Worksport Ltd 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 19 Consolidated Balance Sheet at December 31, 2020 and 2019 20 Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020 and 2019 21 Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2020 and 2019 22 Consolidated statements of Cash Flow for the year ended December 31, 2020 and 2019 23 Notes to the Financial Statements 24 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Worksport Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Worksport, LTD (the Company) as of December 31, 2020 and 2019, and the related statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of m000aterial misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters (CAM) communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Convertible Promissory Note As discussed in Note 8 to the financial statements, the Company entered into a secured convertible promissory note which included an original issue discount and is convertible at a set price which was lower than market on the date of issuance. The promissory note was issued with warrants. The Company accounted for the conversion feature as a beneficial conversion feature. A discount was recorded for the beneficial conversion feature and the relative value of the warrants after considering the original issue discount. We identified the conversion feature as a critical audit matter because accounting for such features is complex and requires management to consider alternative reporting models. Convertible debt also requires management to complete complex calculations and include significant disclosures in their notes to the financial statements. These matters involve a large degree of expertise and judgment on the part of management. In turn, it required us to use significant effort and judgment. /s/ Haynie & Company Salt Lake City, Utah April 13, 2021 We have served as the Company’s auditor since 2016. 19 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Consolidated Balance Sheets December 31, 2020 and 2019 2020 2019 Assets Current Assets Cash and cash equivalents $ 1,107,812 $ 11,993 Accounts receivable net 122,787 2,974 Other receivable 167,836 64,821 Inventory (Note 4) 40,803 113,156 Prepaid expenses and deposits 245,526 60,741 Total Current Assets 1,684,764 253,685 Investment (Note 18) 24,423 15,658 Property and Equipment, net (Note 5) 91,511 94,695 Right-of-use asset, net (Note 19) 38,506 60,125 Intangible Assets, net (Note 6) 62,948 57,145 Total Assets $ 1,902,152 $ 481,308 Liabilities and Stockholders’ Deficit Current Liabilities Accounts payable and accrued liabilities $ 971,667 $ 969,321 Payroll taxes payable 48,216 36,844 Related party loan (Note 10) 23,393 28,638 Promissory notes payable (Note 7) 367,058 267,881 Convertible promissory note, net (Note 8) 98,982 - Loan payable (Note 20) 184,854 - Current lease liability (Note 19) 23,883 22,000 Total Current Liabilities 1,718,053 1,324,684 Long Term–Lease Liability (Note 19) 14,624 39,185 Total Liabilities 1,732,677 1,363,869 Stockholders’ Equity (Deficit) Series A & B Preferred Stock, $0.0001 par value, 1,100,000 shares authorized, 1,000 Series A and 0 Series B issued and outstanding, respectively (Note 9) 1 - Common stock, $0.0001 par value, 299,000,000 shares authorized, 76,412,359 and 41,906,790 shares issued and outstanding, respectively (Note 9) 7,640 4,191 Additional paid-in capital 12,658,596 8,642,423 Share subscriptions receivable (1,577 ) (1,577 ) Share subscriptions payable 379,428 2,159,395 Accumulated deficit (12,866,033 ) (11,678,413 ) Cumulative translation adjustment (8,580 ) (8,580 ) Total Stockholders’ Equity (Deficit) 169,475 (882,561 ) Total Liabilities and Stockholders’ Equity (Deficit) $ 1,902,152 $ 481,308 The accompanying notes form an integral part of these consolidated financial statements. 20 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Consolidated Statements of Operations and Comprehensive Loss December 31, 2020 and 2019 2020 2019 Net Sales $ 346,144 $ 1,926,405 Cost of Goods Sold 298,996 1,687,857 Gross Profit 47,148 238,548 Operating Expenses General and administrative 201,929 238,841 Sales and marketing 148,008 50,159 Professional fees 679,654 515,279 Loss (gain) on foreign exchange 3,796 (27,881 ) Total operating expenses 1,033,387 776,398 Loss from operations (986,239 ) (537,851 ) Other Income (Expense) Interest expense (Note 8) (386,249 ) (71,961 ) Gain (loss) on settlement of debt 184,868 250,778 Total other (expense) (201,381 ) 178,817 Net Loss (1,187,620 ) (359,034 ) Other Comprehensive Loss Foreign currency translation adjustment - (4,967 ) Comprehensive Loss $ (1,187,620 ) $ (364,001 ) Loss per Share (basic and diluted) $ (0.02 ) $ (0.01 ) Weighted Average Number of Shares (basic and diluted) 54,690,611 36,824,519 The accompanying notes form an integral part of these consolidated financial statements 21 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Consolidated Statements of Stockholders’ Deficit December 31, 2020 and 2019 Preferred Stock Common Stock Additional Paid-in Share Subscriptions Share Subscription Accumulated Cumulative Translation Total Stockholders’ Equity Shares Amount Shares Amount Capital Receivable Payable Deficit Adjustment (Deficit) Balance at January 1, 2019 1,000,000 $ 10,000 24,634,051 $ 2,463 $ 8,103,934 $ (1,577 ) $ 2,019,532 $ (10,354,299 ) $ (3,613 ) $ (223,560 ) Issuance of share subscriptions payable - - 4,680,084 469 607,026 - (607,495 ) - - - Deemed dividend related to down-round features - - - - - - 965,079 (965,079 ) - - Return and Cancellation of shares - - (990,742 ) (99 ) (77,179 ) - (247,722 ) - - (325,000 ) Issuance for settlement of payables - - - - - - 30,000 - - 30,000 Conversion of Preferred Stock (1,000,000 ) (10,000 ) 13,583,397 1,358 8,642 - - - - - Net loss - - - - - - - (359,034 ) - (359,034 ) Foreign currency translation adjustment - - - - - - - - (4,967 ) (4,967 ) Balance at December 31, 2019 - - 41,906,790 $ 4,191 $ 8,642,423 $ (1,577 ) $ 2,159,395 $ (11,678,413 ) $ (8,580 ) $ (882,561 ) Issuance for services - - 2,413,022 240 168,670 - - - - 168,910 Issuance for prepaid services and subscriptions payable - - 3,723,333 372 203,616 - 241,559 - - 445,547 Issuance from subscriptions payable - - 15,437,479 1,544 1,977,683 - (1,729,227 ) - - 250,000 Issuance of shares from Reg-A - - 9,961,301 996 997,974 - 32,701 - - 1,031,670 Share issuance cost - - - - (55,004 ) - - - - (55,004 ) Cancellation of reserved shares - - - - - - (325,000 ) - - (325,000 ) Warrants issuance for services - - - - 29,103 - - - - 29,103 Conversion of convertible promissory note to shares (Note 8 and 22) - - 2,520,434 252 226,587 - - - - 226,839 Warrants issuance in connection to convertible promissory note (Note 8 and 22) - - - - 344,110 - - - - 344,110 Share issuance in connection to convertible promissory note (Note 8) - - 450,000 45 123,345 - - - - 123,390 Issuance of Preferred Stock 1,000 1 - - 89 - - - - 90 Net loss - - - - - - - (1,187,620 ) - (1,187,620 ) Balance at December 31, 2020 1,000 $ 1 76,412,359 $ 7,640 $ 12,658,596 $ (1,577 ) $ 379,428 $ (12,866,033 ) $ (8,580 ) $ 169,475 The accompanying notes form an integral part of these consolidated financial statements 22 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Consolidated Statements of Cash Flows December 31, 2020 and 2019 2020 2019 Operating Activities Net Loss $ (1,187,620 ) $ (359,034 ) Adjustments to reconcile net loss to net cash from operating activities: Amortization of prepaid services paid by shares issuance 234,064 - Shares and warrants issued for services 181,602 - Loss on