UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended: December 31, 2021

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

Commission File No. 001-40681

Worksport Ltd.

(Exact Name of Small Business Issuer as specified in its charter)

Registrant’s Telephone Number, including area code: (888) 554-8789

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit post such files).

Yes ☒ No ☐

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.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, as of June 30, 2021, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $89,928,234.52, based on a closing price of $10.39 per share of common stock.

As of March 31, 2022, the Registrant had 16,961,245 shares of common stock, par value $0.0001 per share, issued and outstanding.

Table of Contents

In this Annual Report on Form 10-K, unless otherwise stated or as the context otherwise requires, references in this document to “Worksport Ltd.,” “Worksport,” “us,” “we,” “our” or the “Company” refer to Worksport Ltd. and its subsidiaries, Worksport Ltd., Worksport Acquisition Corporation, Worksport USA Holding Corporation, and Terravis Energy, Inc. Our logo and other trademarks or service marks of the Company appearing in this Annual Report on Form 10-K are the property of Worksport Ltd. This Annual Report on Form 10-K also contains registered marks, trademarks, and trade names of other companies. All other trademarks, registered marks, and trade names appearing in this Annual Report on Form 10-K are the property of their respective holders.

Cautionary Note Regarding Forward-Looking Statements and Industry Data

This Annual Report on Form 10-K, in particular, Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements represent our expectations, beliefs, intentions, or strategies concerning future events, including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy in general, all of which were subject to various risks and uncertainties.

When used in this Annual Report on Form 10-K and other reports, statements, and information we have filed with the Securities and Exchange Commission (“SEC”), in our press releases, presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,” “will,” “expects,” “should,” “continue,” “anticipates,” “intends,” “will likely result,” “estimates,” “projects” or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. These statements are only predictions. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Any or all of our forward-looking statements in this document may turn out to be wrong. Actual events or results may differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties, and other factors.

This Annual Report on Form 10-K also contains estimates, projections, and other information concerning our industry, our business, and particular markets, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, general publications, government data, and similar sources.

PART I

ITEM 1. BUSINESS

Overview

Worksport Ltd., through its subsidiaries, designs, develops, manufactures, and owns the IP on a variety of tonneau covers, solar integrations, and NP (Non-Parasitic), Hydrogen-based true green energy solutions for the sustainable, clean energy, and automotive industries. Worksport Ltd. seeks to capitalize on the growing shift of consumer mindsets towards clean energy integrations with its proprietary solar solutions, mobile energy storage systems (ESS), and NP (Non-Parasitic), Hydrogen-based technology.

Corporate History

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

In December 2014, FNHI acquired 100% of the outstanding equity of Worksport Ltd., an Ontario, Canada corporation formed in 2011 (“Worksport Ontario”), pursuant to which Worksport Ontario became a wholly-owned subsidiary of FNHI. Upon acquiring Worksport Ontario, FNHI abandoned all previous business plans and has been focusing on developing the tonneau business.

In May 2020, FNHI changed its name to Worksport Ltd.

Terravis Energy Inc. (“Terravis”) was incorporated in the State of Colorado on May 24, 2021. On August 20, 2021, the Company was issued 100 shares of common stock at par value of $0.0001 per share, representing 100% of the outstanding equity of Terravis. On January 20, 2022, Terravis issued an additional 9,999,900 shares of Common Stock to Worksport Ltd. at a par value of $0.0001, representing 100% of the outstanding equity of Terravis.

Public Offering

On August 6, 2021, the Company consummated an underwritten public offering (the “Public Offering”) of an aggregate of 3,272,727 units, pursuant to a registration statement on Form S-1, as amended (File No. 333-256142) and a registration statement on Form S-1 (File No: 333-258429). The public offering price was $5.50 per unit and each unit consisted of one share of common stock and one warrant (“Public Warrant”) to purchase one share of common stock for $6.05 per share (110% of the unit offering price) from the date of issuance until the third anniversary of the issuance date. The Company received gross proceeds of approximately $18.0 million from the Public Offering, and after deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of approximately $16.1 million. The Company used the net proceeds for Working Capital, R&D, Marketing, and Equipment.

Nasdaq Uplisting

In connection with the Public Offering, the Company’s common stock and Public Warrants commenced trading on the Nasdaq Capital Market under the symbols “WKSP” and “WKSPW” since August 4, 2021. Prior to the uplisting, the Company’s common stock was quoted on the OTCQB Marketplace under the symbol, “WKSP.”

Products

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

Our current products include the SC (Soft Cover) line: SC3, SC3pro, and SC4.

SC3

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

SC3pro

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

SC4

The SC4 began production in 2021 and is expected to launch in Q2 of 2022.We believe that this will be the first vinyl wrapped tonneau cover to fold in four sections. This cover will also allow its users full bed access by being foldable upwards toward the rear window of the truck. This cover will be more compact when folded parallel to the back window of the truck which will reduce wind resistance and rear window obstruction.

Products in Pre-Production

Worksport is currently developing the following products:

TC3

The TC3 is currently in the pre-production stage, estimated to launch in the second quarter of 2022. The TC3 design will fold with three sections, allowing 2/3 bed access. The cover will have one latching point that is manually operated by the user. The cover panels will be made from formed aluminum, ultra-strong 5052 alloy panels with a matte black powder coated surface, for a durable finish.

Like the SC3pro, TC3 will also offer a cable-operated latching system that allows for one-sided operation by the user. Options on the TC3 will include expandable cargo division and storage solutions.

Worksport: Terravis System

We are currently developing a three-component system called the Terravis System. The Terravis System is a first-of-its-kind mobile power generator & energy storage system that consists of a solar tonneau cover called the Worksport SOLIS, a portable core battery called the Worksport COR, and an XCX Accessory Rail – securely fixed to the truck’s bed with use of specially-designed and patented clamps. The XCX system is used to secure the SOLIS tonneau cover using our patented Pro Series latches and can be used to secure additional accessories along with COR energy storage system, COR batteries, and a solar controller.

