METAWORKS PLATFORMS, INC. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ____________

Commission file number 000-55049

CURRENCYWORKS INC.

(Exact name of registrant as specified in its charter)

3250 Oakland Hills Court, Fairfield, CA 94534

(Address of principal executive offices) (Zip Code)

424.570.9446

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 71,178,083 shares of common stock issued and outstanding as at November 15, 2021.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Our unaudited condensed interim consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

It is the opinion of management that the unaudited condensed interim consolidated financial statements for the quarter ended September 30, 2021 include all adjustments necessary in order to ensure that the unaudited condensed interim consolidated financial statements are not misleading.

CurrencyWorks Inc.

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

CurrencyWorks Inc.

Condensed Consolidated Statement of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

CurrencyWorks Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

CurrencyWorks Inc.

Condensed Consolidated Statements of Cash Flows (cont’d)

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

CurrencyWorks Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

CurrencyWorks Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

As of September 30, 2021 and for the Three and Nine Months ended September 30, 2021 and 2020

1. NATURE AND CONTINUANCE OF OPERATIONS

CurrencyWorks Inc. (the “Company”) was incorporated under the laws of the State of Nevada on July 20, 2010, with an authorized capital of 75,000,000 common shares, having a par value of $0.001 per share. During the period ended December 31, 2010, the Company commenced operations by issuing shares and developing its publishing service business, focused on representing authors to publishers.

On February 14, 2018, the Company changed its name from “AppCoin Innovations Inc.” to “ICOx Innovations Inc.”

On August 17, 2018, a subsidiary of the Company changed its name from “AppCoin Innovations (USA) Inc.” to “ICOx USA, Inc.”

On November 19, 2018, we incorporated a new Delaware subsidiary, GN Innovations, Inc., to provide blockchain technology opportunities to the sports and entertainment industry by working with large and well-established brands.

On November 28, 2018, we incorporated a new Delaware subsidiary, Cathio, Inc, to provide blockchain technology opportunities to the Catholic community. Cathio was dissolved on October 20, 2020.

Effective December 5, 2018, we effected a name change for our subsidiary from “GN Innovations, Inc.” to “GN1, Inc.”.

Effective February 6, 2019, we effected a name change for our subsidiary from “GN1, Inc.” to “sBetOne, Inc.”.

On June 22, 2021, we incorporated a new Delaware subsidiary, Motoclub LLC, to create a marketplace for digital automotive collectibles.

On June 22, 2021, we incorporated a new Delaware subsidiary, EnderbyWorks, LLC, to create a direct-to-consumer, feature-length film viewing and distribution platform delivering feature-length films and digital collectible entertainment content as NFTs.

We aim to be a financial technology blockchain that builds, operates and manages fintech (financial technology) platforms for digital currencies, digital assets and security tokens.

Since 2017, our services and development business has provided a turnkey set of services for companies to develop and integrate blockchain technologies into their business operations. We intend to offer fintech services and infrastructure offerings in key categories, including digital currencies, digital assets including non-fungible tokens (NFTs) and digital securities. We anticipate that we will enable companies to digitize, sell and manage new or existing asset classes on blockchain infrastructure, transact in digital/ cryptocurrencies (payments, rewards and credit infrastructure), issue or create digital/crypto assets and/or manage their digital/crypto assets (non-fungible tokens, fungible cold storage and mining).

Going Concern

These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $33,475,357 as of September 30, 2021 and further losses are anticipated in the pursuit of the Company’s new service business opportunity, raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and/or the private placement of common stock.

The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America.

Basis of Consolidation

The unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries, CurrencyWorks USA Inc. (formerly ICOx USA, Inc.), MotoClub, and its majority-owned subsidiary, EnderbyWorks, LLC. All intercompany transactions and balances have been eliminated.

Unaudited Interim Financial Information

The accompanying unaudited condensed interim consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed interim consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2020 and notes thereto contained in the information as part of the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 30, 2021.

Use of Estimates

The preparation of unaudited condensed interim consolidated financial statements in conformity with GAAP 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 interim consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and these differences could be material.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, highly liquid investments, such as certificates of deposit or money market funds that are readily convertible to known amounts of cash and have original maturities of three months or less. All cash balances are held by major banking institutions.