impairment - 54,292 Depreciation and amortization 26,962 11,438 Interest on lease liability 5,039 2,706 Wages and salaries 43,709 - Accrued interest 58,397 - Amortization on OID interest 297,697 - Gain on settlement of debt (184,868 ) (250,778 ) (525,020 ) (541,376 ) Changes in operating assets and liabilities (Note 13) (201,284 ) 539,220 Net cash used in operating activities (726,304 ) (2,157 ) Cash Flows from Investing Activities Repayment of lease liability - (10,037 ) Purchase of investment (Note 18) (8,765 ) (15,658 ) Purchase of property and equipment (7,962 ) (98,353 ) Net cash used in investing activities (16,727 ) (124,048 ) Financing Activities Proceeds from issuance of stock for cash 1,007,617 30,000 Proceeds from share subscriptions 250,000 - Proceeds from loan payable 178,836 88,120 Proceeds from promissory notes 467,500 - Stockholder Assumption of Debt (48,953 ) 19,266 Repayments on promissory notes (Note 8) (16,150 ) (19,544 ) Net cash provided by financing activities 1,838,850 117,841 Effects of Foreign Currency Translation - (4,967 ) Change in cash 1,095,819 (13,330 ) Cash and cash equivalents–beginning of year 11,993 25,323 Cash and cash equivalents end of year $ 1,107,812 $ 11,993 Supplemental disclosure of cash flow information: Interest paid $ 11,100 $ 8,113 Supplemental Disclosure of non-cash investing and financing Activities Share cancellation $ - $ (77,179 ) Shares issued to service providers $ 372,990 $ - Conversion of preferred stock to common stock $ - $ 8,642 Shares issued for share subscriptions payable $ 2,046,415 $ 290,540 Recognition of operating lease right of use asset and liability $ - $ 68,517 Conversion of convertible promissory note to common stock $ 226,839 $ - Convertible promissory note–equity discount $ 467,500 $ - Convertible promissory note–original issue discount $ 41,537 $ - The accompanying notes form an integral part of these consolidated financial statements. 23 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 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. 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 subsidiary. All intercompany transactions, balances and unrealized gains or losses from intercompany transactions have been eliminated upon consolidation. d) Functional and Presentation Currency Effective January 1, 2020, the Company changed the functional currency of its subsidiary to United States dollars given the increasing prevalence of U.S. dollar-denominated activities of the subsidiary over time. The change in functional currency from Canadian dollars to United States dollars is accounted for prospectively from January 1, 2020. The subsidiary’s balance sheet was converted from Canadian dollars to United States dollars using the year ended December 31, 2019 United States dollar balance as the opening for January 1, 2020 in accordance with Accounting Standards Codification (ASC) 830 . These financial statements are presented in United States dollars. The functional and presentation currency of the Company and its subsidiary is the United States dollar. As a result of the change in functional currency the Company recognized a loss on foreign exchange of $29,940. 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, 2020, the Company had working capital deficiency of $33,289 and an accumulated deficit of $12,866,033. As of December 31, 2020, the Company had cash and cash equivalents of $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. 24 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 During the year ended December 31, 2020 and subsequent to the year ended the Company through its Reg-A public offering, private placement offering, and exercises of warrants had raised in aggregate of approximately $7,400,000. In addition, as of April 2021 the Company has approximately 45,840,121 warrants exercisable at $0.20 per warrant compare to an average share price of approximately $0.40 per share, anticipating additional warrant exercises. Subsequent to year ended December 31, 2020 the Company intents to introduce several new tonneau covers most significant of which is the TerraVis. TerraVis is a solar cover tonneau cover will give pickup truck owners rechargeable portable power and add range to upcoming EV pickup trucks. The Company anticipates that the introduction of these new products will sufficiently improve the Company’s financial position. Based on the Company’s future operating plans, existing cash of $1,107,812, additional funds of approximately $6,300,000 raised subsequent to year ended, combined with possible warrants exercises of approximately $9,100,000; 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. g) Reclassification Certain comparative figures have been reclassified to conform to the current period’s presentation. h) Revision of Prior Period Financial Statements In connection with the preparation of our consolidated financial statements, we identified an immaterial error related to the recognition of a deemed dividend related to down-round features along with the associated shares issuance and professional fees in the annual periods in fiscal 2019 and first quarter of 2020. In accordance with SAB (Staff Accounting Bulletins) Topic 1.M, “Materiality,” and SAB (Staff Accounting Bulletins) Topic 1.N, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” we evaluated the error and determined that the related impact was not material to our financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be significant to our results of operations and equity fiscal and interim periods of 2019 and 2020. Accordingly, we have revised previously reported financial information for such immaterial error, as previously disclosed in our Annual Report on Form 10-K for the fiscal year 2019. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in note 23. 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, 2020 and 2019, 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. For the years ending December 31, 2020 and 2019, the Company incurred warranty expenses of $0 and $2,106. 25 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 3. Significant Accounting Policies ( continued) Revenue Recognition– Beginning after December 15, 2018, for public entities reporting Revenue from Contracts with Customers, ASC 606, a new accounting standard for revenue recognition was issued. 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. These standards have had no effect on the reported consolidated financial statements. Property and Equipment– Capital assets are recorded at cost and are amortized using the straight-line method over the following estimated useful lives: Furniture and equipment 5 years Computers 3 years Patents 25 years Leasehold improvements 15 years As at December 31, 2020, the Company does not take depreciation for the following items: product molds, trademarks and the website. 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. 26 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 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) 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 stockholder 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, 2020 and 2019, 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 19. Upon adoption, the Company also recognized right-of-use assets and lease liabilities of $68,516. 