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1-A LIVE 0001096275 XXXXXXXX true Worksport Ltd. NV 2003 0001096275 3714 65-0782227 1 0 414-3120 Rutherford Road SUITE 414 VAUGHAN A6 L4K OB2 888-554-8789 Matthew McMurdo Other 11993.00 15658.00 67795.00 94695.00 481308.00 969321.00 39185.00 1363869.00 -882561.00 481308.00 1926405.00 1687858.00 11439.00 -414607.00 0.01 0.01 Haynie & Company, CPA Common 43907003 98139Q100 OTCQB Series A and Series B 1000 000000000 None Senior Secured Conv. Note 1 000000000 No true true Tier2 Audited Equity (common or preferred stock) Y N N Y N N 30000000 47037772 0.1000 9000000.00 0.00 0.00 0.00 9000000.00 None 0.00 None 0.00 None 0.00 Haynie & Company 15000.00 McMurdo Law Group, LLC 15000.00 None 0.00 OTC Markets 0.00 8970000.00 true CA NV NJ NY Worksport Ltd. Common stock 30000 0 $250,000 506(b)
As
submitted to the Securities and Exchange Commission on July 15, 2020
Registration
No.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
1-A
REGULATION
A OFFERING CIRCULAR
UNDER
THE SECURITIES ACT OF 1933
WORKSPORT
LTD.
(Exact
name of issuer as specified in its charter)
Nevada
(State
or other jurisdiction of incorporation or organization)
414-3120
Rutherford Rd.
Vaughan,
Ontario, Canada L4K 0B1
(888)
554-8789
(Address,
including zip code, and telephone number,
including
area code, of issuer’s principal executive office)
AMERICAN
CORPORATE ENTERPRISES, INC.
123
WEST NYE LN STE 129
Carson
City, NV, 89706, USA
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copy
to:
Matthew
McMurdo, Esq.
McMurdo
Law Group, LLC
1185
Avenue of the Americas, 3rd Floor
New
York, NY 10036
Telephone:
(917) 318-2865
| 3714 | 65-0782227 | |
| (SIC CODE ) |
(IRS Identification |
This
Offering Circular shall only be qualified upon order of the Commission, unless a subsequent amendment is filed indicating the
intention to become qualified by operation of the terms of Regulation A.
An
offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission.
Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be
sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary
Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these
securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under
the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering circular by sending you a notice
within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the
offering statement in which such Final Offering Circular was filed may be obtained.
PRELIMINARY
OFFERING CIRCULAR July 15, 2020, SUBJECT TO COMPLETION
WORKSPORT
LTD.
Maximum
Offering Amount:
30,000,000
Units
This
is our public offering (the “Offering”) of securities of Worksport Ltd. (formerly know as Franchise Holdings
International, Inc.), a Nevada corporation (the “Company”). We are offering a maximum of 30,000,000 Units
(the “Maximum Offering”). Each Unit is comprised of one share of common stock, par value $0.0001 (a “Common
Stock”), and one Common Share purchase warrant (each whole warrant, a “Warrant”) to purchase one
additional Common Share (a “Warrant Share”) at an exercise price of $0.20 USD per Warrant Share, subject to
certain adjustments, over a 12-month exercise period following the date of issuance of the Warrant. The Company may call the option
with a thirty (30) written notice to the Warrant holder. The Units are being offered at a purchase price of $0.10 USD per Unit
on a “best efforts” basis. The minimum investment established for each investor is $500, unless such minimum is waived
by the Company in its sole discretion.
| Title of Each Class of Securities to be Qualified | Amount to be Qualified | Price to Public(1) | Underwriting Discount and Commissions(2) | Proceeds to the Company(3) | ||||||||||||
| Units, each consisting of: | ||||||||||||||||
| One Common Share and One Warrant | 30,000,000 | $ | 0.10 | $ | 0.00 | $ | 0.10 | |||||||||
| Common Shares underlying Warrants | 30,000,000 | $ | 0.20 | $ | 0.00 | $ | 0.20 | |||||||||
| Total Maximum Offering (3) | $ | 9,000,000 | $ | 0.00 | $ | 9,000,000 | ||||||||||
| 1) | All amounts in this chart and circular are in U.S. dollars unless otherwise indicated. The Offering is being made directly to investors by the management of the Company on a “best efforts” basis. Accordingly, there are no underwriting fees or commissions currently associated with this offering; however, the Company may engage sales associates after this offering commences and we reserve the right to offer the Units through broker-dealers who are registered with the Financial Industry Regulatory Authority (“FINRA”). |
| (2) | The amounts shown are before deducting organization and offering costs to us, which include legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering of the Units (See “Use of Proceeds” and “Plan of Distribution”). We expect to incur approximately $50,000 in expenses relating to this offering. |
| (3) | The Units, the Common Shares and Warrants are being offered pursuant to Regulation A of Section 3(b) of the Securities Act for Tier 2 offerings and are only being issued to purchasers who satisfy the requirements set forth in Regulation A. We have the option in our sole discretion to accept less than the minimum investment. The Total Maximum Offering amounts exclude the aggregate price and future aggregate potential proceeds of $9,000,000 with respect to the Warrant Shares if all 30,000,000 Units are sold and all 30,000,000 Warrant Shares are sold upon exercise of the Warrants issued in the Offering. |
WORKSPORT
LTD.
414-3120
Rutherford Rd.
Vaughan,
Ontario, Canada L4K 0B1
(888)
554-8789
C/O
Matthew McMurdo, Esq.
McMurdo
Law Group, LLC
1185
Avenue of the Americas, 3rd Floor
New
York, NY 10036
Telephone:
(917) 318-2865
We
hereby amend this offering circular (“Offering Circular”) on such date or dates as may be necessary to delay our effective
date until we will file a further amendment which specifically states that this Offering circular shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 (the “Securities Act”) or until this Offering circular
shall become effective on such date as the Commission, acting pursuant to Section 8(a) may determine.
SUMMARY
Overview
Worksport
Ltd. (formerly know as Franchise Holdings International, Inc.), a Nevada corporation (herein referred to as “we,”
“us,” “our,” “Worksport” and the “Company”) is primarily engaged in the design
and distribution of truck tonneau covers throughout the US and Canada. We have developed multiple products for prominent pick-up
trucks available throughout our markets. We sell our products through wholesalers and third-party online retailers. Our market
consists of three major types of customers including master warehouse distributors; dealer-wholesalers; and retail consumers.
Our
products
At
our core, Worksport designs and produces innovative, hardworking and aggressively priced covers for light trucks. The Worksport
innovation team is constantly evaluating our products and how they are used by truck owners around the world. Our products are
manufactured according to our specifications and design.
Our
mission
Our
mission is to enable and expand our boundaries to be pushed and barriers to be broken. We envision a bright future of innovative
technology, where carbon footprints are reduced, and product range is extended. Our mission is to create a legacy for our company,
customers and stakeholders to all benefit.
THE
OFFERING
Worksport
Ltd. (formerly know as Franchise Holdings International, Inc.), a Nevada corporation (herein referred to as “we,”
“us,” “our,” “Worksport” and the “Company”) is primarily engaged in the design
and distribution of truck tonneau covers throughout the US and Canada. We have developed multiple products for prominent pick-up
trucks available throughout our markets. We sell our products through wholesalers and third-party online retailers. Our market
consists of three major types of customers including master warehouse distributors; dealer-wholesalers; and retail consumers.
Our products are manufactured according to our specifications and design.
We
are offering a maximum of 30,000,000 Units (the “Maximum Offering”). Each Unit is comprised of one share of
common stock, par value $0.0001 (a “Common Stock”), and one Common Share purchase warrant (each whole warrant,
a “Warrant”) to purchase one additional Common Share (a “Warrant Share”) at an exercise price
of $0.20 USD per Warrant Share, subject to certain adjustments, over a 12-month exercise period following the date of issuance
of the Warrant. The Company may call the option with a thirty (30) written notice to the Warrant holder. The Units are being offered
at a purchase price of $0.10 USD per Unit on a “best efforts” basis. The Common Shares and Warrants will be separately
transferable following the termination of any transfer hold periods under applicable law.
The
minimum investment established for each investor is $500 unless such minimum is waived by the Company in its sole discretion.
Shares offered by the Company will be sold through the Company’s executive officers and directors on a best-efforts basis.
We may also engage sales agents licensed through the Financial Industry Regulatory Authority (“FINRA”) and pay such
agents cash and/or stock-based compensation, which will be announced through a supplement to this Offering Circular.
This
Offering will terminate on the earlier of (i) July 15, 2022, subject to extension for up to one hundred-eighty (180) days
in the sole discretion of the Company; or (ii) the date on which the Maximum Offering is sold (in either case, the “Termination
Date”). This will be a continuous offering which commences within two calendar days after the qualification date, will
be offered on a continuous basis, may continue to be offered for a period in excess of 30 days from the date of initial qualification,
and will be offered in an amount that, at the time the offering statement is qualified, is reasonably expected to be offered and
sold within two years from the initial qualification date. See “Description of Securities” beginning on page 44 for
a discussion of certain items required by Item 14 of Part II of Form 1-A.
We
will hold closings upon the receipt of investors’ subscriptions and acceptance of such subscriptions by the Company. If,
on the initial closing date, we have sold less than the Maximum Offering, then we may hold one or more additional closings for
additional sales, until the earlier of: (i) the sale of the Maximum Offering or (ii) the Termination Date. There is no aggregate
minimum requirement for the Offering to become effective, therefore, we reserve the right, subject to applicable securities laws,
to begin applying “dollar one” of the proceeds from the Offering towards our business strategy, development
expenses, offering expenses and other uses as more specifically set forth in this offering circular (“Offering Circular”).
We expect to commence the sale of the Units as of the date on which the offering statement of which this Offering Circular is
a part (the “Offering Statement”) is qualified by the United States Securities and Exchange Commission
(the “SEC”). There is no escrow established for this Offering.
Generally,
no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual
income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that
your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general
information on investing, we encourage you to refer to www.investor.gov.
Our
common stock is not now listed on any national securities exchange or the Nasdaq stock market. However, our stock is quoted on
the OTC Market’s OTCQB® under the symbol “FNHI” While our common stock is on the OTCQB®, there has been
limited trading volume. There is no guarantee that an active trading market will develop in our securities.
This
offering is being made pursuant to Tier 2 of Regulation A (Regulation A Plus), following the Form 1-A Offering Circular disclosure
format for smaller reporting companies. We qualify as an “emerging growth company” as defined in the Jumpstart our
Business Startups Act (“JOBS Act”).
THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED
OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION
MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION
HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
THE
SECURITIES UNDERLYING THIS OFFERING STATEMENT MAY NOT BE SOLD UNTIL QUALIFIED BY THE SECURITIES AND EXCHANGE COMMISSION. THIS
OFFERING CIRCULAR IS NOT AN OFFER TO SELL, NOR SOLICITING AN OFFER TO BUY, ANY UNITS OF OUR COMMON STOCK IN ANY STATE OR OTHER
JURISDICTION IN WHICH SUCH SALE IS PROHIBITED.
INVESTMENT
IN SMALL BUSINESS INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD
TO LOSE THEIR ENTIRE INVESTMENT. SEE “RISK FACTORS” FOR A DISCUSSION OF CERTAIN RISKS YOU SHOULD CONSIDER BEFORE PURCHASING
ANY UNITS IN THIS OFFERING.
AN
OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION, WHICH WE REFER TO AS THE COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION
OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING STATEMENT FILED WITH THE
COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF ANY SUCH STATE. WE MAY ELECT TO SATISFY OUR OBLIGATION TO DELIVER A FINAL
OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO (2) BUSINESS DAYS AFTER THE COMPLETION OF OUR SALE TO YOU THAT CONTAINS THE
URL WHERE THE FINAL OFFERING CIRCULAR OR THE OFFERING STATEMENT IN WHICH SUCH FINAL OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.
TABLE
OF CONTENTS
We
are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted.
You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with
any information other than the information contained in this Offering Circular. The information contained in this Offering Circular
is accurate only as of its date, regardless of the time of its delivery or of any sale or delivery of our securities. Neither
the delivery of this Offering Circular nor any sale or delivery of our securities shall, under any circumstances, imply that there
has been no change in our affairs since the date of this Offering Circular. This Offering Circular will be updated and made available
for delivery to the extent required by the federal securities laws.
Unless
otherwise indicated, data contained in this Offering Circular concerning the business of the Company are based on information
from various public sources. Although we believe that these data are generally reliable, such information is inherently imprecise,
and our estimates and expectations based on these data involve a number of assumptions and limitations. As a result, you are cautioned
not to give undue weight to such data, estimates or expectations.
In
this Offering Circular, unless the context indicates otherwise, references to “WKSP,” “FNHI,”
“we,” the “Company,” “our,” and “us” refer to the
activities of and the assets and liabilities of the business and operations of our subsidiaries.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some
of the statements under “Summary,” “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business”
and elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations,
beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts.
In some cases, you can identify forward-looking statements by terms such as “anticipate”, “believe,”
“could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “potential,” “should,” “will” and “would”
or the negatives of these terms or other comparable terminology.
You
should not place undue reliance on forward looking statements. The cautionary statements set forth in this Offering Circular,
including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating
our forward-looking statements. These factors include, among other things:
| ● | Our ability to effectively execute our business plan, including without limitation our ability to fully develop our App, business model, products and service offerings, and respond to the highly competitive and rapidly evolving marketplace and regulatory environment in which we intend to operate; |
|
| ● | Our ability to manage our research, development, expansion, growth and operating expenses; |
|
| ● | Our ability to evaluate and measure our business, prospects and performance metrics, and our ability to differentiate our business model and service offerings; |
|
| ● | Our ability to compete, directly and indirectly, and succeed in the highly competitive cannabis industry; |
|
| ● | Our ability to respond and adapt to changes in technology and customer behavior; and |
|
| ● | Our ability to develop, maintain and enhance a strong brand. |
Although
the forward-looking statements in this Offering Circular are based on our beliefs, assumptions and expectations, taking into account
all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes.
No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained,
or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law,
to re-issue this Offering Circular or otherwise make public statements updating our forward-looking statements.
This
summary highlights selected information contained elsewhere in this Offering Circular. This summary is not complete and does not
contain all the information that you should consider before deciding whether to invest in our Securities. You should carefully
read the entire Offering Circular, including the risks associated with an investment in the company discussed in the “Risk
Factors” section of this Offering Circular, before making an investment decision. Some of the statements in this Offering
Circular are forward-looking statements. See the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”
The
Offering
| Securities offered by us |
A
●
● |
|
| Common Stock outstanding before the Offering |
47,037,772 Common Shares (based on number of Common Shares outstanding as of July 15, 2020). |
|
|
Warrant Offered: |
|
A |
| Common Stock outstanding after the Offering |
107,037,772 Common Shares (based on number of Common Shares outstanding as of July 15, 2020). |
|
| Market for Common Stock |
Our common stock is quoted on the OTCQB under the symbol “FNHI.” We have applied to FINRA for a new symbol based on our name change and are currently waiting for the new symbol. |
|
| Offering | The Company intends for this to be a continuous offering which commence within two calendar days after the qualification date, will be offered on a continuous basis, may continue to be offered for a period in excess of 30 days from the date of initial qualification, and will be offered in an amount that, at the time the offering statement is qualified, is reasonably expected to be offered and sold within two years from the initial qualification date. |
|
| Minimum Investment |
$200 |
Principal
Business of the Company
The
Company was incorporated as Franchise Holdings International, Inc. in the State of Nevada on April 2, 2003 and. completed a merger
with TMAN Global.com Inc. on April 30, 2003. This merger was in the nature of a change in domicile of the Florida corporation
to the State of Nevada, as well as the acquisition of a new business. Since the inception of our business operations, we have
been in the business of acquiring franchise, license and distribution rights in new and emerging growth companies.
On
December 16, 2014, Franchise Holdings International, Inc. (“FNHI” or the “Company”)) entered into an Agreement
(the “Agreement”) to acquire all issued and outstanding shares of Worksport Ltd. ( “Worksport Ontario”),
an Ontario (Canada) corporation located at 8820 Jane St, Vaughan, Ontario, L4K 2M9 Canada pursuant to which Worksport became a
wholly owned subsidiary of the Company.
On
May 21, 2020, the Company (i) effectuated an increase in the total authorized shares of the Company for increasing the authorized
preferred shares of the Company by 100,000, (ii) designated such shares of preferred stock as Series B Preferred Stock and (iii)
to change the name of the Company to Worksport Ltd. in the State of Nevada. The Company is currently waiting for the name change
to become effective with FINRA and for a new symbol based on the name change. All references to “FNHI”, “Worksport”
or the “Company” as used herein refers to the consolidated operations of the Company and Worksport Ontario, our wholly
owned subsidiary.
Description
of the Business
Worksport
is an innovative company that has integrated the design, patent, production and distribution of proprietary truck tonneau covers.
We have developed multiple products for prominent pick-up trucks throughout the US and Canadian markets. We sell our products
through wholesalers third-party online retailers. Our market consists of three major types of customersincluding master warehouse
distributors, dealer-wholesalers; and retail consumers.
We
currently sell our product line through distributors and dealer networks. In the Canadian market, the majority of our business
is with warehouse distributors, and select dealer customers. In the US market, our customer base is primarily dealers and wholesalers.
Our products are manufactured in China according to our proprietary specifications and design.
Our
Strategy – Business Plan
Worksport
Ontario was founded in 2011 to lead innovation and change to existing tonneau cover manufacturers. Tonneau covers have remained
much the same in price and design since 2005 with two companies maintaining a majority of the market share. We see the opportunity
to lead change in this dynamic market segment with new and innovative manufacturing of high quality and functionality at an attracrive
and competitive price point. Worksport has developed multiple products for prominent pick-up trucks available in US and Canada.
Worksport’s
current market is the United States and Canada. The Company intends to eventually expand to other market opportunities outside
of US and Canada. We also intend to generate revenue from both the automotive specialty equipment market as well as OEM production
for global vehicle manufacturers. Other than a standard business license, no permits or regulatory approvals are required to distribute
Worksport products to clients in any of the areas in which we operate.
Our
market consists of three major types of customers which include: (i) master warehouse distributors; (ii) dealer and wholesalers;
and (iii) end retail consumers. Master warehouse distributors stock and distribute product to their customers, which are usually
local dealers and wholesalers. Dealers and wholesalers include online retailers and offline local stores which sell product to
businesses and retail consumers in their area. Dealers will purchase most of their product from their local distributor who will
deliver to them regularly. Retail consumers are the end users of the product. Worksport currently sells our product line through
distributors and dealer networks. In the Canadian market, Worksport does the majority of our business with warehouse distributors
and select dealer customers. In the US market, Worksport’s customer base is mostly dealers and wholesalers.
Sales
are made through calling on dealers, jobbers, and warehouse distributors of truck accessories, who typically manage product sales
and promotion through their in-house sales department and maintain a strong working relationship with dealers and wholesalers
who purchase our products, either directly or through distributors. To grow our market share, we further entice the retail consumer
to purchase our product by way of a strong internet presence which will consist of YouTube videos and commercials, an interactive
website, search engine optimization, social media, among other web-based avenues.
Worksport
is targeting key area dealers, distributors and online retainers primarily in the US to become vendors of Worksport’s innovative
light truck tonneau cover lineup. Worksport has developed a database which includes 13,000 US-based truck accessory dealers, distributors
and retailers and 4,000 new truck dealers. In Canada, we have a sales lead list of over 3,000 contacts. Worksport is in the process
of systemically calling on the leads on this list as a part of our ongoing business development strategies and converting these
contacts into customers. As we increase our inventory levels to facilitate new sales, we will target select prospective contacts
in an attempt to convert them into vendors of the Worksport product lineup.
We
believe our Company is currently the only independent (B2B) producer of tonneau covers in the US and in Canada that does not sell
directly to customers (B2C), Worksport believes that we can expand our current customer base throughout our markets. Given the
unique ability of Worksport to design, patent, and produce our own line of products, prospective vendors will likely be interested
in purchasing our products.
Worksport
intends to further develop its sales and revenue through an online sales and ecommerce strategy concurrent with this offering.
We believe increasing sales through online retailers has the potential to add additional revenue and growth to the traditional
distribution business model. Moreover, we anticipate larger sales volumes, greater margin of profit as well as greater protection
against price erosion.
Our
Products
All
of our soft (vinyl) covers are made in a factory in Meizhou, China. All of our hard products are manufactured in Foshan, China.
Production at both factories can be increased within thirty days to facilitate volumes up to ten times the current output without
any adverse affects on quality or craftsmanship. Worksport’s current product lines are as follows:
Worksport
SC3 (introduced in 2011): This product is currently in production and is being offered and sold to customers.) The Worksport
Tri Fold (the “Tri Fold”) is our staple soft folding tonneau cover. The Tri Fold is made with features such
as stainless steel hardware, double coated vinyl tarp and all aluminum and plastic coated front clamps. The Tri Fold is made available
to our customer base at an average cost savings of 5% over competing products.
Worksport
SC3Pro (introduced in 2012): This product has been upgraded and redesigned. The Worksport SC3Pro is our second product
to market and offers our patented rear Smart Latch system. The Smart Fold is the first innovation in the rear latching system
offered on soft folding tonneau covers. The Smart Fold cover comes with all of the same features as the SC3 but with a new rear
latch system that allows the cover to be opened by simply pulling a release cable which is a new innovation in the soft tri fold
segment of our market.
Worksport
SC4 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 towards the rear window of the truck. We chose to make the world’s first soft quad folding
cover so this cover is more compact when standing parallel to the back window of a truck, thus eliminating wind resistance and
rear window obstruction.
Worksport
TC3 model is currently in production and is being sold to customers and has been engineered to be easy to install and operate
while being offered at a aggressive cost. The TC3 cover is built using 14 millimeter-thick aluminum panels with a robust honeycomb
core, coated in a durable matte-black scratch-resistant powder coating. With robust packaging, the lighter weight TC3also saves
time and money with up to 10% more load quantity in a standard 40’ HC container, maximizing value and product profitability.
Future
Products
Worksport’s
TC4 model is currently in design stages. The design will mimic that of the SC4, in that it will fold with four sections,
and rotate towards the rear window; allowing full bed access. The cover will have three locking points; with two locking points
being cable actuated. The cover will be made using FRP (fiberglass reinforced polymer) panels with a matte black silicate surface,
for a durable and desirable matt-black finish.
Worksport’s
TC4Pro model is also currently in development. It will have mirror the TC4, however, it will be offered with all cable-actuated
locking mechanisms, for easier operation. Versions of the model will also be offered with expandable cargo division and storage
solutions.
The
TerraVis by Worksport is in early stage developments. This cover will be based on the TC4 framework, with functional improvements
that will allow the cover to depend within the cargo bed of the truck, and rotate upwards towards the back window; to allow the
user two methods to gain full bed access. This cover is designed with integrated track systems within the bed of the truck, as
well as outside along the outer edge of the cover. These tracks can be used for a myriad of add-on options that will later be
designed by Worksport such as: chrome trim, tie downs, cargo cleats, textile storage bags, seating, cargo racks, sliding systems…etc.
The
TerraVis system will use mono-crystalline high efficiency solar panels, instead of FRP or Aluminum. The covers solar system will
generate an estimated 800-watts of low voltage DC current. The power will them be stored in an integrated, scalable Lithium Iron
Phosphate (pr Lithium Ion) battery bank, that can expand to over 2 kilowatts of energy storage. The energy can be stored and inverted
to two 2000-watt 110V AC outlets or used to re-charge vehicles onboard battery systems as “emergency power”. You can
find more information on the TerraVis system at www.goterravis.com
Competitive
Conditions
For
many years, consumers have had very limited product offerings available to them from tonneau cover manufacturers. The leading
manufacturers in Canadian and US market have had very few model developments. The tonneau cover market can be divided into four
main styles of covers including, Soft Folding & Roll-up covers (Vinyl covers), Hard Folding & Standing Covers (Aluminum
and FRP), Solid one piece caps and lids (Plastic & Fiberglass), Retractable Covers (Plastic & Aluminum).
Our
market is dominated by two large entities Truck Accessories Group (TAG) and Truck Hero account for the majority of the market.
that have also acquired other independent manufacturers and brands. These two large entities pose a competitive risk to the Company
but aso a concentration risk to the vendors’ they sell to. Worksport is in an enviable market position by being independent,
aggressively priced, innovative, and operationally sound. Worksport has been able to grow revenues with minimal sales efforts
with our existing customers and developed close working relationships with our larger clients maintaining close and directly contact.
The
area of biggest growth in the tonneau cover market is the segment of aggressively-priced hard folding tonneau covers. Currently,
the market distribution is shared by three primary participants, with LKQ/Keystone considered as the market leader.
Private
Label Sales
Worksport
launched our Private Label service in late 2016. With our portfolio of patents and designs, other large brands in our space has
asked us to manufacture product for them, under their own brand (the “Private Label”). The barrier to entry
in automotive parts market is very high due to engineering and patent barriers that discourage some competitors to enter into
the automotive parts sector. Worksport has been able to successfully navigate and overcome the many barriers to entry, making
Worksport among a small number of independent producers of truck bed covers in US and Canada.
Our
private label service provides other brands and companies to gain access to the growing tonneau cover market without concern for
any of the barriers to entry (patents, design, supply chain etc.). As Worksport develops and patents new and innovative truck
bed covers and systems, a myriad of distribution and manufacturing brands can rely on our infrastructure to access the market,
while Worksport earns revenues and profits from our innovations and infrastructure.
We
are developing a dealer direct “white glove” Private Label service that we believe will be innovative and potentially
disruptive in our market. In the “online marketplace”, customers are switching from brick and mortar to online direct
purchases. This has left the future of brick and mortar retail stores in question. In the US alone, we estimate there are over
17,000 brick and mortar dealers and distributors of automotive accessories. Through our own market research, we believe that the
truck owners generally prefer to see the tonneau cover before purchasing it. As it is a major purchase for truck owners, retail
consumers are seeking education at the brick and mortar stores and conducting online searches and purchases for a competitively
priced item.
Worksport
plans to change this trend by stocking our most popular and well-received items (Tri Fold, Smart Fold, Quas Fold and Forte) in
one of two US warehouses and offering these products, just in time, to the dealers that participate in our program in the US as
“their own brand” or Private Label which we will plan, organize and manage internally. We will create and own the
right to each brand from each dealer that participates in the program. Each dealer can order our product and we can brand that
product as their own as it leaves our warehouse to their show room. If successful, this will secure Worksport as a supplier to
each dealer that participates in our program in the US. This unique program will ensure that the dealer can make purchases directly
from Worksport if they choose to participate in our program.
