Worksport Ltd 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firms 39 Audited Consolidated Balance Sheets at December 31, 2022 and 2021 42 Audited Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021 43 Audited Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2022 and 2021 44 Audited Consolidated Statements of Cash Flow for the years ended December 31, 2022 and 2021 45 Notes to Audited Consolidated Financial Statements 46 38 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Worksport Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Worksport Ltd. and Subsidiaries (the Company) as of December 31, 2022, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial condition of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 audit 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 consolidated 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit 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 audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters 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: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) 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. 39 Property, Plant and Equipment Description of the Matter As reported in Note 6 to the consolidated financial statements, the Company acquired a significant amount of property, plant and equipment during the year ended December 31, 2022. As of December 31, 2022, the Company’s property, plant and equipment balance, net of accumulated depreciation was approximately $11.9 million, which represents a significant portion of the Company’s total assets of approximately $32.8 million. In May 2022, the Company acquired land and building for its new warehouse facility in West Seneca, NY, with a total cost value of approximately $8.3 million. Given the inherent uncertainty and significant judgments necessary to estimate useful lives of additions, auditing these estimates involved a focused audit effort and a high degree of auditor judgment. How We Addressed the Matter in Our Audit Our auditing procedures related to property, plant and equipment included the following, among others: ● We evaluated the appropriateness and consistency of management’s methods used to develop its estimates. ● We evaluated the reasonableness of judgments made and significant assumptions used by management relating to key estimates. ● We inquired of management relative to the estimated useful lives and respective in-service dates of acquired assets. ● We tested the accuracy of management’s schedule of property, plant and equipment. ● We selected a sample of material purchases made during the year to ensure they were properly included in property, plant and equipment at the proper value. Equity Transactions Description of the Matter As discussed in Notes 11, 23, and 24 to the consolidated financial statements, the Company has issued a significant amount of equity securities. The tracking of these transactions can be complicated and require management to estimate the value of equity securities using a Black Scholes option pricing model. We identified the fair market value of equity transactions to be a critical audit matter, as the calculations can be complex and subject to error. How We Addressed the Matter in Our Audit Our auditing procedures related to equity transactions included the following, among others: ● We evaluated the appropriateness and consistency of management’s methods used to develop its estimates. ● We gained an understanding of Management’s process to record the equity transactions. ● We obtained Management’s calculations and tested the clerical accuracy and inputs used. ● We agreed the basic terms to source agreements and considered key assumptions. ● We recalculated the recorded values and conversion amounts. Going Concern Description of the Matter As discussed in Note 3 to the consolidated financial statements, the Company has experienced recurring net losses that raise substantial doubt about the Company’s ability to continue as a going concern. Upon analysis of the Company’s current financial situation and projected outlooks, we believe there is substantial doubt about the Company’s ability to continue as a going concern. How We Addressed the Matter in Our Audit Our auditing procedures related to going concern included the following, among others: ● We obtained the Company’s evaluation of its ability to continue as a going concern and evaluated the Company’s plans to address these concerns. ● We analyzed the Company’s current state of operations. ● We evaluated the Company’s current and projected cash flow. We have served as the Company’s auditor since 2022. /s/ Lumsden & McCormick, LLP Buffalo, New York March 30, 2023 PCAOB ID Number: 130 40 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 sheet of Worksport, LTD (the Company) as of December 31, 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year 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 the results of its operations and its cash flows for the year 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 audit. 