27 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 Recent Accounting Pronouncements In August 2020, the FASB issued ASU 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.” The new guidance eliminates two of the three models in ASC 470-20, which required entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. As a result, only conversion features accounted for under the substantial premium model in ASC 470-20 and those that require bifurcation in accordance with ASC 815-15 will be accounted for separately. In addition, the amendments in ASU 2020-06 eliminates some of the requirements in ASC 815-40 related to equity classification. The amendments in ASU 2020-06 further revised the guidance in ASC 260, Earnings Per Share (“EPS”), to address how convertible instruments are accounted for in calculating diluted EPS and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The new standard is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within these fiscal years, with early adoption permitted. 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. 4. Inventory Inventory consists of the following at December 31, 2020 and 2019: 2020 2019 Finished goods $ 32,358 $ 104,868 Promotional items 552 552 Raw materials 7,893 7,737 $ 40,803 $ 113,156 Prepaid inventory $ - $ 50,000 During the year ended December 31, 2019, the Company recognized a loss on impairment of inventory $54,292. 5. Property and Equipment Major classes of property and equipment at December 31, 2020 and 2019 are as follows: 2020 Equipment Product molds Computers Leasehold Improvements Total Cost Balance–January 1, 2020 $ 10,047 $ 65,708 $ 1,162 $ 23,371 $ 102,288 Additions - - - - - Balance–December 31, 2020 $ 10,047 $ 65,708 $ 1,162 $ 23,371 $ 100,288 Accumulated Depreciation Balance–January 1, 2020 $ (3,785 ) $ - $ (1,162 ) $ (646 ) $ (5,593 ) Additions (1,626 ) - - (1,558 ) (3,184 ) Balance–December 31, 2020 $ (5,410 ) $ - $ (1,162 ) $ (2,204 ) $ (8,777 ) Net amount as at December 31, 2020 $ 4,636 $ 65,708 $ - $ 21,167 $ 91,511 2019 Equipment Product molds Computers Leasehold Improvements Total Cost Balance–January 1, 2019 $ 8,850 $ 37,243 $ 1,162 $ - $ 47,255 Additions 1,197 28,465 - 23,371 53,033 Balance–December 31, 2019 $ 10,047 $ 65,708 $ 1,162 $ 23,371 100,288 Accumulated Depreciation Balance–January 1, 2019 $ (2,254 ) $ - $ (1,141 ) $ - $ (3,395 ) Additions (1,531 ) - (21 ) (646 ) (2,198 ) Balance–December 31, 2019 $ (3,785 ) $ - $ (1,162 ) $ (646 ) $ (5,593 ) Net amount as at December 31, 2019 $ 6,262 $ 65,708 $ - $ 22,725 $ 94,695 28 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 During the years ended December 31, 2020 and 2019, the Company recognized depreciation expense of $3,184 and $2,198, 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 Notes 7 and 8. 6. Intangible Assets Intangible assets consist of costs incurred to establish the Worksport Tri-Fold and Smart Fold patent technology, Worksport trademarks, as well as the Company’s website. The patent was issued in 2014 and 2019. The patent will be amortized on a straight-line basis over its useful life of 25 years. The Company’s trademark and website are reassessed every year for amortization/impairment; the Company has determined that amortization/impairment is not necessary for the current year ended December 31, 2020. The change in intangible assets for the years ending December 31, 2020 and 2019 are as follows: 2020 Patent Website Trademarks Total Cost Balance–January 1, 2020 $ 51,250 $ 3,500 $ 4,644 $ 59,394 Additions 7,456 - 506 7,962 Balance–December 31, 2020 $ 58,706 $ 3,500 $ 5,150 $ 67,356 Accumulated Depreciation Balance–January 1, 2020 $ (2,249 ) $ - $ - $ (2,249 ) Additions (2,159 ) - - (2,159 ) Balance–December 31, 2020 $ (4,408 ) $ - $ - $ (4,408 ) Net amount as at December 31, 2020 $ 54,298 $ 3,500 $ 5,150 $ 62,948 2019 Patent Website Trademarks Total Cost Balance–January 1, 2019 $ 10,574 $ 3,500 $ - $ 14,074 Additions 40,676 - 4,644 45,320 Balance–December 31, 2019 $ 51,250 $ 3,500 $ 4,644 $ 59,394 Accumulated Depreciation Balance–January 1, 2019 $ (1,401 ) $ - $ - $ (1,401 ) Additions (848 ) - - (848 ) Balance–December 31, 2019 $ (2,249 ) $ - $ - $ (2,249 ) Net amount as at December 31, 2019 $ 49,001 $ 3,500 $ 4,644 $ 57,145 Amortization of the patent over the next five years and beyond December 31, 2020 is as follows: 2021 $ 2,160 2022 $ 2,160 2023 $ 2,160 2024 $ 2,160 2025 $ 2,160 2026 and later $ 38,201 29 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 7. Promissory Notes The following tables shows the balance of the notes payable as of December 31, 2020 and 2019: Balance as at December 31, 2018 $ 287,425 Payment (19,544 ) Balance as at December 31, 2019 $ 267,881 Reclassification 99,177 Balance as at December 31, 2020 $ 367,058 During the year ended December 30, 2020, the Company reclassified $88,120 from accounts payable to promissory notes. The terms of the note is under negotiation and is currently due on demand. During the year ended December 30, 2020, the Company reclassified a debit balance of $11,058 from notes payable to other receivable. 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, 2020, principal balance owing was $96,091 ($123,231 Canadian dollars) (2019–$96,091 ($123,231 Canadian dollars)). As of December 31, 2020, the accrued interest on this note payable was $48,770 ($64,102 Canadian dollars) (2019–$32,277 ($41,921 Canadian dollars)) included in accounts payable and accrued liabilities. As of December 31, 2020, 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, 2020 principal balance owing was $79,000 (2019–$79,000). As of December 31, 2020, the accrued interest on this note payable was $31,000 (2019–16,780) included in accounts payable and accrued liabilities. As of December 31, 2020, the Company and the secured promissory note holder are in dispute. During the year ended December 31, 2017, the Company issued a secured promissory note in the amount of $9,545 ($12,000 Canadian dollars). The secured promissory note was due in August 2018 and bears interest at a rate of 18% per annum, payable monthly. During the year ended December 31, 2019, the Company made a repayment of $9,545 ($12,000 Canadian dollars). As of December 31, 2020, the unsecured promissory note has been repaid in full. 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. As at December 31, 2020, principal balance owing was $53,848 ($67,700 Canadian dollars) (2019–$53,848 ($67,700 Canadian dollars)). As of December 31, 2020, the accrued interest on this note payable was $14,050 ($18,740 Canadian dollars) (2019–$8,174 ($10,616 Canadian dollars)) included in accounts payable and accrued liabilities. 30 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 Subsequent to the year ended on February 9, 2021, the Company made a repayment of $62,905 (principal and interest) for the above secured promissory note issued during the year ended December 31, 2017. 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 a principal repayment of $10,000. As at December 31, 2020, principal balance owing was $50,000 (2019–$50,000). As of December 31, 2020, the accrued interest on this note payable was $22,703 (2019–$16,703) included in accounts payable and accrued liabilities. As the note is outstanding beyond its maturity date interest rate increased from 12% to 22%. The amounts repayable under promissory notes and secured promissory notes at December 31, 2020 and 2019 are as follows: 2020 2019 Balance owing $ 367,058 $ 267,881 Less amounts due within one year (367,058 ) (267,881 ) Long-term portion $ - $ - 8. 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 450,000 shares of common stock, and (ii) the Company issued to Leonite a five-year warrant to purchase 900,000 shares of common stock at an exercise price of $0.10 per share (subject to adjustment), which may be exercised on a cashless basis. Refer to note 22 for warrant valuation. 