The carrying amounts of cash and cash equivalents, prepaid expenses, short-term loans receivable, trade payables and convertible notes payable approximate their fair value due to the short-term maturity of such instruments.

Earnings per Share

The Company computes earnings (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed by dividing net loss available to common stockholders by the weighted average number of outstanding common shares during the period.

Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. The Company computes earnings (loss) per share in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note (Note 5) using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants (Note 11). Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

At September 30, 2021 and September 30, 2020, common shares from the conversion of debt (shares) (Note 5) and outstanding of stock options (shares) (Note 11) have been included as their effect is dilutive for Q3 2021 using the treasury stock method.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Revenue Recognition

Revenue is recognized in accordance with FASB ASC Topic 606, Revenue Recognition. The Company recognizes revenue when persuasive evidence of an arrangement exists, the related services are rendered or delivery has occurred.

The Company primarily generates revenues from professional services consulting agreements. These arrangements are generally entered into on a contingent fee basis. There is no prepayment or retainer required prior to performing services and the entire fees is earned on a contingent basis. The Company also provides monthly post-business launch support services. The recurring monthly post-business launch support services are recognized as revenue each month that the subscription is maintained.

The Company generally enters into arrangements for which revenues are contingent upon achieving a pre-determined deliverable or future outcome. Any contingent revenue for these arrangements is not recognized until the contingency is resolved and collectability is reasonably assured.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled revenue (a component of accounts receivable) or deferred revenue on the consolidated balance sheet. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled revenue.

Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses are included in total direct client service costs. Taxes collected from customers and remitted to governmental authorities are presented in the statement of operations on a net basis.

Costs to obtain contracts are capitalized and amortized over the course of the revenue cycle.

Stock-Based Compensation

The Company has adopted FASB guidance on stock-based compensation. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The fair value of the options is calculated based off the Black Scholes valuation model (Note 13).

The Company has issued stock options to employees and non-employees. Stock options granted to non-employees for services or performance not yet rendered would be expensed over the service period or until the goals had been reached. The fair value calculation valued as at the grant date. The stock options granted to non-employees during the period ended September 30, 2021 were for services to be rendered and, as such, the expense will be amortized over the service period.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, convertible notes, and payables. The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items.

When determining fair value, whenever possible, the Company use observable market data, and relies on unobservable inputs only when observable market data is not available. As of September 30, 2021, and September 30, 2020, the Company did not have any level 1 or 2 financial instruments. Please see Note 14 for additional information on level 3 fair value of financial instruments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Management has not yet evaluated the impact that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures.

Digital Currency Valuation

Digital currencies consist of cryptocurrency denominated assets and are included in current assets. Digital currencies are carried at their fair market value determined by an average spot rate of the most liquid digital currency exchanges. On an interim basis, we recognize decreases in the value of the assets caused by market declines. Subsequent increases in the value of these assets through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the total previously recognized decreases in value during the same year. Such unrealized gains or losses resulting from changes the value of the digital currency are recorded in Other Income, net in the consolidated statements of operations. Gains and losses realized upon sale of digital currencies are also recorded in Other Income, net in the consolidated statement of operations.

Fair market value is determined by taking the average spot rate from the most liquid digital currency exchanges. Digital currencies are measured using level one fair values, determined by taking the rate from market currency exchanges. Digital currency prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The Company may not be able to liquidate its inventory of digital currency at its desired price if required. A decline in the market prices for digital currencies could negatively impact the Company’s future operations. The digital currency market is still a new market and is highly volatile; historical prices are not necessarily indicative of future value; a significant change in the market prices for digital currencies would have a significant impact on the Company’s earnings and financial position.

The Company did not hold any digital currency as at September 30, 2021 and December 31, 2020.

Deferred Revenue

The Company’s policy is to defer revenue that relate to services that have not yet been performed. Deferred revenue is recognized when the service has been performed and contingencies have been resolved.

Service Costs

The Company’s policy is to defer direct service costs that relate to the earning of contingent fee revenue. These deferred costs are expensed when the contingent fee revenue is recognized or when the earning of the contingent fee revenue is in doubt.