The Terravis System is capable of charging and storing up to 6kWh of energy on the go. This energy can be used for emergencies, outdoor activities, or work ranging from a contractor to drone operator. The Terravis System’s integrated track systems can be used for a variety of add-on options such as chrome trim, tie downs, cargo cleats, textile storage bags, seating, cargo racks, sliding system and others. Our sales efforts for our Terravis System will be focused on the North American markets, for companies such as Workhorse, Atlis, Bollinger, Hercules, as well as Toyota, Stellantis, GM and Ford trucks.

Worksport SOLIS

The SOLIS Hybrid Solar Tonneau Cover is fitted with cutting edge Monocrystalline solar panels, capable of generating up to 600 watts of power. The SOLIS is based on our Tough Cover framework and can provide up to 10 additional miles for EV pick-up trucks. This is based on a 98kWh battery under optimal conditions at 85% efficiency. Worksport SOLIS uses our TC (tough cover) design and builds on it by integrating highly advanced solar panels. The solar panels are secured to our 16 Gauge 5052 alloy panels both mechanically and using specialized adhesives, and those panels ensure our covers are extremely strong and durable. SOLIS allows current pick-up truck owners to utilize sustainable energy through advanced solar power technology to charge their COR energy storage systems (ESS) and upcoming EVs. While folded over the bed of the truck, the SOLIS is designed to charge power banks and portable batteries, turning any truck into a mobile micro-grid power station.

Worksport COR

The COR ESS (energy storage system) is a standalone product that can use energy created from SOLIS, our solar cover, and utilize the stored energy on the go, anywhere. Worksport COR is the most unique portable battery system on the market today. Not only does COR allow users to swap a depleted battery for a fully charged one, but it does so without a drop in power output for up to 15s with a load of 1800W. These innovations allow COR to go beyond a simple lifestyle product for work and leisure, as it’s a tool that could potentially save a life in the event of an emergency.

The COR’s main battery, a Lithium Nickel Manganese Oxide (Li-MNC) battery, boasts a capacity of 1534Wh while its Hot Swap Lithium Iron Phosphate (Li-MNC) battery has a capacity of 78.6Wh. The COR’s built-in inverter allows 2000W of power with an output voltage of 120V AC (frequency of 60Hz) and input voltage of 48V. The system allows Bluetooth connection for monitoring and controlling the COR and its external batteries.

Manufacturing

As of December 31, 2021, all Worksport products were manufactured in a facility located in Meizhou, China according to our specifications, schematics and blueprints. We believe that production at the factory can be increased within 30 days to facilitate volumes up to ten times the current output without any adverse effects on quality or craftsmanship.

We are currently in the process of establishing manufacturing presence within North America and are working towards closing on a property in West Seneca, New York. Management and seller are under contract for the property, and management plans to close on the property in April of 2022 barring any unforeseen problems or delays. Management believes that having manufacturing capability in North America will increase quality control and production efficiency as well as lower landed costs.

Intellectual Property

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

Patents

Our current intellectual portfolio consists of five (5) issued U.S. utility patents, one (1) issued Canadian utility patent, and twenty (20) pending patent applications: four (4) U.S. utility applications, seven (7) U.S. provisional applications, seven (7) U.S. design applications, and two (2) Canadian utility applications. We also in the process of preparing several other provisional and design patent applications.

Granted U.S. patents will expire between 2032 and 2036, excluding any patent term adjustment that might be available following the grant of the patent. If issued, pending applications would expire in 2041, excluding any patent term adjustment that might be available following the grant of the patent. Patents issued on the provisional applications, if any, would expire in 2042, excluding any patent term adjustment that might be available following the grant of the patent.

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

Trademarks

The Company has twenty-eight (28) trademarks in various states of pending, registered and allowed in the United States, Canada, China, European Union, Australia, New Zealand, and United Kingdom.

Governmental Programs, Incentives and Regulations

Globally, both the operation of our business by us and the ownership of our products by our customers are impacted by various government programs, incentives and other arrangements. Our business and products are also subject to numerous governmental regulations that vary among jurisdictions.

Programs and Incentives

We are in the process of applying for several sales tax, energy, and mortgage incentives, each containing their own sets of guidelines and agreements by which we must abide in order to continue receiving said incentives. While we are not currently bound by these agreements, we expect these agreements to take effect in 2022.

Regulations

Our portable power station (Worksport COR) is subject to various U.S. and international regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, which may present a risk in transportation. We plan to conduct testing to demonstrate our compliance with such regulations.

We use lithium-ion cells in our energy storage products. The use, storage and disposal of our battery packs are regulated under existing laws and are the subject of ongoing regulatory changes that may add additional requirements in the future.

The Market

Our revenue is directly proportional to sales of pickup trucks. The following chart using SEMA¹ data from 2021 shows sales of specialty equipment retail sales of aftermarket automotive accessories in the United States in billions from 2014, through 2020 and estimates those sales into 2024.

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

The Statista Market Outlook suggests that pickup trucks will continue to be the number one selling vehicle in North America. Pickup truck upgrades are the largest sector of the specialty equipment industry, accounting for 27% of total retail dollars (about $12.03 Billion). In the United States alone, there are over 158.6 million registered light trucks. Despite the growth of crossover vehicles (CUV) overall, full-size pickups remain the most common vehicle subtype on the road today. This is likely driven by the continued popularity of domestic half-ton pickups (e.g., Ford F-150, Chevrolet Silverado, Ram 1500) throughout the United States, especially in the U.S. southern states. Further, in 2021, roughly 75% of vehicles sold in the USA were light trucks.

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

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

2021 New Pickup Truck Sales in the United States by Month (All Models)

With 2021 year-end sales of approximately 726,000 units, the Ford F-Series was the best-selling light truck in the United States¹. The Ford F-Series is a series of full-size pickup trucks, the most popular variant being the F-150¹. The 14th generation of this model was released in 2020.

Pickup truck sales growth in the U.S. decreased in 2021 compared with 2020. U.S. pickup truck sales came to around 2.84 million units in 2021², compared to 2.96 million units in 2020³. This decline is largely attributed to chip shortages causing a decrease in trucks manufactured. With the exception of Toyota pickups, light trucks built by U.S.-based automakers continue to be favorites among U.S. vehicle buyers.