Intellectual
Property Assets
Trademarks
Worksport
holds a total of 13 trademark assets in varying stages between published, pending, allowed, and registered.
| Country | Mark | Status | Honigman No. |
App. No. | Reg. No. | |||||
| CANADA | TERRAVIS | PENDING | 261553-462019 | 2010520 | Not yet registered. | |||||
| CHINA | TERRAVIS | PENDING | 261553-462020 | Not yet assigned. | Not yet registered. | |||||
| EUROPEAN UNION (EUTM & RCD) | TERRAVIS | PUBLISHED | 261553-462018 | 018193012 | Not yet registered. | |||||
| UNITED STATES | TERRAVIS | ALLOWED | 261553-455644 | 88/642,919 | Not yet registered. | |||||
| CANADA | WORKSPORT | REGISTERED | 261553-432576 | 1921042 | TMA1077840 | |||||
| UNITED STATES | WORKSPORT | REGISTERED | 261553-438694 | 88/120,025 | 5,939,355 | |||||
| UNITED STATES | WORKSPORT | PENDING | 261553-462563 | 88/790,893 | Not yet registered. | |||||
| CANADA | WORKSPORT & Design |
REGISTERED | 261553-418691 | 1867301 | TMA1042302 | |||||
 |
||||||||||
| CHINA | WORKSPORT & Design |
PENDING | 261553-438699 | 36311236 | Not yet registered. | |||||
|
||||||||||
| UNITED STATES | WORKSPORT & Design |
REGISTERED | 261553-420684 | 87/674,975 | 6,008,391 | |||||
|
||||||||||
| CANADA | W WORKSPORT & Design |
REGISTERED | 261553-432578 | 1921043 | TMA1077841 | |||||
 |
||||||||||
| UNITED STATES | W WORKSPORT & Design |
ALLOWED | 261553-438698 | 88/120,020 | Not yet registered. | |||||
|
||||||||||
| UNITED STATES | W WORKSPORT & Design |
REGISTERED | 261553-464832 | 88/977,056 | 6,038,920 | |||||
|
Patents
Worksport
has a total of 14 patents within our intellectual property portfolio in varying stages from Pending, Issued, and Completed.
| Country | Title | Patent Type |
Status | Appln. No. | Pat. No. / Pub. No.* |
|||||
| US | SYSTEM FOR SECURING A TRUCK BED COVER |
Utility | Issued | 13/662,157 | 8,814,249 | |||||
| US-P | STORAGE BAG FOR USE WITH A TONNEAU COVER | Provisional | Completed | 62/074,942 | ||||||
| PCT | STORAGE BAG FOR USE WITH A TONNEAU COVER | Utility | Completed | PCT/CA2015/051138 | WO2016/070277* | |||||
| US | STORAGE BAG FOR USE WITH A TONNEAU COVER | Utility | Issued | 15/524,167 | 10,252,676 | |||||
| US-P | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Provisional | Completed | 62/074,954 | ||||||
| PCT | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Utility | Completed | PCT/CA2015/051137 | ||||||
| US | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Utility | Issued | 15/524,169 | 10,399,420 | |||||
| US-P | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Provisional | Completed | 62/248,831 | ||||||
| PCT | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Utility | Completed | PCT/CA2016/051247 | WO2017/070786* | |||||
| US | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Utility | Issued | 15/771,957 | 10,596,887 | |||||
| US-D | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Divisional | Pending | 16/826,939 | ||||||
| CA | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK | Utility | Pending | 3,003,299 | ||||||
| US-P | LATCHES AND RAILS FOR USE IN TONNEAU COVERS FOR PICKUP TRUCKS |
Provisional | Completed | 62/823,316 | ||||||
| PCT | LATCH ASSEMBLIES AND RAIL ATTACHMENT FOR A PICKUP TRUCK TONNEAU COVER |
Utility | Pending | PCT/US2020/024737 |
Market:
The
2019 SEMA reports continued growth in the automotive aftermarket over 2019 totaling 46.2 Billion dollar market, representing a
3.6% increase from 2018. Pickup upgrades are the largest sector of the specialty-equipment industry, accounting for 31% of 2019
retail sales. Pickup upgrades are the largest sector of the specialty-equipment industry, accounting for 31% of 2019 retail sales.
The
2018 SEMA Report shows the results of the previous year and indicates that 2017 was another good year for the specialty-equipment
industry. The overall size of the market grew to $42.92 billion. The 4% growth continues a multiple-year trend. SEMA projects
that enter the market will continue to grow through the end of 2018 and bring retail sales close to $45 billion.
This
current growth trend is fueled by strong overall economic performance, including an ongoing decline in unemployment and growth
in consumer spending. A strong economy paired with rising consumer confidence means that more people are willing to spend money
on discretionary items, such as specialty automotive parts. While new vehicle sales have leveled off, they still remain at near-record
highs—close to 17 million per year. Recently announced tariffs on imported steel, aluminum, etc. and other policy changes
could affect the economy and the industry in 2018, but to this point, demand has been strong.
Pickup
upgrades are the largest sector of the specialty-equipment industry, accounting for 27% of total retail dollars (about $12.03
Billion). In the USA alone there are 158.6 Million registered Light Trucks. Despite the growth of CUVs 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 (Ford F-150, Chevrolet Silverado, Ram 1500) throughout the United States, especially in the South. While there is increasing
interest in electrification by automakers, electric vehicles comprise less than 1% of light vehicles on the road. Hybrid cars
are the only alternative power vehicles to have a notable share of registrations. It will be a long time before they change the
face of the U.S. light vehicle fleet.
Top
Registered Models
| Ford F-150 | 10.2 | M | ||
| Chevrolet Silverado 1500 | 7.1 | M | ||
| Ram 1500 | 4.9 | M | ||
| Toyota Tacoma | 3.2 | M | ||
| Ford F-250 Super Duty | 2.8 | M | ||
| GMC Sierra 1500 | 2.5 | M | ||
| Ford Ranger | 2.3 | M | ||
| Chevrolet Silverado 2500 | 2.1 | M | ||
| Toyota Tundra | 2.0 | M | ||
| Ford F-350 Super Duty | 1.7 | M |
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 also boasts a high number of trucks on the road that brings it in just
below the top two in customization potential.
Operations
in China
Legal
Right to Conduct Operations in China
Presently,
other than sales operations in US and Canada, the remaining operations are conducted only in China.Worksport requires a customs
bond in the US to import our products. We obtain our customs bond through our customs agent, who imports and clears the product
upon entry into the US or Canada. Other than the importer’s customs bond, Worksport requires no other permits or licenses
to import our product that is manufactured in China. No regulatory approvals are required. Customs bonds and importer account
numbers (CBP in US and CBSA in Canada) are not formal licenses.
Worksport
is a paying member of SEMA (Specialty Equipment Manufacturers Association). The association keeps automotive manufacturers apprised
of all new regulations, license requirements, and mandates in the automotive industry across US and Canada. Worksport management
constantly works with our customs brokers, logistics providers, corporate legal counsel (patent, trademark, general business,
and securities) to ensure compliance with any and all permits, licenses, or regulatory approvals required to operate.
We
are not aware of any restrictions or conditions that can be imposed, by the government of China, to hinder or affect our ability
to manufacture and import our product from China.
Manufacturing
in China
Steven
Rossi, our CEO, is experienced with doing business in China. and has developed skills to conduct business in China and has
been working with overseas factories, including Chinese factories, for the past nine years. Furthermore, Mr. Rossi’s
involvement with US factories that work closely with Chinese factories has improved his knowledge of conducting business with
Chinese counterparts. Mr. Rossi has been involved in successfully launching seven new products. Specifically, he has
contributed to revising products, negotiating prices for each product, on-boarding a total of four factories, as well as
working with the patent and trademark legal team to include China as a jurisdiction for our pending trademark and patent
applications. while working with various US and Canadian based agents and factory representatives. These agents inform
management of the laws and requirements of doing business with factories in China, the local culture, and differences in
banking and exchange rates.
As
a manufacturing member of SEMA, we have access to industry resources made available through SEMA which keeps Mr. Rossi informed
of the laws and requirements of China, role of the government in China, local business culture in China, as well as any differences
in banking systems and controls between Canada and China.
Worksport
products are manufactured in China according to our specifications and design, using our schematics and blueprints. All of our
soft (vinyl) covers are made in a factory in Meizhou, China. All Worksport hard products are manufactured in Foshan, China. Production
at both factories can be increased to facilitate volumes up to ten times the current output.
Currently,
we rely on third party manufacturers to produce our products in China. These products are only available from a limited group
of manufacturers. We have entered into arrangements with each of our products are designed and engineered in cooperation with
one of our two contract manufactures in China. Accordingly, each tonneau cover product can only be manufactured by the specific
manufacturer that collaborated with Worksport to develop the tonneau cover. Moreover, the tools, molds – which are developed using
Worksport’s fully-owned schematics and blueprints (specific grade of materials and assembly techniques) are exclusive to
the manufacturer that developed each tonneau cover product. It should be noted that our two third party manufacturing partners
in China communicate fully, and only, using the English language when dealing in all business, technical (which includes product
development line, blue prints and packaging) and logistical matters related to us. All material documents provided to the
board are in English. Weare in continuous contact with our suppliers in China and the meets with the suppliers in China at least
once a year.
We
have exclusive manufacturing agreements in place in the two factories (in other words, our two manufactures are prohibited in
manufacturing tonneau covers for any other companies). These are standard OEM agreements stating that the factory will produce
Worksport’s products under Worksport’s direction. The pricing cannot change within 90 days. Pricing is per Freight
On Board (the “FOB”) to the most favourable port in China (Shenzhen) and is in USD. Upon submitting an order,
Worksport is to advance 30% of the proforma invoice total. Upon surrender of the cargo and release of the bill of lading, 70%
is due. The factory will not share data provided by Worksport, use the data for any competing products, and will not duplicate
products or designs directly or indirectly. Additionally, they must allow quality control agent on site at any given moment for
in-process quality control inspection. They must also produce and deliver within 20 days of an order, excluding government affirmed
holidays.
Worksport
designs, patents, and owns schematics and blueprints used to manufacture products. Contracting factories to manufacture the product
is easier to oversee and change. If Worksport becomes reliant on the factories R&D, product, and patents, this would pose
risks and challenges relating to supply concentration and a going concern that the company could lose our supply should the relationship
change between the company and our factory. As at the date of this prospectus, the additional “back-up” factory is
not producing or manufacturing product for Worksport. However, in Q3 2020, the back-up factory may commence production of some
of Worksport’s current and yet to be released product. Note that “launching” a product is presenting the product
as a concept to the B2B market, either via direct solicitation’ (phone calls with video or online presentations about the
product) or in a trade-show setting. “Releasing a product is when that formally presented product is fully tested, engineered,
and all tooling is completed and the product is ready for mass production and sale.
Our
model factories are required to handle the sourcing of individual components. The factories offer the Corporation an “all
inclusive” price that does not change. Worksport does not own our own tools and molds but instead has ownership and control
over the schematics and blueprints of our designs/products and each contracted manufacturer basis our dies and molds on Worksport’s
schematics and blueprints. Should a contract between the us and the manufacturer terminate, we would supply the new manufacturer
with our schematics and blueprints, bills of materials, procedure sheets, as well as authorized access to our tools, dies and
molds. The new manufacturer would then use this data to begin production, which is only authorized after one physical pre-production
sample of each model is produced and inspected by Worksport and our engineers. The previous manufacturer would destroy the mold
it was using as per our agreements with our current manufacturer.
MAP
(Minimum Advertised Price)
To
maintain a competitive position in the market, we have implemented and enforced a strict MAP. MAP pricing is enforceable in the
US, and it mitigates price/value erosion of our product. This is the lowest price at which the customer can sell our product.
In Canada, Manufacturer’s Suggested Retail Price (“MSRP”) is used. However, MSRP is only a suggestion
and there are no enforceable measures in the Canadian market to protect against price erosion arising from competing dealers.
MAP typically refers to the definite retail pricing of each of our products and differs between the Canadian and the US markets.
Our products’ MAP pricing is set to be competitive in relation to competing products, while allowing our distributors, dealers
and retailers to generate respectable margins of profit. Moreover, if our MAP pricing is violated by a product being advertised
or sold above or below the then current MAP price, we take necessary steps with our customer(s) to remediate pricing to continue
and maintain our competitive position in the marketplace. However, there are no guarantees that MAP pricing and other various
forms of pricing and product control measures can be effectively monitored and enforced, especially as the Corporation’s
market saturation grows.
Components
Our
model factories are required to handle the sourcing of individual components. The factories offer the Corporation an “all
inclusive” price that does not change.
Environmental
Protection
We
are committed to high environmental standards and carries out our activities and operations in compliance with all relevant and
applicable environmental regulations and best industry practices. Costs of environmental regulatory compliance are not expected
to be significant.
Employees,
Specialized Skill and Knowledge
As
of the date of this Prospectus, we have one employee. Our operations are managed by our directors and officers. Our directors
and officers possess a wide range of professional skills that are relevant to pursuing and executing our business strategy. These
skills include strong technical skills, expertise in planning and financial controls, ability to execute on business development
opportunities, capital markets expertise and entrepreneurial experiences which will allow us to effectively identify, evaluate
and execute on value-added initiatives.
We
file annual, quarterly, and special reports, proxy statements, and other information with the Securities Exchange Commission (SEC).
Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities
of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC’s
website at www.sec.gov.
This
offering involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition
to the other information contained in this private placement memorandum before deciding whether to invest in shares of Company’s
Common Stock. If any of the following risks occur, our business, financial condition or operating results could be harmed. In
that case, you may lose part or all of your investment. In the opinion of management, the risks discussed below represent the
material risks known to the company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial
may also impair our business operations and adversely affect the investment of Common Stock. You should purchase our Common Stock
only if you can afford a complete loss of your investment. You should consider all the risks before buying Company’s Common
Stock, which may include:
Risks
Related to Our Business:
We
have limited operating history, our financial position is not robust, and we lack profitable operations to date.
Worksport
has incurred net losses since inception and may continue to incur net losses while it builds its business and as such it may not
achieve or maintain profitability. The Company’s limited operating history makes it difficult to evaluate its business and
prospects, and there is no assurance that the business of the Company will grow or that it will become profitable.
Worksport
has been in existence since 2011, which is relatively short compared to our competitors. While the Company has experienced recent
substantial growth in our revenues, there is no assurance that our revenues will continue to experience such a trend line, nor
even that our revenues will continue to grow. Because of our limited operating history it is difficult to extrapolate any meaningful
projections about the Company’s future.
Our
competitors are significantly better funded than we are. This could prove detrimental in that we may not have the funds with which
to procure a sufficient supply of product to meet demand at some point. Our competitors could engage in predatory pricing or other
tactics in an attempt to eliminate our market share. The Company has incurred net losses since inception, and may continue to
incur net losses while it builds its business, and as such it may not achieve or maintain profitability.
We
have historically incurred significant losses and our financial situation creates doubt whether we will continue as a going concern.
During
the year ended December 31, 2019, the Company incurred a net loss of $414,607 and as of that date, the Company’s accumulated
deficit was $10,768,906. While the Company has demonstrated the ability to generate revenue, there are no assurances that it will
be able to achieve level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing
through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the
extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have
to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will
be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate
working capital is not available we may be forced to discontinue operations, which would cause investors to lose their entire
investment. The accompanying consolidated financial statements do not include any adjustments that might result relating to the
recoverability and classification of the asset carrying amounts or the amount and classification of liabilities that might result
from the outcome of this risk and uncertainty.
Even
if this Offering is successful, we will need to raise additional funding, which may not be available on acceptable terms, or at
all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts
or other operations.
The
proceeds from this Offering, excluding potential proceeds from the sale of Warrant Shares upon exercise of all the Warrants, will
be up to $3,000,000 before deducting offering expenses payable by us. We expect that if the maximum sale of Units and Warrant
Shares is achieved, the net proceeds from this Offering will be sufficient to fund our current operations for at least the next
twenty-four months. However, we may not achieve the maximum sale of Units and Warrant Shares, and/or our operating plan may change
as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public
or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other
collaborations, strategic alliances or a combination of these approaches. Raising funds in the current economic environment may
present additional challenges. It is not certain that we have accounted for all costs and expenses of future development and regulatory
compliance. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital
if market conditions are favorable or if we have specific strategic considerations.
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.
We
rely on third parties for our production which may hinder our ability to grow.
Suppliers:
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.
Distribution:
The
following table includes the percentage of the Company’s sales to significant customers for the fiscal years ended December
31, 2019 and 2018. A customer is considered to be significant if they account for greater than 10% of the Company’s annual
sales:
| 2019 | 2018 | |||||||
| Customer A | 89 | % | 37.8 | % | ||||
| Customer B | – | % | 31.2 | % | ||||
| Customer C | – | % | 19.8 | % | ||||
| Customer D | – | % | 10.4 | % | ||||
| 89 | % | 99.2 | % | |||||
The
loss of any of these key customers could have an adverse effect on the Company’s business. At December 31, 2019, $1,912,401
was included in revenue from Company A, representing 89% of the Company’s total sales for the year ended. With Customer
A representing 89% of the revenue, the loss of the customer would have an adverse effect on the Company’s revenue.
In
2018, Customer A represented 37.8% or $182,738 of total sales.
There
are risks associated with outsourced production that may result in decrease in our profit.
Worksport
products are manufactured to our specifications and design in China. All of our soft (vinyl) covers are made in a factory in Meizhou,
China. 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.
There
are risks associated with outsourced production in China and their laws which may have a material adverse effect on our financial
stability.
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 regardless
of any purchasing contracts or agreements we may have entered into. 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, in either of these cases, 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
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.
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
its President/CEO Steven Rossi 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 3 Granted Patents, 3 patent applications in Canada and USA, as of 2019. As at the date of filing
of this Report, Worksport also has submitted a US, Canada and China Trademark application for “WORKSPORT” on September
17, 2017. 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 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. We may receive inquiries from patent or trademark owners inquiring whether we infringe their proprietary
rights. Companies owning patents or other intellectual property rights relating to battery packs, electric motors, fuel cells
or electronic power management systems may allege infringement of such rights.
Our
business may be adversely affected if we are unable to protect our intellectual property rights from unauthorized use by third
parties.
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. Our success depends, at least in part, on our ability to protect our core
technology and intellectual property. To accomplish this, we will rely on a combination of patents, trade secrets (including know-how),
employee and third-party nondisclosure agreements, copyright, trademarks, intellectual property licenses and other contractual
rights to establish and protect our rights in our technology. Patent, trademark, and trade secret laws vary significantly throughout
the world. Some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United
States. Further, policing the unauthorized use of our intellectual property in foreign jurisdictions may be difficult. Therefore,
our intellectual property rights may not be as strong or as easily enforced outside of the United States.
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.
We
are subject to foreign currency risk which may adversely affect our net profit.
The
Company is subject to foreign exchange risk as it has two manufacturing facilities 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 US$). 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.
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. Any future acquisitions the Company makes, could also result in large and
immediate write-offs or the incurrence of debt and contingent liabilities, any of which could harm the Company’s operating
results. 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.
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. The competition
that we face in our market — which varies depending on the particular business segment, product lines and customers —
may prevent us from achieving sales, product pricing and income goals, which could affect our financial condition and results
of operations. In addition, our current competitors are significantly better funded and have a longer operating history than us.
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 paid insurance of $9,724 for the year ended December 31, 2019, 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 cost to 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. (See also the “Product
Quality” discussion below and the associated recall insurance.)
We
may produce products of inferior quality which would cause us to lose customers.
Although
the Company makes 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 the Company’s products are shipped to customers, resulting in the return or exchange of the Company’s
products, claims for compensatory damages or discontinuation of the use of the Company’s products, which could negatively impact
the profits and operating results of the Company. The Company does not presently have product recall, (or similar function), insurance,
namely, (in contrast to product liability), 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, law suits or litigation would be covered by such insurance.
(See also the “Product Liability Insurance” discussion above.)
We
may experience patent enforcement and infringement which could force us to spend on legal fees.
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:
1.
litigation or other proceedings we may initiate against third parties to enforce our patent rights or other intellectual property
rights;
2.
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
3.
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.
Global
economic conditions, such as COVID-19, may adversely affect our industry, business and results of operations.
Our
overall performance depends, in part, on worldwide economic conditions which historically is cyclical in character. Key international
economies continue to be impacted by a recession, characterized by falling demand for a variety of goods and services, restricted
credit, going concern threats to financial institutions, major multinational companies and medium and small businesses, poor liquidity,
declining asset values, reduced corporate profitability, extreme volatility in credit, equity and foreign exchange markets and
bankruptcies. By way of example, the automotive aftermarket, specifically fuel saving add-ons such as light-truck tonneau covers,
is typically not as affected by economic slow-down or recession as other industries or market segments. In markets where our sales
occur and go into recession, these conditions affect the rate of spending and could adversely affect our customers’ ability
or willingness to purchase our products, and delay prospective customers’ purchasing decisions, all of which could adversely
affect our operating results. In addition, in a weakened economy, companies that have competing products may reduce prices which
could also reduce our average selling prices and harm our operating results.
The
Company faces intense competition from new products and may lose customers to our competition.
The
Company’s tonneau cover products face intense competition from its competitors. This competition may increase as new products
enter the market, especially those made overseas and marketed and sold directly into the North American market by overseas manufactures.
In such an event, the competitors’ products may be of similar or better quality compared to the Company’s products.
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.
The
sale of tonneau cover, like many other non-essential consumer products, has been hampered by COVID-19.
Due
to the impact of COVID-19 around the world the Company expects its sales to decrease significantly for the first and second quarter
of 2020 as governments around the world entered a lockdown to prevent the spread of COVID-19.
The
pick-up truck industry may take longer to recover from the COVID-19 pandemic.
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. Further upticks in infection, and the related enforcement of governmental restrictions
would materially hinder our ability to grow.
Risks
Associated with Manufacturing in China
Worksport
has a total of two factories that are producing for Worksport. Worksport does not require a specific focus on contracted manufacturing
agreements since most risks are mitigated in the following ways:
Copy-cat
risks: As discussed above, if a relationship with our manufacturers is terminated, the previous manufacturer would destroy the
mold it was using as per our agreements with our current manufacturer. Worksport had new tooling produced with each item having
specific logos and taxonomy on each tool that labels that item as OEM for Worksport, which prevents that item from being copied
or used/stolen.
Downgraded
factory relationship risks: Worksport switches manufacturing to any other assembly factory readily available in China.
Overbooking
risks: Worksport on-boards over-flow factory to produce over-flow product. Factories in China can scale quickly. Worksport’s
product does not require skilled trades or labor.
Worksport
is always working on ways to mitigate risk relating to overseas or foreign manufacturing. Medium term plans are in place to reduce
or eliminate the risks for overseas manufacturing. None of the factories’ management, ownership, or affiliates are associated
with Worksport our management, directors, or any other roles.
We
will continually explore possibilities to manufacture our product within North America (Mexico, USA, Canada). As we develop, we
will work towards ultimately attaining our goal of having our product manufactured within North America. To do so, we would require
new tooling and equipment and facilities.
Risks
Related to Our Stockholders and Purchasing Units
We
have not voluntarily implemented various corporate governance measures.
Federal
legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed
to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response
to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges,
such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee
oversight and the adoption of a Code of Ethics. Our Board of Directors expects to adopt a Code of Ethics at its next Board meeting.
The Company has not adopted exchange-mandated corporate governance measures and, since our securities are not listed on a national
securities exchange, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance
measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested
directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating
and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation
packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest
in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance
measures in formulating their investment decisions.
We
may be exposed to potential risks relating to our internal control over financial reporting.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the SEC has adopted rules requiring public
companies to include a report of management on the Company’s internal control over financial reporting in its annual reports.
While we expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX
404, there is a risk that we will not comply with all of the requirements imposed thereby. At present, there is no precedent available
with which to measure compliance adequately. In the event we identify significant deficiencies or material weaknesses in our internal
control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the
reliability of our financial statements and our ability to obtain equity or debt financing could suffer.
We
have a large number of authorized but unissued shares of our common stock.
We
have a large number of authorized but unissued shares of common stock, which our management may issue without further stockholder
approval, thereby causing dilution of your holdings of our common stock. 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. 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, your
ownership position would be diluted without your further ability to vote on that transaction.
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 may at some point be able to meet the requirements necessary for our common stock to be listed on a national securities exchange,
we cannot assure you that we will ever achieve a listing of our common stock on a national securities exchange. Our shares are
currently only eligible for quotation 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.
If
the price of the shares of our common stock falls, we may lose eligibility for quotation on the OTCQB, which could result in investors
losing their investment and would prohibit the Company from further accessing the equity line of credit.
Our
shares are currently only eligible for quotation on the OTCQB, which is not an exchange. Since May 1, 2014, there has been continuing
eligibility requirements for OTCQB, whereby the price of our common stock can’t fall below $0.01 for thirty consecutive
days. If we are unable to satisfy this continuing eligibility requirement of the OTCQB, the quotation of our common stock could
be moved to the OTC Pink Sheets. 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. More importantly, however, this would
prohibit the Company from having further access to the equity line of credit, as quotation on the OTC Pink Sheets is insufficient
for any such equity lines of credit.
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.
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 emerging growth 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:
| i. | changes in securities analysts’ estimates of our financial performance, although there are currently no analysts covering our stock; |
|
| ii. | fluctuations in stock market prices and volumes, particularly among securities of emerging growth companies; |
|
| iii. | changes in market valuations of similar companies; |
|
| iv. | announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments; |
|
| v. | variations in our quarterly operating results; |
|
| vi. | fluctuations in related commodities prices; and |
|
| vii. | additions or departures of key personnel. |
As
a result, the value of your investment in us may fluctuate.
We
have never paid dividends on our common stock.
We
have never paid cash dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future.
Investors should not look to dividends as a source of income.
In
the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable
future. Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market value of
our stock, and not as a result of dividend payments.
We
may incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on
our business, financial condition and results of operations.
We
may face increased legal, accounting, administrative and other costs and expenses as a public company. The Sarbanes-Oxley Act
of 2002 (the “Sarbanes-Oxley Act”), including the requirements of Section 404, as well as rules and regulations subsequently
implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated
and to be promulgated thereunder, the Public Company Accounting Oversight Board (the “PCAOB”) and the securities exchanges,
impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase
costs and make certain activities more time-consuming.