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 450,000 shares of common stock valued at $123,390 and a debt discount related to the warrants valued at $344,110. During the year ended December 31, 2020 Leonite converted $226,839 of convertible promissory note into 2,520,434 shares of common stock at $0.09 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. The Company amortized $273,405 of financing costs related to the shares and warrants for the year ended December 31, 2020. The remaining net balance of the note at December 31, 2020 is $98,982 comprised of principal of $293,077 and net of unamortized debt discount of $194,095. Subsequent to the year ended December 31, 2020 the Company issued 4,092,431 shares of common stock at $0.09 per share to Leonite to settle all outstanding principal and interest. The note bears interest at the rate of the greater of 10.2% per annum. Any amount of principal or interest on the note which is not paid by the maturity date shall bear interest at the rate at the lesser of 24% per annum or the maximum legal amount permitted by law (the “Default Interest”). 31 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 Beginning on March 18, 2020 and on the same day of each and every calendar month thereafter throughout the term of the note, the Company shall make monthly payments of interest only due under the note to Leonite at the Stated Rate as set forth above. The Company shall pay to Leonite on an accelerated basis any outstanding principal amount of the note, along with accrued, but unpaid interest, from: (i) net proceeds of any future financings by the Company, but not its subsidiaries, whether debt or equity, or any other financing proceeds, except any transaction having a specific use of proceeds requirement that such proceeds are to be used exclusively to purchase the assets or equity of an unaffiliated business and the proceeds are used accordingly; (ii) net proceeds from any sale of assets of the Company or any of its subsidiaries other than sales of assets in the ordinary course of business or receipt by the Company or any of its subsidiaries of any tax credits existing prior to the date of the note; and (iii) net proceeds from the sale of any assets outside of the ordinary course of business or securities in any subsidiary. As of December 31, 2020, the Company has paid $11,100 in interest. The note will mature 18 months from the issue date, or August 25, 2021, at which time the principal amount and all accrued and unpaid interest, if any, and other fees relating to the note, will be due and payable. Unless an event of default as set forth in the note has occurred, the Company has the right to prepay principal amount of, and any accrued and unpaid interest on, the note at any time prior to the maturity date at 100% of the principal amount plus any accrued and unpaid interest plus the lesser of (i) nine months of unaccrued interest or (ii) all unaccrued interest through the remainder of the term. The note contains customary events of default, including in the event of (i) nonpayment, (ii) a breach by the Company of its covenants under the securities purchase agreement or any other agreement entered into in connection with the securities purchase agreement, or a breach of any of representations or warranties under the note, or (iii) the bankruptcy of the Company. The note also contains a cross-default provision, whereby a default by the Company of any covenant or other term or condition contained in any of the other financial instrument issued by the Company to Leonite or any other third party after the passage all applicable notice and cure or grace periods that results in a material adverse effect shall, at Leonite’s option, be considered a default under the note, in which event Leonite shall be entitled to apply all rights and remedies under the terms of the note. Under the note, Leonite has the right at any time at its option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the note into fully paid and non-assessable shares of common stock of the Company. The number of shares of common stock to be issued upon each conversion of the note shall be determined by dividing the conversion amount by the applicable conversion price then in effect. The conversion amount is the sum of: (i) the principal amount of the note to be converted plus (ii) at Leonite’s option, accrued and unpaid interest, plus (iii) at Leonite’s option, Default Interest, if any, plus (iv) Leonite’s expenses relating to a conversion, plus (v) at Leonite’s option, any amounts owed to Leonite. The conversion price shall be $0.09 per share (subject to adjustment as further described in the note for common share distributions and splits, certain fundamental transactions, and anti-dilution adjustments), provided that at any time after any event of default under the note, the conversion price shall immediately be equal to the lesser of (i) the fixed conversion price ($0.09); (ii) 60% of the lowest bid price during the 21 consecutive trading day period immediately preceding the trading that the Company receives a Notice of Conversion or (iii) the discount to market based on subsequent financing. Notwithstanding the foregoing, in no event shall Leonite be entitled to convert any portion of the note in excess of that portion of the note upon conversion of which the sum of (1) the number of shares of common stock beneficially owned by Leonite and its affiliates (other than shares of common stock which may be deemed beneficially owned through the ownership of the unconverted portion of the note or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to the limitations contained in the note, and, if applicable, net of any shares that may be deemed to be owned by any person not affiliated with Leonite who has purchased a portion of the note from Leonite) and (2) the number of shares of common stock issuable upon the conversion of the portion of the note with respect to which the determination of this proviso is being made, would result in beneficial ownership by Leonite and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. Such limitations on conversion may be waived (up to a maximum of 9.99%) by Leonite upon, at its election, not less than 61 days’ prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by Leonite, as may be specified in such notice of waiver). 32 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 This note shall give Leonite a senior secured obligation of the Company, with first priority over all current and future indebtedness of the Company and any subsidiary. Calculation of Beneficial Conversion Feature As of December 31, 2020, The Company allocated $509,037 as the proceeds from Leonite; $467,500 principal and $41,537 original issue discount. The Company allocated $123,390 to shares of common stock and $242,100 to warrants calculated using the Black-Scholes model. The effective rate resulted in a beneficial conversion feature greater than the proceeds. Allocated proceeds of Convertible Promissory Note $ 509,037 Conversion Price $ 0.09 Number of shares of common stock that would be issued upon conversion of Convertible Promissory Note 5,655,967 Conversion price $ 0.098 FMV of common stock $ 0.263 Per Share Intrinsic Value of Beneficial Conversion Feature $ 0.165 Calculated Beneficial Conversion Feature $ 933,646 In accordance with ASC 470-20-30 , if the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible promissory note, the amount of the discount assigned to the beneficial conversion feature shall be limited to the amount of the proceeds allocated to the convertible promissory note. As such, the beneficial conversion feature of the convertible promissory note is equal to $467,500 with an excess of $466,146. 