Distribution

We distribute our tonneau covers through wholesalers, private labels, distributors, and online retail channels in Canada and the United States. We will provide our tonneau covers through Original Equipment Manufacturers and our own eCommerce platform.

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

Competition

In our estimation, for many years, consumers looking to purchase tonneau covers have had a limited number of options available, mostly including:

Soft Folding & Roll-up covers (Vinyl covers);

Solid one piece caps and lids (Plastic & Fiberglass);

Retractable Covers (Plastic & Aluminum); and

Hard Folding & Standing Covers (Aluminum and FRP).

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

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

Our largest competitor is Truck Hero, which has acquired upwards of 16 independent tonneau cover brands in North America. Truck Hero’s products directly compete with our products. Our other competitors include LEER, Access, Truck Covers USA and Paragon.

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

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

The Company plans to expand to other markets outside the United States and Canada. We intend to generate revenue in new markets including but not limited to the automotive specialty equipment market and global Original Equipment Manufacturers.

Our goal is to become the leader in the tonneau cover market through innovation. Our main objective is to design and engineer our products to better suit today’s new, dynamic, and innovative models of light trucks and electric trucks, whether that be through Worksport’s Terravis System or through innovations within its subsidiary, Terravis Energy, Inc.

Research and Development

We will spend for research and development activities on an ongoing basis. The company is actively acquiring new engineering and design assets, both in-house and third-party. The Company’s subsidiary, Terravis Energy, Inc., researches green energy solutions for home and community power as well as Electric Vehicle DC charging. Much of the Company’s research and development is focused on hydrogen fuel cell power, which serves as a strong basis for grid-independent power solutions.

Environmental Compliance

We are committed to high environmental standards and carry 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

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

Executive Offices

Our principal business address and R&D facility is located at 7299 E Danbro Crescent, Mississauga, ON L5N 6P8, Canada while our secondary business address is 3120 Rutherford Road, Suite 414, Vaughan, ON L4K 0B2, Canada.

Our main telephone number is (888) 554-8789. Our main website is www.worksport.com and our website for Terravis is www.goterravis.com. The contents of our websites are not incorporated by reference into this annual report.

ITEM 1A. RISK FACTORS

As a “smaller reporting company,” are not required to provide the information required by this Item 1A.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease approximately 2,155 square feet for our secondary executive offices located at 3120 Rutherford Road, Suite 414, Vaughan, ON L4K 0B2, Canada pursuant to a three year lease, dated August 1, 2019 for approximately $1,712.09 USD per month. This office has been used as our primary mailing address, although this may change as we settle into our other properties. While this office meets our current needs, we may not need it once the lease expires.

We additionally have a three year lease for approximately 55,000 square feet for R&D space and additional offices located at 7299 E Danbro Crescent, Mississauga, ON L5N 6P8, Canada pursuant to a three year lease, dated April 16, 2021 and terminating on May 31^st of 2024 for approximately $21,300 USD per month. This facility is being used primarily for R&D purposes as well as corporate offices. This facility meets our R&D needs.

We are in the process of purchasing an approximately 222,000 square foot facility located at 2500 N America Dr., West Seneca, NY 14224 to serve as our new OEM manufacturing facility. This facility includes a current tenant to whom we will continue leasing 35,000 square feet for $22,000 USD per month. This facility meets our OEM manufacturing needs both now and in future years, as the facility contains ample space in which to grow.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are involved in lawsuits, claims, investigations, and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. We are not presently a party to any material pending or threatened legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock and Public Warrants commenced trading on the Nasdaq Capital Markets under the symbols “WKSP” and “WKSPW,” respectively, on August 4, 2021. Prior to trading on Nasdaq, our common stock was quoted on the OTCQB Market under the symbol “WKSP.”

The table below sets forth the high and low closing prices of the Company’s Common Stock during the years indicated. The quotations reflect inter-dealer prices without retail mark-up, markdown or commission and may not reflect actual transactions.

Holders of Common Stock

On December 31, 2021, there were 189 holders of record of our common stock.

Stock Transfer Agent

Our transfer agent is Vstock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598. Their telephone number is (212) 828-8436.

Dividend Policy

We have never paid any cash dividends on our common stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, and other factors that our Board deems relevant. In addition, the terms of any future debt or credit financings may preclude us from paying dividends.

Equity Incentive Plans

In July 2015, the Board of Directors and stockholders adopted the Company’s 2015 Equity Incentive Plan (the “2015 Plan”), effective as of July 5, 2015. The 2015 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2015 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock.

On March 31, 2021, the Board of Directors and majority stockholder adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of the following types of stock awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2021 Plan is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock. The Board reserved 1,250,000 shares of Common Stock issuable upon the grant of awards under the 2021 Plan.

Unregistered Sales of Equity Securities

ITEM 6. [RESERVED].

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this report.

COVID-19

The outbreak of the coronavirus, specifically identified as “COVID-19,” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions.

Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely. The management and board of the Company is constantly monitoring this situation to minimize potential losses.

Business Overview

Inflation

In an inflationary economy, Worksport benefits from debt financing. While Worksport ended December 31, 2021 with little to no long term debt, Worksport is currently in the process of securing a mortgage for its West Seneca production facility. Worksport has the benefit of mortgaging the facility in a low interest rate environment – locking in a lower rate – while also benefiting from the lower real cost of mortgage payments in an inflationary environment.

Such an inflationary environment also increases Worksport’s costs, however. These costs include direct costs such as the cost of raw goods or processed goods for its OEM manufacturing as well as indirect costs such as overhead and rent. Due to these forecasted price increases and the high increases in ocean freight and container handling costs as a result of 2021 supply chain issues, Worksport has updated its product pricing for 2022.

Gasoline Prices and Supply Chain Issues

Worksport has faced significantly higher ocean freight, trucking, and container handling costs in 2021 than it did in previous years. Further, last mile delivery costs have recently increased – all of which have increased the Company’s products’ landed costs. This more recent rise in gasoline prices has worsened these costs, and the Company is operating under the assumption these higher costs will remain throughout 2022.