REGULATION
A+
We
are offering our Common Stock pursuant to recently adopted rules by the Securities and Exchange Commission mandated under the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act. These offering rules are often referred to as “Regulation
A+.” We are relying upon “Tier 2” of Regulation A+, which allows us to offer of up to $50 million
in a 12-month period.
In
accordance with the requirements of Tier 2 of Regulation A+, we will be required to publicly file annual, semiannual, and current
event reports with the Securities and Exchange Commission after the qualification of the offering statement of which this Offering
Circular forms a part.
THE
OFFERING
| Issuer: | Worksport Ltd. |
|
| Securities offered by us |
A
●
● |
|
| Common Stock outstanding before the Offering |
47,037,772 Common Shares (based on number of Common Shares outstanding as of July 15, 2020). |
|
| Warrant Shares Offered: |
A maximum of 30,000,000 Warrant Shares at an exercise price of $0.20 USD per Warrant Share, subject to customary adjustments, over a 12-month exercise period following the date of issuance, if not called by the Company. The Company may call the warrant with a thirty (30) day written notice to the Warrant holder, as described in the Warrant Agreement, attached hereto as Exhibit 4.2. |
|
| Common Shares to be Outstanding after the Offering: |
107,037,772 | |
| Price per Unit: |
Ten Cents ($0.10) USD. |
|
| Price per Warrant Share |
$0.20 USD, subject to customary adjustments as described in the form of Warrant Agreement included as Exhibit 4.2 hereto |
|
| Maximum Offering: |
30,000,000 Units, at an offering price of $0.10 USD per Unit, for total gross proceeds of up to $3,000,000 USD (excluding the exercise of the Warrants to purchase 30,000,000 Warrant Shares with an exercise price of $0.20 USD per Warrant Share, subject to customary adjustments). |
|
| Use of Proceeds: |
If we sell all of the Units being offered and all of Warrant Shares are exercised, our net proceeds (after our estimated commissions, if any, but excluding our estimated Offering expenses) will be approximately $9,000,000. We will use these net proceeds for our operations, expenses associated with the marketing and advertising of the Offering, working capital, project build out of the resort and general corporate purposes, and such other purposes described in the “Use of Proceeds” section of this Offering Circular. |
|
| Risk Factors: |
Investing in our Common Stock involves a high degree of risk. See “Risk Factors.” |
As
of July 15, 2020, 47,037,772 shares of common stock, $.0001 par value per share, were issued and outstanding out of the
299,000,000 shares of common stock authorized. In addition, 100,000 shares of Series A preferred stock are issued and outstanding.
There are 1,000,000 shares of Series A preferred stock authorized and 1,000 Series A outstanding and 100,000 Series B authorized
and no Series B outstanding.
State
the dates on which the Company sold or otherwise issued securities during the last 12 months, the amount of such securities sold,
the number of persons to whom they were sold, and relationship of such persons to the Company at the time of sale, the price at
which they were sold and, if not sold for cash, a concise description of the consideration. (Exclude bank debt.)
Unregistered
Sales of Equity Securities
During
the year ended December 31, 2019, the Company completed one unregistered sales of equity securities, all pursuant to Rule 506(b)
of Regulation D. The company raised $30,000 in exchange for 250,000 post consolidation common shares of the company. This consisted
of the following investments:
| Date | Amount | Securities Purchased |
||||||
| Jan-7-2019 | $ | 30,000 | 250,000 | |||||
| TOTAL | $ | 30,000 | 250,000 | |||||
Issuer
Purchases of Equity Securities
There
were no repurchases of shares of the Company’s common stock during the year ended December 31, 2019.
We
will not receive any of the proceeds from the sale of the common stock by the Selling Shareholder. We will use our best efforts
to raise a maximum of $9,000,000 for the Company in this offering, including the exercise of the Warrants. We are requiring no
minimum offering proceeds threshold. The table below summarizes how we will utilize the proceeds of this offering, including in
the event that the Company raises less than the full amount expected ($9,000,000). The actual amount of proceeds realized may
differ from the amounts summarized below (1). In order to successfully carry out our stated goals, the Company would need $750,000
including capital raised in this offering. We anticipate incurring up to $90,000 in offering expenses, SEC reporting and compliance,
and to maintain our general and administrative functions over the next twelve months. If we don’t raise sufficient proceeds
in this offering or generate sufficient revenue, our working capital goal may not be met. Furthermore, without sufficient proceeds
from this offering or the generation of sufficient revenue, some of our other expenses, including advertising and marketing, website
design, and operating and equipment may not be incurred or undertaken. While the Company hopes to secure sufficient funds in the
Offering described herein, there is no minimum offering amount. If we cannot obtain needed funds, we may be forced to curtail
or cease our activities altogether
The
following table sets forth the use of the proceeds from this offering for the sale of the 30,000,000 Units, without the exercise
of the Warrants:
| 25% | 50% | 75% | 100% | |||||||||||||
| Estimated Offering Expense |
$ | 22,500.00 | $ | 45,000.00 | $ | 67,500.00 | $ | 90,000.00 | ||||||||
| Prodcut Inventory | $ | 375,000.00 | $ | 750,000.00 | $ | 1,125,000.00 | $ | 1,500,000.00 | ||||||||
| Marketing our brand | $ | 187,500.00 | $ | 375,000.00 | $ | 562,500.00 | $ | 750,000.00 | ||||||||
| Research & Development | $ | 82,500.00 | $ | 165,000.00 | $ | 247,500.00 | $ | 330,000.00 | ||||||||
| Working Capital |
$ | 82,500.00 | $ | 165,000.00 | $ | 247,500.00 | $ | 330,000.00 | ||||||||
| Total Net Proceeds |
$ | 750,000.00 | $ | 1,500,000.00 | $ | 2,250,000.00 | $ | 3,000,000.00 |
WARRANTS
In
the event the Warrants are exercised, and the Company receives up to an additional $6,000,000 in funding, it would be used as
follows:
| 25% | 50% | 75% | 100% | |||||||||||||
| Product Inventory | $ | 750,000.00 | $ | 1,500,000.00 | $ | 2,250,000.00 | $ | 3,000,000.00 | ||||||||
| Marketing our brand | $ | 375,000.00 | $ | 750,000.00 | $ | 1,125,000.00 | $ | 1,500,000.00 | ||||||||
| Research & Development | $ | 187,500.00 | $ | 375,000.00 | $ | 562,500.00 | $ | 750,000.00 | ||||||||
| Working Capital |
$ | 187,500.00 | $ | 375,000.00 | $ | 562,500.00 | $ | 750,000.00 | ||||||||
| Total Net Proceeds |
$ | 1,500,000.00 | $ | 3,000,000.00 | $ | 4,500,000.00 | $ | 6,000,000.00 |
Note:
After reviewing the portion of the offering allocated to the payment of offering expenses, and to the immediate payment to management
and promoters of any fees, reimbursements, past salaries or similar payments, a potential investor should consider whether the
remaining portion of his investment, which would be that part available for future development of the Company’s business
and operations, would be adequate.
No
assets are planned to be acquired from officers, directors, employees or principal stockholders of the Company or their associates.
The
Company plans to build up its executive team, support staff and skilled labor with its Salaries & Operating budget.
The
Company has sustained operating losses since inception, and it has been dependent upon limited private lending to provide enough
working capital in order to finance its operations. Management believes that it can continue to raise debt and equity financing
to support its operations. The Company’s ability to continue in existence is dependent upon developing additional sources
of capital and/or achieving profitable operations.
The
proceeds from this offering would satisfy the Company’s cash requirements for the next 12 months, if realized in full. There
is no assurance that we will sell all of the Units, if at all.
We
intend to raise additional capital through equity and debt financing as needed, though there cannot be any assurance that such
funds will be available to us on acceptable terms, on an acceptable schedule, or at all.
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.
DETERMINATION
OF OFFERING PRICE
The
Company determined the offering price based on a discount to the current trading price of the Company’s common stock on
OTCQB.
If
you purchase shares in this Offering, your ownership interest in our Common Stock will be diluted immediately, to the extent of
the difference between the price to the public charged for each share in this Offering and the net tangible book value per share
of our Common Stock after this Offering.
On
December 31, 2019 there were an aggregate of 41,906,790 shares of Company Common Stock issued and outstanding.
Our
net tangible book value as of December 31, 2019, was ($1,068,243) or ($0.03) per outstanding share of our Common Stock, based
on 41,906,790 outstanding shares of Common Stock at December 31, 2019. Net tangible book value per share equals the amount of
our total tangible assets less total liabilities, divided by the total number of shares of our Common Stock outstanding, all as
of the date specified.
If
the maximum 60,000,000 shares of Common Stock in this Offering at the public offering price of $0.15 per share, after deducting
approximately $50,000 in maximum sales commissions and other offering expenses payable by us, our pro forma as adjusted net tangible
book value would have been approximately $7,881,757 ($0.08 per share) as at December 31, 2019. This amount represents an immediate
increase in pro forma net tangible book value of $0.11 per share to our existing stockholders at the date of this Offering Circular,
and an immediate dilution in pro forma net tangible book value of approximately ($0.07) per share to new investors purchasing
shares of Common Stock in this Offering at a price of $0.15 per share.
The
following table illustrates the per share dilution to new investors discussed above, assuming the sale of, respectively, 100%,
75%, 50% and 25% of the shares offered for sale in this offering (after our estimated offering expenses of $50,000):
| Funding Level |
$ | 9,000,000 | $ | 6,750,000 | $ | 4,500,000 | $ | 2,250,000 | ||||||||
| Offering Price | $ | .15 | $ | .15 | $ | .15 | $ | .15 | ||||||||
| Pro forma net tangible book value per Common Stock share before the Offering |
$ | (0.03 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
| Increase per common share attributable to investors in this Offering |
$ | 0.11 | $ | 0.09 | $ | 0.08 | $ | 0.05 | ||||||||
| Pro forma net tangible book value per Common Stock share after the Offering |
$ | 0.08 | $ | 0.06 | $ | 0.05 | $ | 0.02 | ||||||||
| Dilution to investors | $ | 0.07 | $ | 0.09 | $ | 0.10 | $ | 0.13 | ||||||||
| Dilution as a percentage of Offering Price |
47 | % | 60 | % | 67 | % | 87 | % |
The
following tables set forth, assuming the sale of, respectively, 100%, 75%, 50% and 25% of the shares offered for sale in this
offering (after our estimated offering expenses of $50,000), the total number of shares previously sold to existing stockholders,
the total consideration paid for the foregoing and the respective percentages applicable to such purchased shares and consideration
paid based on an average price of $0.20 per share paid by existing stockholders and $0.15 per share paid by investors in this
Offering.
| Units Purchased and Exercised |
Total Consideration |
|||||||||||||||
| Number | Percentage | Amount | Percentage | |||||||||||||
| Assuming 100% of Units Sold: |
||||||||||||||||
| Existing Common Shares stockholders |
47,037,772 | 44 | % | $ | |
% | ||||||||||
| New Investors |
60,000,000 | 56 | % | $ | 9,000,000 | % | ||||||||||
| Total Common Shares |
107,037,772 | 100 | % | $ | |
% | ||||||||||
| Units Purchased and Exercised |
Total Consideration |
|||||||||||||||
| Number | Percentage | Amount | Percentage | |||||||||||||
| Assuming 75% of Units Sold: |
||||||||||||||||
| Existing Common Shares stockholders |
47,037,772 | 51 | % | $ | |
% | ||||||||||
| New Investors |
45,500,000 | 49 | % | $ | 6,750,000 | % | ||||||||||
| Total | 92,037,772 | 100 | % | $ | |
% | ||||||||||
| Units Purchased and Exercised |
Total Consideration |
|||||||||||||||
| Number | Percentage | Amount | Percentage | |||||||||||||
| Assuming 50% of Units Sold: |
||||||||||||||||
| Existing Common Shares stockholders |
47,037,772 | 60 | % | $ | |
% | ||||||||||
| New Investors |
30,000,000 | 40 | % | $ | 4,500,000 | % | ||||||||||
| Total | 77,037,772 | 100 | % | $ | |
% | ||||||||||
| Units Purchased and Exercised |
Total Consideration |
|||||||||||||||
| Number | Percentage | Amount | Percentage | |||||||||||||
| Assuming 25% of Units Sold: |
||||||||||||||||
| Existing Common Shares stockholders |
47,037,772 | 76 | % | $ | |
% | ||||||||||
| New Investors |
15,000,000 | 24 | % | $ | 2,250,000 | % | ||||||||||
| Total | 62,037,772 | 100 | % | $ | |
% | ||||||||||
MANAGEMENT’S
DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
The
following management’s discussion and analysis (“MD&A”) should be read in conjunction with financial statements
of FNHI for the years ended December 31, 2019 and 2018, and the notes thereto. Additional information relating to FNHI is available
at www.franchiseholdingsinternational.com
Safe
Harbor for Forward-Looking Statements
Certain
statements included in this MD&A constitute forward-looking statements, including those identified by the expressions anticipate,
believe, plan, estimate, expect, intend, and similar expressions to the extent they relate to FNHI or its management. These
forward-looking statements are not facts, promises, or guarantees; rather, they reflect current expectations regarding future
results or events. These forward-looking statements are subject to risks and uncertainties that could cause actual results, activities,
performance, or events to differ materially from current expectations. These include risks related to revenue growth, operating
results, industry, products, and litigation, as well as the matters discussed in FNHI’s MD&A under Risk Factors.
Readers should not place undue reliance on any such forward-looking statements. FNHI disclaims any obligation to publicly update
or to revise any such statements to reflect any change in the Company’s expectations or in events, conditions, or circumstances
on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth
in the forward-looking statements.
The
following discussion of our financial condition and results of operations should be read in conjunction with our financial statements
and the related notes included in this report.
COVID-19
In
December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. The virus has since spread
to over 150 countries and including Canada and United States. On March 11, 2020, the World Health Organization declared the outbreak
a pandemic. In both Canada and United Sates most states/provinces and cities have reacted by instituting lockdown orders, restrictions
on travel, “stay at home” rules and restrictions on the types of businesses that may continue to operate, as well
as guidance in response to the pandemic and the need to contain it.
As
a result of the lockdown orders enacted in the United States, Canada and China the Company expects a disruption to its manufacturing
with significant reduction to sales presented in these condensed interim financial statements. As of the date of this financial
statement, lockdown orders have been relaxed in parts of the United States, Canada and China, but due to low consumer confidence
and disruption to manufacturing the Company expects sales to remain low.
The
extent to which the pandemic may impact our results will depend on future developments, which are highly uncertain and cannot
be predicted as of the date of this report, including new information that may emerge concerning the severity of the pandemic
and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial,
economic and capital markets environment, and future developments in the global supply chain and other areas present material
uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
Results
of Operations
March
31, 2020
Revenue
For
the three months ended March 31, 2020, revenue generated from the entire line of Worksport products was $41,027, compared to $572,278
for the three months ended March 31, 2019. The year over year decrease of approximately 93% was attributed to the impact of COVID-19.
For
the three months ended March 31, 2020, revenue generated in Canada was $13,018 compared to $25,602 for the same period in 2019,
a decrease of 49%. The rate of exchange between the Canadian Dollar and the United States Dollar during the first three months
of fiscal 2020 was consistent, which limited the historically negative effect on reported revenues as a result of translating
the sales denominated in Canadian Dollars to United States Dollars for financial statement reporting purposes. For the three months
ended March 31, 2020, gross revenue generated in the United States was $21,702 compared to $583,422 for the same period in 2019.
This represents a year-over-year decrease in US-sourced revenue of approximately 96%. The decrease in revenue generated in Canada
and United States can be attributed to the lockdown and stay-at-home orders due to the COVID-19 pandemic.
Currently,
Worksport works closely with one major distributor in Canada, along with its own contracted distribution and inventory facility
in Breinigsville, PA and Depew, NY. This does not include multiple independent online retailers.
Although
Worksport currently supports a total of 10 dealers and distributors, Worksport believes the trend of increasing sales through
online retailers will continue to outpace the traditional distribution business model. Moreover, reputable online retailer’s
customers tend to provide larger sales volumes, greater margin of profit as well as greater protection against price erosion.
Cost
of Sales
Cost
of sales decreased for the first three months of fiscal 2020, when compared to the first three months of fiscal 2019, by 94% from
$432,948 to $27,011. The decrease was primarily due to significantly lower demand as a result of COVID-19. Our cost of sales,
as a percentage of sales, was approximately 66% and 76% for three months ended March 31, 2020 and 2019, respectively.
Within
cost of sales, freight costs accounted for 13% of cost of sales during the three months ended March 31, 2020, whereas in 2019,
it accounted for 9% of cost of sales. The increase in the percentage of cost of sales is due to increased shipping expenses due
increase demand of international delivery due to COVID-19.
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 States or from the United States to
Canada. Volume discounts are also offered to certain higher volume customers.
Gross
Margin
Gross
margin percentage for the three-month periods ended March 31, 2020 and 2019 were 34% and 24% respectively. The increase in gross
margin reflects the Company’s efforts to negotiate with manufacturers to increase economies of scale and decreasing the
Company’s cost of sales.
Operating
Expenses
Operating
expenses decreased for the three months ended March 31, 2020 by $48,172 to $178,471 compared to $226,664 for the three months
ended March 31, 2019. The decrease can be attributed to the impact of COVID-19 in China, United States and Canada disrupting the
Company’s normal course of operations.
| ● | General and administrative expense decreased by $6,665, from $40,571 to $33,906 during the three months ended March 31, 2020. The decrease in general and administrative expense was due reduced expenses as a result of COVID-19. |
|
| ● | The Company also realized a gain on foreign exchange in the amount of $7,726 during the three months ended March 31, 2020, a decrease of $6,072 when compared to a gain on foreign exchange of $13,798 during the three months ended March 31, 2019. The decrease on foreign exchange was the result of the Company’s reduced operations due to COVID-19. |
|
| ● | Professional fees which include accounting, legal and consulting fees, decreased from $172,502 for the three months ended March 31, 2019 to 149,465 for the three months ended March 31, 2020. The decrease in professional fees is related to decreases in consulting services employed by the Company during the three months ended March 31, 2020. |
Other
Income and Expenses
Other
income and expenses for the first quarter at March 31, 2020 was $27,811 compared with $39,160 as at March 31, 2019. A difference
of $11,349 can be attributed to lower interest expense being incurred by the Company during the three months ended March 31, 2020.
The decrease in interest expense is attributed to the Company’s repayment of principal amounts of notes payable during the
year ended December 31, 2019.
Net
Loss
Net
loss for the three months ended March 31, 2020 was $192,266 compared to a net loss of $126,473 for the three months ended March
31, 2019, a change of $65,793 or 52%. The increase in the net loss can be attributed to the decrease in net sales of $531,251
from $572,278 to $41,027 for the three months ended March 31, 2019 and 2020 due to COVID-19.
December
31, 2019
Revenue
For
the year ended December 31, 2019, revenue from the entire line of Worksport products were $1,926,405, as compared to $481,521
for the year ended, December 31, 2018. The year over year sales increased by approximately 300% as the Company acquired more share
of sales of existing customers and increased availability of the Company to fill orders product orders in the USA and Canada.
For
the year ended December 31, 2019 revenue generated in Canada was $65,842 compared to $65,190 for the same period in 2018 a increase
of 1%. For the year ended December 31, 2019 revenue generated in the United States was $1,860,563 compared to $416,331 for the
same period in 2018. This represents an increase in US- source revenue of approximately 347% year-over-year. This increase in
the US is primarily attributable the Company’s ability and success to re-enter the US market as of mid-2018, after the allowance
of use of the Worksport trademark.
Sales
from online retailers of the Worksport products increased from $151,285 in 2018 to $174,793 in 2019, an increase of 16%. Online
retailers accounted for 8% of total revenue for the year ended December 31, 2019 compared to 32% for the year ended December 31,
2018. Distributor sales stayed consistent for the year ended December 31, 2019 and 2018 with $64,610 and $64,164 respectively.
Private label sales in 2018 were $265,969 and accounted for 56% of total sales. For the year ended December 31, 2019 private label
sales were $1,912,401 an increase of 619% or $1,646,432. Worksport expects to continue to grow it’s fields of business as
it develops unique and non-competing products to offer to other prospective clients in the US and Canadian markets.
Currently,
Worksport works closely with one distributor in Canada, along with its own contracted distribution and inventory facility in Breinigsville,
PA and Depew, NY. This does not include independent online retailers.
Although
Worksport currently supports a total of 9 dealers and distributors, Worksport will return to a focus on online sales with new
inventory being received in the US market for 2020. Worksport continues to believe the trend of increasing sales through online
retailers will continue to outpace the traditional distribution business model. Moreover, reputable online retailer’s customers
tend to provide larger sales volumes, greater margin of profit as well as greater protection against price erosion.
Cost
of Sales
Cost
of sales increased by 339% from $384,908 for the year ended December 31, 2018 to $1,687,858 for the year ended December 31, 2019.
This increase correlates to the increase in sales for the year ended December 31, 2019. Our cost of sales, as a percentage of
sales, was approximately 88% and 80% for the years ended December 31, 2019 and 2018, respectively. The decrease in percentage
of sales resulted in a gross margin decrease from 20% for the years ended December 31, 2018 to 12% for the year ended December
31, 2019. This decrease in gross margin is related to the fluctuation in foreign exchange rates used to translate Canadian Dollar
sales into United States Dollars for purposes of financial reporting as well as the increased cost for cost of goods sold and
cost associated with warehousing inventory, to fulfil just in time sales, in the US market.
Within
cost of sales, shipping and freight costs accounted for 3% of cost of sales during the year ended December 31, 2019, whereas in
2018, it accounted for 31% of cost of sales. This decrease is primarily attributed to an increase in volume of sales to a single
customer, decreasing shipping and freight cost.
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 clients are able to pick up product directly from one of Worksport stocking warehouses
Operating
Expenses
General
and administrative expenses was constant for the year ended December 31, 2019 and 2018. For the year ended December 31, 2019 general
and administrative expenses were $238,841 similar to $268,707 for the year ended December 31, 2018. General and administrative
expenses consisted of the following changes:
| ● | Sales wages decreased from $113,121 for the year ended December 31, 2018 to $72,081 for the year ended December 31, 2019. |
|
| ● | Investor relations decreased by $46,479 or 94% from $49,479 to $3,000 for the year ended December 31, 2019. |
|
| ● | Insurance decreased by $9,346 or 49% from $19,070 to $9,724 for the year ended December 31, 2019. |
|
| ● | General expenses was $23,922 for December 31, 2018 increasing by $103,474 to $127,396 for the year ended December 31, 2019. The increase was due to the adoption of ASC 842 Lease Accounting, amortization of property and equipment, repairs and maintenance, and general supplies and expenses. |
|
| ● | Shipping and freight charges decreased by 58% or $36,475 to $26,641 for the year ended December 31, 2019. The decrease was due to less shipping cost as a result of increase in logistics and bulk shipping. |
Professional
fees which include accounting, legal fees, consulting fees, and listing and filing fees, decreased from $864,160 for the year
ended December 31, 2018 to $570,852 for the year ended December 31, 2019 – a decrease of 34%. Accounting and audit fees
increased by 69% from $102,413 to $173,433. Consulting fees decreased by 69% or $415,119 to $189,881 due to the Company completing
previous consulting contracts in early 2019. Legal fees increased by $39,537 from $84,836 to $124,373 for the year ended December
31, 2019.
Other
Income and Expenses
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 to 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.
During
the year ended December 31, 2018, there was a settlement of payables which resulted in a loss of $495,944 and the issuance of
share subscriptions with a fair market value of $650,000.
Net
Loss
Net
loss for the year ended December 31, 2019 was $414,607 compared to a net loss of $1,763,038 for the year ended December 31, 2018
which is a of 76% decrease in net loss when compared year over year. This decrease was a result of the following:
| ● | Decrease in operating expenses from $1,307,741 for 2018 to $831,973 for 2019. A decrease of $475,768 or 36%. |
|
| ● | Increase in gross profit from $96,614 for 2018 to $238,547 for 2019. An increase of $141,933 or 147%. |
|
| ● | The gain on settlement of debt as discussed above. |
Liquidity
and Capital Resources
March
31, 2020
Cash
Flow Activities
Cash
was stable from December 31, 2019 to March 31, 2020 at $11,993 and $11,010 respectively. Accounts receivable increased by $22,888
from December 31, 2019 to March 31, 2020, due to sales occurring near the end of the quarter. Inventory decreased by $17,441 from
$113,156 to $95,715 at December 31, 2019 and March 31, 2020 respectively. Decrease in inventory was a result of disruptions to
supplier manufacturing from the COVID-19 pandemic. Prepaid expenses decreased by $8,281 from December 31, 2019 to March 31, 2020
due to amortization of prepaid expenses. Accounts payable and accrued liabilities decreased by $44,567 from December 31, 2019
to March 31, 2020. The decrease in payables is related to the slowdown in normal operations as a result of the COVID-19 lockdown.
Financing
Activities
During
the first three months of fiscal 2020, Worksport received $182,500 in convertible promissory note and $6,317 from shareholder
loans. During the first quarter of 2019, Worksport issued $30,000 in issuance of common stock for cash and repayment of $4,049
of shareholder loans.
Off-Balance
Sheet Arrangements
There
are no off-balance sheet arrangements with any party.
Critical
Accounting Policies
Our
discussion and analysis of results of operations and financial condition are based upon our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation
of these condensed 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.
December
31, 2019
Cash
Flow Activities
Cash
decreased from $25,323 at December 31, 2018 to $11,993 at December 31, 2019, a decrease of $13,330 or 53%. The decrease was primarily
due to the ongoing trade dispute between the United States of America and the People’s Republic of China.
Financing
Activities
During
fiscal 2019 and 2018, aside from working capital we funded operations through, the issuance of common stock, share subscriptions
receivable and the interest bearing loans. Proceeds from financing activities totaled $117,842. Our stock issuances and notes
payable contain features that may be dilutive to our shareholders.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements with any party.
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.
Worksport
was founded in 2011 to take advantage of the limited innovation provided by existing tonneau cover manufacturers. Tonneau covers
have remained much the same in price and design since 2005, with one main company controlling a majority of the tonneau cover
market. This dynamic market segment is in need of a new innovative manufacturer of high quality, functional, and aggressively
priced tonneau covers. Worksport has developed multiple products for the most prominent pick-up trucks available in North America.
Details of each product can be found at www.Worksport.com. Worksport sells its products through wholesalers in Canada and
the U.S. and through third-party online retailers. Worksport also manufactures its patented designed covers for other businesses
under its private label and OEM manufacturing initiative.