3. ACCOUNTS RECEIVABLE

As at September 30, 2021, the Company had outstanding accounts receivables of $83,858 compared to $90,333 as at December 31, 2020.

4. NOTES RECEIVABLE – RELATED PARTY

Effective as of May 5, 2021, we loaned $400,000 to Fogdog Energy Solutions Inc. pursuant to convertible promissory note. The note bears interest at a rate of 4% per annum and comes due on May 5, 2022. The note may not be prepaid without the written consent of our company. Under certain conditions as outlined in the promissory note, the Company may convert the outstanding loan into common shares. Our chief financial officer, secretary and treasurer, Swapan Kakumanu, is a director, chief financial officer and a shareholder of Fogdog.

Effective as of August 20, 2021, we loaned an additional $850,000 to Fogdog Energy Solutions Inc. pursuant to convertible promissory note. The note bears interest at a rate of 10% per annum and comes due on August 20, 2027. The note may not be prepaid without the written consent of our company. Under certain conditions as outlined in the promissory note, the Company may convert the outstanding loan into common shares. Our chief financial officer, secretary and treasurer, Swapan Kakumanu, is a director, chief financial officer and a shareholder of Fogdog.

5. INTANGIBLE ASSET

On July 6, 2021, the Company, through one of its subsidiaries, acquired the rights to a movie for a period of 10 years. This acquisition is linked to one of the Company’s subsidiary projects for movie-related NFTs. The Company has spent $2.5 million as at September 30, 2021, with an additional $500,000 on October 1, 2021 for a total of $3.0 million. This asset will be amortized on a straight-line basis over the 10-year life of the asset.

6. INVESTMENTS, RELATED PARTY

On August 12, 2021, the Company’s subsidiary sBetOne, Inc. (“sBetOne”) entered into a business combination with a related party, VON Acquisition Inc. (“VON”) whereby sBetOne became a wholly owned subsidiary of VON. The Company received 5,902,174 common shares or 6.31% of the total outstanding common shares of VON as at the date of the business combination. The transition from having a 59.02% ownership in sBetOne to having a 6.31% ownership in VON has led the Company to deconsolidate sBetOne from the Company’s financial statements and record the ownership of VON as an investment. The common shares were valued at $0.10 CAD per share.

The sBetOne carrying amount in liabilities of $824,041 and loss in NCI of $350,942 were removed from the Company and converted into shares of VON, resulting in a gain of $120,478 upon deconsolidation of sBetOne.

 SCHEDULE OF INVESTMENTS IN RELATED PARTY

7. NOTES PAYABLE

The Company has no notes outstanding as at September 30, 2021. On May 11, 2021, 4,504,600 common shares were issued for debt conversion of $135,138. On June 25, 2021, 3,413,700 common shares were issued for debt conversion of $341,370. The sBetOne Inc. debt of $824,041 was converted into shares of VON upon deconsolidation.

The balances of the convertible notes outstanding as at December 31, 2020 were as follows:

 SCHEDULE OF CONVERTIBLE NOTES OUTSTANDING

8. DERIVATIVE LIABILITIES

In connection with warrants, the Company records derivative liabilities since the strike price is denominated in a currency other than the Company’s functional currency. The warrants are valued on the date of issuance and revalued at each reporting period. The Company recorded initial derivative liabilities on June 12, 2020 of $132,451 based upon the following Black-Scholes option pricing model assumptions: an exercise price of CAD$0.10, our stock price on the date of grant of CAD$0.09, expected dividend yield of 0%, expected volatility of 38.16%, risk free interest rate of 0.19%, expected term of 2.0 years and foreign exchange rate of 1.3596.

The Company recorded initial derivative liabilities on January 5, 2021 of $1,559,108 based upon the following Black-Scholes option pricing model assumptions: an exercise price of CAD$0.165, our stock price on the date of grant of CAD$0.99, expected dividend yield of 0%, expected volatility of 40.63%, risk free interest rate of 0.13%, expected term of 2.0 years and foreign exchange rate of 1.2707.