9. Stockholders’ Equity (Deficit) During the year ended December 31, 2020 the Company issued 2,413,022 shares of common stock at $0.07 per share for $168,910 for consulting services. During the year ended December 31, 2020 the Company entered into a share subscription agreement with a consultant of the Company for 4,000,000 shares of common stock valued at $125,000 for prepaid consulting services. The Company also entered into two prepaid advertising services agreement for 1,333,333 and 240,000 shares of common stock at $0.09 and 0.07 per share for $120,000 and $16,800 respectively. As of December 31, 2020, the Company has expensed $215,164 from prepaid expenses. As of December 31, 2020, the Company issued 3,723,333 shares of common stock from share subscriptions payable for services render. Subsequent to year ended December 31, 2020 the Company issued the remaining 1,850,000 shares of common stock valued at $67,188. During the year ended December 31, 2020 the Company entered into a share subscription agreement with a consultant of the Company for 1,246,154 shares of common stock valued at $162,000 for prepaid consulting services. As of December 31, 2020, no shares have been issued. As of December 31, 2020, the Company has expensed $18,900 from prepaid expenses. Subsequent to year ended December 31, 2020 the Company issued 1,246,154 shares of common stock. During the year ended December 31, 2020 the Company entered into an advertising service agreement to issue 225,000 shares of common stock and warrants. The warrants are convertible at a ratio of 1:1 and are exercisable until December 31, 2021 at $0.20 per warrant. The shares valued at $21,747 have been included in share subscriptions payable. The warrants valued at $16,503 have been included in additional paid-in capital. Subsequent to year ended December 31, 2020 the Company issued 225,000 shares of common stock. During the year ended December 31, 2020, the Company entered into a share subscription agreement with a consultant of the Company for 4,000,000 shares of common stock valued at $250,000. During the year ended December 31, 2020, the Company issued 11,337,479 shares of common stock from shares of subscription payable with a combined value of $1,123,147. 5,686,978 of the shares of common stock issued from subscription payable valued at $648,147 relates to the anti-dilution feature triggered on March 5, 2019 as noted below. 33 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 9. Stockholders’ Equity (Deficit) (continued) During the year ended December 31, 2020 the Company entered into a settlement to fulfill a debt purchase agreement entered in 2017 for 4,100,000 shares valued at $856,080. As of December 31, 2020, the Company has issued 4,100,000 shares from share subscriptions payable. During the year ended December 31, 2020 the Company initiated a Reg-A public offering at $0.10 per share and warrant. As of December 31, 2020, the Company raised $1,017,617 incurring share issuance cost of $55,004. As of December 31, 2020, the Company issued 9,961,301 shares of common stock valued at $996,301. As of December 31, 2020, the Company has 327,000 shares of common stock valued at $32,701 to be issued. Refer to note 25 for subsequent issuance. During the year ended December 31, 2020 the issued 100,000 warrants for services valued at $12,600. Refer to note 22. During the year ended December 31, 2020, the Company reached a legal settlement agreement with an investor. In accordance with the settlement agreement, 4,166,667 post-stock split (25,000,000 pre-stock split), reserved shares were released and returned to the Company valued at $325,000. During the year ended December 31, 2020, the Company issued 2,520,434 shares of common stock pursuant to the conversion of the convertible promissory note (Note 8) with a value of $226,839. During the year ended December 31, 2020 the Company issued 450,000 shares in connection with the issuance of convertible promissory note (Note 8) at $0.27 per share. During the year ended December 31, 2020, Steven Rossi (the Company’s CEO) was issued 1,000 Series A Preferred Shares at $0.09 per share equal to 299,000 shares of common stock voting rights for services rendered. During the year ended December 31, 2019, the Company issued 1,901,455 shares of common stock, previously recorded as subscription payable to a consultant with a value of $290,730. In addition, the Company also issued to the same consultant 2,778,629 shares of common stock at $0.02 per share for $55,573 for additional consulting serviced performed. During the same period, the Company entered into a share subscription agreement with a consultant of the Company for 1,500,000 shares of common stock valued at $30,000. As the shares have not yet been issued, the $30,000 has been recorded as share subscriptions payable. During year ended December 31, 2019, the Company reached a legal settlement agreement (the “unwinding” ) with an individual investor to dissolve the Debt Settlement and Mutual Release Agreement entered into on January 12, 2018. In accordance with the settlement agreement, 19,055,551 pre-stock split (990,742 post-stock split), reserved shares with a value of $325,000 recorded in share subscription payable were released and returned to the Company. During the year ended December 31, 2019, Steven Rossi was issued 13,583,397 shares of Franchise Holdings International, Inc common stock as approved by the Board of Directors, due to a conversion of all 1,000,000 shares of his Series A Preferred stock. During the year ended December 31, 2019, the Company completed a share consolidation of the Company’s issued and outstanding shares of common stock based on six (6) pre-consolidation shares to one (1) post-consolidation share. The consolidation reduced the number of issued and outstanding shares of common stock of the Company from 147,804,298 pre-consolidation shares of common stock to approximately 24,634,051 post-consolidation shares of common stock. While the share consolidation occurred during the year ended December 31, 2019, the Company has accounted for the effects retrospectively as such, the schedules and all references to shares, options and warrants throughout the financial statements have been updated to reflect the number of post-consolidation securities. On March 5, 2019 immediately following the share consolidation the anti-dilution feature under the Investment and Co-operation agreement, dated November 1, 2017 came into effect. As part of the anti-dilution feature the Company is obligated to issue an additional 8,465,608 shares at $0.11 per share for a total of $965,079. The Company recognized a non-cash deemed dividend of $965,079 to retain earnings and share subscriptions payable (Note 23). For the year ended December 31, 2020 and 2019, the Company was authorized to issue 299,000,000 shares of its common stock with a par value of $0.0001. All shares were ranked equally with regards to the Company’s residual assets. During 2020 and 2019, the Company was authorized to issue 1,100,000 shares of its Series A and Series B Preferred Stock with a par value of $0.0001. Series A Preferred Stock have voting rights equal to 299 shares of common stock, per share of preferred stock . Series B Preferred Stock have voting rights equal to 10,000 shares of common stock, per share of preferred stock. 