Worksport’s transition towards Made in America manufacturing will largely offset these higher costs, as the Company will be less exposed to higher international shipping costs. Worksport is also identifying North American suppliers of its products’ components and will prioritize transport by rail when possible to avoid high trucking costs.

Rising Popularity of Electric Vehicles

Electric Vehicles (EVs) have been exponentially increasing in consumer interest, whether that interest take the form of vehicle pre-orders, sales, or investments. As Worksport begins marketing its Terravis SOLIS and COR, the Company plans to market the SOLIS as a must-have accessory for electric light duty vehicle owners while simultaneously riding the coattails of EV popularity to promote its other products (COR and conventional tonneau covers) to the very large population of Americans that have an interest in EVs without the funds to purchase them. Further, participating in the EV space allows the Company to target consumers with an interest in cutting-edge technologies – a great market to which to promote its COR.

Regulatory Environment Favoring Electric Vehicles

The Build Back Better Bill was a strong indication of upcoming and favorable USA regulations. Any regulation that improves North America’s Electric Vehicle (EV) charging infrastructure or provide grants to businesses operating in the EV space will benefit Worksport. While the Company is primarily focused on the light duty vehicle market, it is the only existing participant in the electric-specific, light duty vehicle aftermarket accessories market and, therefore, is positioned to benefit greatly from any bill that increases the prevalence of electric light duty vehicles.

Limited Competitive Landscape

Worksport’s conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, making them strong and competitive products in an otherwise consolidated and saturated market. The Terravis COR, however, operates in a much wider yet unsaturated market. The global Portable Power Station market is quickly growing, and the competitive landscape is far from consolidated. The solar tonneau cover market is in its infancy, and it’s a market in which the Company has first-mover advantage. To ensure it does not fall behind future competitors, the Company is highly focused on protecting its intellectual property both domestically and abroad.

Results of Operations

Revenue

For the year ended December 31, 2021, revenues from the entire line of Worksport products were $303,750, as compared to $346,144 for the year ended, December 31, 2020. The year over year sales decreased by approximately 12% due to the Company shifting its focus to building up its inventory to mitigate against potential supply chain issues in anticipation of launching its e-commerce platform, while it repositions to domestic manufacturing.

For the year ended December 31, 2021, revenue generated in Canada was $40,683, as compared to $28,917 for the same period in 2020, an increase of 41%. For the year ended December 31, 2021, revenue generated in the United States was $263,067, compared to $317,227 for the same period in 2020. This represents a decrease in US-source revenue of approximately 17% year-over-year. Similar to above, the decrease in revenue was a result of the Company shifting its focus to building up its inventory to mitigate against potential supply chain issues in anticipation of launching its e-commerce platform, while it repositions to domestic manufacturing. In addition, increase cost of shipping and delivery as a result of supply chain disruption, gas prices and inflation contributing to overall sales decrease for fiscal 2021.

Sales from online retailers of the Worksport products decreased from $337,053 in 2020 to $263,116 in 2021, a decrease of 22%. Online retailers accounted for 87% of total revenue for the year ended December 31, 2021, compared to 90% for the year ended December 31, 2020. Distributor sales increased for the year ended December 31, 2021 compared with the year ended December 31, 2020 with sales of $40,349 and $29,699, respectively. Worksport expects to continue to grow its 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 multiple independent online retailers.

Although Worksport currently supports a total of nine dealers and distributors, Worksport will return to a focus on online sales with new inventory being received in the US market for 2021. Worksport continues to believe the trend of increasing sales through online retailers will continue to outpace the traditional distribution business model. Moreover, reputable online retailers’ customers tend to provide larger sales volumes, greater margin of profit, and greater protection against price erosion.

Cost of Sales

Cost of sales increased by 17%, from $298,996 for the year ended December 31, 2020 to $350,702 for the year ended December 31, 2021. The Company’s cost of sales, as a percentage of sales, was approximately 115% and 86% for the years ended December 31, 2021 and 2020, respectively. The increase in percentage of sales resulted in a gross margin decrease from 14% for the year ended December 31, 2020 to negative 15% for the year ended December 31, 2021. The increase in cost of sales as a percentage of sales and decrease in gross margin was primarily due to increased cost associated with acquiring and selling inventory translating to increased cost of sales for the year ended December 31, 2021, compared to the prior year.

Within cost of sales, shipping and freight costs accounted for 79% of cost of sales during the year ended December 31, 2021, whereas in 2020, it accounted for 28% of cost of sales. This increase is primarily attributed to an increase in international shipping expense due to supply chain issues and rising oil prices as well as increase in sales volume resulting in higher overall 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

Operating expenses increased for year ended December 31, 2021 by $6,481,392, from $1,033,387 for the fiscal year ended December 31, 2020 to $7,514,779 for the fiscal year ended December 31, 2021, due to the following factors.

Other Income and Expenses

Other income and expenses for the year ended December 31, 2021 was $335,354, compared to $201,381 the prior year, representing an increase of $133,973. The difference can be attributed to the Company recognizing a gain on settlement of debt in the prior year and recognition of bad debt for 2021.

Net Loss

Net loss for the year ended December 31, 2021 was $7,897,085, compared to a net loss of $1,187,620 for the year ended December 31, 2020, an increase of 565%. The increase in the net loss can be attributed to the increase of various operating expenses as the Company focuses on expanding its operations, research and development programs and manufacturing and supply chains.

Liquidity and Capital Resources

As of December 31, 2021, the Company had $28,567,333 in cash, restricted cash and cash equivalents. The Company has generated only limited revenues and has relied primarily upon capital generated from public and private offerings of its securities. Since the Company’s acquisition of Worksport in fiscal 2014, it has never generated a profit. As of December 31, 2021 the Company had an accumulated deficit of $20,849,805.