On
April 20th, 2018, the board of directors approved special resolutions to the articles of incorporation of Truxmart
Ltd, as incorporated in the province on Ontario, Canada. The articles of the Corporation were amended to change the name of the
Corporation from Truxmart Ltd. to Worksport Ltd.
Description
of the Business
We
design and distribute truck tonneau covers in US and Canada. We have developed multiple products for the most prominent pick-up
trucks available in our market. We sell our products through wholesalers third-party online retailers. Our market consists of
three major types of customers:
| 1. | master warehouse distributors; |
|
| 2. | dealer-wholesalers; and |
|
| 3. | end retail consumers. |
We
currently sell our product line through distributors and dealer networks. In the Canadian market, the majority of our business
is with warehouse distributors, and select dealer customers. In the US market, our customer base is mostly dealers and wholesalers.
Our products are manufactured in China according to our specifications and design. All of our soft (vinyl) covers are made in
a factory in Meizhou, China. All of our hard products are manufactured in Foshan, China. Our soft cover factory is capable of
producing 3,000 pieces per month and our hard cover factory is capable of producing 1,500 pieces per month. Production at both
factories can be increased within thirty days to facilitate volumes up to ten times the current output without any adverse effects
on quality or craftsmanship.
Our
Strategy – Business Plan
Worksport
Ontario was founded in 2011 to take advantage of the lack of innovation and provided by existing tonneau cover manufacturers.
Tonneau covers have remained much the same in price and design since 2005 with two companies controlling a majority of the market
share. This dynamic market segment in need of a new innovative manufacturer of high quality and functionality who could offer
products at a lower price point. Worksport has developed multiple products for all of the most prominent pick-up trucks available
in US and Canada.
Worksport’s
current market is the United States and Canada. The Company intends to eventually expand to other market opportunities outside
of US and Canada. We also intend to earn revenues from both the automotive specialty equipment market as well as OEM production
for global vehicle manufacturers. Other than a standard business license, no permits or regulatory approvals are required to distribute
Worksport products to clients in any of the areas in which we operate.
Our
market consists of three major types of customers which include: (i) master warehouse distributors; (ii) dealer and wholesalers;
and (iii) end retail consumers. Master warehouse distributors stock and distribute product to their customers, which are usually
local dealers and wholesalers. Dealers and wholesalers include online retailers and offline local stores which sell product to
businesses and retail consumers in their area. Dealers will purchase most of their product from their local distributor who will
deliver to them regularly. Retail consumers are the end users of the product. Worksport currently sells our product line through
distributors and dealer networks. In the Canadian market, Worksport does the majority of our business with warehouse distributors
and select dealer customers. In the US market, Worksport’s customer base is mostly dealers and wholesalers.
Sales
are made through calling on dealers, jobbers, and warehouse distributors (of truck accessories), who typically handle product
sales and promotion through their in-house sales department. The next step is to have a strong working relationship with dealers
and wholesalers who purchase our products, either directly or through distributors. To fully saturate the market, a business must
entice the retail consumer to purchase our product by way of a strong internet presence which will consist of YouTube videos and
commercials, an interactive website, search engine optimization, social media, among other web-based avenues.
Worksport
is targeting key area dealers, distributors and online retainers primarily in the US so that they could become the vendors of
Worksport’s innovative and aggressively priced light truck tonneau cover lineup. Worksport has developed a sales lead list
which includes 13,000 US-based truck accessory dealers, distributors and retailers and 4,000 new truck dealers. Worksport is in
the process of systemically calling on the leads on this list in the attempt of converting the contacts into customers. In Canada,
Worksport has a sales lead list of over 3,000 contacts. As Worksport increases our inventory levels to facilitate new sales, Worksport
will target select prospective contacts in an attempt to convert them into exclusive and key vendors of the Worksport product
lineup.
Since
Worksport believes that it is the only independent B2B producer of tonneau covers in the US and in Canada that does not sell directly
to customers (B2C), Worksport believes that it can expand our current customer base via the contact list mentioned above. Given
the unique ability of Worksport to design, patent, and produce our own line of products, prospective vendors will likely be interested
in purchasing our products.
Worksport
intends to develop a better online sales strategy concurrent with its offering. Worksport believes increasing sales through online
retailers has the potential to outpace the traditional distribution business model. Moreover, reputable online retailer’s
customers tend to provide larger sales volumes, greater margin of profit as well as greater protection against price erosion.
Our
Products
Worksport’s
current product lines are as follows:
Worksport
SC3 (introduced in 2011): This product is currently in production and is being offered and sold to customers.) The Worksport
Tri Fold (the “Tri Fold”) is our staple soft folding tonneau cover. The Tri Fold is made with features such
as stainless steel hardware, double coated vinyl tarp and all aluminum and plastic coated front clamps. The Tri Fold is made available
to our customer base at an average cost savings of 5% over competing products.
Worksport
SC3Pro (introduced in 2012): This product has been upgraded and redesigned. The Worksport SC3Pro is our second product
to market and offers our patented rear Smart Latch system. The Smart Fold is the first innovation in the rear latching system
offered on soft folding tonneau covers. The Smart Fold cover comes with all of the same features as the SC3 but with a new rear
latch system that allows the cover to be opened by simply pulling a release cable which is a new innovation in the soft tri fold
segment of our market.
Worksport
SC4 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 towards the rear window of the truck. We chose to make the world’s first soft quad folding
cover so this cover is more compact when standing parallel to the back window of a truck, thus eliminating wind resistance and
rear window obstruction.
Worksport
TC3 model is currently in production and is being sold to customers and has been engineered to be easy to install and operate
while being offered at an aggressive cost. The TC3 cover is built using 14 millimeter-thick aluminum panels with a robust honeycomb
core, coated in a durable matte-black scratch-resistant powder coating. With robust packaging, the lighter weight TC3also saves
time and money with up to 10% more load quantity in a standard 40’ HC container, maximizing value and product profitability.
Future
Products
TC4
Worksport’s
TC4 model is currently in design stages. The design will mimic that of the SC4, in that it will fold with four sections,
and rotate towards the rear window; allowing full bed access. The cover will have three locking points; with two locking points
being cable actuated. The cover will be made using FRP (fiberglass reinforced polymer) panels with a matte black silicate surface,
for a durable and desirable matt-black finish.
TC4Pro
Worksport’s
TC4Pro model is also currently in development. It will have mirror the TC4, however, it will be offered with all cable-actuated
locking mechanisms, for easier operation. Versions of the model will also be offered with expandable cargo division and storage
solutions.
TerraVis
The
TerraVis cover system by Worksport is in early stage developments. You can view further information at www.goterravis.com.
This cover will be based on the TC4 framework, with functional improvements that will allow the cover to depend within the cargo
bed of the truck, and rotate upwards towards the back window; to allow the user two methods to gain full bed access. This cover
is designed with integrated track systems within the bed of the truck, as well as outside along the outer edge of the cover. These
tracks can be used for a myriad of add-on options that will later be designed by Worksport such as: chrome trim, tie downs, cargo
cleats, textile storage bags, seating, cargo racks, sliding systems and other features.
The
TerraVis system will use mono-crystalline high efficiency solar panels, instead of FRP or Aluminum. The covers solar system will
generate an estimated 800-watts of low voltage DC current. The power will them be stored in an integrated, scalable Lithium Iron
Phosphate (pr Lithium Ion) battery bank, that can expand to over 2 kilowatts of energy storage. The energy can be stored and inverted
to two 2000-watt 110V AC outlets or used to re-charge vehicles onboard battery systems as “emergency power”.
Competitive
Conditions
For
many years, consumers have had very limited product offerings available to them from tonneau cover manufacturers. The leading
manufacturers in Canadian and US market have had very few model developments. The tonneau cover market can be divided into four
main styles of covers:
| 1. | Soft Folding & Roll-up covers (Vinyl covers) |
|
| 2. | Hard Folding & Standing Covers (Aluminum and FRP) |
|
| 3. | Solid one piece caps and lids (Plastic & Fiberglass) |
|
| 4. | Retractable Covers (Plastic & Aluminum) |
Our
market is dominated by two large entities that have acquired all other independent manufacturers and brands. Truck Accessories
Group (TAG) and Truck Hero account for the majority of the market. These two large entities pose a concentration risk to the vendors’
top source of revenues. However, Worksport is in positioned as independent, agressively priced, innovative, and operationally
ethical. Further, we are targeting growth in the folding tonneau covers tonneau cover segment. Currently, the market distribution
is shared by three primary participants, with LKQ/Keystone considered as the market leader. Truck Hero Group is the holding company
for Extang Corporation, TruXedo, Inc., BedRug, Inc., UnderCo r Inc., Advantage Truck Accessories Inc., Retrax Inc., BAK Industries,
NFAB, RealTruck.Com, Auto Customs, and ARE Truck Caps. Such companies account for the majority of the competing brands in US and
Canada. Of these covers, the following are comparable and competitive models:
| Brand | Model | Price | Worksport | Price | ||||||||
| Advantage | Torza Top | $ | 369.00 | SC3 | $ | 259.00 | ||||||
| Extang | Trifecta | $ | 369.00 | SC3 | $ | 259.00 | ||||||
| Extang | Solid Fold | $ | 949.00 | TC3 | $ | 699.00 | ||||||
| Extang | eMax | $ | 469.00 | SC4 | $ | 399.00 | ||||||
| Bak | MX4 | $ | 970.00 | TC4 | $ | 799.00 | ||||||
| Rugged Liner | TriFold | $ | 379.00 | SC3 | $ | 259.00 | ||||||
| Rugged Liner | Premium Hard Fold | $ | 849.00 | TC3 | $ | 699.00 | ||||||
| Undercover | Flex | $ | 879.00 | TC4 | $ | 799.00 | ||||||
| Leer | HF650M | $ | 999.00 | TC4 | $ | 799.00 | ||||||
| Leer | HF350M | $ | 879.00 | TC3 | $ | 699.00 | ||||||
| Leer | LATITUDE | $ | 399.00 | SC3PRO | $ | 349.00 | ||||||
| Leer | LATITUDE SC | $ | 349.00 | SC3 | $ | 259.00 | ||||||
Private
Label Sales
With
our portfolio of patents and designs, other large brands in our space has asked us to manufacture product for them, under their
own brand (the “Private Label”). We allow other brands and large players to gain access to the growing tonneau
cover market without concern for any of the barriers to entry (patents, design, supply chain etc.). As Worksport develops and
patents new and innovative truck bed covers and systems, a myriad of distribution and manufacturing brands can rely on our infrastructure
to access the market, while Worksport earns revenues and profits from our innovations and infrastructure.
Worksport
launched our Private Label in late 2016 with immediate success. The barrier to entry in our market is the highest amongst all
automotive parts market. There are engineering and patent barriers that discourage some of the largest market leaders in the automotive
parts from entering. Worksport has been able to successfully navigate and overcome the many barriers to entry, making Worksport
among only one or two independent producers of truck bed covers in US and Canada.
Secondary
to the Private Label program, Worksport plans to offer a dealer direct “white glove” Private Label service that we
classify as potentially disruptive in our market. In the “online marketplace” era, a vast majority of customers are
switching from brick and mortar to online direct purchases. This has left the future of brick and mortar retail stores in question.
In the US alone, there are over 17,000 brick and mortar dealers and distributors of automotive accessories and growing. Through
market research, we have discovered that a new trend is arising, caused by the monopolization of the market in the US, by our
competitor (Truck Hero and Truck Accessory Group), paired with the “Amazon affect” (retail clients buying online).
The trend is that the truck owners generally prefer to see the tonneau cover before purchasing it. As it is a major purchase for
truck owners, retail consumers are seeking education at the brick and mortar stores and conducting online searches and purchases
for a competitively priced item.
Worksport
plans to change this trend by stocking, in large volumes, up to four of our most popular and well-received items (Tri Fold, Smart
Fold, Quas Fold and Forte) in one of two US warehouses and offering these products, just in time, to the dealers that participate
in our program in the US as “their own brand” (or Private Label). This will be done with an intense amount of planning
and organization. We will create and own the right to each brand from each dealer that participates in the program. Each dealer
can order our product and we can brand that product as their own as it leaves our warehouse to their show room. If successful,
this will secure Worksport as a supplier, by contract and ownership, to each dealer that participates in our program in the US.
This unique program will ensure that the dealer can make all purchases from Worksport if they choose to participate in our program.
Intellectual
Property Assets
Trademarks
Worksport
holds a total of 13 trademark assets in varying stages between published, pending, allowed, and registered.
| Country | Mark | Status | Honigman No. |
App. No. |
Reg. No. |
|||||
| CANADA | TERRAVIS | PENDING | 261553-462019 | 2010520 | Not yet registered. |
|||||
| CHINA | TERRAVIS | PENDING | 261553-462020 | Not yet assigned. |
Not yet registered. |
|||||
| EUROPEAN UNION (EUTM & RCD) |
TERRAVIS | PUBLISHED | 261553-462018 | 018193012 | Not yet registered. |
|||||
| UNITED STATES |
TERRAVIS | ALLOWED | 261553-455644 | 88/642,919 | Not yet registered. |
|||||
| CANADA | WORKSPORT | REGISTERED | 261553-432576 | 1921042 | TMA1077840 | |||||
| UNITED STATES |
WORKSPORT | REGISTERED | 261553-438694 | 88/120,025 | 5,939,355 | |||||
| UNITED STATES |
WORKSPORT | PENDING | 261553-462563 | 88/790,893 | Not yet registered. |
|||||
| CANADA |
WORKSPORT |
REGISTERED | 261553-418691 | 1867301 | TMA1042302 | |||||
 |
||||||||||
| CHINA |
WORKSPORT
|
PENDING | 261553-438699 | 36311236 | Not yet registered. | |||||
| UNITED STATES |
WORKSPORT |
REGISTERED | 261553-420684 | 87/674,975 | 6,008,391 | |||||
| |
||||||||||
| CANADA |
W |
REGISTERED | 261553-432578 | 1921043 | TMA1077841 | |||||
| |
||||||||||
| UNITED STATES |
W |
ALLOWED | 261553-438698 | 88/120,020 | Not yet registered. | |||||
| |
||||||||||
| UNITED STATES |
W |
REGISTERED | 261553-464832 | 88/977,056 | 6,038,920 | |||||
| |
Patents
Worksport
has a total of 14 patents within our intellectual property portfolio in varying stages from Pending, Issued, and Completed.
| Country | Title |
Patent Type |
Status | Appln. No. |
Pat. Pub. |
|||||
| US | SYSTEM FOR SECURING A TRUCK BED COVER |
Utility | Issued | 13/662,157 | 8,814,249 | |||||
| US-P | STORAGE BAG FOR USE WITH A TONNEAU COVER |
Provisional | Completed | 62/074,942 | ||||||
| PCT | STORAGE BAG FOR USE WITH A TONNEAU COVER |
Utility | Completed | PCT/CA2015/051138 | WO2016/070277* | |||||
| US | STORAGE BAG FOR USE WITH A TONNEAU COVER |
Utility | Issued | 15/524,167 | 10,252,676 | |||||
| US-P | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Provisional | Completed | 62/074,954 | ||||||
| PCT | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Utility | Completed | PCT/CA2015/051137 |
| US | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Utility | Issued | 15/524,169 | 10,399,420 | |||||
| US-P | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Provisional | Completed | 62/248,831 | ||||||
| PCT | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Utility | Completed | PCT/CA2016/051247 | WO2017/070786* | |||||
| US | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Utility | Issued | 15/771,957 | 10,596,887 | |||||
| US-D | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Divisional | Pending | 16/826,939 | ||||||
| CA | TONNEAU SYSTEM FOR USE WITH A PICKUP TRUCK |
Utility | Pending | 3,003,299 | ||||||
| US-P | LATCHES AND RAILS FOR USE IN TONNEAU COVERS FOR PICKUP TRUCKS |
Provisional | Completed | 62/823,316 | ||||||
| PCT | LATCH ASSEMBLIES AND RAIL ATTACHMENT FOR A PICKUP TRUCK TONNEAU COVER |
Utility | Pending | PCT/US2020/024737 |
Market:
Latest Data from 2018 SEMA Report
*this
report is the latest specific market data available. Data for 2019 will be forthcoming in late 2020 or early 2021.
The
2018 SEMA Report shows the results of the previous year and indicates that 2017 was another good year for the specialty-equipment
industry. The overall size of the market grew to $42.92 billion. The 4% growth continues a multiple-year trend. SEMA projects
that enter the market will continue to grow through the end of 2018 and bring retail sales close to $45 billion.
This
current growth trend is fueled by strong overall economic performance, including an ongoing decline in unemployment and growth
in consumer spending. A strong economy paired with rising consumer confidence means that more people are willing to spend money
on discretionary items, such as specialty automotive parts. While new vehicle sales have leveled off, they still remain at near-record
highs—close to 17 million per year. Recently announced tariffs on imported steel, aluminum, etc. and other policy changes
could affect the economy and the industry in 2018, but to this point, demand has been strong.
Pickup
upgrades are the largest sector of the specialty-equipment industry, accounting for 27% of total retail dollars (about $12.03
Billion). In the USA alone there are 158.6 Million registered Light Trucks. Despite the growth of CUVs 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 (Ford F-150, Chevrolet Silverado, Ram 1500) throughout the United States, especially in the South. While there is increasing
interest in electrification by automakers, electric vehicles comprise less than 1% of light vehicles on the road. Hybrid cars
are the only alternative power vehicles to have a notable share of registrations. It will be a long time before they change the
face of the U.S. light vehicle fleet.
| Top Registered Models |
||
| Ford F-150 |
10.2M | |
| Chevrolet Silverado 1500 |
7.1M | |
| Ram 1500 |
4.9M | |
| Toyota Tacoma |
3.2M | |
| Ford F-250 Super Duty |
2.8M | |
| GMC Sierra 1500 |
2.5M | |
| Ford Ranger |
2.3M | |
| Chevrolet Silverado 2500 |
2.1M | |
| Toyota Tundra |
2.0M | |
| Ford F-350 Super Duty |
1.7M |
Of
the roughly 56 million pickups in the United States today, nearly 60% of them are either GM Full-Size or Ford F-Series.
These
two models account for almost 12% of all vehicles on the road. The Ram Pickup also boasts a high number of trucks on the road
that brings it in just below the top two in customization potential. The rebirth of several mid-size models are also expected
to provide a boost to the pickup category as these platforms may bring in new buyers. Other top pickups for accessorizing include
mid-size and full-size offerings from Toyota and Nissan, which have a significant number of enthusiast owners.
Operations
in China
Legal
Right to Conduct Operations in China
Presently,
other than sales operations in US and Canada, the remaining operations are conducted only in China. Worksport requires a customs
bond in the US to import our products. We obtain our customs bond through our customs agent, who imports and clears the product
upon entry into the US or Canada. Other than the importer’s customs bond, Worksport requires no other permits or licenses
to import our product that is manufactured in China. No regulatory approvals are required. Customs bonds and importer account
numbers (CBP in US and CBSA in Canada) are not formal licenses.
Worksport
is a paying member of SEMA (Specialty Equipment Manufacturers Association). The association keeps automotive manufacturers apprised
of all new regulations, license requirements, and mandates in the automotive industry across US and Canada. Worksport management
constantly works with our customs brokers, logistics providers, corporate legal counsel (patent, trademark, general business,
and securities) to ensure compliance with any and all permits, licenses, or regulatory approvals required to operate.
We
are not aware of any restrictions or conditions that can be imposed, by the government of China, to hinder or affect our ability
to manufacture and import our product from China.
Manufacturing
in China
Currently,
Steven Rossi, our CEO, is the only director experienced in conducting business in China. Management works with various US and
Canadian based agents and factory representatives. These agents inform management of the laws and requirements of doing business
with factories in China, the local culture, and differences in banking and exchange rates. Management is highly skilled and experienced
with doing business in China.
Steven
Rossi has been working with overseas factories, including Chinese factories, for the past nine years. Furthermore, Mr. Rossi’s
involvement with US factories that work closely with Chinese factories has improved his knowledge of conducting business with
Chinese counterparts. Mr. Rossi has been involved in successfully launching seven new products. Specifically, he has contributed
to revising products, negotiating prices for each product, on-boarding a total of four factories, as well as working with the
patent and trademark legal team to include China as a jurisdiction for our pending trademark and patent applications.
As
a manufacturing member of SEMA, we have access to network resources made available through SEMA. This keeps Mr. Rossi informed
of the laws and requirements of China, role of the government in China, local business culture in China, as well as any differences
in banking systems and controls between Canada and China.
Worksport
products are manufactured in China according to our specifications and design, using our schematics and blueprints. All of our
soft (vinyl) covers are made in a factory in Meizhou, China. All Worksport hard products are manufactured in Foshan, China. Our
soft cover factory is capable of producing 3,000 pieces per month and our hard cover factory is capable of producing 1,500 pieces
per month. Production at both factories can be increased within thirty days to facilitate volumes up to ten times the current
output without any stress on their capacity.
Currently,
we rely relies on two third party manufacturers to produce our products in China. These products are only available from a limited
group of manufacturers due to our product development alliance with such manufacturers. Under this alliance arrangement, each
of our products are designed and engineered in cooperation with one of our two contract manufactures in China. Accordingly, each
tonneau cover product can only be manufactured by the specific manufacturer that collaborated with Worksport to develop the tonneau
cover. Moreover, the tools, molds – which are developed using Worksport’s fully-owned schematics and blueprints (specific
grade of materials and assembly techniques) are exclusive to the manufacturer that developed each tonneau cover product. It should
be noted that our two third party manufacturing partners in China communicate fully, and only, using the English language when
dealing in all business, technical (which includes product development line, blue prints and packaging) and logistical matters
related to us. All material documents provided to the board are in English. We are in continuous contact with our suppliers
in China and the meet with the suppliers in China at least once a year.
We
have exclusive manufacturing agreements in place in the two factories (in other words, our two manufactures are prohibited in
manufacturing tonneau covers for any other companies). These are standard OEM agreements stating that the factory will produce
Worksport’s products under Worksport’s direction. The pricing cannot change within 90 days. Pricing is per Freight
On Board (the “FOB”) to the most favourable port in China (Shenzhen) and is in USD. Upon submitting an order,
Worksport is to advance 30% of the proforma invoice total. Upon surrender of the cargo and release of the bill of lading, 70%
is due. The factory will not share data provided by Worksport, use the data for any competing products, and will not duplicate
products or designs directly or indirectly. Additionally, they must allow quality control agent on site at any given moment for
in-process quality control inspection. They must also produce and deliver within 20 days of an order, excluding government affirmed
holidays.
Worksport
designs, patents, and owns schematics and blueprints used to manufacture products. Contracting factories to manufacture the product
is easier to oversee and change. If Worksport becomes reliant on the factories R&D, product, and patents, this would pose
risks and challenges relating to supply concentration and a going concern that the company could lose our supply should the relationship
change between the company and our factory. As at the date of this prospectus, the additional “back-up” factory is
not producing or manufacturing product for Worksport. However, in Q3 2020, the back-up factory may commence production of some
of Worksport’s current and yet to be released product. Note that “launching” a product is presenting the product
as a concept to the B2B market, either via direct solicitation’ (phone calls with video or online presentations about the
product) or in a trade-show setting. “Releasing a product is when that formally presented product is fully tested, engineered,
and all tooling is completed and the product is ready for mass production and sale.
Worksport
does not own our own tools and molds but instead has ownership and control over the schematics and blueprints of our designs/products
and each contracted manufacturer basis our dies and molds on Worksport’s schematics and blueprints. Should a contract between
the us and the manufacturer terminate, we would supply the new manufacturer with our schematics and blueprints, bills of materials,
procedure sheets, as well as authorized access to our tools, dies and molds. The new manufacturer would then use this data to
begin production, which is only authorized after one physical pre-production sample of each model is produced and inspected by
Worksport and our engineers. The previous manufacturer would destroy the mold it was using as per our agreements with our current
manufacturer.
MD&A:
Factors Associated with Manufacturing in China
Worksport
has a total of two factories that are producing for Worksport. Worksport does not require a specific focus on contracted manufacturing
agreements since most risks are mitigated in the following ways:
Copy-cat
risks: As discussed above, if a relationship with our manufacturers is terminated, the previous manufacturer would destroy the
mold it was using as per our agreements with our current manufacturer. Worksport had new tooling produced with each item having
specific logos and taxonomy on each tool that labels that item as OEM for Worksport, which prevents that item from being copied
or used/stolen.
Downgraded
factory relationship risks: Worksport switches manufacturing to any other assembly factory readily available in China.
Overbooking
risks: Worksport on-boards over-flow factory to produce over-flow product. Factories in China can scale quickly. Worksport’s
product does not require skilled trades or labor.
Worksport
is always working on ways to mitigate risk relating to overseas or foreign manufacturing. Medium term plans are in place to reduce
or eliminate the risks for overseas manufacturing. None of the factories’ management, ownership, or affiliates are associated
with Worksport our management, directors, or any other roles.
We
will continually explore possibilities to manufacture our product within North America (Mexico, USA, Canada). As we develop, we
will work towards ultimately attaining our goal of having our product manufactured within North America. To do so, we would require
new tooling and equipment and facilities.
MAP
(Minimum Advertised Price)
To
maintain a competitive position in the market, we have implemented and enforced a strict MAP. MAP pricing is enforceable in the
US, and it mitigates price/value erosion of our product. This is the lowest price at which the customer can sell our product.
In Canada, Manufacturer’s Suggested Retail Price (“MSRP”) is used. However, MSRP is only a suggestion
and there are no enforceable measures in the Canadian market to protect against price erosion arising from competing dealers.
MAP typically refers to the definite retail pricing of each of our products and differs between the Canadian and the US markets.
Our products’ MAP pricing is set to be competitive in relation to competing products, while allowing our distributors, dealers
and retailers to generate respectable margins of profit. Moreover, if our MAP pricing is violated by a product being advertised
or sold above or below the then current MAP price, we take necessary steps with our customer(s) to remediate pricing to continue
and maintain our competitive position in the marketplace. However, there are no guarantees that MAP pricing and other various
forms of pricing and product control measures can be effectively monitored and enforced, especially as the Corporation’s
market saturation grows.
Components
Our
model factories are required to handle the sourcing of individual components. The factories offer the Corporation an “all
inclusive” price that does not change.
Environmental
Protection
We
are committed to high environmental standards and carries out our activities and operations in compliance with all relevant and
applicable environmental regulations and best industry practices. Costs of environmental regulatory compliance are not expected
to be significant.