The Company recorded initial derivative liabilities on February 4, 2021 of $1,818,140 based upon the following Black-Scholes option pricing model assumptions: an exercise price of CAD$0.10, our stock price on the date of grant of CAD$0.09, expected dividend yield of 0%, expected volatility of 38.16%, risk free interest rate of 0.19%, expected term of 2.0 years and foreign exchange rate of 1.2828.

As at March 31, 2021, the Company recorded $10,930,625 related to warrant exercises based upon the following Black-Scholes option pricing model assumptions on exercise date: an average exercise price of CAD$0.10, an average stock price based on the exercise dates of CAD$2.07, expected dividend yield of 0%, average expected volatility of 43.76%, average risk free interest rate of 0.08%, average estimated life of 1.4 years and foreign exchange rate of 1.2651.

As at June 30, 2021, the Company recorded $6,587,114 related to warrant exercises based upon the following Black-Scholes option pricing model assumptions on exercise date: an average exercise price of CAD$0.23, an average stock price based on the exercise dates of CAD$2.03, expected dividend yield of 0%, average expected volatility of 45.41%, average risk free interest rate of 0.16%, average estimated life of 1.25 years and foreign exchange rate of 1.2394.

As at September 30, 2021, the Company recorded $1,396,515 related to warrant exercises based upon the following Black-Scholes option pricing model assumptions on exercise date: an average exercise price of CAD$0.10, an average stock price based on the exercise dates of CAD$1.24, expected dividend yield of 0%, average expected volatility of 45.41%, average risk free interest rate of 0.06%, average estimated life of 0.5 years and foreign exchange rate of 1.2475.

The derivative liabilities were revalued at USD$38,179,236, resulting in a loss of $34,421,636 as at March 31, 2021, related to the change in fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: an exercise price of CAD$0.75, our stock price on the date of valuation of CAD$3.37, expected dividend yield of 0%, expected volatility of 44,79%, average risk-free interest rate of 0.14%, an average expected term of 1.7 years and foreign exchange rate of 1.2575.

The derivative liabilities were revalued at USD$8,323,373, resulting in income of $23,215,211 as at June 30, 2021, related to the change in fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: an exercise price of CAD$0.10-$0.75, our stock price on the date of valuation of CAD$1.38, expected dividend yield of 0%, average expected volatility of 45.64%, average risk-free interest rate of 0.16%, an average expected term of 1.5 years and foreign exchange rate of 1.2394.

The derivative liabilities were revalued at USD$10,240,541 resulting in a loss of $21,996,728 as at September 30, 2021, related to the change in fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: an exercise price of CAD$0.10-$0.75, our stock price on the date of valuation of CAD$0.49, expected dividend yield of 0%, average expected volatility of 45.64%, average risk-free interest rate of 0.16%, an average expected term of 1.5 years and foreign exchange rate of 1.2741.

9. WARRANTS

From January 2020, through September 30, 2021, the Company issued 22,930,000 warrants.

The fair value of each warrant is estimated using the Black-Scholes valuation method. Assumptions used in calculating the fair value at September 30, 2021 were as follows:

 SCHEDULE OF ASSUMPTIONS OF FAIR VALUE OF WARRANT

Since the expected life of the warrants was greater than the Company’s historical stock information available, the Company determined the expected volatility based on price fluctuations of comparable public companies.

The issuances, exercises and pricing re-sets during the Nine Months ended September 30, 2021, are as follows:

 SCHEDULE OF ISSUANCES, EXERCISES AND PRICING RE-SETS

The intrinsic value of the 1,780,000 warrants exercised in Q3 2021 is $694,200.

10. COMMITMENTS

The Company has no outstanding commitments as at September 30, 2021.

11. RELATED PARTY TRANSACTIONS

In support of the Company’s efforts and cash requirements, it may rely on advances from stockholders until such time as the Company can support its operations through revenue generation or attain adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by stockholders. Amounts represent advances or amounts paid in satisfaction of liabilities.

The Company engaged two clients to build out their business models, technology strategy, market entry strategy, and capital structure, including a blockchain platform launch. The Company signed an agreement with BIG in which 80% of the revenue received is reimbursed to BIG for expenses incurred to meet the performance obligations as outlined

As of January 15, 2021, Business Instincts Group (“BIG”) is no longer considered a related party due to Cameron Chell’s resignation as director and officer from BIG. Cameron also no longer has any beneficial ownership in BIG.