34 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 10. Related Party Transactions During the year ended December 31, 2020, the Company repaid $5,245 to the Company’s CEO and director. As of December 31, 2020, the Company has $23,393 in related party loan. During the year ended December 31, 2020, the Company recorded salaries expense of $64,903 (2019–$65,589) related to services rendered to the Company by its CEO. During the year ended December 31, 2019, the Company incurred $112,665 payable to a U.S.-based corporation with whom the Company’s CEO and director is also a stockholder. The corporation is to help facilitate the purchase of inventory for the Company. 11. Income Taxes a) The income tax expense for the year ended December 31, 2020 and 2019 is reconciled per the schedule below: 2020 2019 Net loss before income taxes $ (1,187,620 ) $ (359,034 ) Depreciation 26,962 (10,956 ) Non-deductible portion of meals and entertainment 586 1,115 Expenses paid in shares 415,666 - Interest on lease liability 5,039 - Lease payments (31,292 ) - Gain on impairment - 54,292 Gain Settlement of Debt (184,868 ) (250,778 ) Adjusted net loss for tax purposes (955,527 ) (565,362 ) Statutory rate 25.60 % 24.63 % (244,658 ) (139,248 ) Increase in valuation allowance 244,658 139,248 Provision for income taxes $ - $ - b) Deferred Income Tax Assets The tax effects of temporary differences that give rise to the deferred income tax assets at December 31, 2020 and 2019 are as follows: 2020 2019 Net operating loss carry forwards $ 1,365,333 $ 1,113,488 Transaction costs - - 1,365,333 1,113,488 Deferred tax assets not recognized (1,365,333 ) (1,113,488 ) Net deferred tax asset $ - $ - c) Cumulative Net Operating Losses The Company has non-capital losses carried forward of approximately $5,897,000 available to reduce future years’ taxable income. These losses will expire as follows: United States Canada Total 2034 $ 53,000 $ 183,000 $ 236,000 2035 161,000 368,000 529,000 2036 868,000 262,000 1,130,000 2037 1,472,000 59,000 1,531,000 2038 431,000 520,000 951,000 2039 372,000 193,000 565,000 2040 237,000 718,000 955,000 $ 3,594,000 $ 2,303,000 $ 5,897,000 35 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 11. Income Taxes (continued) These net operating loss carryforwards of approximately $5,897,000 may be offset against future taxable income for the years 2021 through 2040. No tax benefit from continuing or discontinued operations have been reported in the December 31, 2020 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to change in ownership provisions of the Tax Reform Act of 1986, net operation loss carryforwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. The Company complies with the provisions of FASB ASC 740 in accounting for its uncertain tax positions. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accruals for interest and tax penalties at December 31, 2020 and 2019. The Company does not expect the amount of unrecognized tax benefits to materially change within the next 12 months. The Company is required to file income tax returns in the U.S. and Canadian federal jurisdictions, as well as the states of New York, New Jersey, and Utah and in the province of Ontario. The Company is no longer subject to income tax examinations by tax authorities for tax years ending before December 31, 2017. 12. Financial Instruments Credit Risk The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce its credit risk, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit balances. The Company incurred no bad debt expense during the year ended December 31, 2020 and 2019. Currency Risk The Company is exposed to currency risk on its sales and purchases denominated in Canadian dollars. The Company actively manages these risks by adjusting its pricing to reflect currency fluctuations and purchasing foreign currency at advantageous rates. Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company relies on cash flows generated from operations, as well as injections of capital through the issuance of the Company’s capital stock to settle its liabilities when they become due. Interest Rate Risk The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. Concentration of Supplier Risk The Company purchases all of its inventory from one supplier source in Asia. The Company carries significant strategic inventories of these materials to reduce the risk associated with this concentration of suppliers. Strategic inventories are managed based on demand. To date, the Company has been able to obtain adequate supplies of the materials used in the production of its products in a timely manner from existing sources. The loss of this key supplier or a delay in shipments could have an adverse effect on its business. 36 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 12. Financial Instruments ( continued) Concentration of Customer Risk The following table includes the percentage of the Company’s sales to significant customers for the fiscal years ended December 31, 2020 and 2019. A customer is considered to be significant if they account for greater than 10% of the Company’s annual sales: 2020 2019 Customer A - % 89 % Customer B 51 % - % Customer C 26 % 3 % 77 % 92 % The loss of any of these key customers could have an adverse effect on the Company’s business. At December 31, 2020 customer A represented 0% of the Company’s revenue compare to 89% or $1,912,401 of Company revenue in 2019. Customer B represented 51% of the Company’s revenue at $190,313. Customer C represented 26% or $97,514 of the Company’s revenue compare to 2019 of 3% or $67,018. 13. Changes in Cash Flows from Operating Assets and Liabilities The changes to the Company’s operating assets and liabilities for the years ended December 31, 2020 and 2019 are as follows: 2020 2019 Decrease (increase) in accounts receivable $ (119,813 ) $ 48,908 Decrease (increase) in other receivable (121,396 ) (54,821 ) Decrease (increase) in inventory 72,353 122,067 Decrease (increase) in prepaid expenses and deposits 43,201 63,373 Increase (decrease) in lease liability (27,718 ) (8,392 ) Increase (decrease) in income taxes payable 11,372 (45,521 ) Increase (decrease) in accounts payable and accrued liabilities (59,284 ) 405,214 $ 201,284 $ 539,220 14. Commitments During the year ended December 31, 2020 the Company entered into an agreement with a third party advisor to reserve for issuance 100,000 shares of common stock at $0.0001 per share for consulting services. As of December 31, 2020, the third party has not exercised the shares. Refer note 25 for subsequent event. 15. Gain (Loss) on Settlement of Debt During the year ended December 31, 2020 a convertible promissory note was converted into 2,520,434 shares of common stock at $0.09 per share for $226,839. The original value of the convertible promissory note converted was $182,565 as a result of the conversion the Company recognized a loss of $44,274 on settlement of debt. During the year ended December 31, 2020, the Company reached a legal settlement agreement with an investor. In accordance with the settlement agreement, 4,166,667 post-stock split (25,000,000 pre-stock split), reserved shares were released and returned to the Company. This transaction resulted in a gain on debt settlement of $229,142. During year ended December 31, 2019, the Company reached a legal settlement agreement (the “unwinding” ) with an individual investor to dissolve the Debt Settlement and Mutual Release Agreement entered into on January 12, 2018. In accordance with the settlement agreement, 19,055,551 pre-stock split, reserved shares were released and returned to the Company. In addition, 5,944,449 pre-stock split (990,742 post-stock split) shares already issued were returned to the Company’s treasury, and cancelled, reducing the Company’s issued and outstanding shares accordingly. The Company closed the unwinding in August 2019. 