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 audit 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 audit, 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 audit 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 audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Haynie & Company Salt Lake City, Utah March 31, 2022 PCAOB ID Number: 457 We have served as the Company’s auditor from 2016 through November 2022. 41 Worksport Ltd. Consolidated Balance Sheets December 31, 2022 and 2021 2022 2021 Assets Current Assets Cash and cash equivalents $ 14,620,757 $ 28,567,333 Accounts receivable net 62,601 62,684 Other receivable 268,032 184,721 Inventory (note 5) 1,346,372 501,772 Prepaid expenses and deposits (note 8) 2,034,345 4,715,495 Total Current Assets 18,332,107 34,032,005 Investment (note 18) 24,423 24,423 Property and Equipment, net (note 6) 11,900,672 1,128,799 Right-of-use asset, net (note 19) 1,238,055 515,819 Intangible Assets, net (note 7) 1,268,873 593,053 Total Assets $ 32,764,130 $ 36,294,099 Liabilities and Shareholders’ Deficit Current Liabilities Accounts payable and accrued liabilities $ 2,028,305 $ 1,144,526 Payroll taxes payable - 112,189 Related party loan (note 12) 46,096 35,547 Promissory notes payable (note 9) - 263,211 Loan payable (note 20) - 28,387 Current lease liability (note 19) 387,329 212,929 Total Current Liabilities 2,461,730 1,796,789 Long Term – Lease Liability (note 19) 884,146 316,988 Loan payable (note 19) 5,300,000 - Total Liabilities 8,645,876 2,113,777 Shareholders’ Equity Series A & B Preferred Stock, $ 0.0001 par value, 100,100 shares authorized, 100 Series A and 0 Series B issued and outstanding, respectively (note 11) - - Common stock, $ 0.0001 par value, 299,000,000 shares authorized, 17,159,376 and 16,951,034 shares issued and outstanding, respectively (note 11) 1,716 1,696 Additional paid-in capital 56,919,625 54,608,472 Share subscriptions receivable ( 1,577 ) ( 1,577 ) Share subscriptions payable 591,289 430,116 Accumulated deficit ( 33,384,219 ) ( 20,849,805 ) Cumulative translation adjustment ( 8,580 ) ( 8,580 ) Total Shareholders’ Equity 24,118,254 34,180,322 Total Liabilities and Shareholders’ Equity $ 32,764,130 $ 36,294,099 The accompanying notes form an integral part of these consolidated financial statements. 42 Worksport Ltd. Consolidated Statements of Operations and Comprehensive Loss December 31, 2022 and 2021 2022 2021 Net Sales $ 116,502 $ 303,750 Cost of Goods Sold 56,967 350,702 Gross Profit (Loss) 59,535 ( 46,952 ) Operating Expenses General and administrative 4,978,582 1,855,238 Sales and marketing 2,446,266 1,386,692 Professional fees 5,418,863 4,268,684 (Gain) Loss on foreign exchange ( 10,461 ) 4,165 Total operating expenses 12,833,250 7,514,779 Loss from operations ( 12,773,715 ) ( 7,561,731 ) Other Income (Expense) Interest expense ( 488,704 ) ( 294,923 ) Interest income 212,290 3,694 Bad debt expense - ( 62,329 ) Rental income (note 25) 213,383 - Gain on settlement of debt 302,332 18,204 Total other income (expense) 239,301 ( 335,354 ) Net Loss ( 12,534,414 ) ( 7,897,085 ) Loss per Share (basic and diluted) $ ( 0.73 ) $ ( 0.69 ) Weighted Average Number of Shares (basic and diluted) 17,078,480 11,504,147 The accompanying notes form an integral part of these consolidated financial statements 43 Worksport Ltd. Consolidated Statements of Shareholders’ Equity December 31, 2022 and 2021 Shares Amount Shares Amount Capital Receivable Payable Deficit Adjustment (Deficit) 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, 2021 1,000 $ 1 3,820,619 $ 382 $ 12,665,854 $ ( 1,577 ) $ 379,428 $ ( 12,866,033 ) $ ( 8,580 ) $ 169,475 Stock split provision - - 237,500 24 86,663 - - ( 86,687 ) - - Conversion of preferred stock to common stock ( 900 ) ( 1 ) 1,717,535 172 ( 171 ) - - - - - Issuance for services and subscriptions payable - - 1,533,158 157 8,389,934 - 83,388 - - 8,473,479 Public offering - - 4,986,046 498 24,808,184 - ( 32,700 ) - - 24,775,982 Share issuance cost - - - - ( 4,459,892 ) - - - - ( 4,459,892 ) Issuance of shares from private placement - - 2,040,990 204 4,081,776 - - - - 4,081,980 Warrants issuance for services - - - - 37,000 - - - - 37,000 Conversion of convertible promissory note to shares (note 10) - - 204,622 20 368,299 - - - - 368,319 Warrant exercise (note 23) - - 2,287,511 229 8,454,335 - - - - 8,454,564 Loan repayment (note 9 and 20) - - 98,054 10 