On December 4, 2018, the Company appointed Swapan Kakumanu as Chief Financial Officer. Previously, on October 9, 2017, the Company had signed an agreement with a company owned by Swapan Kakumanu to complete the accounting functions of the Company. As of September 30, 2021, the Company had trade and other payables owing to this related party of $37,514 (December 31, 2020 - $10,013). On May 5, 2021, the Company loaned Fogdog Energy Solutions Inc. $400,000 of which our CFO is a director, chief financial officer and shareholder of (Note 4).

Effective as of August 20, 2021, we loaned an additional $850,000 to Fogdog Energy Solutions Inc. pursuant to convertible promissory note. The note bears interest at a rate of 10% per annum and comes due on August 20, 2027. The note may not be prepaid without the written consent of our company. Under certain conditions as outlined in the promissory note, the Company may convert the outstanding loan into common shares.

On August 12, 2021, the Company’s subsidiary sBetOne entered into a business combination with a related party, VON whereby sBetOne became a wholly owned subsidiary of VON. The Company received 5,902,174 common shares or 6.31% of the total outstanding common shares of VON as at the date of the business combination. The common shares were valued at $0.10 CAD per share. Our CFO is the chief financial officer of VON.

12. SHARE CAPITAL

On June 12, 2020, the Company completed a non-brokered private placement consisting of the issuance of 11,170,000 units (each, a “Unit”) at a price of USD$0.04 per unit. Each unit consisted of one share of common stock and one warrant with an exercise price of CAD $0.10 per warrant share for a period of 2 years from the date of closing. The Company received aggregate gross proceeds of USD$410,783 (the “Offering”) of which $278,332 is allocated to common shares and $132,451 is allocated to the warrants. The warrants issued by the Company are denominated in CAD at issuance. The Company’s functional currency is the USD. Under U.S. GAAP, where the strike price of warrants is denominated in a currency other than an entity’s functional currency the warrants would not be considered indexed to the entity’s own stock and would consequently be considered to be a derivative liability. Therefore, the value of the warrants needs to be included as a derivative liability.

In connection with the offering, the Company has agreed to issue 80,000 broker’s warrants to the Finders. Each broker warrant entitles the holder to purchase one Unit (each, a “Broker Unit”) at a price of $0.05 per Broker Unit, with each Broker Unit consisting of one Share and one share purchase warrant entitling the holder to purchase an additional share at a price of $0.10 for a period of two years.

For the year ended December 31, 2020, there were 500,000 warrants exercised for common shares.

On January 5, 2021 the Company completed a private placement where 2,400,000 units were issued, consisting of one common share and one common share purchase warrant issued at a price of $0.40 (Canadian dollars (“CAD”)) for total gross proceeds of $300,000 CAD ($236,090 USD). The derivative liability valuation of the warrants issued is $1,559,108.

February 4, 2021 the Company completed a private placement where 8,000,000 units were issued, consisting of one common share and one common share purchase warrant issued at a price of $0.40 (Canadian dollars (“CAD”)) for total gross proceeds of $4,000,000 CAD ($3,118,179 USD). The derivative liability valuation of the warrants issued is $1,818,140.

On March 23, 2021, the Company completed a private placement where 1,200,000 units were issued, consisting of one common share and one common share purchase warrant issued at a price of $1 (United States dollars (“USD”)) for total gross proceeds of $1,200,000 USD.

On July 14, 2021, the Company completed a registered direct offering where 4,687,500 units were issued, consisting of one common share and one common share purchase warrant issued at a price of $0.80 (United States dollars (“USD”)) for total gross proceeds of $3,750,000 USD.

For the Nine Months ended September 30, 2021, there were 9,441,250 warrants exercised for proceeds received of $1,362,235 for common shares, 325,000 options exercised for proceeds of $32,500 for common shares, and 7,918,300 shares issued from the conversion of debt of $476,509 (see Note 7).