37 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 16. Contingent Liability During the year ended December 31, 2020 the Company (defendant) is currently in an ongoing legal proceeding with a promissory notes payable holder (plaintiff). As of December 31, 2020, the outcome of the legal proceeding is uncertain. During the year ended December 31, 2020, the Company reached a legal settlement with a supplier in which the Company is obligated to pay $6,037 per month beginning on March 1, 2020 for four months until the settlement amount of $24,148 has been fully paid on June 1, 2020. As of December 31, 2020, the Company has completed all payments. During the year ended December 31, 2019 the Company entered into an agreement with a debtor for the settlement of outstanding notes payable of $56,723 ($75,000 CAD). The Company will issue to the debtor 1,500,000 shares of common stock for the settlement of the outstanding notes payable upon listing on the Canadian Securities Exchange. The agreement was subsequently cancelled after year end. 17. Reverse Stock Split On March 8, 2019, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of one-for-six for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the Canadian Stock Exchange ( “CSE” ). The Certificate of Change was submitted to the Nevada Secretary of State on March 20, 2019 and the FINRA corporate action was filed on March 21, 2019. FINRA declared the one-for-six reverse stock split effective on March 29, 2019. These financial statements including, prior period comparative share amounts, have been retrospectively restated to reflect this reverse split. 18. Investment During the year ended December 31, 2019, the Company entered into an agreement to purchase 10,000,000 shares for $50,000. The shares have been issued to the Company. The Company’s investment accounts for a 10% equity stake in a privately owned U.S.-based mobile phone development company. As of December 31, 2020, the Company had advanced a total of $15,658 and is advancing trenches of capital as required by the Company. 19. Lease Liabilities During the year ended December 31, 2019, the Company signed a lease agreement for warehouse space to commence on August 1, 2019 and end on July 31, 2022 with monthly lease payments of $2,221. The Company has accounted for its leases upon adoption of ASC 842 whereby it recognizes a lease liability and a right-of-use asset at the date of initial application, beginning January 1, 2019. The lease liability is measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate of 10%. The Company has measured the right-of-use asset at an amount equal to the lease liability. The Company’s right-of-use asset for the year ended December 31, 2020 is as follows: 2020 Right-of-use asset $ 38,506 Current lease liability $ 23,883 Long-term lease liability $ 14,624 The components of lease expense are as follows: December 31, 2020 December 31, 2019 Amortization of right-of-use $ 21,619 11,107 Interest on lease liability $ 5,039 2,716 Total lease cost $ 26,658 13,823 38 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 19. Lease Liabilities (continued) Maturities of lease liability are as follows: Future minimum lease payments as of December 31, 2020, 2021 26,658 2022 15,551 Total future minimum lease payments 42,209 Less: amount representing interest (3,702 ) Present value of future payments 38,507 Current portion 23,883 Long term portion $ 14,624 20. Loan Payable During the year ended December 31, 2020, the Company received a loan of $32,439, $10,000 and $108,000 from a unrelated third party with an interest rate of 10% per annum with a maturity date of December 31, July 22 and August 31, 2021 respectively. Subsequent to the year ended December 31, 2020 the Company agreed to repay the outstanding principal and interest through the issuance of 1,850,000 shares of common stock at $0.09 per share. During the year ended December 31, 2020, the Company received $28,397 ($40,000 CDN) interest free from the Government of Canada as part of the COVID-19 small business relief program. Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25%. As of December 31, 2020, the Company accrued interest of $6,018. 21. Loss per Share For the year ended December 31 2020, Loss per Share is $(0.02) (basic and diluted) compared to the year ended December 31, 2019 of $0.01 (basic and diluted) using the weighted average number of shares of 54,690,611 (basic and diluted) and 36,824,519 (basic and diluted) respectively. There are 299,000,000 shares authorized, 76,412,359 and 41,906,790 shares issued and outstanding, as at December 31, 2020 and 2019 respectively. As of December 31, 2020, the Company has 6,831,489 shares to be issued. The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Company’s outstanding warrants and convertible promissory notes were excluded due to the anti-dilutive effect they would have on the computation. As at December 31, 2020 the Company has 12,436,301 warrants convertible to 12,436,301 shares of common stock and convertible promissory note convertible to 3,448,025 shares of common stock for a total underlying shares of common stock of 15,884,326. At December 31, 2019 there were no underlying shares of common stock. 22. Warrants During the year ended December 31, 2020 the Company issued 900,000 warrants convertible to one common share each with an exercise period of 5 years. The exercise price of the warrants is $0.10 per share (subject to adjustment) and may be exercised on a cashless basis, refer to note 8. Refer to notes 25 for subsequent exercise of 790,243 warrants. The fair value of the warrants was calculated using the Black-Scholes pricing model and using the following assumptions: Discount rate 1.16 % Expected volatility 255 % Expected life (years) 5 Exercise price $ 0.10 Stock price $ 0.27 39 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 22. Warrants (continued) During the year ended December 31, 2020, the Company issued 1,250,000 and 100,000 warrants convertible to one common share each exercisable until March 30, 2025 and April 29, 2022 respectively. The warrants were issued in connection with a subscriptions payable and advisory agreement. The exercise price of the warrants are $0.12 and $2.00 per share. Refer to note 25 for subsequent issuance of an additional 150,000 warrant. The fair value of the 1,250,000 warrants was calculated using the Black-Scholes pricing model and using the following assumptions: Discount rate 0.025 % Expected volatility 249 % Expected life (years) 5 Exercise price $ 0.12 Stock price $ 0.06 The fair value of the 100,000 warrants was calculated using the Black-Scholes pricing model and using the following assumptions: Discount rate 2.27 % Expected volatility 297 % Expected life (years) 3 Exercise price $ 2 Stock price $ 0.13 During the year ended December 31, 2020 the Company issued 225,000 warrants in connection to a advertising agreement and 9,961,301 warrants related to the Reg-A public offering. The warrants are convertible at a rate of 1:1 common share, exercisable until December 1 and 22, 2021 respectively. The exercise price of the warrants are $0.20 per share. The fair value of the 225,000 warrants was calculated using the Black-Scholes pricing model and using the following assumptions: Discount rate 0.12 % Expected volatility 244 % Expected