176,490 - - - - 176,500 Net loss - - - - - - - ( 7,897,085 ) - ( 7,897,085 ) Balance at December 31, 2021 100 $ - 16,951,034 $ 1,696 $ 54,608,472 $ ( 1,577 ) $ 430,116 $ ( 20,849,805 ) $ ( 8,580 ) $ 34,180,322 Share issuance - - 45,000 4 260,096 - ( 260,100 ) - - - Warrant exercise (note 23) - - 73,342 7 ( 7 ) - - - - - Issuance for services and subscriptions payable - - 90,000 9 2,051,064 - 421,273 - - 2,472,346 Net loss - - - - - - - (12,534,414 ) - (12,534,414 ) Balance at December 31, 2022 100 $ - 17,159,376 $ 1,716 $ 56,919,625 $ ( 1,577 ) $ 591,289 $ ( 33,384,219 ) $ ( 8,580 ) $ 24,118,254 The accompanying notes form an integral part of these consolidated financial statements 44 Worksport Ltd. Consolidated Statements of Cash Flows December 31, 2022 and 2021 2022 2021 Operating Activities Net Loss $ ( 12,534,414 ) $ ( 7,897,085 ) Adjustments to reconcile net loss to net cash from operating activities: Bad debt expense - 62,329 Shares, options and warrants issued for services 4,899,433 3,920,046 Depreciation and amortization 486,582 66,876 Change in operating lease 10,584 16,211 Accrued interest 27,564 40,637 Amortization on OID interest - 211,342 (Gain)/loss on settlement of debt ( 302,332 ) ( 18,204 ) Adjustments to reconcile net income loss to cash provided by (used in) operating activities ( 7,412,583 ) ( 3,597,848 ) Changes in operating assets and liabilities (note 15) ( 565,377 ) ( 612,775 ) Net cash used in operating activities ( 7,977,960 ) ( 4,210,623 ) Cash Flows from Investing Activities Purchase of intangible assets ( 103,329 ) ( 29,951 ) Purchase of property and equipment ( 11,047,447 ) ( 1,101,784 ) Net cash used in investing activities ( 11,150,776 ) ( 1,131,735 ) Financing Activities Proceeds from issuance of common shares, net of issuance cost - 24,398,070 Proceeds from warrant exercise - 8,454,560 Proceeds from loan payable 5,300,000 - Shareholder Assumption of Debt 10,547 12,154 Repayments on loan and promissory notes payable ( 128,387 ) ( 62,905 ) Net cash provided by financing activities 5,182,160 32,801,879 Change in cash ( 13,946,576 ) 27,459,521 Cash and cash equivalents - beginning of year 28,567,333 1,107,812 Cash and cash equivalents end of year $ 14,620,757 $ 28,567,333 Supplemental Disclosure of non-cash activities Shares issued for purchase of intangible assets $ 575,000 $ 502,534 Share base compensation $ 4,899,433 $ 3,891,692 Cashless warrant exercise $ 37,000 $ 109,490 Conversion of preferred Stock to common stock $ - $ 171 Shares issued for loan repayment $ - $ 176,500 Conversion of convertible promissory note to common stock $ - $ 368,319 Stock split provision $ - $ 86,687 Reverse stock split $ - $ 21,182 Supplemental Disclosure of cash flow information Supplemental Disclosure of cash flow information Income tax paid $ - $ - Interest paid $ 479,000 $ - The accompanying notes form an integral part of these consolidated financial statements. 45 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 1. Nature of Operations Worksport Ltd. (together with its subsidiaries, the “Company”) was incorporated in the State of Nevada on April 2, 2003 under the name Franchise Holdings International, Inc. (“FNHI”). In May 2020, FNHI changed its name to Worksport Ltd. 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 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 NASDAQ. 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. Terravis Energy, Inc. (“Terravis”) was incorporated in the State of Colorado on May 5, 2021. 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. During the year ended December 31, 2022, the Company was issued an additional 9,990,900 common shares of Terravis at par value of $ 0.0001 per share. On January 20, 2022, the board of directors of Terravis and the board of directors of the Company, as the sole stockholder of Terravis, adopted the Terravis Energy, Inc. 2022 Equity Incentive Plan (the “Terravis 2022 Plan”). Under the Terravis 2022 Plan, Terravis’ board of directors or a committee designated by the board of directors may grant incentive stock options, nonqualified stock options, shares of restricted stock, restricted stock units, performance shares, performance units and stock appreciation rights to eligible participants consisting of employees of Terravis, member of Terravis’ board of directors and advisors and consultants to Terravis. The Terravis board of directors authorized and reserved 1,500,000 shares of Terravis common stock under the Terravis 2022 Plan, subject to adjustment for any stock splits of Terravis’ common stock or reorganization, recapitalization, or acquisition of Terravis. On April 6, 2022, Lorenzo Rossi and Steven Rossi, both of whom are members of Terravis’ board of directors, were granted