13. STOCK-BASED COMPENSATION

The Company has adopted the 2017 Equity Incentive Plan (“the Plan”) under which non-transferable options to purchase common shares of the Company may be granted to directors, officers, employees, or consultants of the Company. The terms of the Plan provide that our board of directors may grant options to acquire common shares of the Company at not less than 100% of the greater of: (i) the fair market value of the shares underlying the options on the grant date and (ii) the fair market value of the shares underlying the options on the date preceding the grant date at terms of up to ten years. No amounts are paid or payable by the recipient on receipt of the options. On April 26, 2021, the maximum number of options available for grant was increased to 13,300,000 shares. As of September 30, 2021, there are 8,301,666 stock options issued (September 30, 2020 – 3,500,000) and 4,998,334 stock options unissued (September 30, 2020 – 400,000).

The Company has also granted stock options to non-employees. These stock options were granted to consultants who have provided their services for cash compensation below cost, with the stock options providing additional compensation in lieu of cash.

On February 10, 2021, the Company granted a total of 2,200,000 stock options to officers and directors of the Company. The stock options are exercisable at the exercise price of $1.17 per share for a period of ten years from the date of grant. The stock options have a fair value of $1.09 and are exercisable as follows:

13. STOCK-BASED COMPENSATION (CONT’D)

On March 19, 2021, the Company granted a total of 180,000 stock options to a consultant of the Company. The stock options are exercisable at the exercise price of $3.19 per share for a period of ten years from the date of grant. The stock options have a fair value of $2.87 and are exercisable as follows:

On May 5, 2021, the Company granted a total of 180,000 stock options to a consultant of the Company. The stock options are exercisable at the exercise price of $1.78 per share for a period of ten years from the date of grant. The stock options have a fair value of $1.65 and are exercisable as follows:

On June 15, 2021, the Company granted a total of 2,900,000 stock options to a consultant of the Company. The stock options are exercisable at the exercise price of $1.16 per share for a period of ten years from the date of grant. The stock options have a fair value of $1.07 and are exercisable as follows:

Stock-based compensation expense recognized for the periods ended September 30, 2021 and 2020 were $1,826,966, and $8,115 respectively. Stock options granted are valued at the fair value calculation based off the Black-Scholes valuation model. The weighted average assumptions used in the calculation are as follows:

SCHEDULE OF ASSUMPTION USED

The intrinsic value of the options exercised is $233,250.

SCHEDULE OF STOCK OPTION ACTIVITY

14. FINANCIAL INSTRUMENTS

Fair value is an exit price representing the amount that would be received to sell an asset or aid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

A three-tier fair value hierarchy is established as a base for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

The derivative liabilities would be classified as a level 3 financial instrument.

 SCHEDULE OF DERIVATIVE LIABILITIES

  SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE

15. NON-CONTROLLING INTEREST

For sBetOne, Inc., on April 1, 2019, the Company transferred 2,000,000 of its shares to a third-party and cancelled 1,097,826 of its shares. Additionally, 2,097,826 shares of sBetOne, Inc. were issued to third-parties, reducing the Company’s ownership in this subsidiary to 59.02%

The following table sets forth a summary of the changes in non-controlling interest:

 SUMMARY OF CHANGES IN NON-CONTROLLING INTEREST

On August 12, 2021, the Company’s subsidiary sBetOne, Inc. (“sBetOne”) entered into a business combination with a related party, VON Acquisition Inc. (“VON”) whereby sBetOne became a wholly owned subsidiary of VON. The Company received 5,902,174 common shares or 6.31% of the total outstanding common shares of VON as at the date of the business combination. The transition from having a 59.02% ownership in sBetOne to having a 6.31% ownership in VON has led the Company to deconsolidate sBetOne from the Company’s financial statements and record the ownership of VON as an investment.

On June 22, 2021, the Company incorporated a new Delaware subsidiary, EnderbyWorks, LLC, in which the Company owns 51%.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management’s plans and objectives for future operations. In some cases, forward-looking statements can be identified by the use of terminology such as “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continues” or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this quarterly report include or may include, among others, statements about:

The material assumptions supporting these forward-looking statements include, among other things:

Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:

any of which may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Further, although we have attempted to identify factors that could cause actual results, levels of activity, performance or achievements to differ materially from those described in forward-looking statements, there may be other factors that cause results, levels of activity, performance or achievements not to be as anticipated, estimated or intended.