Employees,
Specialized Skill and Knowledge
As
of the date of this Prospectus, we have one employee. Our operations are managed by our directors and officers. Our directors
and officers possess a wide range of professional skills that are relevant to pursuing and executing our business strategy. These
skills include strong technical skills, expertise in planning and financial controls, ability to execute on business development
opportunities, capital markets expertise and entrepreneurial experiences which will allow us to effectively identify, evaluate
and execute on value-added initiatives.
Transfer
Agent
The
transfer agent for our Common Stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80209,
303-282-4800 www.corporatestock.com
We
currently occupy office space in Toronto, Ontario. All Worksport product in the USA is stocked by a bonded third-party logistics
warehouse at an annual rent of approximately $10,000. We have virtually no owned equipment and rely on contracted logistics partners
and their equipment to support Worksport’s supply chain and distribution.
DIRECTORS,
EXECUTIVE OFFICERS & CORPORATE GOVERNANCE
Our
Directors and Executive Officers, ages and position held with us is as follows:
| Name |
Position Held |
|
| Steven Rossi * |
President, Secretary and Director |
|
| Michael Johnston***** |
Chief Financial Officer |
|
| Paul Haber ** |
Director | |
| Lorenzo Rossi *** |
Director | |
| Craig Loverock **** |
Director; Chair of Audit Committee |
*
appointed as an officer and director effective November 7, 2014
**
appointed as an officer and director effective October 27, 2017
***
appointed as a director effective December 9, 2014
****appointed
April 22, 2019
*****appointed
on December 5, 2017
The
persons named above are expected to hold said offices/positions until the next annual meeting of our stockholders. Mr. Steven
Rossi cannot be considered to be an independent director.
Mr.
Steven Rossi attended from the University of Toronto from 2005 to 2007, majoring in Life Science. He founded two companies in
2005 and 2006: 2230164 Ontario, Inc. and Scrap my Junk Car. Both businesses are still in operation and Mr. Rossi is not active
in the business operations at this time. Mr. Rossi established, developed and ran both of these automotive related companies at
the same time for five years. Since founding Worksport, Mr. Rossi has been granted one U.S. Patent on tonneau cover design and
has filed three more U.S. and Canadian Patent applications. He has licensed all patents to Worksport on an exclusive basis.
Mr.
Johnston CA, CPA, a graduate of the University of Western Ontario, 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.
Mr.
Haber, age 47, has been involved in corporate finance and capital markets for over 18 years. He has helped many companies navigate
the IPO/RTO process and has participated in numerous M&A and financing transactions.
Mr.
Haber currently sits on the board of directors of South American Silver Corp. (TSX:SAC) and Chinapintza Mining Corp. (TSXV:CPA).
Mr. Haber is a past director of High Desert Gold Corp., China Health and Diagnostics Ltd., IND Dairytech Inc., Migao Corporation.
Mr. Haber is also active in the TSX Venture Capital Pool Company program having helped found the Black Birch Capital Acquisition
series of CPCs as well as many others. Mr. Haber started his career with Coopers & Lybrand (now PricewaterhouseCoppers LLP).
He is both a Chartered Accountant and a Certified Public Accountant, with an Honours Bachelors of Arts Degree in Management from
the University of Toronto. Mr. Haber was awarded his Chartered Director designation from the DeGroote School of Business in partnership
with the Conference Board of Canada.
Mr.
Lorenzo Rossi received a Master of Education in 1995 from the University of Toronto and a Bachelor of Arts from Laurentian University
in 1977. 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. Mr. Lorenzo Rossi is the father of Mr. Steven Rossi.
Craig
Loverock, CPA, CA, is a Chartered Professional Accountant with 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 served as the Senior Financial
Advisor to the Chairman at Magna International from August 2007 to January 2010. Mr. Loverock received his Chartered Accountant
designation from the Institute of Chartered Accountants, Ontario in 1997.
Committees
of the Board of Directors
Currently,
we have an audit committee which is chaired by Mr. Craig Loverock.
Director
and Executive Compensation
During
the year ended December 31, 2019, Steven Rossi was paid salaries of $65,589 (2018 – $63,796)
Employment
Agreements
We
have no written employment agreements with any of our executive officer or key employee.
Equity
Incentive Plan
We
adopted the Plan on July 5, 2015. The Plan provides for the grant of the following types of stock awards: (i) incentive stock
options, (ii) non-statutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock
unit awards and (vi) other stock awards. The Plan is intended to help the Company secure and retain the services of eligible award
recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and
provide a means by which the eligible recipients may benefit from increases in value of the Common Stock. The Board will administer
the Plan. Up to 100,000,000 shares may be issued under the Plan. No other stock options or similar instruments have been granted
to any of our officers or directors pursuant to the Plan.
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 of 1933 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 of 1933 and
is, therefore, unenforceable.
Involvement
in Certain Legal Proceedings
During
the past five years none of our directors, executive officers, promoters or control persons was:
| 1) | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| 2) | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| 3) | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
| 4) | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
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.
Evaluation
of Disclosure Controls and Procedures
We
carried out an evaluation, under the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer
concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective
to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the required time periods and is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our
management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls
and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative
to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional
analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this registration
statement have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that
the financial statements included in this report fairly present in all material respects our financial condition, results of operations
and cash flows for the periods presented.
Management’s
Report on Internal Control over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule
13a-15(f) under the Securities Exchange Act, as amended. Internal control over financial reporting is a process designed by, or
under the supervision of, the Chief Executive Officer and Principal Accounting Officer and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles.
The
framework our management uses to evaluate the effectiveness of our internal control over financial reporting is based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework). Based on our evaluation under the framework described above, our management has concluded that our
internal control over financial reporting was ineffective as of December 31, 2019 due to the same material weaknesses that rendered
our disclosure controls and procedures ineffective. The Company’s internal control over financial reporting is not effective
due to a lack of sufficient resources to hire a support staff in order to separate duties between different individuals. The Company
lacks the appropriate personnel to handle all the varying recording and reporting tasks on a timely basis. The Company plans to
address these material weaknesses as resources become available by hiring additional professional staff, such as a Chief Financial
Officer, as funding becomes available, outsourcing certain aspects of the recording and reporting functions, and separating responsibilities.
We have identified the following material weaknesses.
| 1. |
As of December 31, 2019, we did not maintain effective controls over the control environment. Specifically, we have not developed and effectively communicated to our employees the accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. |
| 2. |
As of December 31, 2018, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. |
Because
of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial
reporting as of December 31, 2018, based on the criteria established in “INTERNAL CONTROL-INTEGRATED FRAMEWORK” issued
by the COSO.
Change
In Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred during our last fiscal year that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation
Report of the Registered Public Accounting Firm
This
registration statement does not include an attestation report of our registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
The
following summary compensation table reflects all compensation awarded to, earned by, or paid to our Chief Executive Officer and
president and other employees for all services rendered to us in all capacities during 2018 and 2019.
Summary
Compensation Table
| Name and Position |
Year | Salary ($) |
All Other Compensation |
Total ($) |
||||||||||||
| Steven Rossi, CEO and Chairman of the Board* |
2018 | $ | 63,796 | $ | 0 | $ | 63,796 | |||||||||
| 2019 | $ | 65,589 | $ | 0 | $ | 65,589 | ||||||||||
Michael
Johnston**
*
appointed as an officer and director effective November 7, 2014.
*****appointed
on December 5, 2017
Employment
Agreements
We
have no written employment agreements with any of our executive officer or key employee.
Director
Compensation
The
following table sets forth director compensation as of December 31, 2019:
| Name | Fees Earned or in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||||||
| Steven Rossi * |
-0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||
| Paul Haber ** |
-0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||
| Lorenzo Rossi *** | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||
| Craig Loverock **** | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||
*
appointed as an officer and director effective November 7, 2014
**
appointed as an officer and director effective October 27, 2017
***
appointed as a director effective December 9, 2014
****appointed
April 22, 2019
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions
with Related Persons
Particular
Transactions
Steven
Rossi is the owner of U.S. Patent #8,814,249 filed on October 26, 2012 and issued on May 1, 2014. Worksport paid $7,718 in patent
filing expenses. Worksport licenses this patent from Mr. Rossi.
During
the year ended December 31, 2019, the Company recorded salaries expense of $65,589 (2018 – $63,796) related to services rendered
to the Company by its major shareholder and CEO.
Controlling
Persons
The
Company is not aware of any agreements or understandings by a person or group of persons that could be construed as a controlling
person.
Director
Independence
Our
board of directors consists of Messrs. Rossi, Haber, and Rossi. The board considers all relevant facts and circumstances in its
determination of independence of all members of the board (including any relationships set forth in this prospectus under the
heading “Certain Related Person Transactions). After review of the Directors by the Board, and specifically by the Chairman
of the Board, it has been determined that no board members are considered independent. The Company uses the term “independent”
as described by NASDAQ.
SECURITY
OWNERSHIP OF MANAGEMENT & CERTAIN SECURITYHOLDERS
The
following sets forth the number of shares of our $0.0001 par value common stock beneficially owned by (i) each person who, as
of July 15, 2020, was known by us to own beneficially more than five percent (5%) of its common stock; (ii) our individual
Director and (iii) our Officer and Director as a group. A total of 46,587,772 common shares were issued and outstanding as of
July 15, 2020.
| Name and Address of Beneficial Owner |
Number of Shares Owned |
Percentage of Ownership |
||||||
| Steven Rossi (1) | ||||||||
| 414-3120 Rutherford Rd |
||||||||
| Vaughan, Ontario, Canada L4K 0B1 |
13,583,397 | 29 | % | |||||
| Michael Johnston | ||||||||
| 414-3120 Rutherford Rd |
||||||||
| Vaughan, Ontario, Canada L4K 0B1 |
0 | 0.0 | % | |||||
| Paul Haber | ||||||||
| 414-3120 Rutherford Rd |
||||||||
| Vaughan, Ontario, Canada L4K 0B1 |
0 | 00 | % | |||||
| Lorenzo Rossi | ||||||||
| 414-3120 Rutherford Rd |
||||||||
| Vaughan, Ontario, Canada L4K 0B1 |
0 | 0.0 | % | |||||
| Craig Loverock | ||||||||
| 414-3120 Rutherford Rd |
||||||||
| Vaughan, Ontario, Canada L4K 0B1 |
0 | 0.0 | % | |||||
| All Officers and Directors as a Group |
13,583,397 | 29 | % | |||||
Mr.
Rossi also owns 1,000 Series A Preferred Shares which has the right to vote fifty(51%) percent of the common stock
The
following is a summary of the rights of our capital stock as provided in our certificate of incorporation, bylaws and certificate
of designation. For more detailed information, please see our certificate of incorporation, bylaws and certificate of designation
which have been filed as exhibits to the Offering Statement of which this Offering Circular is a part.
General
The
Company is authorized to issue two classes of stock. The total number of shares of stock which the Company is authorized to issue
is Three Hundred Million (300,000,000) shares of capital stock, consisting of Two Hundred Ninety-Nine Million (299,000,000) shares
of Common Stock, $0.0001 par value and One Million One Hundred (1,100,000) shares of preferred stock, $0.0001 par value (the “Preferred
Stock”) with 1,000,000 shares of Series A Preferred Stock Authorized and 100,000 shares of Series B Preferred Stock authorized.
There are currently 1,000 Series A Preferred Stock outstanding and no shares of Series B Preferred Stock outstanding.
Indebtedness.
The
following tables shows the balance of the notes payable as of December 31, 2019, 2018, 2017:
| Balance as at December 31, 2017 |
$ | 275,844 | ||
| Additions | 22,639 | |||
| Payment | (11,058 | ) | ||
| Balance as at December 31, 2018 |
$ | 287,425 | ||
| Additions | – | |||
| Payments | (19,544 | ) | ||
| Balance as at December 31, 2019 |
$ | 267,881 |
2019
Notes Payable
During
the year ended December 31, 2019 the Company extended the maturity dates of all secured promissory notes in the amount of $79,000
and $96,091 ($123,231 Canadian Dollars) to be due on April 1, 2021.
During
the year ended December 31, 2019 the Company extended the maturity dates of all unsecured promissory notes in the amount of $50,000
and $53,848 ($67,700 Canadian Dollars) to be due on October 8, 2020 and November 3, 2020 respectively.
During
the year ended December 31, 2019 the Company repaid $9,545 ($12,000 Canadian dollars) and $10,000 of its unsecured promissory
notes. In addition, the Company paid $8,113 in interest for outstanding unsecured promissory notes.
2018
Notes Payable
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). Interest is accrued at 18% per annum, payable monthly. 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.
2017
Notes Payable
During
the year ended December 31, 2017, the Company issued an unsecured promissory note in the amount of $9,545 ($12,000 Canadian Dollars).
The unsecured promissory note was due in August 2018 and bears interest at a rate of 18% per annum, payable monthly. As the note
is in good standing, the payment terms have been extended indefinitely with no change in interest rate.
During
the year 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. As the note is in good standing, the payment
terms have been extended with no change in interest rate. Refer to 2019 notes payable above for note extension.
During
the year 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. As the note is in good standing, the payment terms have been extended
with no change in interest rate. Refer to 2019 notes payable above for note extension.
During
the year ended December 31, 2017, the Company issued a secured promissory note in the amount of $52,845 ($64,677 Canadian Dollars),
respectively. The secured promissory note was due in July 2018 and bears interest at a rate of 18% per annum. The secured promissory
note is secured by all present and after-acquired property and assets of the Company. The balance owed on this note payable at
December 31, 2017 is $73,452 ($92,348 Canadian Dollars). At December 31, 2017, the accrued interest on this note payable was $13,134
($16,513 Canadian Dollars). The payment due date remains the same as stated: upon completion of going public on the Canadian Securities
Exchange with no change in interest rate.
Secured
Promissory Note
In
October 2015, the Company signed a secured promissory note with an investor in the principal amount of $79,768 ($102,000 Canadian
Dollars. The Company received proceeds of $58,653 (75,000 Canadian Dollars) and $21,115 (27,000 Canadian Dollars) was recorded
as a discount which was accrued over the life of the note. The promissory note required a daily payment of $249 (324 Canadian
Dollars) until January 26, 2017 and carried a 40.0% interest rate.
The
promissory note was secured by all assets of the Company. During 2017, the lender agreed to settle the loan for $30,826 ($39,000
Canadian Dollars) resulting in the Company recording a $13,556 gain on the forgiveness of the remaining portion of the secured
promissory note.
The
amounts repayable under notes payable and secured promissory note at December 31, 2019 and 2018 are as follows:
| 2019 | 2018 | |||||||
| Balance owing |
$ | 278,938 | $ | 287,425 | ||||
| Less amounts due within one year |
(278,938 | ) | (287,425 | ) | ||||
| Long-term portion |
$ | – | $ | – | ||||
Common
Stock
As
of the date of this Offering Circular, the Company had 47,037,772 shares of Common Stock issued and outstanding.
Voting
The
holders of the Common Stock are entitled to one vote for each share held at all meetings of shareholders (and written actions
in lieu of meeting). There shall be no cumulative voting. The holders of shares of Common Stock are entitled to dividends when
and as declared by the Board from funds legally available therefor, and upon liquidation are entitled to share pro rata in any
distribution to holders of Common Stock. There are no preemptive, conversion or redemption privileges, nor sinking fund provisions
with respect to the Common Stock.
Changes
in Authorized Number
The
number of authorized shares of Common Stock may be increased or decreased subject to the Company’s legal commitments at
any time and from time to time to issue them, by the affirmative vote of the holders of a majority of the stock of the Company
entitled to vote.
Preferred
Stock
The
Preferred Stock may be issued from time to time in one or more series. The Board is authorized to fix the number of shares of
any series of Preferred Stock and to determine the designation of any such series. The Board is also authorized to determine or
alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board originally fixing the number
of shares constituting any series, to increase or decrease (but not below the number of shares of such series than outstanding)
the number of shares of any such series subsequent to the issue of shares of that series.
During
2018 and 2019, the Company was authorized to issue 1,000,000 shares of its Series A Preferred Stock with a par value of $0.0001.
These shares have voting rights equal to 299 shares of common stock, per share of preferred. 1,000 of these shares are held by
Steven Rossi.
On
May 21, 2020, the Company effectuated an increase in the total authorized shares of the Company designating an additional 100,000
shares of Preferred Stock As Series B with the following rights and preferences: (A) par value of $0.0001 per share, (B) 10,000
to 1 voting rights, (C) no conversion rights, and (D) no redemption rights.
Warrants
In
this Offering, each Unit includes one Common Share and one-half of one Common Share Warrant. Each whole Warrant entitles the holder
to purchase one Common Share at an exercise price of $0.20 USD per share, subject to customary adjustments, over a 12-month exercise
period following the date of issuance. The Company may call the warrant with a thirty (30) day written notice to the Warrant holder,
as described in the Warrant Agreement, attached hereto as Exhibit 4.2.
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.
Dividend
Policy
We
will not distribute cash to our Common Stock shareholders 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.
Equity
Compensation Plan Information
Company
may establish a Common Stock Option Plan for the benefit of its employees in the near future. The vesting and terms of all of
the options are determined by the Board of Directors and may vary by optionee; however, the term may be no longer than 10 years
from the date of grant.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is quoted on the OTC Markets (“OTCQB”) under the symbol “FNHI.” We have applied to FINRA
for a new symbol based on our name change and are currently waiting for the new symbol.
The
table below sets forth the high and low closing prices of the Company’s Common Stock during the periods indicated. The quotations
reflect inter-dealer prices without retail mark-up, markdown or commission and may not reflect actual transactions.
| Fiscal Year Ended |
Fiscal Year Ended |
|||||||||||||||
| December 31, 2019 |
December 31, 2018 |
|||||||||||||||
| High | Low | High | Low | |||||||||||||
| First Quarter |
$ | 2.000 | $ | 0.006 | $ | 0.027 | $ | 0.011 | ||||||||
| Second Quarter | $ | 0.300 | $ | 0.055 | $ | 0.019 | $ | 0.008 | ||||||||
| Third Quarter | $ | 0.130 | $ | 0.071 | $ | 0.042 | $ | 0.017 | ||||||||
| Fourth Quarter | $ | 0.115 | $ | 0.044 | $ | 0.042 | $ | 0.017 | ||||||||
The closing sales price of the Company’s
common stock as reported on July 13, 2020 was $0.069 per share.
Holders
As
of July 15, 2020, there were approximately 120 record holders of our common stock and there are 47,037,772 shares of our
common stock outstanding.
Dividends
We
have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable
future. The payment of dividends on our common stock is within the discretion of our board of directors.
The
shares in this Offering Circular are being offered by us on a “best-efforts” basis by our officers, directors
and employees. We reserve the right to temporarily suspend and/or modify this Offering and Offering Circular in the future, during
the Offering Period, in order to take such actions necessary to enable the Company to accept subscriptions in this Offering from
investors residing in such states identified above.
There
is no aggregate minimum to be raised in order for the Offering to become effective and therefore the Offering will be conducted
on a “rolling basis.” This means we will be entitled to begin applying “dollar one” of the
proceeds from the Offering towards our business strategy, offering expenses, reimbursements, and other uses as more specifically
set forth in the “Use of Proceeds” contained elsewhere in this Offering Circular.
Our
Offering will expire on the first to occur of (a) the sale of all 30,000,000 shares of Common Stock offered hereby, (b) July
15, 2020 subject to extension for up to one hundred-eighty (180) days in the sole discretion of the Company, or (c) when our
board of directors elects to terminate the Offering. This will be a continuous offering which commences within two calendar days
after the qualification date, will be offered on a continuous basis, may continue to be offered for a period in excess of 30 days
from the date of initial qualification, and will be offered in an amount that, at the time the offering statement is qualified,
is reasonably expected to be offered and sold within two years from the initial qualification date.
ADDITIONAL
INFORMATION ABOUT THE OFFERING
Investment
Limitations
Generally,
no sale may be made to you in this Offering if the aggregate purchase price you pay is more than ten percent (10%) of the greater
of your annual income or net worth (please see below on how to calculate your net worth). Different rules apply to accredited
investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds,
we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer
to www.investor.gov.
Because
this is a Tier 2, Regulation A offering, most investors must comply with the ten percent (10%) limitation on investment in the
Offering. The only investor in this Offering exempt from this limitation is an “accredited investor”
as defined under Rule 501 of Regulation D under the Securities Act (an “Accredited Investor”). If you meet
one of the following tests you should qualify as an Accredited Investor:
| (i) | You are a natural person who has had individual income in excess of $200,000 in each of the two (2) most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year; |
| (ii) | You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase Shares (please see below on how to calculate your net worth); |
| (iii) | You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer; |
| (iv) | You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Shares, with total assets in excess of $5,000,000; |
| (v) | You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”), or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940; |
| (vi) | You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor; |
|
(vii) |
You |
| (viii) | You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000. |
Offering
Period and Expiration Date
This
Offering will start on the date on which the SEC initially qualifies this Offering Statement (the “Qualification Date”)
and will terminate on the Termination Date (the “Offering Period”).
Procedures
for Subscribing
If
you decide to subscribe for our Common Stock shares in this Offering, you should:
| 1. | Electronically receive, review, execute and deliver to us a subscription agreement; and |
|
| 2. | Deliver funds directly by wire or electronic funds transfer via ACH to the Company’s bank account designated in the Company’s subscription agreement. |
Any
potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final
investment decision. We shall only deliver such subscription agreement upon request after a potential investor has had ample opportunity
to review this Offering Circular.
Right
to Reject Subscriptions
After
we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred
to our designated account, we have the right to review and accept or reject your subscription in whole or in part, for any reason
or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.
Acceptance
of Subscriptions
Upon
our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at
closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request
your subscription funds. All accepted subscription agreements are irrevocable.
Under
Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds
which do not exceed ten percent (10%) of the greater of the purchaser’s revenue or net assets (as of the purchaser’s
most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed ten percent (10%) of
the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).
NOTE:
For the purposes of calculating your net worth, it is defined as the difference between total assets and total liabilities. This
calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence
(up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability
requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides
funds for the purchase of the Shares.
In
order to purchase our Common Stock shares and prior to the acceptance of any funds from an investor, an investor will be required
to represent, to the Company’s satisfaction, that he is either an accredited investor or is in compliance with the ten percent
(10%) of net worth or annual income limitation on investment in this Offering.
Certain
legal matters with respect to the shares of Common Stock offered hereby will be passed upon by McMurdo Law Group, LLC, New York,
NY.
The
financial statements of the Company appearing elsewhere in this Offering Circular have been included herein in reliance upon the
report, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, of Haynie &
Company, CPA, an independent certified public accounting firm, appearing elsewhere herein, and upon the authority of that firm
as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed with the SEC a Regulation A Offering Statement on Form 1-A under the Securities Act of 1993, as amended, with respect
to the shares of Common Stock offered hereby. This Offering Circular, which constitutes a part of the Offering Statement, does
not contain all of the information set forth in the Offering Statement or the exhibits and schedules filed therewith. For further
information about us and the Common Stock offered hereby, we refer you to the Offering Statement and the exhibits and schedules
filed therewith. Statements contained in this Offering Circular regarding the contents of any contract or other document that
is filed as an exhibit to the Offering Statement are not necessarily complete, and each such statement is qualified in all respects
by reference to the full text of such contract or other document filed as an exhibit to the Offering Statement. Upon the completion
of this Offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant
to the Securities Exchange Act of 1934. You may read and copy this information at the SEC’s Public Reference Room, 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information
about issuers, including us, that file electronically with the SEC. The address of this site is www.sec.gov.
Pursuant
to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form 1-A and has duly caused this offering statement to be signed on behalf by the undersigned, thereunto duly authorized,
in Ontario, Canada on July 15, 2020.
| Worksport Ltd. |
||
| By: |
/s/ Steven Rossi |
|
| Name: Steven Rossi |
||
| Title: Chief Executive Officer, Principal Executive Officer, and Director |
||
This
offering statement has been signed by the following persons in the capacities and on the dates indicated.
| By: | /s/ Steven Rossi |
|
| Name: | Steven Rossi | |
| Title: | Chief Executive Officer, Principal Executive Officer, and Director |
July
15, 2020
| By: | /s/ Michael Johnston |
|
| Name: | Michael Johnston |
|
| Title: | Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer, and Director |
July
15, 2020
| By: | /s/ Paul Haber |
|
| Name: | Paul Haber |
|
| Title: | Director |
July
15, 2020
| By: | /s/ Lorenzo Rossi |
|
| Name: | Lorenzo Rossi |
|
| Title: | Director |
July
15, 2020
| By: | /s/ Craig Loverock |
|
| Name: | Craig Loverock |
|
| Title: | Director |
July
15, 2020
Part
III – EXHIBITS
(1)
Filed as an exhibit to the registrant’s Form 10-KSB, filed October 13, 1999 and incorporated by reference herein.
(2)
Filed as an exhibit to the registrant’s Form 10-Q, filed April 24, 2009 and incorporated by reference herein.
(3)
Filed as an exhibit to the registrant’s Form 8-K, filed on December 17, 2014 and incorporated by reference herein.
(4)
Filed as an exhibit to the registrant’s Form S-1, filed on July 21, 2015 and incorporated by reference herein.
PART
I – FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Condensed
Consolidated Balance Sheets
(Unaudited)
|
March |
December |
|||||||
| Assets | ||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 11,010 | $ | 11,993 | ||||
| Accounts receivable |
168,160 | 67,795 | ||||||
| Inventory | 95,715 | 113,156 | ||||||
| Prepaid expenses and deposits |
177,460 | 60,741 | ||||||
| Total Current Assets |
452,345 | 253,685 | ||||||
| Investment (note 6) |
24,423 | 15,658 | ||||||
| Property and Equipment, net |
93,899 | 94,695 | ||||||
| Right-of-use Asset, net (note 7) |
54,921 | 60,125 | ||||||
| Intangible Assets, net |
56,632 | 57,145 | ||||||
| Total Assets |
$ | 682,220 | $ | 481,308 | ||||
| Liabilities and Shareholders’ Equity (Deficit) |
||||||||
| Current Liabilities |
||||||||
| Accounts payable and accrued liabilities |
$ | 903,054 | $ | 969,321 | ||||
| Payroll taxes payable |
36,844 | 36,844 | ||||||
| Related party loan (note 13) |
34,955 | 28,638 | ||||||
| Current portion of notes payable (note 4) |
367,058 | 267,881 | ||||||
| Current lease liability (note 7) |
22,164 | 22,000 | ||||||
| Total Current Liabilities |
1,364,075 | 1,324,684 | ||||||
| Long Term – Lease Liability (note 7) |
32,757 | 39,185 | ||||||
| Long Term – Notes Payable (note 11) |
12,715 | – | ||||||
| Total Liabilities |
1,409,547 | 1,363,869 | ||||||
| Shareholders’ Deficit |
||||||||
| Series A Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding, respectively, |
– | – | ||||||
| Common stock, $0.0001 par value, 49,833,333 shares authorized, 46,547,749 and 41,906,790 shares issued and outstanding, respectively |
4,655 | 4,191 | ||||||
| Additional paid-in capital |
9,060,739 | 8,381,231 | ||||||
| Share subscriptions receivable |
(1,577 | ) | (1,577 | ) | ||||
| Share subscriptions payable |
1,178,608 | 1,511,080 | ||||||
| Accumulated deficit |
(10,961,172 | ) | (10,768,906 | ) | ||||
| Cumulative translation adjustment |
(8,580 | ) | (8,580 | ) | ||||
| Total Shareholders’ Deficit |
(727,327 | ) | (882,561 | ) | ||||
| Total Liabilities and Shareholders’ Deficit |
$ | 682,220 | $ | 481,308 | ||||
The
accompanying notes form an integral part of these condensed consolidated financial statements.