non-qualified stock options under the Terravis 2022 Plan exercisable for 750,000 and 250,000 shares of Terravis’ common stock, respectively, with exercise prices of $ 0.01 per share exercisable from the date of grant until the tenth anniversary of the date of grant. On April 12, 2022, Steven Rossi, William Caragol, and Ned L. Siegel, all of whom are members of Terravis’ board of directors, were granted non-qualified stock options under the Terravis 2022 Plan exercisable for 250,000 , 50,000 , and 50,000 shares of Terravis’ common stock, respectively, with exercise prices of $ 0.01 per share exercisable from the date of grant until the tenth anniversary of the date of grant. On November 4, 2022, Terravis filed an amendment to its articles of incorporation with the Colorado Secretary of State, pursuant to which the Terravis board of directors attached a certificate of designation designating 1,000 shares of its authorized preferred stock as Series A Preferred Stock with a par value $ 0.0001 per share. According to the certificate of designation, holders of the Series A Preferred Stock do not have any dividend, conversion or liquidation rights. Unless otherwise prohibited by law or the Series A Preferred Stock certificate of designation, the Series A Preferred Stock shall vote together with the outstanding shares of common stock of Terravis as one class on any matter put forth before the common stockholders. For so long the Series A Preferred Stock is outstanding, the holders of the Series A Preferred Stock shall be entitled to 51 % of the total votes on all matters regardless of the actual number of shares of Series A Preferred Stock then outstanding, and the holders of the common stock and any other shares of capital stock of Terravis entitled shall be entitled to their proportional share of the remaining 49 % of the total votes based on their respective voting power. On November 4, 2022, the Company issued 1,000 shares of Series A Preferred Stock to Steven Rossi, the Chief Executive Officer and President of the Company. 46 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 1. Nature of Operations (continued) During the year ended December 31, 2022, Worksport New York Operations Corporation and Worksport USA Operations Corporation were incorporated in the state of New York and Colorado, respectively. During the year ended, the Company was issued 1,000 common shares at par value of $ 0.0001 of Worksport USA Operations Corporation. On April 1, 2022, the Company was issued 10,000 common shares of Worksport New York Operations Corporation. 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. 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 all its subsidiaries is the 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) Reclassification Certain amounts in the prior period Consolidated Statements of Cash Flows for the year ended December 31, 2021 have been reclassified to conform with current period presentation. The Company reclassified $ 169,918 from cash used in financing activities to cash used in operating activities. This reclassification resulted in an increase from $ 4,046,705 to $ 4,210,623 in net cash used in operating activities and an increase from $ 32,637,961 to $ 32,801,879 in net cash provided by financing activities. 47 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 3. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the year ended December 31, 2022, the Company had net loss of $ 12,534,414 . As at December 31, 2022, the Company has working capital of $ 15,870,377 and had an accumulated deficit of $ 33,384,219 . The Company has never generated profit from operations and relies on debt and equity financing for continued operations. The Company’s ability to continue as a going concern is dependent upon the ability to generate cash flows from operations and obtain financing. The Company intends to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps management is taking will be successful. The Company has historically operated at a loss, although that may change as sales volumes increase. As of December 31, 2022, the Company had working capital of $ 15,870,377 (2021 – $ 32,235,216 ) and an accumulated deficit of $ 33,384,219 (2021 - $ 20,849,805 ). As of December 31, 2022, the Company had cash and cash equivalents of $ 14,620,757 (2021 - $ 28,567,333 ). Despite the company almost having completed its purchasing of large manufacturing machinery, operational costs are expected to remain elevated and, thus, decrease cash and cash equivalents. Concurrently, the Company intends to begin manufacturing and increasing sales volumes within 2023, which should mitigate the effects of operational costs on cash and cash equivalents; this view is supported by the fact