While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect management’s current judgment regarding the direction of our business, actual results may vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Accordingly, readers should not place undue reliance on forward-looking statements. Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend to update any of the forward-looking statements to conform these statements to actual results. All forward-looking statements in this quarterly report are qualified by this cautionary statement.

All financial information contained herein is shown in United States dollars unless otherwise stated. Our financial statements are prepared in accordance with United States generally accepted accounting principles. Unless otherwise stated, “$” refers to United States dollars.

In this quarterly report, unless otherwise specified, all references to “shares” refer to shares of common stock in the capital of our company.

As used in this quarterly report, the terms “we”, “us”, “the Company”, “our” and “CurrencyWorks” mean CurrencyWorks Inc. and its wholly-owned subsidiaries, CurrencyWorks USA Inc. (formerly ICOx USA, Inc.), and its majority-owned subsidiary, EnderbyWorks, LLC, unless otherwise specified.

Overview

We aim to be a financial technology blockchain that builds, operates and manages fintech (financial technology) platforms for digital currencies, digital assets and security tokens.

Since 2017, our services and development business has provided a turnkey set of services for companies to develop and integrate blockchain technologies into their business operations. We intend to offer fintech services and infrastructure offerings in key categories, including digital currencies, digital assets including non-fungible tokens (NFTs) and digital securities. We anticipate that we will enable companies to digitize, sell and manage new or existing asset classes on blockchain infrastructure, transact in digital/ cryptocurrencies (payments, rewards and credit infrastructure), issue or create digital/crypto assets and/or manage their digital/crypto assets (non-fungible tokens, fungible cold storage and mining).

Our core revenue streams are expected to remain as consulting revenues and transaction fees. We may also earn equity stakes in payment for our services, to the extent permitted under applicable law.

Results of Operations

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Revenue

We had $168,870 revenues for the three months ended September 30, 2021 from consulting agreements and NFT sales. $25,000 revenues were recognized for the three months ended September 30, 2020.

Operating Expenses

We incurred general and administrative expenses of $1,247,389 and $122,854 for the three months ended September 30, 2021 and 2020, respectively, representing an increase of $1,124,535 between the two periods. These expenses consisted primarily of consulting fees, professional fees, and other general and administrative costs. The increase in consulting fees between the two periods of $446,553 in 2021 from $59,533 in 2020 was mainly for consulting fees for our president, chief operating officer, and Board of Directors, consulting fees for new amended agreements entered into in Q2 2021 and also due to the stock options issued in Q2 2021. Professional fees were $67,147 in 2021 compared to $14,107 in 2020 with the increase due to higher legal fees as there was more activity in 2021.

Other Income (Expense)

Other income includes $120,478 related to gain on deconsolidation of sBetOne and $16,500 received from interest revenue same as in Q3 2020 for the same period last year. The decrease in derivative liability of $5,889,631 for Q3 2021 is due to the change in share price and warrants exercised.

Net Loss from Operations

We incurred net income from operations of $4,024.166 and net loss of $29,486 for the three months ended September 30, 2021 and 2020, respectively, representing an increase of $4,053,652, primarily attributable to the factors discussed above under the headings “Revenue” and “Operating Expenses”.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Revenue

We had revenue of $274,770 for the Nine Months ended September 30, 2021 from a consulting agreement as well as NFT sales and $25,000 for the Nine Months ended September 30, 2020.

Operating Expenses

We incurred general and administrative expenses of $6,263,360 and $504,058 for the Nine Months ended September 30, 2021 and 2020, respectively, representing an increase of $5,759,302 between the two periods. These expenses consisted primarily of consulting fees, pre-licensing fees, professional fees, and other general and administrative costs. The increase in consulting fees between the two periods to $1,886,056 in 2021 from $160,560 in 2020 was due to the increase in compensation for our president, chief operating officer, and Board of Directors as well as stock option issuances in 2021. Professional fees increased to $288,164 in 2021 from $75,102 in 2020 due to higher legal services as 2021 saw the Company spending on stock and share issuances as well as regulatory compliance due to increased activity. The increase in other general and administrative costs of $4,001,251 in 2021 from $257,736 in 2020 is due to increased advertising and marketing costs, compliance fees, and stock-based compensation. Project costs increased to $1,580,201 in 2021 from recover of $24,428 in 2020 due to new projects entered into in 2021.