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Condensed
Consolidated Statements of Operations and Comprehensive Loss
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
| 2020 | 2019 | |||||||
| Net Sales |
$ | 41,027 | $ | 572,278 | ||||
| Cost of Goods Sold |
27,011 | 432,948 | ||||||
| Gross Profit |
14,016 | 139,330 | ||||||
| Operating Expenses |
||||||||
| General and administrative |
33,906 | 40,571 | ||||||
| Sales and marketing |
2,826 | 27,368 | ||||||
| Professional fees |
149,465 | 172,502 | ||||||
| (Gain) loss on foreign exchange |
(7,726 | ) | (13,798 | ) | ||||
| Total operating expenses |
178,471 | 226,644 | ||||||
| Loss from operations |
(164,455 | ) | (87,314 | ) | ||||
| Other Income (Expense) |
||||||||
| Interest expense |
(27,811 | ) | (39,160 | ) | ||||
| Total other income (expense) |
(27,811 | ) | (39,160 | ) | ||||
| Net Loss |
$ | (192,266 | ) | $ | (126,473 | ) | ||
| Other Comprehensive Income (Loss) |
||||||||
| Foreign currency translation adjustment |
– | 9,165 | ||||||
| Comprehensive Loss |
$ | (192,266 | ) | $ | (117,308 | ) | ||
| Loss per Share | ||||||||
| Basic and Diluted |
$ | (0.00 | ) | $ | (0.005 | ) | ||
| Weighted Average Number of Shares (basic and diluted) |
43,129,884 | 25,000,716 | ||||||
The
accompanying notes form an integral part of these condensed consolidated financial statements.
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Condensed
Consolidated Statements of Cash Flows
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
| 2020 | 2019 | |||||||
| Operating Activities |
||||||||
| Net Loss |
$ | (192,266 | ) | $ | (126,473 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: |
||||||||
| Depreciation and amortization |
6,514 | 473 | ||||||
| Interest on lease liability |
1,460 | – | ||||||
| Amortization of debt discount |
11,677 | – | ||||||
| Amortization on OID interest |
1,038 | – | ||||||
| Shares issued for consulting services |
40,000 | – | ||||||
| (131,577 | ) | (126,000 | ) | |||||
| Changes in operating assets and liabilities (note 5) |
(49,458 | ) | 87,462 | |||||
| Net cash provided by (used in) operating activities |
(181,035 | ) | (38,539 | ) | ||||
| Cash Flows from Investing Activities |
||||||||
| Purchase of investment (note 6) |
(8,765 | ) | – | |||||
| Net cash used in investing activities |
(8,765 | ) | – | |||||
| Financing Activities |
||||||||
| Issuance of common stock for cash |
– | 30,000 | ||||||
| Proceeds from notes payable (note 11) |
182,500 | 11,058 | ||||||
| Shareholder assumption of debt |
6,317 | (11,058 | ) | |||||
| Repayment of shareholder loans |
– | (4,049 | ) | |||||
| Net cash provided by financing activities |
188,817 | 25,951 | ||||||
| Effects of exchange rate changes on cash |
– | 9,165 | ||||||
| Changes in cash |
(983 | ) | (3,423 | ) | ||||
| Cash and cash equivalents – beginning of year |
11,993 | 25,323 | ||||||
| Cash and cash equivalents – end of year |
$ | 11,010 | $ | 21,900 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Interest paid |
$ | 1,850 | $ | 39,160 | ||||
| Supplemental disclosure of non-cash flow investing and financing activities: |
||||||||
| Shares issued for share subscription payable |
$ | 457,472 | $ | 152,799 | ||||
| Reverse stock split |
$ | – | $ | 101 | ||||
| Convertible promissory note – original issue discount |
$ | 16,215 | $ | – | ||||
The
accompanying notes form an integral part of these condensed consolidated financial statements.
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Consolidated
Statement of Shareholders’ Equity
For
The Three Months Ended March 31, 2020 and 2019
(Unaudited)
|
Preferred |
Common |
Additional |
Share |
Share |
Accumulated |
Cumulative |
Total Stockholders’ Equity (Deficit) |
|||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2019 |
1,000,000 | $ | 10,000 | 24,634,051 | $ | 2,463 | $ | 8,103,934 | $ | (1,577 | ) | $ | 2,019,532 | $ | (10,354,299 | ) | $ | (3,613 | ) | $ | (223,560 | ) | ||||||||||||||||||
| Issuance for services |
– | – | 1,000,000 | 100 | 152,799 | – | (152,899 | ) | – | – | – | |||||||||||||||||||||||||||||
| Issuance for settlement of payables |
– | – | – | – | – | – | 30,000 | – | – | 30,000 | ||||||||||||||||||||||||||||||
| Net loss |
– | – | – | – | – | – | – | (126,473 | ) | – | (126,473 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment |
– | – | – | – | – | – | – | – | 9,165 | 9,165 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2019 |
1,000,000 | $ | 10,000 | 25,634,052 | $ | 2,563 | $ | 8,256,733 | $ | (1,577 | ) | $ | 1,896,633 | $ | (10,480,772 | ) | $ | 5,552 | $ | (310,868 | ) | |||||||||||||||||||
| Balance at January 1, 2020 |
– | – | 41,906,790 | $ | 4,191 | $ | 8,381,231 | $ | (1,577 | ) | $ | 1,511,080 | $ | (10,768,906 | ) | $ | (8,580 | ) | $ | (882,561 | ) | |||||||||||||||||||
| Issuance for services |
– | – | 2,000,000 | 200 | 39,800 | – | – | – | – | 40,000 | ||||||||||||||||||||||||||||||
| Warrants issuance in connection to convertible promissory note (note 10 and 11) |
– | – | – | – | 59,110 | – | – | – | – | 59,110 | ||||||||||||||||||||||||||||||
| Share issuance in connection to convertible promissory note (note 11) |
– | – | 450,000 | 45 | 123,345 | – | – | – | – | 123,390 | ||||||||||||||||||||||||||||||
| Issuance for settlement of payables |
– | – | 2,190,959 | 219 | 457,253 | – | (457,472 | ) | – | – | – | |||||||||||||||||||||||||||||
| Issuance for services and subscriptions payable |
– | – | – | – | – | – | 125,000 | – | – | 125,000 | ||||||||||||||||||||||||||||||
| Net loss |
– | – | – | – | – | – | – | (192,266 | ) | – | (192,266 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment |
– | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Balance at March 31, 2020 |
– | – | 46,547,749 | $ | 4,655 | $ | 9,060,739 | $ | (1,577 | ) | $ | 1,178,608 | $ | (10,961,172 | ) | $ | (8,580 | ) | $ | (727,327 | ) | |||||||||||||||||||
The
accompanying notes form an integral part of these condensed consolidated financial statements.
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
1.
Basis of Presentation and Going Concern
a)
Interim Financial Information
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) for interim financial information pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required
by GAAP for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary
in order to make the financial statements not misleading and for a fair and comparable presentation have been included and are
of a normal recurring nature. Operating results for the three-month period ended March 31, 2020 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2020. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019
filed with the SEC on May 14, 2020.
b)
Functional and Reporting Currency
Effective
January 1, 2020, the Company changed the functional currency of its subsidiary to United States dollars given the increasing prevalence
of U.S. dollar-denominated activities of the subsidiary over time. The change in functional currency from Canadian dollars to
United States dollars is accounted for prospectively from January 1, 2020. The subsidiary’s balance sheet was converted
from Canadian dollars to United States dollars using the year ended December 31, 2019 United States dollar balance as the opening
for January 1, 2020 in accordance to ASC 830. These condensed interim financial statements are presented in United States
Dollars. The functional and presentation currency of the Company and its subsidiary is the United States Dollar.
c)
Use of Estimates
The
preparation of condensed unaudited 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 condensed interim financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates.
d)
Going Concern
These
unaudited condensed consolidated financial statements have been prepared on a going concern basis which assumes that the Company
will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
During the three-month period ended March 31, 2020, the Company incurred a net loss of $192,266 and as of that date, the Company’s
accumulated deficit was $10,961,172. While the Company has demonstrated the ability to generate revenue, there are no assurances
that it will be able to achieve level of revenues adequate to generate sufficient cash flow from operations or obtain additional
financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements.
To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will
have to raise additional working capital. No assurance can be given that additional financing will be available, or if available,
will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate
working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire
investment. The accompanying condensed consolidated financial statements do not include any adjustments that might result relating
to the recoverability and classification of the asset carrying amounts or the amount and classification of liabilities that might
result from the outcome of this risk and uncertainty.
e)
Reclassification
Certain
comparative figures have been re-classified to conform to the current period’s presentation.
2.
Significant Accounting Policies
The
accounting polices used in the preparation of these condensed interim financial statements are consistent with those of the Company’s
audited financial statements for the year ended December 31, 2019.
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Notes
to the Condensed Consolidated Financial Statements
Unaudited
3.
Inventory
Inventory
consists of the following at March 31, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Finished goods |
$ | 87,427 | $ | 104,868 | ||||
| Promotional items |
552 | 552 | ||||||
| Raw materials |
7,737 | 7,737 | ||||||
| $ | 95,715 | $ | 113,156 | |||||
4.
Secured Notes Payable
Secured
notes payable consists of the following at March 31, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Balance owing |
$ | 367,058 | $ | 267,881 | ||||
| Less amounts due within one year |
(367,058 | ) | (267,881 | ) | ||||
| Long-term portion |
$ | – | $ | – | ||||
5.
Changes in Cash Flows from Operating Assets and Liabilities
The
changes to the Company’s operating assets and liabilities for the three months period ended March 31, 2020 and 2019 are
as follows:
| 2020 | 2019 | |||||||
| Decrease (increase) in accounts receivable |
$ | (22,888 | ) | $ | (293,186 | ) | ||
| Decrease (increase) in inventory |
17,441 | 124,823 | ||||||
| Decrease (increase) in prepaid expenses and deposits |
8,281 | 118,688 | ||||||
| Increase (decrease) in lease liability |
(7,725 | ) | – | |||||
| Increase (decrease) in income taxes payable |
– | (16,989 | ) | |||||
| Increase (decrease) in accounts payable and accrued liabilities |
(44,567 | ) | 154,125 | |||||
| $ | (49,458 | ) | $ | 87,462 | ||||
6.
Investment
During
the year ended December 31, 2019, the Company entered into an agreement to purchase 10,000,000 shares for $50,000 which has been
issued to the Company. The Company’s investment accounts for a 10% equity stake in a US based mobile phone development
company. As of March 31, 2020 the Company had advanced a total of $24,423 (December 31, 2019 – $15,658) and is advancing tranches
of capital as required by the Company.
7.
Lease Liabilities
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 $2,222. 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, being 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 three months ended March 31, 2020 and December 31, 2019 are as follows:
| March 31, 2020 |
December 31, 2019 |
|||||||
| Right-of-use asset |
$ | 54,921 | $ | – | ||||
| Current lease liability |
$ | 22,164 | $ | – | ||||
| Long-term lease liability |
$ | 32,757 | $ | – | ||||
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
7.
Lease Liabilities (continued)
The
components of lease expense are as follows:
| March 31, 2020 |
March 31, 2019 |
|||||||
| Amortization of right-of-use |
$ | 22,164 | – | |||||
| Interest on lease liability |
$ | 4,494 | – | |||||
| Total lease cost |
$ | 26,658 | – | |||||
Maturities
of lease liability are as follows:
Future
minimum lease payments as of March 31, 2020:
| 2020 | $ | 19,994 | ||
| 2021 | 26,658 | |||
| 2022 | 15,551 | |||
| Total future minimum lease payments |
62,203 | |||
| Less: amount representing interest |
(7,282 | ) | ||
| Present value of future payments |
54,921 | |||
| Current portion |
22,164 | |||
| Long term portion |
$ | 32,757 |
8.
Shareholders’ Deficit
During
the three months ended March 31, 2020 the Company entered into a share subscription agreement with a consultant of the Company
for 4,000,000 common shares valued at $125,000.
During
the three months ended March 31, 2020 the Company issued 450,000 shares in connection with the issuance of convertible promissory
note (note 12) at $0.27 per share.
During
the three months ended March 31, 2020 the Company issued 2,190,959 out of 2,680,981 as part of a settlement to fulfill a debt
purchase agreement entered in 2017.
During
the three months ended March 31, 2020 the Company issued a consultant 2,000,000 common shares at $0.02 per share for $40,000 for
consulting serviced performed.
During
the three month ended March 31, 2019, the Company issued 1,000,000 common shares pursuant to a subscription payable to Consultant
with a value of $152,899. During the same period, the Company entered into a share subscription agreement with a consultant of
the Company for 1,500,000 common shares valued at $30,000.
During
the three month March 31, 2019, Steven Rossi was issued 13,583,397 shares of Worksport, Ltd common stock as approved by
the board of directors, due to a conversion of all 1,000,000 shares of his Series A Preferred stock.
For
the three months ended March 31, 2020 and 2019, the Company was authorized to issue 49,833,333 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 2020 and 2019,
the Company was authorized to issue 1,000,000 shares of its Series A 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.
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Notes
to the Condensed Consolidated Financial Statements
Unaudited
9.
Earnings per Share
For
the three months ended March 31, 2020, Earnings per Share (EPS) is $(0.00) (basic and diluted) compared to the EPS for the three
months ended March 31, 2019 of $(0.005) (basic and diluted) using the weighted average number of shares of 43,129,884 and 25,000,716
respectively. There are 49,833,333 shares authorized, 46,547,749 and 26,634,052 shares issued and outstanding, respectively. As
of March 31, 2020 the Company has 14,909,041 shares to be issued.
10.
Warrants
During
the three months ended March 31, 2020 the Company issued 900,000 warrants convertible to 1 common share each with an exercise
period of 5 years. The exercise price of the warrants is $0.10 per share (subject to adjustment), and may be exercised on a cashless
basis. Refer to note 11.
| Exercise price | Number outstanding | Weighted average life (years) | Weighted average exercise price | |||||||
| 0.10 | 900,000 | 4.91 | 0.1 | |||||||
| March 31, 2020 |
March 31, 2019 |
|||||||||||||||
| Number of warrants |
Weighted average price |
Number of warrants |
Weighted average price |
|||||||||||||
| Balance, beginning of year |
– | $ | – | – | $ | – | ||||||||||
| Issuance | 900,000 | $ | 0.10 | – | $ | – | ||||||||||
| Balance, end of period |
900,000 | $ | 0.10 | – | $ | – | ||||||||||
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Notes
to the Condensed Consolidated Financial Statements
Unaudited
11.
Convertible Promissory Note
On
February 25, 2020, the Company entered into a 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 450,000 common
shares, and (ii) the Company issued to Leonite a five-year warrant to purchase 900,000 common shares at an exercise price of $0.10
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. As of March 31, 2020, the Company has recorded $198,715, $182,500 principal and $16,215 original issue discount. Furthermore,
the Company issued 450,000 shares of common stock valued at $121,390 and a debt-discount related to the warrants valued at $59,110.
The Company amortized $11,677 of financing costs related to the shares and warrants for the three months ended March 31, 2020.
The remaining net balance of the note at March 31, 2020 is $12,715 comprised of principal of $183,538 and net of unamortized debt
discount of $170,823.
The
note bears interest at the rate of the greater of 10.2% per annum. Any amount of principal or interest on the note which is not
paid by the maturity date shall bear interest at the rate at the lesser of 24% per annum or the maximum legal amount permitted
by law (the “Default Interest”).
Beginning
on March 18, 2020 and on the same day of each and every calendar month thereafter throughout the term of the note, the Company
shall make monthly payments of interest only due under the note to Leonite at the Stated Rate as set forth above. The Company
shall pay to Leonite on an accelerated basis any outstanding principal amount of the note, along with accrued, but unpaid interest,
from: (i) net proceeds of any future financings by the Company, but not its subsidiaries, whether debt or equity, or any other
financing proceeds, except any transaction having a specific use of proceeds requirement that such proceeds are to be used exclusively
to purchase the assets or equity of an unaffiliated business and the proceeds are used accordingly; (ii) net proceeds from any
sale of assets of the Company or any of its subsidiaries other than sales of assets in the ordinary course of business or receipt
by the Company or any of its subsidiaries of any tax credits existing prior to the date of the note; and (iii) net proceeds from
the sale of any assets outside of the ordinary course of business or securities in any subsidiary.
The
note will mature 18 months from the issue date, or August 25, 2021, at which time the principal amount and all accrued and unpaid
interest, if any, and other fees relating to the note, will be due and payable. Unless an event of default as set forth in the
note has occurred, the Company has the right to prepay principal amount of, and any accrued and unpaid interest on, the note at
any time prior to the maturity date at 100% of the principal amount plus any accrued and unpaid interest plus the lesser of (i)
nine months of unaccrued interest or (ii) all unaccrued interest through the remainder of the term.
The
note contains customary events of default, including in the event of (i) non-payment, (ii) a breach by the Company of its covenants
under the securities purchase agreement or any other agreement entered into in connection with the securities purchase agreement,
or a breach of any of representations or warranties under the note, or (iii) the bankruptcy of the Company. The note also contains
a cross default provision, whereby a default by the Company of any covenant or other term or condition contained in any of the
other financial instrument issued by the Company to Leonite or any other third party after the passage all applicable notice and
cure or grace periods that results in a material adverse effect shall, at Leonite’s option, be considered a default under
the note, in which event Leonite shall be entitled to apply all rights and remedies under the terms of the note.
Under
the note, Leonite has the right at any time at its option to convert all or any part of the outstanding and unpaid principal amount
and accrued and unpaid interest of the note into fully paid and non-assessable common shares of the Company. The number of common
shares to be issued upon each conversion of the note shall be determined by dividing the conversion amount by the applicable conversion
price then in effect. The conversion amount is the sum of: (i) the principal amount of the note to be converted plus (ii) at Leonite’s
option, accrued and unpaid interest, plus (iii) at Leonite’s option, Default Interest, if any, plus (iv) Leonite’s
expenses relating to a conversion, plus (v) at Leonite’s option, any amounts owed to Leonite. The conversion price shall
be $0.09 per share (subject to adjustment as further described in the note for common share distributions and splits, certain
fundamental transactions, and anti-dilution adjustments), provided that at any time after any event of default under the note,
the conversion price shall immediately be equal to the lesser of (i) the fixed conversion price ($0.09); (ii) 60% of the lowest
bid price during the twenty one consecutive trading day period immediately proceeding the trading that the Company receives a
Notice of Conversion or (iii) the discount to market based on subsequent financing.
Notwithstanding
the foregoing, in no event shall Leonite be entitled to convert any portion of the note in excess of that portion of the note
upon conversion of which the sum of (1) the number of common shares beneficially owned by Leonite and its affiliates (other than
common shares which may be deemed beneficially owned through the ownership of the unconverted portion of the note or the unexercised
or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to the
limitations contained in the note, and, if applicable, net of any shares that may be deemed to be owned by any person not affiliated
with Leonite who has purchased a portion of the note from Leonite) and (2) the number of common shares issuable upon the conversion
of the portion of the note with respect to which the determination of this proviso is being made, would result in beneficial ownership
by Leonite and its affiliates of more than 4.99% of the outstanding common shares of the Company. Such limitations on conversion
may be waived (up to a maximum of 9.99%) by Leonite upon, at its election, not less than 61 days’ prior notice to the Company,
and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined
by Leonite, as may be specified in such notice of waiver).
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Notes
to the Condensed Consolidated Financial Statements
Unaudited
11.
Convertible promissory note (continued)
This
note shall give Leonite a senior secured obligation of the Company, with first priority over all current and future indebtedness
of the Company and any subsidiary.
Calculation
of beneficial conversion feature
| Allocated proceeds of Convertible Promissory Note |
$ | 198,715 | ||
| Conversion Price |
$ | 0.09 | ||
| Number of shares of Common Stock that would be issued upon conversion of Convertible Promissory Note |
2,027,778 | |||
| Conversion price |
$ | 0.098 | ||
| FMV of Common Stock |
$ | 0.27 | ||
| Per Share Intrinsic Value of Beneficial Conversion Feature |
$ | 0.1762 | ||
| Calculated Beneficial Conversion Feature |
$ | 357,302 |
In
accordance to ASC 470-20-30, if the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated
to the convertible promissory note, the amount of the discount assigned to the beneficial conversion feature shall be limited
to the amount of the proceeds allocated to the convertible promissory note. As such, the beneficial conversion feature of the
convertible promissory note is equal to $182,500 with an excess of $174,802.
Worksport,
Ltd (formerly Franchise Holdings International, Inc)
Notes
to the Condensed Consolidated Financial Statements
Unaudited
12.
Concentration of Customer Risk
The
following table includes the percentage of the Company’s sales to significant customers for the three months ended March
31, 2020 and 2019, as well as the balance included in revenue and accounts receivable for each significant customer as at March
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 |
13,018 | 37.5 | – | – | ||||||||||||
| Customer B |
11,995 | 34.5 | – | – | ||||||||||||
| Customer C |
5,150 | 14.8 | 77,503 | 12.7 | ||||||||||||
| Customer D |
– | – | 482,247 | 79.2 | ||||||||||||
The
loss of any of these key customers could have an adverse effect on the Company’s business.
13.
Related Party Transactions
During
the three months ended March 31, 2020 the Company’s CEO and director paid on behalf of the Company’s lease payments
of $7,317 (2019 – $0).
14.
Contingent Liability
During
the three months ended March 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 full amount of $24,148 has been repaid in full on
June 1, 2020.
15.
Evaluation of Subsequent Events
The
Company has evaluated subsequent events through July 2, 2020 which is the date the financial statements were available to be issued
and the following events after March 31, 2020 occurred:
| ● | On April 20, 2020, the Company changed its name from Franchise Holding International Inc. to Worksport Ltd pending approval of the change from “FNHI” to WKSP”. |
|
| ● | On April 20, 2020, the Company issued 1,000 preferred stock to the Company’s President, Secretary and Director. |
|
| ● | Due to the impact of COVID-19 around the world the Company expects its sales to remain low for the second quarter of 2020 as consumer confidence remains uncertain. |
|
| ● | On June 3, 2020, the Company entered into a loan agreement with a third party for $32,460. The Company will receive $23,000, in addition the third party has paid on behalf of the Company $9,460 ($12,230 CAD) of expenses. |
|
| ● | On June 5, 2020, The Company signed an agreement with a third party in relations to online marketing. As part of the agreement the Company has issued 1,333,333 shares as consideration. |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of Franchise Holdings International, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Franchise Holdings International, Inc. (the Company) as of December
31, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Consideration
of the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully
described in Note 2 to the financial statements, the Company has incurred net losses and has an accumulated deficit. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to
these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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 material 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.
/s/
Haynie & Company
Salt
Lake City, Utah
May
14, 2020
We
have served as the Company’s auditor since 2016.
Franchise
Holdings International, Inc.
Consolidated
Balance Sheets
December
31, 2019 and 2018
| 2019 | 2018 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 11,993 | $ | 25,323 | ||||
| Accounts receivable net | 67,795 | 61,883 | ||||||
| Inventory (note 4) | 113,156 | 289,516 | ||||||
| Prepaid expenses and deposits | 60,741 | 124,114 | ||||||
| Total Current Assets | 253,685 | 500,835 | ||||||
| Investment (note 18) | 15,658 | – | ||||||
| Property and Equipment, net (note 5) | 94,695 | 43,860 | ||||||
| Right-of-use asset, net (note 19) | 60,125 | – | ||||||
| Intangible Assets, net (note 6) | 57,145 | 12,673 | ||||||
| Total Assets | $ | 481,308 | $ | 557,368 | ||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 969,321 | $ | 401,766 | ||||
| Income taxes payable (note 10) | 36,844 | 82,365 | ||||||
| Related party loan (note 9) | 28,638 | 9,372 | ||||||
| Current portion of notes payable (note 7) | 267,881 | 287,425 | ||||||
| Current lease liability (note 19) | 22,000 | – | ||||||
| Total Current Liabilities | 1,324,684 | 780,928 | ||||||
| Long Term – Lease Liability | 39,185 | – | ||||||
| Total Liabilities | 1,363,869 | 780,928 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ Equity (Deficit) | ||||||||
| Series A Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, 0 and 100,000 shares issued and outstanding, respectively (note 8) | – | 10,000 | ||||||
| Common stock, $0.0001 par value, 43,833,333 shares authorized, 41,906,790 and 24,634,051 shares issued and outstanding, respectively (note 8) | 4,191 | 2,463 | ||||||
| Additional paid-in capital | 8,381,231 | 8,103,934 | ||||||
| Share subscriptions receivable | (1,577 | ) | (1,577 | ) | ||||
| Share subscriptions payable | 1,511,080 | 2,019,532 | ||||||
| Accumulated deficit | (10,768,906 | ) | (10,354,299 | ) | ||||
| Cumulative translation adjustment | (8,580 | ) | (3,613 | ) | ||||
| Total Shareholders’ Deficit | (882,561 | ) | (223,560 | ) | ||||
| Total Liabilities and Shareholders’ Deficit | $ | 481,308 | $ | 557,368 | ||||
The
accompanying notes form an integral part of these consolidated financial statements.
Franchise
Holdings International, Inc.