that the manufacturing facility of the Company is near completion and is expected to start generating more substantial revenue in the second quarter of 2023, barring unforeseeable delays. The Company has successfully raised cash, and it is positioned to do so again if deemed necessary or strategically advantageous. During the year ended December 31, 2021, the Company, through its Reg-A public offering, private placement offering, underwritten public offering, and exercises of warrants, raised an aggregate of approximately $ 32,500,000 . On September 30, 2022, the Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 13, 2022 allowing the Company to issue up to $ 30,000,000 of common stock and up to $ 13,000,000 of common stock that may be issued and sold under an At The Market Offering Agreement dated as of September 30, 2022. 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. Based on its current operating plans, the Company believes it has a 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. Still, these factors, among others, indicate the existence of a material uncertainty that cast substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments could be material. 4. 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. Cash and cash equivalents in financial institutions may exceed insured limits at various times during the year and subject the Company to concentrations of credit risk. Cash and cash equivalents include restricted cash at December 31, 2022 and 2021 totaling $ 411,016 and $ 0 , respectively. 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. 48 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 4. Significant Accounting Policies (continued) 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, if needed, maintains an allowance for doubtful accounts receivable based upon the Company’s historical experience and a specific review of accounts receivable at the end of each period. At December 31, 2022 and 2021, 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 on a weighted average basis. Cost includes purchase price of materials, freight, and related costs required to bring the goods to Company warehouses. Warranties - The Company currently offers a limited lifetime warranty against defective products out-of-the-box. Customers who are not satisfied with their purchase may attempt to have their purchases reimbursed outside of the warranty period. Revenue Recognition – In accordance with ASC 606 Revenue from Contracts with Customers, sales are recognized when (1) products are shipped, with no right of return except for defective products, and the title and risk of loss has passed to customers; and (2) when they are delivered based on the terms of the sale, and 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 goods sold. Property and Equipment - Capital assets are recorded at cost and are depreciated using the straight-line method over the following estimated useful lives: Schedule of Estimated Useful Lives of Property and Equipment Furniture and equipment 5 years Automobile 5 years Computers 3 years Leasehold improvements 15 years Building 15 years Share-based payments - The Company offers a share option plan for its directors, officers, employees, and consultants. ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as 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 at the time of grant. That expense is recognized over the estimated 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. 49 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 4. Significant Accounting Policies (continued) Income Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between 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 changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities. Foreign Currency Items - Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using exchange rates 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 promissory note payable, approximates their fair values because of the short-term maturities of these instruments. The carrying value of the loan payable approximates fair value as its interest rate fluctuates with market interest rates. 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 lives, 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, 2022 and 2021, the Company had no impairment losses related to intangible assets. Sales Taxes – Certain jurisdictions impose a sales tax on Company sales to nonexempt customers. The Company collects these taxes from customers and remits the entire amount as required by the applicable law. The Company excluded from revenues and expenses the tax collected and remitted. Lease Accounting - On January 1, 2019, the Company adopted ASC 842, which 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 and are included in note 19. Recent Accounting Pronouncements Any recently issued Accounting Standards Codification guidance has either been implemented or is not significant to the Company. 