To date, the Company’s principal sources of liquidity consisted net proceeds from public and private securities offerings and cash exercises of outstanding warrants. During the year ended December 31, 2021 the Company received $32,852,630 of proceeds from public offerings, private placement offering and exercises of warrants net of share issuance costs. During the year ended December 31, 2021, the Company made repayments of $62,905 of promissory notes. The Company believes its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements.

Based on current internal projections, the Company believes it has and/or will generate sufficient cash for its operational needs, for at least one year from the date of issuance of the accompanying consolidated financial statements. Management is focused on growing the Company’s existing product offerings, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying consolidated financial statements.

Public Underwritten Offering

On August 6, 2021, the Company consummated an underwritten public offering (the “Public Offering”) of an aggregate of 3,272,727 units, pursuant to a registration statement on Form S-1, as amended (File No. 333-256142) and a registration statement on Form S-1 (File No: 333-258429). The public offering price was $5.50 per unit and each unit consisted of one share of common stock and one warrant (“Public Warrant”) to purchase one share of common stock for $6.05 per share (110% of the unit offering price) from the date of issuance until the third anniversary of the issuance date. The Company received gross proceeds of approximately $18.0 million from the Public Offering, and after deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of approximately $16.1 million. The Company used the net proceeds for Working Capital, R&D, Marketing, and Equipment.

Regulation A+ Offering

During the years ended December 31, 2020 and 2021, the Company sold 497,590 and 1,502,410 units respectively, $2.00 per unit in a Reg A/Tier 2 public offering pursuant to a Form 1-A (File No: 24-11271) qualified by the Securities and Exchange Commission on November 9, 2020 (the “Reg A Offering”). Each unit consisted of one share of common stock and one warrant to purchase one share of common stock for $4.00 per share during the 12 months following the date of issuance. The gross proceeds from the sale of units were $3,048,199. As of December 31, 2021, the Company received $7,104,090 from the exercise of 1,776,023 warrants.

Rule 506(b)/Reg D Private Placement

During 2021, the Company sold an aggregate of 2,040,990 units on the same terms as the units sold in the Reg A Offering in a private placement under Section 4(a)(2) and/or Rule 506(b) of Regulation D under the Securities Act. Each unit consisted of one share of common stock and two warrants to purchase two shares of common stock for $4.00 per share during the 16 months following the date of issuance. The gross proceeds from the sale of units in the private placement were $4,081,980. As of the date of this annual report, 700,000 warrants sold in the private offering have been exercised on a cashless basis.

Cash Flow Activities

Cash increased from $1,107,812 at December 31, 2020 to $28,567,333 at December 31, 2021, an increase of $27,459,521 or 2.487%. The increase in cash was primarily due to warrants exercises, public offerings and private placement offerings which generated of approximately $32,000,000.

As of December 31, 2021, the Company had current assets of $34,032,005 (2020 - $1,684,764) and current liabilities of $1,796,789 (2020 – $1,718,053). As of December 31, 2021, Company had working capital of $32,235,216 (2020 – working capital deficiency of $33,289) and an accumulated deficit of $20,849,805 (2020 - $12,866,033)

Operating Activities

Net cash used by operating activities for the year ended December 31, 2021 was $4,046,705, compared to $695,112 in the prior year, primarily driven by a larger net loss in 2021 and partially offset by the issuance of shares, options, and warrants for services. In addition, the following contributed to the balance of net cash used in operating activities:

Accounts receivable increased at December 31, 2020 by $119,813 and December 31, 2021 by $2,228, which reduced cashflow from operations to their respective years

Other receivables increased at December 31, 2021 by $16,883 and by $121,396 in the prior year due to the Company’s increases in sales tax refund to be received in future periods.

Inventory decreased at December 31, 2020 by $72,353 and increased at December 31, 2021 by $460,969. Prepaid expenses increased by $382,067 at December 31, 2021 and decreased at December 31, 2020 by $43,201, due to increased consulting and marketing expenditures during the year ended December 31, 2021.

Accounts payable and accrued liabilities increased at December 31, 2021 and decreased at December 31, 2020 by $187,510 and $59,284 respectively.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2021 was $1,131,735 compared to $16,727 in the prior year. The increase in investing activities was primarily due to the purchase of property and equipment of $1,101,784 and intangible assets of $29,951.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2021 was $32,637,961 compared to $1,807,657 in the prior year. During the year ended December 31, 2021 the Company received $32,852,630 of proceeds from public offerings, private placement offering and exercises of warrants net of share issuance cost. During the year ended December 31, 2021 the Company made repayment of $62,905 of promissory notes.

Off-Balance Sheet Arrangements

None

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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information in this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Worksport, LTD (formerly Franchise Holdings International, Inc.)

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Worksport, LTD (the Company) as of December 31, 2021, and 2020, and the related statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021, and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

Our audits included performing procedures to assess the risks of 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.

Critical Audit Matters

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

Equity Transactions and Conversion of Debt Securities

As discussed in Note 8, 9, 10, and 22 to the financial statements, the Company has issued a significant amount of equity securities, many of which were issued to settle its promissory notes and convertible notes payable. Many of the notes are issued with original issuance discounts and with warrants which are valued and recorded as a discount to the notes. The tracking of these transactions can be complicated and require management to estimate the value of equity securities using a Black Sholes option pricing model.

We identified the fair market value of debt and equity transactions and related conversions to be a critical audit matter. The calculations can be complex and subject to error.

To address this critical audit matter, we gained an understanding of Management’s process to record the equity and debt transactions. We obtained their calculations and tested its clerical accuracy and the inputs. We agreed the basic terms to source agreements and considered key assumptions. Finally, we recalculated the recorded values and conversion amounts.

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

Worksport Ltd.

Consolidated Balance Sheets

December 31, 2021 and 2020

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

Worksport Ltd.

Consolidated Statements of Operations and Comprehensive Loss

December 31, 2021 and 2020

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

Worksport Ltd.

Consolidated Statements of Shareholders’ Deficit

December 31, 2021 and 2020

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

Worksport Ltd.