Consolidated
Statements of Operations and Comprehensive Loss
December
31, 2019 and 2018
| 2019 | 2018 | |||||||
| Net Sales | $ | 1,926,405 | $ | 481,521 | ||||
| Cost of Goods Sold | 1,687,858 | 384,908 | ||||||
| Gross Profit | 238,547 | 96,614 | ||||||
| Operating Expenses | ||||||||
| General and administrative | 238,841 | 268,707 | ||||||
| Sales and marketing | 50,159 | 90,567 | ||||||
| Professional fees | 570,852 | 864,160 | ||||||
| Loss (gain) on foreign exchange | (27,881 | ) | 84,306 | |||||
| Total operating expenses | 831,971 | 1,307,741 | ||||||
| Loss from operations | (593,424 | ) | (1,211,127 | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense (note 7) | (71,961 | ) | (55,548 | ) | ||||
| Finance charges | – | (418 | ) | |||||
| Gain (loss) on settlement of debt | 250,778 | (495,944 | ) | |||||
| Total other income (expense) | 178,817 | (551,910 | ) | |||||
| Net Loss | (414,607 | ) | (1,763,038 | ) | ||||
| Other Comprehensive Loss | ||||||||
| Foreign currency translation adjustment | (4,967 | ) | 40,770 | |||||
| Comprehensive Loss | $ | (419,574 | ) | $ | (1,722,268 | ) | ||
| Loss per Share (basic and diluted) | $ | (0.01 | ) | $ | (0.08 | ) | ||
| Weighted Average Number of Shares (basic and diluted) | 36,824,519 | 22,348,119 | ||||||
The
accompanying notes form an integral part of these consolidated financial statements
Franchise
Holdings International, Inc.
Consolidated
Statements of Shareholders’ Deficit
December
31, 2019 and 2018
| Preferred Stock |
Common Stock |
Additional Paid-in |
Share Subscriptions |
Share Subscription |
Accumulated | Cumulative Translation |
Total Equity |
|||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Payable | Deficit | Adjustment | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2017 | 1,000,000 | $ | 10,000 | 20,387,873 | $ | 2,039 | $ | 7,474,811 | $ | (10,755 | ) | $ | 1,531,080 | $ | (8,591,261 | ) | $ | (44,383 | ) | $ | 371,531 | |||||||||||||||||||
| Issuance for services | – | – | 3,125,001 | 312 | 533,958 | – | (534,270 | ) | – | – | – | |||||||||||||||||||||||||||||
| Issuance for settlement of payables | – | – | 1,121,177 | 112 | 95,166 | – | (95,278 | ) | – | – | – | |||||||||||||||||||||||||||||
| Issuance for cash and subscription payable | – | – | – | – | – | – | 1,118,000 | – | – | 1,118,000 | ||||||||||||||||||||||||||||||
| Uncollectible receivables | – | – | – | – | – | 9,177 | – | – | – | 9,177 | ||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | – | – | (1,763,038 | ) | – | (1,763,038 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | – | – | 40,770 | 40,770 | ||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 1,000,000 | $ | 10,000 | 24,634,051 | $ | 2,463 | $ | 8,103,934 | $ | (1,577 | ) | $ | 2,019,532 | $ | (10,354,299 | ) | $ | (3,613 | ) | $ | (223,560 | ) | ||||||||||||||||||
| Issuance for Services | – | – | 4,680,084 | 469 | 345,834 | – | (290,730 | ) | – | – | 55,573 | |||||||||||||||||||||||||||||
| Return and cancellation of shares | – | – | (990,742 | ) | (99 | ) | (77,179 | ) | – | (247,722 | ) | – | – | (325,000 | ) | |||||||||||||||||||||||||
| Issuance for cash and subscriptions payable | – | – | – | – | – | – | 30,000 | – | – | 30,000 | ||||||||||||||||||||||||||||||
| Conversion of Preferred Stock | (1,000,000 | ) | (10,000 | ) | 13,583,397 | 1,358 | 8,642 | – | – | – | – | – | ||||||||||||||||||||||||||||
| Net Income | – | – | – | – | – | – | – | (414,607 | ) | – | (414,607 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | – | – | (4,967 | ) | (4,967 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2019 | – | – | 41,906,790 | $ | 4,191 | $ | 8,381,231 | $ | (1,577 | ) | $ | 1,511,080 | $ | (10,768,906 | ) | $ | (8,580 | ) | $ | (882,561 | ) | |||||||||||||||||||
The
accompanying notes form an integral part of these consolidated financial statements
Franchise
Holdings International, Inc.
Consolidated
Statements of Cash Flows
December
31, 2019 and 2018
| 2019 | 2018 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | (414,607 | ) | $ | (1,763,038 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Shares issued for services | 55,573 | – | ||||||
| Loss on impairment | 54,292 | – | ||||||
| Depreciation and amortization | 11,439 | 1,516 | ||||||
| Uncollectible Subscription Receivable | – | 9,178 | ||||||
| (Gain) Loss on settlement of debt | (250,778 | ) | 495,944 | |||||
| (544,081 | ) | (1,256,400 | ) | |||||
| Changes in operating assets and liabilities (note 13) | 530,828 | 877,124 | ||||||
| Net cash used in operating activities | (13,253 | ) | (379,276 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of investment (note 18) | (15,658 | ) | – | |||||
| Purchase of property and equipment | (98,353 | ) | (1,874 | ) | ||||
| Net cash used in investing activities | (114,011 | ) | (1,874 | ) | ||||
| Financing Activities | ||||||||
| Proceeds from issuance of stock for cash | 30,000 | 300,000 | ||||||
| Proceeds from loan payable | 88,120 | 22,639 | ||||||
| Shareholder Assumption of Debt | 19,266 | (11,058 | ) | |||||
| Proceeds from shareholder loan | – | (12,839 | ) | |||||
| Payments on notes payable | (19,544 | ) | – | |||||
| Net cash provided by financing activities | 117,842 | 298,742 | ||||||
| Effects of Foreign Currency Translation | (3,908 | ) | 40,770 | |||||
| Change in cash | (13,328 | ) | (41,638 | ) | ||||
| Cash and cash equivalents – beginning of year | 25,323 | 66,961 | ||||||
| Cash and cash equivalents end of year | $ | 11,993 | $ | 25,323 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | 8,113 | $ | 39,572 | ||||
| Supplemental Disclosure of non-cash investing and financing Activities | ||||||||
| Shares issued for settlement of notes and accounts payable | $ | – | $ | 18,000 | ||||
| Share cancellation | $ | (77,179 | ) | $ | – | |||
| Shares issued to service providers | $ | 55,573 | $ | 150,000 | ||||
| Conversion of Preferred Stock to Common Stock | $ | 8,642 | $ | – | ||||
| Shares issued for share subscriptions payable | $ | 290,540 | $ | 611,548 | ||||
| Write off share subscriptions receivable | $ | – | $ | (9,177 | ) | |||
| Reverse stock split | $ | – | $ | 12,312 | ||||
| Recognition of operating lease right of use asset and liability | $ | 68,517 | $ | – | ||||
The
accompanying notes form an integral part of these consolidated financial statements.
Franchise
Holdings International, Inc.
Notes
to the Consolidated Financial Statements
December
31, 2019 and 2018
1.
Nature of Operations and Reverse Acquisition Transaction
Franchise
Holdings International, Inc. (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.
2.
Basis of Presentation and Going Concern
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 subsidiary. 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 is the Canadian
Dollar. For purposes of preparing these consolidated financial statements, balances denominated in Canadian Dollars outstanding
at December 31, 2019 were converted into United States Dollars at a rate of 1.30 Canadian Dollars to one United States Dollar.
Balances denominated in Canadian Dollars outstanding at December 31, 2018 were converted into United States Dollars at a rate
of 1.36 Canadian Dollars to one United States Dollar. Transactions denominated in Canadian Dollars for the period ended December
31, 2019 and December 31, 2018 were converted into United States Dollars at an average rate of 1.33 and 1.30 Canadian Dollars
to one United States Dollar, respectfully.
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)
Going Concern
These
financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. During the year ended December 31,
2019, the Company incurred a net loss of $414,607 and as of that date, the Company’s accumulated deficit was $10,768,906.
While the Company has demonstrated the ability to generate revenue, there are no assurances that it will be able to achieve level
of revenues adequate to generate sufficient cash flow from operations or obtain additional financing through private placements,
public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated
from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working
capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms.
These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not
available we may be forced to discontinue operations, which would cause investors to lose their entire investment. The accompanying
consolidated financial statements do not include any adjustments that might result relating to the recoverability and classification
of the asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this risk
and uncertainty.
g)
Reclassification
Certain
comparative figures have been re-classified to conform to the current period’s presentation.
3.
Significant Accounting Policies
Consolidation
– The Company is incorporated in the state of Nevada. The Company has one wholly-owned subsidiary, Worksport Ltd., a company incorporated
in the province of Ontario. All intercompany transactions and balances have been eliminated upon consolidation.
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, 2019 and 2018, 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 product defects. Customers who are not completely satisfied with their purchase
may attempt to be reimbursed for their purchases outside the warranty period. For the years ending December 31, 2019 and 2018,
the Company incurred warranty expenses of $2,106 and $3,538.
Revenue
Recognition – Beginning after December 15, 2017, for public entities reporting Revenue from Contracts with Customers,
ASC 606, a new accounting standard for revenue recognition was issued. An entity must satisfy the following steps under ASC 606
for revenue recognition; identifiable contract, identifiable performance obligation, determinable transaction price, allocating
the transaction price and satisfying performance obligations. Sales are recognized when products are shipped, with no right of
return, the title and risk of loss has passed to the customers or when they are delivered based on the terms of the sale. 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. These standards have had no effect on the reported consolidated financial statements.
Property
and Equipment – Capital assets are recorded at cost and are amortized using the straight-line method over the following estimated
useful lives:
| Furniture and equipment | 5 years | |
| Computers | 3 years | |
| Patents | 25 years | |
| Leasehold improvements | 15 years |
As
at December 31, 2019, the Company does not take depreciation for the following items: product moulds, trademarks and the website
as the following items are not in service.
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.
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 exchange rates prevailing at the end of the reporting period. All exchange gains
and losses are included in the statement of operations and deficit.
For
the purpose of presenting financial statements in United States Dollars, the assets and liabilities are expressed in United States
Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average
exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates
at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive loss and
reported as cumulative translation adjustment in shareholder’s equity.
For
the purpose of these financial statements, the following exchange rates were used:
| Balance Sheet | Income Statement | |||
| December 31, 2019 | 0.7699 USD/ CAD | 0.7537 USD/ CAD | ||
| December 31, 2018 | 0.7330 USD/ CAD | 0.7721 USD/ CAD |
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.
Derivative
Financial Instruments – The Company has issued and could issue instruments with such terms that require the Company to account
for the transactions as derivative financial instruments. The Company is accounting for these transactions in accordance with
FASB Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, which requires that every derivative
instrument is recorded on the balance sheet as an asset or liability measured at its fair value as of the reporting date. ASC
815 also requires changes in the derivatives’ fair value to be recognized in earnings for the period.
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 and 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, 2019 and 2018, 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
all 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
19. Upon adoption, the Company also recognized right-of-use assets and lease liabilities of $68,516.
Private
Equity Investment – Private equity investments may consist of common stock and preferred stock of privately owned companies.
The Company records all private equity investments at the transaction price, excluding transaction costs. The Company assesses
annually if there is any objective evidence that its interest in its investments are impaired. If impaired, the carrying value
of the Company’s share of the underlying assets of the investment is written down to its estimated recoverable amount and
charged to the consolidated statement of operations and comprehensive loss.
4.
Inventory
Inventory
consists of the following at December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Finished goods | $ | 104,868 | $ | 282,239 | ||||
| Promotional items | 552 | 700 | ||||||
| Raw materials | 7,737 | 6,577 | ||||||
| $ | 113,156 | $ | 289,516 | |||||
| Prepaid inventory | $ | 50,000 | $ | – | ||||
During
the year ended December 31, 2019 the Company recognized a loss on impairment of inventory $54,292.
5.
Property and Equipment
Major
classes of property and equipment at December 31, 2019 and 2018 are as follows:
| 2019 | ||||||||||||||||||||
| Equipment | Product molds | Computers | Leasehold Improvements | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Balance – January 1, 2019 | $ | 8,850 | $ | 37,243 | $ | 1,162 | $ | – | $ | 47,255 | ||||||||||
| Additions | 1,197 | 28,465 | – | 23,371 | 53,033 | |||||||||||||||
| Balance – December 31, 2019 | $ | 10,047 | $ | 65,708 | $ | 1,162 | $ | 23,371 | 100,288 | |||||||||||
| Accumulated Depreciation | ||||||||||||||||||||
| Balance – January 1, 2019 | $ | (2,254 | ) | $ | – | $ | (1,141 | ) | $ | – | $ | (3,395 | ) | |||||||
| Additions | (1,531 | ) | – | (21 | ) | (646 | ) | (2,198 | ) | |||||||||||
| Balance – December 31, 2019 | $ | (3,785 | ) | $ | – | $ | (1,162 | ) | $ | (646 | ) | $ | (5,593 | ) | ||||||
| Net amount as at December 31, 2019 | $ | 6,262 | $ | 65,708 | $ | – | $ | 22,725 | $ | 94,695 | ||||||||||
| 2018 | ||||||||||||||||||||
| Equipment | Product molds | Computers | Leasehold Improvements | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Balance – January 1, 2018 | $ | 6,976 | $ | 37,243 | $ | 1,162 | $ | – | $ | 45,381 | ||||||||||
| Additions | 1,874 | – | – | – | 1,874 | |||||||||||||||
| Balance – December 31, 2018 | $ | 8,850 | $ | 37,243 | $ | 1,162 | $ | – | $ | 47,255 | ||||||||||
| Accumulated Depreciation | ||||||||||||||||||||
| Balance – January 1, 2018 | $ | (1,181 | ) | $ | – | $ | (1,121 | ) | $ | – | $ | (2,302 | ) | |||||||
| Additions | (1,073 | ) | – | (20 | ) | – | (1,093 | ) | ||||||||||||
| Balance – December 31, 2018 | $ | (2,254 | ) | $ | – | $ | (1,141 | ) | $ | – | $ | (3,395 | ) | |||||||
| Net amount as at December 31, 2018 | $ | 6,596 | $ | 37,243 | $ | 21 | $ | – | $ | 43,860 | ||||||||||
During
the years ended December 31, 2019 and 2018, the Company recognized depreciation expense of $2,198 and $1,093, 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 7.
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. 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 trademark and website are reassessed annually for impairment; the Company
has determined that impairment is not necessary for the current year ended December 31, 2019. The change in intangible assets
for the years ending December 31, 2019 and 2018 are as follows:
| 2019 | ||||||||||||||||
| Patent | Website | Trademarks | Total | |||||||||||||
| Cost | ||||||||||||||||
| Balance – January 1, 2019 | $ | 10,574 | $ | 3,500 | $ | – | $ | 14,074 | ||||||||
| Additions | 40,676 | – | 4,644 | 45,320 | ||||||||||||
| Balance – December 31, 2019 | $ | 51,250 | $ | 3,500 | $ | 4,644 | $ | 59,394 | ||||||||
| Accumulated Depreciation | ||||||||||||||||
| Balance – January 1, 2019 | $ | (1,401 | ) | $ | – | $ | – | $ | (1,401 | ) | ||||||
| Additions | (848 | ) | – | – | (848 | ) | ||||||||||
| Balance – December 31, 2019 | $ | (2,249 | ) | $ | – | $ | – | $ | (2,249 | ) | ||||||
| Net amount as at December 31, 2019 | $ | 49,001 | $ | 3,500 | $ | 4,643 | $ | 57,145 | ||||||||
| 2018 | ||||||||||||||||
| Patent | Website | Trademarks | Total | |||||||||||||
| Cost | ||||||||||||||||
| Balance – January 1, 2018 | $ | 10,574 | $ | 3,500 | $ | – | $ | 14,074 | ||||||||
| Additions | – | – | – | – | ||||||||||||
| Balance – December 31, 2018 | $ | 10,574 | $ | 3,500 | $ | – | $ | 14,074 | ||||||||
| Accumulated Depreciation | ||||||||||||||||
| Balance – January 1, 2018 | $ | (978 | ) | $ | – | $ | – | $ | (978 | ) | ||||||
| Additions | (423 | ) | – | – | (423 | ) | ||||||||||
| Balance – December 31, 2018 | $ | (1,401 | ) | $ | – | $ | – | $ | (1,401 | ) | ||||||
| Net amount as at December 31, 2018 | $ | 9,173 | $ | 3,500 | $ | – | $ | 12,673 | ||||||||
Amortization
of the patent over the next five years and beyond December 31, 2019 is as follows:
| 2020 | $ | 2,050 | |
| 2021 | $ | 2,050 | |
| 2022 | $ | 2,050 | |
| 2023 | $ | 2,050 | |
| 2024 | $ | 2,050 | |
| 2025 and later | $ | 46,895 |
7.
Notes Payable
The
following tables shows the balance of the notes payable as of December 31, 2019 and 2018:
| Balance as at December 31, 2017 | $ | 275,844 | ||
| Additions | 22,639 | |||
| Payment | (11,058 | ) | ||
| Balance as at December 31, 2018 | $ | 287,425 | ||
| Additions | – | |||
| Payments | (19,544 | ) | ||
| Balance as at December 31, 2019 | $ | 267,881 |
2019
Notes Payable
During
the year ended December 31, 2019 the Company extended the maturity dates of all secured promissory notes in the amount of $79,000
and $96,091 ($123,231 Canadian Dollars) to be due on April 1, 2021.
During
the year ended December 31, 2019 the Company extended the maturity dates of all unsecured promissory notes in the amount of $50,000
and $53,848 ($67,700 Canadian Dollars) to be due on October 8, 2020 and November 3, 2020 respectively.
During
the year ended December 31, 2019 the Company repaid $9,545 ($12,000 Canadian dollars) and $10,000 of its unsecured promissory
notes. In addition, the Company paid $8,113 in interest for outstanding unsecured promissory notes.
2018
Notes Payable
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). Interest is accrued at 18% per annum, payable monthly. 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.
2017
Notes Payable
During
the year ended December 31, 2017, the Company issued an unsecured promissory note in the amount of $9,545 ($12,000 Canadian Dollars).
The unsecured promissory note was due in August 2018 and bears interest at a rate of 18% per annum, payable monthly. As the note
is in good standing, the payment terms have been extended indefinitely with no change in interest rate.
During
the year 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. As the note is in good standing, the payment
terms have been extended with no change in interest rate. Refer to 2019 notes payable above for note extension.
During
the year 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. As the note is in good standing, the payment terms have been extended
with no change in interest rate. Refer to 2019 notes payable above for note extension.
During
the year ended December 31, 2017, the Company issued a secured promissory note in the amount of $52,845 ($64,677 Canadian Dollars),
respectively. The secured promissory note was due in July 2018 and bears interest at a rate of 18% per annum. The secured promissory
note is secured by all present and after-acquired property and assets of the Company. The balance owed on this note payable at
December 31, 2017 is $73,452 ($92,348 Canadian Dollars). At December 31, 2017, the accrued interest on this note payable was $13,134
($16,513 Canadian Dollars). The payment due date remains the same as stated: upon completion of going public on the Canadian Securities
Exchange with no change in interest rate.
Secured
Promissory Note
In
October 2015, the Company signed a secured promissory note with an investor in the principal amount of $79,768 ($102,000 Canadian
Dollars. The Company received proceeds of $58,653 (75,000 Canadian Dollars) and $21,115 (27,000 Canadian Dollars) was recorded
as a discount which was accrued over the life of the note. The promissory note required a daily payment of $249 (324 Canadian
Dollars) until January 26, 2017 and carried a 40.0% interest rate.
The
promissory note was secured by all assets of the Company. During 2017, the lender agreed to settle the loan for $30,826 ($39,000
Canadian Dollars) resulting in the Company recording a $13,556 gain on the forgiveness of the remaining portion of the secured
promissory note.
The
amounts repayable under notes payable and secured promissory note at December 31, 2019 and 2018 are as follows:
| 2019 | 2018 | |||||||
| Balance owing | $ | 278,938 | $ | 287,425 | ||||
| Less amounts due within one year | (278,938 | ) | (287,425 | ) | ||||
| Long-term portion | $ | – | $ | – | ||||
8.
Shareholders’ Equity (Deficit)
During
the year ended December 31, 2019, the Company completed a share consolidation of the Company’s issued and outstanding common
shares based on six (6) pre-consolidation shares to one (1) post-consolidation share. The Consolidation reduced the number of
issued and outstanding common shares of the Company from 147,804,298 pre-Consolidation common shares to approximately 24,634,051
post-Consolidation common shares. While the share consolidation occurred during the year ended December 31, 2019, the Company
has accounted for the effects retrospectively as such, the schedules and all references to shares, options and warrants throughout
the financial statements have been updated to reflect the number of post-consolidation securities.
In
2018 and 2019, the Company was authorized to issue 49,833,333 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 2018 and 2019, the Company was authorized to issue
1,000,000 shares of its Series A Preferred Stock with a par value of $0.0001. These shares have voting rights equal to 299 shares
of common stock, per share of preferred.
During
the year ended December 31, 2019, the Company issued 1,901,455 common shares, previously recorded as subscription payable to a
consultant with a value of $290,730. In addition the Company also issued to the same consultant 2,778,629 common shares at $0.02
per share for $55,573 for additional consulting serviced performed. During the same period, the Company entered into a share subscription
agreement with a consultant of the Company for 1,500,000 common shares valued at $30,000. As the shares have not yet been issued,
the $30,000 has been recorded as share subscriptions payable.
During
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 to the settlement
agreement, 19,055,551 pre-stock split (990,742 post stock split), reserved shares with a value of $325,000 recorded in share subscription
payable were released and returned to the Company.
During
the year ended December 31, 2019, Steven Rossi was issued 13,583,397 shares of Franchise Holdings International, Inc common stock
as approved by the board of directors, due to a conversion of all 1,000,000 shares of his Series A Preferred stock.
During
the year ended December 31, 2018, the Company entered into an agreement with an investor relations company to provide various
services to the Company. These services were valued at $150,000 and will be charged to expense as certain milestones are met.
The agreement is to be settled through the issuance of 1,250,000 common shares. As of December 31, 2019, all shares have been
issued and $150,000 has been expensed.
During
the year ended December 31, 2018, the Company entered into a share issuance/ claim extinguishment agreement with two parties,
pursuant to which the Company agreed to issue 8,333,333 shares of its common stock in exchange for the assumption of aggregate
accounts payable of the Company totaling $154,057. The fair value of the shares to be issued was estimated to be $650,000 resulting
in a loss on the settlement of debt in the amount of $495,944 recognized during the year ended December 31, 2018. During the year
ended December 31, 2018, 990,742 shares were issued under this agreement which reduced the stock subscription payable by $77,278.
The third parties failed to pay the Company’s vendors as agreed so the Company notified them that they are in breach of
contract.
During
the year ended December 31, 2018, the Company issued 3,125,001 common shares related to consulting agreements with two individuals
with a subscription payable value of $534,270.
During
the year ended December 31, 2018, the Company received proceeds of $300,000 on subscription agreements ($0.12 per share). The
Company will issue 2,500,000 shares for this capital raise. As of December 31, 2019, the shares have not been issued.
During
the year ended December 31, 2018, the Company entered into a share issuance agreement with a public relations company whereby
they would issue shares in satisfaction for service rendered. Through December 31, 2018, the public relations company provided
services valued at $18,000. During September 2018, the Company issued 130,435 shares valued at $0.138 per share to settle the
payable.
9.
Related Party Transactions
During
the year ended December 31, 2019, the Company incurred $112,665 payable to a US based corporation controlled by the Company’s
CEO and director for the purchase of inventory.
During
the year ended December 31, 2019, the Company recorded salaries expense of $65,589 (2018 – $63,796) related to services rendered
to the Company by its CEO.
10.
Income Taxes
a)
The income tax expense for the year ended December 31, 2019 and 2018 is reconciled per the schedule below:
| 2019 | 2018 | |||||||
| Net loss before income taxes | $ | (414,607 | ) | $ | (1,763,038 | ) | ||
| Depreciation | (10,956 | ) | 566 | |||||
| Non-deductible portion of meals and entertainment | 1,115 | 2,953 | ||||||
| Expenses paid in shares | 55,573 | 322,056 | ||||||
| Loss on impairment | 54,292 | – | ||||||
| GL Settlement of Debt | (250,778 | ) | 495,944 | |||||
| Adjusted net loss for tax purposes | (565,361 | ) | (951,207 | ) | ||||
| Statutory rate | 24.63 | % | 25.35 | % | ||||
| (139,236 | ) | (241,127 | ) | |||||
| Increase in valuation allowance | 139,236 | 241,127 | ||||||
| Provision for income taxes | $ | – | $ | – | ||||
b)
Deferred Income Tax Assets
The
tax effects of temporary differences that give rise to the deferred income tax assets at December 31, 2019 and 2018 are as follows:
| 2019 | 2018 | |||||||
| Net operating loss carry forwards | $ | 1,125,158 | $ | 997,723 | ||||
| Transaction costs | – | 34,109 | ||||||
| 1,125,158 | 1,031,832 | |||||||
| Deferred tax assets not recognized | (1,125,158 | ) | (1,031,832 | ) | ||||
| Net deferred tax asset | $ | – | $ | – | ||||
c)
Cumulative Net Operating Losses
The
Company has non-capital losses carried forward of approximately $4,942,000 available to reduce future years’ taxable income.
These losses will expire as follows:
| 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 | |||||||
| $ | 3,357,000 | $ | 1,585,000 | $ | 4,942,000 | |||||
These
net operating loss carryforwards of approximately $4,942,000 may be offset against future taxable income for the years 2020 through
2039. No tax benefit from continuing or discontinued operations have been reported in the December 31, 2019 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, 2019 and 2018.
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, 2016.
11.
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 no bad debt expense during the year ended December 31, 2019 and 2018.
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.
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, 2019 and 2018. A customer is considered to be significant if they account for greater than 10% of the Company’s annual
sales:
| 2019 | 2018 | |||||||
| Customer A | 89 | % | 37.8 | % | ||||
| Customer B | – | % | 31.2 | % | ||||
| Customer C | – | % | 19.8 | % | ||||
| Customer D | – | % | 10.4 | % | ||||
| 89 | % | 99.2 | % | |||||
The
loss of any of these key customers could have an adverse effect on the Company’s business. At December 31, 2019, $1,912,401
was included in revenue from Company A, representing 89% of the Company’s total sales for the year ended. With Customer
A representing 89% of the revenue, the loss of the customer would have an adverse effect on the Company’s revenue.