50 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 5. Inventory Inventory consists of the following at December 31, 2022 and 2021: Schedule of Inventory 2022 2021 Finished goods $ 1,200,759 $ 427,794 Promotional items 50,790 728 Raw materials 94,823 73,250 Inventory $ 1,346,372 $ 501,772 6. Property and Equipment Major classes of property and equipment at December 31, 2022 and 2021 are as follows: Schedule of Property and Equipment 2022 2021 Equipment 2,344,946 536,982 Furniture 143,449 97,795 Product molds 122,675 70,208 Computers 78,885 33,420 Leasehold improvements 675,751 368,233 Building 6,079,410 - Land 2,239,405 - Automobile 168,497 95,434 Deposits 605,000 - Property and Equipment, gross 605,000 - Less accumulated depreciation ( 557,346 ) ( 73,273 ) Property and Equipment, net $ 11,900,672 $ 1,128,799 During the years ended December 31, 2022 and 2021, the Company recognized depreciation expense of $ 484,073 and $ 64,497 , respectively. At December 31, 2022, the Company is committed to purchase an additional $ 2,545,000 of equipment. During the year ended December 31, 2022, the Company completed the purchase of a manufacturing facility and land for $ 6,079,410 and $ 2,239,405 , respectively. Currently, the Company’s products are manufactured in Meihzou, China. With the acquisition of the property, the Company plans to build manufacturing and assembly operations in the United States. The Company believes that by doing so it can (i) have better control over design and manufacturing quality of its products, (ii) mitigate supply chain risk, (iii) decrease shipping costs, (iv) cut overall manufacturing costs, and (v), by on-shoring production, participate in creating positive social externalities including employment in its largest market: the United States. 7. Intangible Assets Intangible assets consist of costs incurred to establish the patent rights related to the Company’s quick latch and portable power station as well as soft, tough, and solar cover technologies. Worksport trademarks, licenses, and software costs. The Company’s patents were issued in 2014, 2019, 2020, and 2022. The patents and software will be amortized on a straight-line basis. At December 31, 2022, the software has not been placed into service. The Company’s trademark, licenses, and other indefinite life intangible assets are reassessed every year for impairment; the Company has determined that impairment is not necessary for the current year ended December 31, 2022. The change in intangible assets for the years ended December 31, 2022 and 2021 are as follows: 51 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 7. Intangible Assets (continued) Schedule of Change in Intangible Assets 2022 2021 Patent $ 62,706 $ 62,706 License 103,329 - Trademark 5,150 5,150 Software 1,077,534 502,534 Other 29,451 29,451 Intangible Assets, gross 29,451 29,451 Less accumulated depreciation ( 9,297 ) ( 6,788 ) Intangible Assets, net $ 1,268,873 $ 593,053 Subsequent to December 31, 2022, the Company capitalized an additional $ 72,466 of software costs. Estimated amortization of the patent and software over the next five years and beyond December 31, 2022 is as follows: Schedule of Amortization of Patent 2024 $ 232,508 2023 $ 69,933 2024 $ 232,508 2025 $ 232,508 2026 $ 232,508 2027 $ 232,508 2028 and later $ 203,444 8. Prepaid expenses and deposits As of December 31, 2022 and 2021, prepaid expenses and deposits consists of the following: Schedule of Prepaid Expenses and Deposits 2022 2021 Consulting, services and advertising $ 1,313,799 $ 4,328,389 Insurance 20,781 3,041 Deposit 699,765 384,065 Prepaid expenses and deposits, net $ 2,034,345 $ 4,715,495 As of December 31, 2022, prepaid expense and deposit consists of $ 1,313,799 (2021 - $ 4,328,389 ) in prepaid consulting, services and advertising for third party consultants through the issuance of shares and stock options. Deposits primarily include prepayments for raw materials used in the manufacturing of inventory. 9. Promissory Notes The following tables shows the balance of the notes payable as of December 31, 2022 and 2021: Schedule of Notes Payable Balance as at December 31, 2020 $ 367,058 Settlement ( 103,847 ) Balance as at December 31, 2021 $ 263,211 Settlement ( 263,211 ) Balance as at December 31, 2022 $ - During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest for $ 100,000 . As a result of the settlement, the Company recognized a gain on settlement of debt of $ 163,211 . Additionally, as a part of this settlement, there was accrued interest on these promissory notes included in accounts payable on the accompanying consolidated balance sheets totaling $ 139,121 that was also settled; accordingly, the Company recognized a gain on settlement of debt for this amount. 