Consolidated Statements of Cash Flows

December 31, 2021 and 2020

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

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

1. Nature of Operations and Reverse Acquisition Transaction

Worksport Ltd. (the “Company”) was incorporated in the State of Nevada on April 2, 2003. During the year ended December 31, 2014, the Company completed a reverse acquisition transaction (the “Reverse Acquisition”) with TruXmart Ltd. (“TruXmart”). On May 2, 2018, Truxmart legally changed its name to Worksport Ltd. (“Worksport”). Worksport designs and distributes truck tonneau covers in Canada and the United States. on May 5, 2021 Terravis Energy Inc. was incorporated in the State of Colorado. On August 20, 2021, the Company was issued 100 common shares at par value of $0.0001 per share for a controlling interest in Terravis Energy, Inc.

On May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of 1 for 20 for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the NADAQ. The Certificate of Change was submitted to the Nevada Secretary of State on May 21, 2021 and the FINRA corporate action was announced on August 3, 2021. FINRA declared the 1 for 20 reverse stock split effective on August 4, 2021. These consolidated financial statements including, prior period comparative share amounts, have been retrospectively restated to reflect this reverse split.

2. Basis of Presentation and Business Condition

a) Statement of Compliance

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as issued by the Financial Accounting Standards Board (“FASB”).

b) Basis of Measurement

The Company’s financial statements have been prepared on the accrual basis.

c) Consolidation

The Company’s consolidated financial statements consolidate the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions, balances and unrealized gains or losses from intercompany transactions have been eliminated upon consolidation.

d) Functional and Presentation Currency

These consolidated financial statements are presented in United States Dollars. The functional currency of the Company and its subsidiaries are United States Dollar. For purposes of preparing these consolidated financial statements, transactions denominated in Canadian Dollar were converted to United States Dollar at the spot rate. Transaction gains and losses resulting from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying consolidated statement of operations and comprehensive loss.

e) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

f) Business condition

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

As of December 31, 2021, the Company had working capital of $32,235,216 (2020 – working capital deficiency of $33,289) and an accumulated deficit of $20,849,805 (2020 - $12,866,033). As of December 31, 2021, the Company had cash and cash equivalents of $28,567,333 (2020 - $1,107,812). Based on its current operating plans, the Company believes it has sufficient level of funding for anticipated operations, capital expenditures and debt repayments for a period of at least 12 months from the issuance date of this Annual Report.

During the year ended December 31, 2021 the Company through its Reg-A public offering, private placement offering, unwritten public offering and exercises of warrants had raised in aggregate of approximately $32,500,000.

Based on the Company’s future operating plans, existing cash of $28,567,333, combined with possible warrants exercises of approximately $38,500,000; management believes the Company have sufficient funds to meet its contractual obligations and working capital requirements for the next 12 months and the foreseeable future.

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

2. Basis of Presentation and Business Condition (continued)

g) Reclassification

Certain amounts in the prior period Consolidated Statements of Cash Flows for the year ended December 31, 2020 have been reclassified to conform with current period presentation. The Company reclassified $31,193 of changes from accounts payable and accrued liabilities under operating assets and liabilities to repayment of lease liability under financing activities. This reclassification resulted in a decrease in net cash used by operating activities from $726,304 to $695,112 and decrease in net cash provided by financing activities from $1,838,850 to $1,807,657. This reclassification did not have any effect on the reported results of operations.

3. Significant Accounting Policies

Cash and Cash Equivalents - Cash and cash equivalents includes cash on account and demand deposits with maturities of three months or less.

Receivables - Trade accounts receivable are stated at the amount the Company expects to collect. Receivables are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, allowances may be required.

The Company offers credit terms on the sale of the Company’s products to a significant majority of the Company’s customers and requires no collateral from these customers. The Company performs ongoing credit evaluations of customers’ financial condition and maintains an allowance for doubtful accounts receivable based upon the Company’s historical experience and a specific review or accounts receivable at the end of each period. As at December 31, 2021 and 2020, the Company had no allowance for doubtful accounts.

Inventory - Inventory is stated at the lower of cost or net realizable value, with cost being determined by a weighted average basis. Cost includes the cost of materials plus direct labor applied to the product.

Warranties - The Company offers limited warranties against defective products. Customers who are not satisfied with their purchase may attempt to have their purchases reimbursed outside past the warranty period.

Revenue Recognition – In accordance with ASC 606 Revenue from Contracts with Customers, sales are recognized when products are shipped, with no right of return but reimbursement maybe offered for defective products and the title and risk of loss has passed to unaffiliated customers or when they are delivered based on the terms of the sale, there is an identifiable contract with a customer with defined performance obligations, the transaction price is determinable, and the entity has fulfilled its performance obligation. Revenue related to shipping and handling costs billed to customers is included in net sales and the related shipping and handling costs are included in cost of products sold.

Property and Equipment - Capital assets are recorded at cost and are depreciated using the straight-line method over the following estimated useful lives:

Schedule of Estimated Useful Lives of Property and Equipment

Share-based payments - The Company offers a share option plan for its directors, officers, employees and consultants. ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or performance completion date.

Income Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income, and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities.

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

3. Significant Accounting Policies (continued)

Foreign Currency Translation - Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using at the historical exchange rates in effect at the dates of the transactions. All exchange gains and losses are included in the statement of operations and comprehensive loss.

Financial Instruments - Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 825, Disclosures about Fair Value of Financial Instruments, requires disclosures of the fair value of financial instruments. The carrying value of the Company’s current financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and shareholder loan, approximates their fair values because of the short-term maturities of these instruments.

Measurement - The Company initially measures its financial instrument at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for investments in equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in earnings for the period in which they occur.

Financial assets measured at amortized cost include cash and cash equivalents, accounts receivable, related party receivable, other receivables and share subscriptions receivable. Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, and promissory note payable.

Related Party Transactions - All transactions with related parties are in the normal course of operations and are measured at the exchange amount.

Intangible Assets and Impairment – Patents and other intangibles are amortized using the straight-line method over their estimated useful lives. Intangible assets, such as trademarks with indefinite live are not amortized. Intangible assets are evaluated for impairment at least annually or when events or circumstances arise that indicate the existence of impairment. The Company evaluates the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. When indicators of impairment exist, the Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. During the years ended December 31, 2021 and 2020, the Company had no impairment losses related to intangible assets.