Other Income (Expense)

Other income includes gain on deconsolidation of sBetOne of $120,478, $67,874 of recovered receivables received in 2021 from Ryde Holdings. Other expenses include interest expense on convertible notes payable of $96,239 for the Nine Months ended September 30, 2021 compared to $75,826 for the same period last year. Change in derivative liability was a loss of $14,179,929 in 2021 compared to a gain of $123,372 in 2020.

Net Loss from Operations

We incurred net loss from operations of $20,976,023 and $119,368 for the Nine Months ended September 30, 2021 and 2020, respectively, representing a net change of $20,856,655, primarily attributable to the factors discussed above under the heading “Revenue” and “Operating Expenses”.

Liquidity and Capital Resources

Working Capital

Current Assets

Current assets were $1,757,573 as at September 30, 2021 and $142,024 at December 31, 2020. The increase in current assets as at September 30, 2021 was due to private placements in 2021 partially offset by the increase in cash spent on operating expenses.

Current Liabilities

Current liabilities as at September 30, 2021 were attributable to $1,278,334 in accounts payable and accrued expenses, compared to $280,426 in accounts payable and accrued expenses, and $1,518,134 of loans payable as at December 31, 2020.

Cash Flow

Operating Activities

Net cash used in operating activities was $3,139,977 for the nine-month period ended September 30, 2021, as compared to net cash used of $265,642 for the nine-month period ended September 30, 2020, an increase of $2,874,335. The increase in net cash used in operating activities was primarily due to amended contracts increasing consulting fees along with increased marketing and development costs for our projects partially offset by increased accounts payable and accrued liabilities.

Investing Activities

During the Nine Months ended September 30, 2021, the Company loaned $1,250,000 to Fogdog Inc. in the form of a convertible debenture. The Company, through one of its subsidiaries, purchased the rights to a movie for a period of 10 years for $2,500,000 with an additional $500,000 spent subsequent to September 30, 2021. There were no cash investing activities for the nine-month period ended September 30, 2020.

Financing Activities

Financing activities provided cash of $9,010,350 through a series of private placements, warrant exercises, and stock option exercises partially offset by the repayment of loans for the Nine Months ended September 30, 2021 and provided cash of $293,948 for the Nine Months ended September 30, 2020.

Cash Requirements

Our estimated general and administrative expenses, operating expenses, and service costs for the next 12 months are $1,200,000 and are based on our current expenditures given the current market conditions.

We will require additional cash resources to meet our planned capital expenditures and working capital requirements for the next 12 months. We expect to derive such cash through the sale of equity or debt securities or by obtaining a credit facility. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in debt service obligations, could cause additional dilution to our stockholders, and could require us to agree to financial covenants that could restrict our operations or modify our plans to source a new business opportunity. Financing may not be available in amounts or on terms acceptable to us, if at all. Failure to raise additional funds could cause our company to fail.

Going Concern

Our unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established a source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. We have incurred losses since inception resulting in an accumulated deficit of $33,475,357 as at September 30, 2021 (December 31, 2020: $13,323,375). Our ability to operate as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable.

In its report on our financial statements for the years ended December 31, 2020 and 2019, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our company is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our principal executive officer, who is our president, and our principal financial officer, who is our chief financial officer, are responsible for establishing and maintaining disclosure controls and procedures for our company.

Our management conducted an evaluation, with the participation of our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report on Form 10-Q. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that as a result of the material weaknesses in our internal control over financial reporting described in our annual report on Form 10-K for the fiscal year ended December 31, 2020, our disclosure controls and procedures were not effective as of September 30, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We know of no material pending legal proceedings to which our company is a party or of which any of our properties is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or has a material interest adverse to our company.

ITEM 1A. RISK FACTORS.

As we are a smaller reporting company, we are not required to provide the information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Since the beginning of the fiscal quarter ended September 30, 2021, we have not sold any equity securities that were not registered under the Securities Act of 1933, as amended, that were not previously reported in a quarterly report on Form 10-Q or a current report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.