life (years) 1 Exercise price $ 0.20 Stock price $ 0.17 The fair value of the 9,961,301 warrants was calculated using the Black-Scholes pricing model and using the following assumptions: Discount rate 0.09 % Expected volatility 239 % Expected life (years) 1 Exercise price $ 0.20 Stock price $ 0.13 Exercise price Number outstanding Remaining Contractual Life (Years) Expiry date $ 0.20 225,000 0.92 December 1, 2021 $ 0.20 9,961,301 0.98 December 22, 2021 $ 2.00 100,000 1.33 April 29, 2022 $ 0.10 900,000 4.16 February 25, 2025 $ 0.12 1,250,000 4.22 March 20, 2025 12,436,301 2.32 40 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 22. Warrants (continued) December 31, 2020 December 31, 2019 Number of warrants Weighted average price Number of warrants Weighted average price Balance, beginning of year - $ - - $ - Issuance 12,436,301 $ 0.52 - $ - Balance, end of period 12,436,301 $ 0.52 - $ - 23. Revision of Prior Period Financial Statements During the audit for the year ended December 31, 2020 an error was discovered relating to share issuances resulting from an anti-dilution agreement. The share issuances for the three months ended March 31, 2020 were 2,000,000 and 458,834 shares of common stock respectively. The anti-dilution agreement relating to a 2017 share subscription payable agreement was triggered in March 2019 upon the Company’s stock split. Please refer to note 9. We revised certain prior period financial statements for an immaterial error related to the recognition of the deemed dividend related to down-round features along with the associated shares issuance and professional fees (Note 1). A summary of revisions to our previously reported financial statements presented herein for comparative purposes. The cumulative effect of the adjustments on all prior periods to Stockholders’ Equity as of June 30, 2019, September 30, 2019, December 30, 2019 and March 31, 2020 reflected below: Common Stock Additional Paid-in Share Subscriptions Share Subscription Accumulated Cumulative translation Total Stockholders’ Equity Shares Amount Capital Receivable Payable Deficit adjustment (Deficit) Balance at June 30, 2019 28,177,966 $ 2,817 $ 8,309,293 $ (1,577 ) $ 1,853,819 $ (10,482,521 ) $ (23,624 ) $ (341,792 ) Revision 12,719,566 $ 1,273 $ 182,509 - $ 781,298 $ (965,079 ) - - Balance at June 30, 2019, as revised 40,897,532 $ 4,090 $ 8,491,802 $ (1,577 ) $ 2,635,117 $ (11,447,600 ) $ (23,624 ) $ (341,792 ) Balance at September, 2019 38,506,721 $ 3,850 $ 8,230,982 $ (1,577 ) $ 1,606,097 $ (10,212,150 ) $ (46,116 ) $ (418,915 ) Revision 1,400,069 $ 141 $ 183,641 - $ 781,298 $ (965,079 ) - - Balance at September 30, 2019, as revised 39,906,790 $ 3,991 $ 8,414,623 $ (1,577 ) $ 2,387,395 $ (11,177,230 ) $ (46,116 ) $ (418,915 ) Balance at December 31, 2019 41,906,790 $ 4,191 $ 8,381,231 $ (1,577 ) $ 1,511,080 $ (10,768,906 ) $ (8,580 ) $ (882,561 ) Revision - - $ 261,192 - $ 648,315 $ (909,507 ) - - Balance at December 31, 2019, as revised 41,906,790 $ 4,191 $ 8,642,423 $ (1,577 ) $ 2,159,395 $ (11,678,413 ) $ (8,580 ) $ (882,561 ) - Balance at March 31, 2020 46,547,749 $ 4,655 $ 9,060,739 $ (1,577 ) $ 1,178,608 $ (10,961,172 ) $ (8,580 ) $ (727,327 ) Revision 2,458,834 $ 246 $ 731,946 - $ 137,315 $ (869,507 ) - - Balance at March 31, 2020, as revised 49,006,583 $ 4,901 $ 9,792,685 $ (1,577 ) $ 1,315,923 $ (11,830,679 ) $ (8,580 ) $ (727,327 ) The Consolidated Statements of Operations and Comprehensive Loss has been revised to reflect the correction for the year ended December 31, 2019 and three months ended March 31, 2020 as follows: For the Year Ended December 31, 2019 As previously reported Revision As Revised Professional Fees $ 570,852 $ (55,573 ) $ 515,279 Total Operating Expenses $ 831,971 $ (55,573 ) $ 776,398 Loss from Operations $ (593,424 ) $ (55,573 ) $ (537,851 ) Net Loss $ (414,607 ) $ (55,573 ) $ (359,034 ) Comprehensive Loss $ (419,574 ) $ (55,573 ) $ (364,001 ) Loss per Share–Basic and Diluted $ (0.01 ) - $ (0.01 ) For the Three Months Ended March 31, 2020 As previously reported Revision As Revised Professional Fees $ 149,465 $ (40,000 ) $ 109,465 Total Operating Expenses $ 178,471 $ (40,000 ) $ 138,471 Loss from Operations $ (164,455 ) $ 40,000 $ (124,455 ) Net Loss $ (192,266 ) $ 40,000 $ (152,266 ) Comprehensive Loss $ (192,266 ) $ 40,000 $ (152,266 ) Loss per Share–Basic and Diluted $ (0.00 ) - $ (0.00 ) 41 Worksport Ltd. (formerly Franchise Holdings International, Inc.) Notes to the Consolidated Financial Statements December 31, 2020 and 2019 24. COVID-19 The recent outbreak of the novel coronavirus, specifically identified as “COVID-19,” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or mining production activities or the ore and mining industry or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely. The management and Board of the Company is constantly monitoring this situation to minimize potential losses. 25. Subsequent Events The Company has evaluated subsequent events through April 13, 2021 which is the date the financial statements were available to be issued and the following events after year end occurred: ● In January and February 2021 in connection with the Company’s Reg-A public offering the Company issued an additional 30,033,199 shares of common stock at $0.10 per share and warrants exercisable for a period of 12 months at $0.20 per warrant for one common share. ● On January 8, 2021 the Company issued 3,000,000 shares of common stock for consulting services valued at $0.10 per share. ● On January 14, 2021 the Company entered into an amended advisory agreement for the following: ○ $5,000 per month ○ Make available for the purchase of an additional 150,000 shares of common stock for a total of 250,000 shares of common stock at $0.0001 ○ Issuance of an additional 100,000 warrants for a total of 250,000 warrants exercisable for a period of five years at $0.20 per share. ● On January 15, 2021 the Company entered into a consulting service agreement for a duration of 18 months for 2,000,000 shares of common stock at $0.13 per share. ● During the month of February 2021, 12,284,800 warrants were exercised at $0.20 per warrant for 12,284,800 shares of common stock at a value of $2,455,960. ● On February 15, 2021 the Company signed an advertising and promotion agreement for a duration of three months at $10,000 per month for advertising and promotion services. ● On February 15, 2021 the Company entered into a service agreement with a consultant to develop and provide Sales CRM system to the Company for 5,000,000 shares of common stock at $0.23 per share. ● On March 3, 2021 the Company signed a consulting agreement with a third party to assist the Company in developing manufacturing processes of new products for 200,000 shares of common stock valued at $20,000. ● On March 12, 2021 the Company entered into a strategic advisory and digital marketing service agreement for a duration of 12 months for 200,000 shares of common stock. ● On March 19, 2021 the Company issued to Leonite 790,243 shares of common stock through the exercise of 790,243 of its 900,000 warrants on a cashless exercise. ● Subsequent to year ended, the Company entered into private placement agreements issuing 11,368,800 shares of common stock and warrants at $0.10 per share with an exercise price of $0.20 per warrant for one shares of common stock over a period of 18 months. As of the date of this financial statement 9,060,000 shares of common stock have been issued. ● Refer to Notes 7, 8, 9 and 20 for additional subsequent events. 42 Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure None.