The fair value of the options on grant date was estimated to
be $754,189. The Company recognized $749,084 to consulting expense during the year ended December 31, 2021. The fair value
of the options were calculated using the Black-Scholes option pricing model and using the following assumptions:
Schedule of Fair Value of the Black - Scholes
Option Pricing Model
| |
Year ended | |
| |
December 31, 2021 | |
Discount rate | |
| 0.6 | % |
Expected volatility | |
| 263 | % |
Expected life (years) | |
| 4.13 | |
Expected dividend yield | |
| 0 | % |
Exercise price | |
$ | 5.32 | |
Stock price | |
$ | 5.32 | |
On
July 23, 2021, the Company granted 15,000 options to a director with an exercise price of $5.50 and an expiry date of July 23, 2026.
The stock options will vest on January 1, 2022. The fair value of the options on grant date was estimated to be $129,480. The Company
recognized $128,681 to consulting expense during year ended December 31, 2021. The fair value of the options were calculated
using the Black-Scholes option pricing model and using the following assumptions:
Schedule of Fair Value of the Black - Scholes
Option Pricing Model
| |
Year ended | |
| |
December 31, 2021 | |
Discount rate | |
| 0.201 | % |
Expected volatility | |
| 302 | % |
Expected life (years) | |
| 2.72 | |
Expected dividend yield | |
| 0 | % |
Exercise price | |
$ | 5.50 | |
Stock price | |
$ | 8.72 | |
On
September 1, 2021, the Company granted 400,000 options to a consultant with an exercise price of $5.32 and an expiry date of September
1, 2026. The options have a vesting period of 6 months from the initial grant date; 100,000 shall vest on March 1, 2022, 100,000 shall
vest on September 1, 2022, 100,000 shall vest on March 1, 2023 and 100,000 shall vest on September 1, 2023. The fair value of the options
on grant date was estimated to be $2,112,000. The Company recognized $352,972 to consulting expense during the year ended December
31, 2021. The fair value of the options were calculated using the Black-Scholes option pricing model and using the following
assumptions:
Schedule of Fair Value of the Black - Scholes
Option Pricing Model
| |
Year ended | |
| |
December 31, 2021 | |
Discount rate | |
| 0.60 | % |
Expected volatility | |
| 263 | % |
Expected life (years) | |
| 4.13 | |
Expected dividend yield | |
| 0 | % |
Exercise price | |
$ | 5.32 | |
Stock price | |
$ | 5.32 | |
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
On
October 7 and November 2, 2021, the Company granted 5,000 and 62,500 options respectively, to advisors with an exercise price of $5.50
and $5.24. The options will expiry on October 7, 2026 and November 2, 2026 respectively. The stock options will vest on January 1, 2022.
The fair value of the options on grant date was estimated to be $326,498. The Company recognized $320,374 to consulting
expense during the year ended December 31, 2021. The fair value of the options were calculated using the Black-Scholes option pricing
model and using the following assumptions for the 5,000 and 62,500 options respectively:
Schedule of Fair Value of the Black - Scholes
Option Pricing Model
| |
Year ended | |
| |
December 31, 2021 | |
Discount rate | |
| 1.02 | % |
Expected volatility | |
| 262 | % |
Expected life (years) | |
| 2.62 | |
Expected dividend yield | |
| 0 | % |
Exercise price | |
$ | 5.50 | |
Stock price | |
$ | 5.48 | |
Schedule
of Fair Value of the Black - Scholes Option Pricing Model
| |
Year ended | |
| |
December 31, 2021 | |
Discount rate | |
| 0.60 | % |
Expected volatility | |
| 213 | % |
Expected life (years) | |
| 2.58 | |
Expected dividend yield | |
| 0 | % |
Exercise price | |
$ | 5.24 | |
Stock price | |
$ | 5.24 | |
On
December 29, 2021, the Company granted 30,000 stock options to members of the board for a total of 90,000 options with an exercise price
of $2.51. The options will expiry on December 29, 2026. The options have a vesting period of 1 year from the initial grant date; 10,000
shall vest on December 29, 2022, 10,000 shall vest on December 29, 2023 and 10,000 shall vest on December 29, 2024. The fair value of
the options on grant date was estimated to be $224,280. The Company recognized $0 to consulting expense during the year ended
December 31, 2021. The fair value of the options were calculated using the Black-Scholes option pricing model and using the
following assumptions:
Schedule of Fair Value of the Black - Scholes
Option Pricing Model
| |
Year ended | |
| |
December 31, 2021 | |
Discount rate | |
| 1.29 | % |
Expected volatility | |
| 253 | % |
Expected life (years) | |
| 4.5 | |
Expected dividend yield | |
| 0 | % |
Exercise price | |
$ | 2.51 | |
Stock price | |
$ | 2.51 | |
Schedule
of Stock Options Activity
| |
Year ended December 31, 2021 | |
| |
Number of options | | |
Weighted Average Price | |
Balance, beginning of period | |
| - | | |
$ | - | |
Granted | |
| 712,500 | | |
$ | 5.00 | |
Balance, end of period | |
| 712,500 | | |
$ | 5.00 | |
Schedule
of Share-based Payment Arrangement, Option, Exercise Price Range
| |
Range of Exercise prices | | |
Number outstanding | | |
Weighted average life (years) | | |
Weighted average exercise price | | |
Number exercisable on December 31, 2021 | |
Stock options | |
$ | 2.51 - 5.50 | | |
| 712,500 | | |
| 4.74 | | |
$ | 5.00 | | |
| - | |
As
of December 31, 2021, no stock options has been vested.
Worksport
Ltd.
Notes
to the Consolidated Financial Statements
December
31, 2021 and 2020
24.
COVID-19
The
outbreak of the 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 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.
25.
Subsequent Events
The
Company has evaluated subsequent events through March 31, 2022 which is the date the financial statements were available to be issued
and the following events after year end occurred:
|
● |
On
February 17, 2022, Worksport appointed Tom DiNanno to its Board of Advisors for a monthly fee of $5,000 USD in addition to a 10,000
common share option grant. |
|
|
|
|
● |
Worksport
agreed to issue 20,000 shares of common stock to employees/consultants. Additionally, Worksport has agreed to issue Stock Options
of Terravis Energy, Inc., a Worksport subsidiary, to Lorenzo Rossi and Steven Rossi in the amount of 750,000 and 250,000 options,
respectively. |
|
|
|
|
● |
Worksport
agreed to issue 10,000 Common Shares to Zenfar Investments Ltd on January 13, 2022 for manufacturing consulting services rendered
per agreement signed on March 3, 2021. |
|
|
|
|
● |
Worksport
agreed to issue 40,000 Common Shares to Exchange Listing LLC on March 18, 2022 for capital markets and strategic advisory services
rendered per agreement signed on January 26, 2022. |
|
|
|
|
● |
Worksport
has initiated final steps towards closing on the West Seneca production facility it began looking into in 2021, applying for a mortgage
and initiating a Phase 2 Environmental Assessment. We are seeking to purchase the property for $8.125M, financing $5.3M via mortgage
with an interest rate of prime rate + 5.5% while putting down $2.825M on the property. |