Lease Accounting - On January 1, 2019, the Company adopted the new accounting standards ASC 842 that requires lessees to recognize operating leases on the balance sheet as right-of-use assets and lease liabilities based on the value of the discounted future lease payments. Expanded disclosures about the nature and terms of lease agreements are required prospectively and are included in Note 18.

Recent Accounting Pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. Management is currently evaluating the impact the adoption of this new guidance will have on its consolidated financial statements and does not anticipate a material impact.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application. Management is currently evaluating the impact the adoption of this new guidance will have on its consolidated financial statements and does not anticipate a material impact.

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

4. Inventory

Inventory consists of the following at December 31, 2021 and 2020:

 Schedule of Inventory

5. Property and Equipment

Major classes of property and equipment at December 31, 2021 and 2020 are as follows:

 Schedule of Property and Equipment

During the years ended December 31, 2021 and 2020, the Company recognized depreciation expense of $64,497 and $3,184, respectively. All current property and equipment, as well as any future purchases of property and equipment have been pledged as security for the notes payable disclosed in note 8.

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

6. Intangible Assets

Intangible assets consist of costs incurred to establish the Worksport Tri-Fold and Smart Fold patent technology, Worksport trademarks, as well as the Company’s website and sales CRM system. The patent was issued in 2014 and 2019. The patent will be amortized on a straight-line basis over its useful life of 25 years. The Company’s sales CRM system is currently in testing and development which is expected to be completed in 2022, as such no amortization has been recorded. The Company’s trademark and website are reassessed every year for amortization/impairment; the Company has determined that amortization/impairment is not necessary for the current year ended December 31, 2021. The change in intangible assets for the years ending December 31, 2021 and 2020 are as follows:

Schedule of Change in Intangible Assets 

Amortization of the patent over the next five years and beyond December 31, 2021 is as follows:

Schedule of Amortization of Patent 

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

7. Prepaid expenses and deposits

As of December 31, 2021 and 2020 prepaid expenses and deposits consists of the following:

Schedule of Prepaid Expenses and Deposits 

As of December 31, 2021 prepaid expense and deposit consists of $4,328,389 in prepaid consulting, services and advertising for third party consultants through the issuance of shares and stock options.

8. Promissory Notes

The following tables shows the balance of the notes payable as of December 31, 2021 and 2020:

Schedule of Notes Payable 

During the year ended December 31, 2020, the Company reclassified $99,177 from accounts payable to promissory notes and from promissory notes to other receivable. The terms of the note is under negotiation and is currently due on demand.

During the year ended December 31, 2016, the Company issued a secured promissory note in the amount of $73,452 ($123,231 Canadian Dollars), respectively. During the year ended December 31, 2018, the Company issued two additions to the original unsecured promissory note of July 2016, totaling $22,639 ($30,884 Canadian dollars). The secured promissory note bears interest at a rate of 18% per annum. The payment terms of the original note including these additions are due “upon completion of going public on the Canadian Securities Exchange, with no change in interest rate. The secured promissory note is secured by all present and after-acquired property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of the secured promissory notes to be due on April 1, 2021. As at December 31, 2021, principal balance owing was $96,091 ($123,231 Canadian Dollars) (2020 - $96,091 ($123,231 Canadian Dollars)). As of December 31, 2021, the accrued interest on this note payable was $66,380 ($86,284 Canadian Dollars) (2020 - 48,770 ($64,102 Canadian Dollars)) included in accounts payable and accrued liabilities. As of December 31, 2021, the Company and the secured promissory note holder are in dispute.

During the year ended December 31, 2016, the Company issued secured promissory notes in the amount of $79,000. The secured promissory notes bears interest at a rate of 18% per annum, payable monthly. The secured promissory notes are secured by all present and after-acquired property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of all secured promissory notes to be due on April 1, 2021. As at December 31, 2021 principal balance owing was $79,000 (2020 - $79,000). As of December 31, 2021, the accrued interest on this note payable was $45,181 (2020 – $31,000) included in accounts payable and accrued liabilities. As of December 31, 2021, the Company and the secured promissory note holder are in dispute.

During the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $53,848 ($67,700 Canadian Dollars). The secured promissory notes were due in October and November 2018 and bears interest at a rate of 12% per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December 31, 2019, the Company extended the maturity date of the secured promissory notes to November 3, 2020. During the year ended December 31, 2021, the Company and promissory note holders reached an agreement to repay $62,905 ($80,108 Canadian Dollars) in cash for outstanding principal of $53,848 and interest of $14,740. As a result of the Company recognized a gain on settlement of debt of $5,682. As of December 31, 2021 the secured promissory notes has been settled.

During the years ended December 31, 2017, the Company issued secured promissory notes in the amount of $60,000. The secured promissory notes are due in August and November 2018 and bear interest at a rate of 12% per annum. The secured promissory notes are secured by Company inventory and personal assets held by the CEO. During the year ended December 31, 2019 the Company extended the maturity dates of this secured promissory note to November 3, 2020. During the year ended December 31, 2019, the Company made a principal repayment of $10,000. During the year ended December 31, 2021 the Company and secured promissory note holder agreed to repay all outstanding principal and interest through the issuance of 36,048 post-stock splitcommon shares valued at $0.09 per share. As at December 31, 2021, the Company had recorded principal and interest of $73,886 as a result of the share repayment the Company recognized a gain on settlement of $8,997. As of December 31, 2021 the secured promissory notes has been repaid in full.

The amounts repayable under promissory notes and secured promissory notes at December 31, 2021 and 2020 are as follows:

Schedule of Secured Notes Payable 

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

9. Convertible Promissory Notes

On February 25, 2020, the Company entered into an agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which the Company issued to Leonite a secured convertible promissory note in the aggregate principal amount of $544,425 to be paid in tranches. As additional consideration for the purchase of the note, (i) the Company issued to Leonite 22,500 post-stock splitcommon shares, and (ii) the Company issued to Leonite a five-year warrant to purchase 45,000 post-stock split common shares at an exercise price of $2.00 per share (subject to adjustment), which may be exercised on a cashless basis.