In
2018, Customer A represented 37.8% or $182,738 of total sales.
12.
Fair Value of Financial Instruments
The
Company complies with the accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 820-10, Fair Value Measurements, as well as certain related FASB staff positions. This guidance
defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business
and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk,
transfer restrictions, and risk of nonperformance.
The
guidance also establishes a fair value hierarchy for measurements of fair value as follows:
Level
1 – quoted market prices in active markets for identical assets or liabilities.
Level
2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets
for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level
3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
As
of December 31, 2019, and 2018, the Company had no assets and liabilities measured at fair value on a recurring basis.
13.
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, 2019 and 2018 are as follows:
| 2019 | 2018 | |||||||
| Decrease (increase) in accounts receivable | $ | (5,913 | ) | $ | 127,620 | |||
| Decrease (increase) in inventory | 122,067 | (225,197 | ) | |||||
| Decrease (increase) in prepaid expenses and deposits | 63,373 | 554,405 | ||||||
| Decrease (increase) in related party receivables | – | (6 | ) | |||||
| Increase (decrease) in lease liability | (8,392 | ) | – | |||||
| Increase (decrease) in income taxes payable | (45,521 | ) | 77,251 | |||||
| Increase (decrease) in accounts payable and accrued liabilities | 405,214 | 343,051 | ||||||
| $ | 530,828 | $ | 877,124 | |||||
14.
Commitments
During
the year ended December 31, 2015, the Company entered into a License Agreement whereby the Company was granted an exclusive license
under Patent Rights to make, use, offer for sale, import or sell a proprietary latching system developed and patented by the Company’s
shareholder (the “Licensor”). The License Agreement allows the Company to manufacture or sub-license the patented
latching system and provide services utilizing the patented latching system within the United States and its territories and possessions
and any foreign countries where Patent Rights exist. The License Agreement does not require the payment of license issue fees
or royalties, however, the Company will be required to maintain any fees or costs associated to keep the patent active. The License
Agreement will be in effect for the life of the last-to-expire patent or last-to-be-abandoned patent application licensed under
this Agreement, whichever is later. The Company will have the right to terminate the Agreement in whole or as to any portion of
Patent Rights at any time by giving such notice to the Licensor. Should the Company violate or fail to perform any term of this
Agreement, the Licensor may give written notice of such default (“Notice of Default”) to the Company. Should the Company
fail to repair such default within sixty days, of the effective date of such notice, the Licensor will have the right to terminate
the License Agreement and the licenses therein by a second written notice (“Notice of Termination”) to the Company.
If a Notice of Termination is sent to the Company, the License Agreement will automatically terminate on the effective date of
such notice.
15.
Gain (Loss) on Settlement of Debt
During
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 to 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. The company closed the unwinding in August 2019.
16.
Contingent Liability
During
the year ended December 31, 2019 the Company entered into an agreement with a debtor for the settlement of outstanding notes payable
of $56,723 ($75,000 CAD). The Company will issue to the debtor 1,500,000 million common shares for the settlement of the outstanding
notes payable upon listing on the Canadian Securities Exchange. The agreement was subsequently cancelled after year end.
As
of December 31, 2019 the Company (defendant) is currently in an ongoing legal proceedings with a supplier (plaintiff). Refer to
Note 20 for subsequent event and resolution.
17.
Reverse Stock Split
On
March 8th, 2019, 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 6 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 Canadian Stock
Exchange (“CSE”). The Certificate of Change was submitted to the Nevada Secretary of State on March 20, 2019 and the
FINRA corporate action was filed on March 21, 2019. FINRA declared the 1 for 6 reverse stock split effective on March 29, 2019.
These financial statements including, prior period comparative share amounts, have been retrospectively restated to reflect this
reverse split.
18.
Investment
During
the year ended December 31, 2019, the Company entered into an agreement to purchase 10,000,000 shares for $50,000 which has been
issued to FNHI. The Company’s investment accounts for a 10% equity stake in a US based mobile phone development company.
As of December 31, 2019 the Company had advanced a total of $15,658 and is advancing trenches of capital as required by the Company.
19.
Lease Liabilities
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 year ended December 31, 2019 is as follows:
| 2019 | ||||
| Right-of-use asset | $ | 60,125 | ||
| Current lease liability | $ | 22,000 | ||
| Long-term lease liability | $ | 39,185 | ||
The
components of lease expense are as follows:
| 2020 | ||||
| Amortization of right-of-use | $ | 21,619 | ||
| Interest on lease liability | $ | 5,039 | ||
| Total lease cost | $ | 26,658 | ||
Maturities
of lease liability are as follows:
Future
minimum lease payments as of December 31, 2019,
| 2020 | $ | 26,658 | ||
| 2021 | 26,658 | |||
| 2022 | 15,551 | |||
| Total future minimum lease payments | 68,867 | |||
| Less: amount representing interest | (7,682 | ) | ||
| Present value of future payments | 61,185 | |||
| Current portion | 22,000 | |||
| Long term portion | $ | 39,185 |
20.
Subsequent Events
The
Company has evaluated subsequent events through May 14, 2020 which is the date the financial statements were available to be issued
and the following events after year end occurred:
| ● | On January 2, 2020, a consulting agreement was signed with Craft Capital Management LLC to introduce placement opportunities to the Company in exchange for 4%-8% of the Placement received by the Company. The agreement is effective from the date of signing for 18 months. |
|
| ● | On January 4, 2020, a consulting agreement was signed with an individual to assist the Company in developing and procuring all company media assets including videos, photos, photo shoots, video shoots, logos, print and digital media. The term of the consulting agreement will be for a minimum period of 18 months with a consideration of 4,000,000 common shares at $0.03 per share for a total value of $125,000. |
|
| ● | On January 23, 2020, a subscription agreement for 5,000,000 shares for $186,874 was cancelled. The Company and investor are currently in negotiation on the return the funds. |
|
| ● | On January 28, 2020, a consulting agreement was signed with YK GROUP INC in assisting the Company with going public on the Canadian Securities Exchange. |
|
| ● | On February 3, 2020, the Company terminated a consulting agreement signed on July 23, 2016. |
|
| ● | On February 6, 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 full amount of $24,148 has been repaid in full on July 1, 2020. |
|
| ● | On February 28, 2020, the Company issued 2,680,982 for shares to settle the remaining debt purchase agreement entered in 2017 of $84,310. |
|
| ● | In March 2020, the Company entered into a secured promissory note of $544,425. $44,425 are to be used to pay legal and accounting fees. As part of the secured promissory note the agreement the loan holder is also granted warrants allowing the loan holder to purchase 900,000 shares at an exercise price of $0.10. The agreement also requires the Company to issue 450,000 shares to the loan holder. |
|
| ● | On March 26, 2020 the Company issued 2,000,000 shares to a consultant for $40,000 of consulting expense performed. |
|
| ● | On April 20, 2020, the Company changed its name from Franchise Holding International Inc. to Worksport Ltd. |
|
| ● | On April 20, 2020, the Company issued 1,000 preferred stock to the Company’s President, Secretary and Director. |
|
| ● | Due to the impact of COVID-19 around the world the Company expects its sales to decrease significantly for the first and second quarter of 2020 as governments around the world enter a lockdown to prevent the spread of COVID-19. |
On
May 21, 2020, the Company (i) effectuated an increase in the total authorized shares of the Company for increasing the authorized
preferred shares of the Company by 100,000, (ii) designated such shares of preferred stock as Series B Preferred Stock with the
following rights and designations: (A) par value of $0.0001 per share, (B) 10,000 to 1 voting rights, (C) no conversion rights,
and (D) no redemption rights, and (iii) to changed the name of the Company to Worksport Ltd. in the State of Nevada. The term
“Worksport” as used herein refers to the Nevada corporation, and the Ontario subsidiary as a whole.
EXHIBIT
1A-4A
Subscription
Agreement
WORKSPORT
LTD.
1.
Investment:
The
undersigned (“Buyer”) subscribes for Shares of Common Stock of Worksport Ltd. (the “Company”) at $___
per share.
Number
of Shares Purchased = __________________
Total
subscription price ($0.__ x Shares purchased): = $ ___________.
PLEASE
MAKE CHECK PAYABLE TO: .
2.
Investor information:
Name
(type or print) ____________________________________________________________
Mailing
Address ________________________________________________________
Street
City/State Zip
SSN/EIN/Taxpayer
I.D. _________________ E-Mail address __________________
Joint
Name (type or print) _________________________________________________
SSN/EIN/Taxpayer
I.D. _________________ E-Mail address __________________
Mailing
Address (if different from above): _______________________________________________________________________
Street
City/State Zip
Business
Phone: _________________
Home
Phone: _________________
3.
Type of ownership: (You must check one box)
| [ ] |
Individual
|
[ ] |
Custodian
|
| [ ] |
Tenants
|
[ ] |
Uniform
|
| [ ] |
Joint
|
[ ] |
Corporation
|
| [ ] |
Partnership use
|
[ ] | Other (please explain) |
| [ ] |
Trust
|
||
| [ ] | Community Property |
4.
Further Representations, Warrants and Covenants.
Buyer
hereby represents warrants, covenants and agrees as follows:
| (a) | Buyer is at least eighteen (18) years of age with an address as set forth in this Subscription Agreement. |
|
| (b) | Except as set forth in the Offering circular and the exhibits thereto, no representations or warranties, oral or otherwise, have been made to Buyer by the Company or any other person, whether or not associated with the Company or this offering. In entering into this transaction, Buyer is not relying upon any information, other than that contained in the Offering circular and the exhibits thereto and the results of any independent investigation conducted by Buyer at Buyer’s sole discretion and judgment. |
|
| (c) | Buyer understands that his or her investment in the Shares is speculative and involves a high degree of risk, and is not recommended for any person who cannot afford a total loss of the investment. Buyer is able to bear the economic risks of an investment in the offering and at the present time can afford a complete loss of such investment. |
|
| (d) | Buyer is under no legal disability nor is Buyer subject to any order which would prevent or interfere with Buyer’s execution, delivery and performance of this Subscription Agreement or his or her purchase of the Shares. The Shares are being purchased solely for Buyer’s own account and not for the account of others and for investment purposes only, and are not being purchased with a view to or for the transfer, assignment, resale or distribution thereof, in whole or part. Buyer has no present plans to enter into any contract, undertaking, agreement or arrangement with respect to the transfer, assignment, resale or distribution of any of the Shares. |
| (e) | Buyer has (i) adequate means of providing for his or her current financial needs and possible personal contingencies, and no present need for liquidity of the investment in the Shares, and (ii) a liquid net worth (that is, net worth exclusive of a primary residence, the furniture and furnishings thereof, and automobiles) which is sufficient to enable Buyer to hold the Shares indefinitely. |
|
| (f) | If the Buyer is acting without a Purchaser Representative, Buyer has such knowledge and experience in financial and business matters that Buyer is fully capable of evaluating the risks and merits of an investment in the offering. |
|
| (g) | Buyer has been furnished with the Offering circular. | |
| (h) | Buyer understands that Buyer shall be required to bear all personal expenses incurred in connection with his or her purchase of the Shares, including without limitation, any fees which may be payable to any accountants, attorneys or any other persons consulted by Buyer in connection with his or her investment in the offering. |
5.
Indemnification
Buyer
acknowledges an understanding of the meaning of the legal consequences of Buyer’s representations and warranties contained
in this Subscription Agreement and the effect of his or her signature and execution of this Agreement, and Buyer hereby agrees
to indemnify and hold the Company and each of its officers and/or directors, representatives, agents or employees, harmless from
and against any and all losses, damages, expenses or liabilities due to, or arising out of, a breach of any representation, warranty
or agreement of or by Buyer contained in this Subscription Agreement.
6.
Acceptance of Subscription.
It
is understood that this subscription is not binding upon the Company until accepted by the Company, and that the Company has the
right to accept or reject this subscription, in whole or in part, in its sole and complete discretion. If this subscription is
rejected in whole, the Company shall return to Buyer, without interest, the Payment tendered by Buyer, in which case the Company
and Buyer shall have no further obligation to each other hereunder. In the event of a partial rejection of this subscription,
Buyer’s Payment will be returned to Buyer, without interest, whereupon Buyer agrees to deliver a new payment in the amount
of the purchase price for the number of Shares to be purchased hereunder following a partial rejection of this subscription.
7.
Governing Law.
This
Subscription Agreement shall be governed and construed in all respects in accordance with the laws of the State of Nevada without
giving effect to any conflict of laws or choice of law rules.
IN
WITNESS WHEREOF, this Subscription Agreement has been executed and delivered by the Buyer and by the Company on the respective
dates set forth below.
__________________________________
Signature
of Buyer
__________________________________
Printed
Name
__________________________________
Date
Deliver
completed subscription agreements and checks as follows:
Check
Payable to: Hi-Great Group Holding Corp.
_______________
_______________
_______________
===============================================================
To
be filled out by the Company
Investor
Subscription accepted as of this __ day of __________, 2020.
| By: | ||
| Name: | Steven Rossi |
|
| It’s: | Chief Executive Officer. |
EXHIBIT
1A-4B
THIS
WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR APPLICABLE EXEMPTION OR SAFE HARBOR PROVISION.
COMMON
STOCK PURCHASE WARRANT
WORKSPORT
LTD.
Warrant
Shares: ______ Initial Issue Date: _____, 2020
Aggregate
Exercise Amount: $__________
THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ________, or his assigns
(the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close
of business on the twelve (12) month anniversary of the Initial Exercise Date (as subject to adjustment hereunder, the “Termination
Date”), to subscribe for and purchase from WORKSPORT LTD., a Nevada corporation (the “Company”),
up to ___________ shares (as subject to adjustment herein, the “Warrant Shares”) of common stock of the Company
(the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to
the Exercise Price, as defined in Section 1.2.
ARTICLE
1 EXERCISE RIGHTS
The
Holder will have the right to exercise this Warrant to purchase shares of Common Stock as set forth below.
1.1
Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, from
and after the Initial Exercise Date, and then at any time, by delivery to the Company (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company)
of a duly executed facsimile or emailed copy of the Notice of Exercise form annexed hereto. Within three (3) business days following
the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable
Notice of Exercise by wire transfer or check drawn on a United States bank unless the cashless exercise procedure specified in
Section 1.3 below is specified in the applicable Notice of Exercise. Partial exercises of this Warrant resulting in purchases
of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number
of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and
the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company
shall deliver any objection to any Notice of Exercise form within 24 hours of receipt of such notice. The Holder and any assignee,
by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time
may be less than the amount stated on the face hereof.
1.2
Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $0.20 per share, subject to adjustment
hereunder (the “Exercise Price”). The aggregate exercise price is $_______.
1.3
Cashless Exercise. At any time after the Initial Exercise Date, this Warrant may also be exercised, in whole or in part,
at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
| (A) = |
the VWAP on the 10 trading days immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise; |
|
| (B) = |
the Exercise Price of this Warrant, as adjusted hereunder; and |
|
| (X) = |
the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise. |
1.4
Delivery of Warrant Shares. Warrant Shares purchased hereunder will be delivered to Holder by 2:30 pm EST within two (2)
business days of Notice of Exercise by “DWAC/FAST” electronic transfer (such date, the “Warrant Share Delivery
Date”). For example, if Holder delivers a Notice of Exercise to the Company at 5:15 pm eastern time on Monday January
1stt, the Company’s transfer agent must deliver shares to Holder’s broker via “DWAC/FAST” electronic
transfer by no later than 2:30 pm eastern time on Wednesday January 3rd, The Warrant Shares shall be deemed to have
been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record
of such shares for all purposes, as of the date of delivery of the Notice of Exercise. Holder may assess penalties or liquidated
damages (both referred to herein as “penalties”) as follows. For each exercise, in the event that shares are not delivered
by the third business day (inclusive of the day of exercise), the Company shall pay the Holder in cash a penalty of $100 per day
for each day after the third business day (inclusive of the day of exercise) until share delivery is made. The Company will not
be subject to any penalties once its transfer agent correctly processes the shares to the DWAC system.
1.5
Delivery of Warrant. The Holder shall not be required to physically surrender this Warrant to the Company. If the Holder
has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, this Warrant shall automatically
be cancelled without the need to surrender the Warrant to the Company for cancellation. If this Warrant shall have been exercised
in part, the Company shall, at the request of Holder and upon surrender of this Warrant, at the time of delivery of the Warrant
Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called
for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant and, for purposes of Rule 144,
shall tack back to the original date of this Warrant.
1.6
Warrant Exercise Rescission Rights. For any reason in Holder’s sole discretion, including if the Warrant Shares are
not delivered by DWAC/FAST electronic transfer or in accordance with the timeframe stated in Section 1.4, or for any other reason,
Holder may, at any time prior to selling those Warrant Shares rescind such exercise, in whole or in part, in which case the Company
must, within three (3) days of receipt of notice from the Holder, repay to the Holder the portion of the exercise price so rescinded
and reinstate the portion of the Warrant and equivalent number of Warrant Shares for which the exercise was rescinded and, for
purposes of Rule 144, such reinstated portion of the Warrant and the Warrant Shares shall tack back to the original date of this
Warrant. If Warrant Shares were issued to Holder prior to Holder’s rescission notice, upon return of payment from the Company,
Holder will, within three (3) days of receipt of payment, commence procedures to return the Warrant Shares to the Company.
1.7
Call Option. The Company shall have the right to call all or any portion of the Warrant Shares not yet exercised or put
to the Company upon Thirty (30) days prior notice to the Holder. Any Warrant Shares not converted to Common Stock or put to the
Company by the Termination Date, or not tendered back to the Company in response to a call by the date so specified in such notice
will not be entitled thereafter to any exercise or other rights.
1.8
[Intentionally Omitted.]
1.9
Make-Whole for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver
to the Holder the Warrant Shares by the Warrant Share Delivery Date and if the Holder incurs a Failure to Deliver Loss, then at
any time the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Failure
to Deliver Loss and the Company must make the Holder whole as follows:
Failure
to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of Warrant Shares)]
The
Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day
from the time of the Holder’s written notice to the Company.
1.10
Choice of Remedies. Nothing herein, shall limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms
hereof.
1.11
Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer
tax or other incidental expense in respect of the issuance of such shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the
Holder. The Company shall pay all transfer agent fees required for same-day processing of any Notice of Exercise.
1.12
Holder’s Exercise Limitations. Unless otherwise agreed in writing by both the Company and the Holder, at no time
will the Holder exercise any amount of this Warrant to purchase Common Stock that would result in the Holder owning more than
4.99% of the Common Stock outstanding of the Company (the “Beneficial Ownership Limitation”). Upon the written
or oral request of Holder, the Company shall within twenty-four (24) hours confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding.
ARTICLE
2 ADJUSTMENTS
2.1
Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company
upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by
reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted
such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 2.1
shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend
or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
2.2
Intentionally Omitted.
2.3
Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders
of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights
or warrants to subscribe for or purchase any security other than the Common Stock, then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at
such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments
shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned above.
2.4
Notice to Holder. Whenever the Exercise Price is adjusted pursuant to any provision of this Article 2, the Company shall
promptly notify the Holder (by written notice) setting forth the Exercise Price after such adjustment and any resulting adjustment
to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ARTICLE
3 COMPANY COVENANTS
3.1
Reservation of Shares. As of the issuance date of this Warrant and for the remaining period during which the Warrant is
exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for
the issuance of Warrant Shares upon the full exercise of this Warrant. The Company represents that upon issuance, such Warrant
Shares will be duly and validly issued, fully paid and non-assessable. The Company agrees that its issuance of this Warrant constitutes
full authority to its officers, agents and transfer agents who are charged with the duty of executing and issuing shares to execute
and issue the necessary Warrant Shares upon the exercise of this Warrant. No further approval or authority of the stockholders
or the Board of Directors of the Company is required for the issuance of the Warrant Shares.
3.2
No Adverse Actions. Except and to the extent as waived or consented to by the Holder, the Company shall not by any action,
including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares
above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action
as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant
Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform
its obligations under this Warrant.
ARTICLE
4 MISCELLANEOUS
4.1
Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant
and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a
view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable
state securities law, except pursuant to sales registered or exempted under the Securities Act.
4.2
Transferability. Subject to compliance with any applicable securities laws, this Warrant and all rights hereunder (including,
without limitation, any registration rights) are transferable, in whole or in part, by a written assignment of this Warrant duly
executed by the Holder or its agent or attorney. If necessary to obtain a new warrant for any assignee, the Company, upon surrender
of this Warrant, shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable,
and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and such new Warrants, for purposes of Rule 144, shall tack back to the
original date of this Warrant. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for
the purchase of Warrant Shares without having a new Warrant issued.
4.3
Assignability. The Company may not assign this Warrant. This Warrant will be binding upon the Company and its successors,
and will inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder to anyone of its
choosing without the Company’s approval.
4.4
Notices. Any notice required or permitted hereunder must be in writing and either personally served, sent by facsimile
or email transmission, or sent by overnight courier. Notices will be deemed effectively delivered at the time of transmission
if by facsimile or email, and if by overnight courier the business day after such notice is deposited with the courier service
for delivery.
4.5
Governing Law. This Warrant will be governed by, and construed and enforced in accordance with, the laws of the State of
Nevada, without regard to the conflict of laws principles thereof. Any action brought by either party against the other concerning
the transactions contemplated by this Warrant shall be brought only in the state courts of Nevada or in the federal courts located
in the State of Nevada. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.
4.6
Delivery of Process by Holder to the Company. In the event of any action or proceeding by Holder against the Company, and
only by Holder against the Company, service of copies of summons and/or complaint and/or any other process which may be served
in any such action or proceeding may be made by Holder via U.S. Mail, overnight delivery service such as FedEx or UPS, email,
fax, or process server, or by mailing or otherwise delivering a copy of such process to the Company at its last known address
or to its last known attorney set forth in its most recent SEC filing.
4.7
No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other
rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 1.1. So long as this Warrant is unexercised,
this Warrant carries no voting rights and does not convey to the Holder any “control” over the Company, as such term
may be interpreted by the SEC under the Securities Act or the Exchange Act, regardless of whether the price of the Company’s
Common Stock exceeds the Exercise Price.
4.8
Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant
to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability
of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
4.9
Attorney Fees. In the event any attorney is employed by either party to this Warrant with regard to any legal or equitable
action, arbitration or other proceeding brought by such party for the enforcement of this Warrant or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of this Warrant, the prevailing party in such proceeding
will be entitled to recover from the other party reasonable attorneys’ fees and other costs and expenses incurred, in addition
to any other relief to which the prevailing party may be entitled.
4.10
Opinion of Counsel. In the event that an opinion of counsel is needed for any matter related to this Warrant, Holder has
the right to have any such opinion provided by its counsel. Holder also has the right to have any such opinion provided by the
Company’s counsel.
4.11
Nonwaiver. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies.
4.12
Amendment Provision. The term “Warrant” and all references thereto, as used throughout this instrument, means
this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.13
No Shorting. Holder agrees that so long as this Warrant remains unexercised in whole or in part, Holder will not enter
into or effect any “short sale” of the common stock or hedging transaction which establishes a net short position
with respect to the common stock of the Company. The Company acknowledges and agrees that as of the date of delivery to the Company
of a fully and accurately completed Notice of Exercise, Holder immediately owns the common shares described in the Notice of Exercise
and any sale of those shares issuable under such Notice of Exercise would not be considered short sales.
*
* *
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first
above indicated.
| WORKSPORT LTD. | ||
| By: | ||
| Name: | Steven Rossi, CEO |
|
| HOLDER: | ||
NOTICE
OF EXERCISE
TO:
WORKSPORT LTD.
| 1. | The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. |
| 2. | Payment shall take the form of (check applicable box): |
[ ]
in lawful money of the United States; or
[ ]
the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 1.3, to
exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure
set forth in Section 1.3.
| 3. | Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: |
_______________________________
The
Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
4.
Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under
the Securities Act of 1933, as amended.
| [SIGNATURE OF HOLDER] | ||
| Name: | ||
| Date: | ||
EXHIBIT
1A-11A
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use of our report dated May 14, 2020, on the financial statements of Worksport, LTD (formerly known as
Franchise Holdings International, Inc.) as of December 31, 2019 and for the year then ended included herein on the Regulation
A Offering Circular of Worksport, LTD on Form 1-A and to the reference to our firm under the heading “Experts”.
/s/
Haynie & Company
Salt
Lake City, Utah
July
15, 2020
EXHIBIT
1A-12A
July
15, 2020
Worksport
Ltd.
414-3120
Rutherford Rd
Vaughan,
Ontario, Canada L4K 0B1
Re: Form 1-A
Ladies
and Gentlemen:
I
am counsel for Worksport Ltd., a Nevada corporation (the “Company”), in connection with the proposed public offering
by the Company under the Securities Act of 1933, as amended, of up to 30,000,000 units comprised of (i) 30,000,000 shares of its
common stock, $0.0001 par value per share (“Common Stock”), and (ii) warrants to purchase an additional 30,000,000
shares of Common Stock (“Warrant Shares”) through a Regulation A Offering Statement on Form 1-A (the “Offering
Statement”) as to which this opinion is a part, to be filed with the Securities and Exchange Commission.
In
connection with rendering our opinion as set forth below, I have reviewed and examined originals or copies identified to our satisfaction
of the following:
(1)
Articles of Incorporation and amendments thereto, of the Company as filed with the Secretary of State of Nevada;
(2)
Corporate minutes containing the written resolutions of the Board of Directors of the Company;
(3)
The Offering Statement and the offering circular which is a part thereto; and
(4)
The other exhibits of the Offering Statement.
I
have examined such other documents and records, instruments and certificates of public officials, officers and representatives
of the Company, and have made such other investigations as I have deemed necessary or appropriate under the circumstances.
In
my examination, I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity
of all documents submitted to me as original documents and the conformity to original documents of all documents submitted to
us as certified, conformed, facsimile, electronic or photostatic copies. I have relied upon the statements contained in the Offering
Statement and certificates of officers of the Company, and I have made no independent investigation with regard thereto.
Based
upon the foregoing and in reliance thereon, it is my opinion that the 30,000,000 shares of Common Stock and 30,000,000 shares
of Warrant Shares being offered by the Company under the Registration Statement, when sold, will be legally issued, fully paid
and non-assessable pursuant to the laws of the State of Nevada and the laws of the United States of America.
I
hereby consent to this opinion being included as an exhibit to the Offering Statement.
| Very truly yours, |
|
| /s/ Matthew McMurdo, Esq. |
|
| Matthew McMurdo, Esq. |