The note carries an original issue discount of $44,425 to cover Leonite’s legal fees, accounting fees, due diligence fees and/or other transactional costs incurred in connection with the purchase of the note. Therefore, the purchase price of the note was $500,000. On February 28, 2020, the Company recorded $198,715, $182,500 principal and $16,215 original issue discount. On September 1, 2020 the Company recorded an additional $310,322, $285,000 principal and $25,322 original issue discount. As of December 31, 2020, the Company has recorded $509,037, $467,500 principal and $41,537 original issue discount. Furthermore, the Company issued 22,500 post-stock splitshares of common stock valued at $123,390 and a debt-discount related to the warrants valued at $344,110. During the year ended December 31, 2020 Leonite converted $226,839 of convertible promissory note into 126,022 post-stock splitcommon shares at $1.80 per share. The original value of the convertible note converted was $182,565 as a result the Company recognized a loss of $44,274 on settlement of debt. During the year ended December 31, 2021 Leonite converted its remaining outstanding principal and interest into common shares. Leonite received 204,622 common shares at $1.80 per share valued at $368,318. The original value of the convertible note converted including interest was $325,667. As a result the Company recognized a loss of $42,651 on settlement of debt. In connection with the settlement the Company expensed the remaining $148,027 of the original debt discount to interest expense. As of December 31, 2021 the convertible promissory note has been settled.

The Company amortized $58,146 (2020 - $11,677) of financing costs related to the shares and warrants for the year ended December 31, 2021. The remaining net balance of the note as at December 31, 2021 is $0 (2020 - $12,715) comprised of principal of $0 (2020 - $183,538) and net of unamortized debt discount of $0 (2020 - $170,823).

10. Shareholders’ Equity (Deficit)

During year ended December 31, 2021, the following transactions occurred:

During the year ended December 31, 2021, the Company issued a total of 1,502,410 (pre-stock split 30,048,199)common shares relating to the Reg-A public offering. Of the shares issued 15,500 (pre-stock split of 310,000)common shares valued at $31,200 were from share subscription payable and 750 (pre-stock split of 15,000) common shares were cancelled and refunded valued at $1,500. The Company raised $3,003,321 and incurred share issuance cost of $123,984.

During the year ended December 31, 2021, the Company had a underwriters’ public offering for 3,272,727 units consisting of 1 common share and 1 warrant at $5.50 per unit. In addition, the Company has granted the underwriter of the offering the option to purchase 490,909 warrants and/or an additional 490,909 common shares for 45 days after the closing of the option. During the year ended December 31, 2021, the underwriter purchased 210,909 common shares at $5.49 per share and additional 490,909 warrants (refer to note 22).A cumulative 3,483,636 post-stock splitcommon shares were issued in connection with offering for $21,805,361 incurring share issuance costs of $4,335,908. As of December 31, 2021 the Company issued on aggregate of 4,986,046 post-stock split common shares for public offerings incurring total issuance cost of $4,459,892.

During the year ended December 31, 2021 the Company raised $4,081,980 through private placement offerings of 2,040,990 units for 1 common share and 2 warrants at $2 per unit. As such the Company issued 2,040,990 (pre-stock split of 40,819,800)common shares in connection with the private offering.

During the ended year ended December 31, 2021 2,488,721 warrants were exercised for 2,287,511 (pre-stock split of 32,468,420 and post-stock split of 664,090) common shares. As of December 31, 2021, 2,287,511 common shares were issued valued at $8,454,564. Refer to note 22.

During the year ended December 31, 2021, the Company entered into a loan settlement agreement with a loan holder to issue 62,006 (pre-stock split of 1,240,111)common shares at $1.80 per share for all outstanding loan principal and interest valued at $111,610. As of the date of the settlement the Company had $157,787 loan payable, resulting in the Company recognized a gain on settlement of $46,176. Refer to note 19. As of December 31, 2021 the Company issued 62,006 common shares.

During the year ended December 31, 2021 the Company entered into a promissory notes payable settlement agreement with a note holder to issue 36,048 (pre-stock split of 720,960)common shares valued at $1.80 per share for a total value of $64,890. As of the date of the settlement the Company had $73,886 promissory notes payable, resulting in the Company recognized a gain on settlement of $8,997. Refer to note 8. As of December 31, 2021 the Company issued 36,048 common shares.

During the year ended December 31, 2021 the Company entered into a settlement agreement with the convertible promissory note holder to settle all outstanding principal and interest. The Company issued 204,622 (pre-stock split of 4,092,440)common shares at $1.80 per share valued at $368,318. As of the date of the settlement the Company had $325,667 convertible promissory note, resulting in the Company recognizing a loss of $42,651 on settlement of debt. Refer to note 9.

During the year ended December 31, 2021 the Company issued 1,717,535 (pre-stock split of 34,350,700)common shares to Steve Rossi, the Company’s Chief Executive Officer and Director, in connection with his Employment Agreement in consideration for Mr. Rossi agreeing to amend the Series A Certificate of Designation to eliminate the Series A Preferred Stock conversion rights and returning 900 Series A Preferred Stock to the Company.

Worksport Ltd.

Notes to the Consolidated Financial Statements

December 31, 2021 and 2020

10. Shareholders’ Equity (Deficit) (continued)

During the year ended December 31, 2021, the Company entered into consulting agreements with third party consultants for 380,000 post-stock splitshares of common stock valued at $1,648,700 for consulting services. As of December 31, 2021, the Company issued 370,000 post-stock split common shares valued at $1,562,700 to the third-party consultants for services received. The remaining 10,000 post-stock split common share will be expensed throughout the term of the agreement as the Company accrues the stock payable. As of December 31, 2021, the Company recorded $66,329 toshare subscriptions payable for the outstanding 10,000 post-stock split common shares. As of December 31, 2021 the Company expensed $337,091 to advertising and consulting and capitalized $502,534 to intangible assets.