52 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 9. Promissory Notes (continued) During the year ended December 31, 2019, the promissory note holder advanced $ 88,120 to the Company. As of the date the amount was advanced, the terms of the note were under negotiation and, as a result, the note was due on demand. During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest, noted above. During the year ended December 31, 2016, the Company issued a secured promissory note in the principal amount of $ 73,452 ($ 123,231 CAD). 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 CAD). The secured promissory note bore interest at a rate of 18 % per annum. The payment terms of the original note including these additions were due “upon completion of going public on the Canadian Securities Exchange, with no change in interest rate.” The secured promissory note was 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. During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest, noted above. As of December 31, 2022, principal balance owing was $ nil (2021 - $ 96,091 ($ 123,231 CAD)). As of December 31, 2022, the accrued interest on this note payable, $ nil (2021 - $ 66,380 ($ 86,284 CAD)), was included in accounts payable and accrued liabilities. During the year ended December 31, 2016, the Company issued secured promissory notes in the aggregate principal amount of $ 79,000 . The secured promissory notes bore interest at a rate of 18 % per annum, payable monthly. The secured promissory notes were 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. During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest, noted above. As of December 31, 2022, the principal balance owing was $ nil (2021 - $ 79,000 ). As of December 31, 2022, the accrued interest on this note payable, $ nil (2021 – $ 45,181 ), was included in accounts payable and accrued liabilities. During the year ended December 31, 2017, the Company issued secured promissory notes in the aggregate principal amount of $ 53,848 ($ 67,700 CAD). The secured promissory notes were due in October and November 2018 and bore an interest rate of 12 % per annum. The secured promissory notes were 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 CAD), for the outstanding principal of $ 53,848 and accrued interest of $ 14,740 . As a result, the Company recognized a gain on settlement of debt of $ 5,682 . As of December 31, 2022 and 2021, the secured promissory notes have been repaid in full. During the years ended December 31, 2017, the Company issued secured promissory notes in the aggregate principal amount of $ 60,000 . The secured promissory notes were due in August and November 2018 and bore interest at a rate of 12 % per annum. The secured promissory notes were 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 common shares valued at $ 1.80 per share. As of December 31, 2021, the Company had recorded principal and interest of $ 73,886 and, as a result of the share repayment, the Company recognized a gain on settlement of $ 8,997 . As of December 31, 2022 and 2021 the secured promissory notes have been repaid in full. 53 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 9. Promissory Notes (continued) The amounts repayable under promissory notes and secured promissory notes at December 31, 2022 and 2021 are as follows: Schedule of Secured Notes Payable 2022 2021 Balance owing $ - $ 263,211 Less amounts due within one year - ( 263,211 ) Long-term portion $ - $ - 10. 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 common shares, and (ii) the Company issued to Leonite a five -year warrant to purchase 45,000 common shares at an exercise price of $ 2.00 per share (subject to adjustment), which may be exercised on a cashless basis. The note carried an original issue discount of $ 44,425 to cover Leonite’s legal fees, accounting fees, due diligence fees, and 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 , consisting of $ 182,500 for principal and $ 16,215 as an original issue discount. On September 1, 2020, the Company recorded an additional $ 310,322 , consisting of $ 285,000 for principal and $ 25,322 as an original issue discount. As of December 31, 2021, the Company has recorded $ 509,037 , consisting of $ 467,500 for principal and $ 41,537 as an original issue discount. Furthermore, the Company issued 22,500 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 the convertible promissory note into 126,022 common shares at $ 1.80 per share. The original value of the convertible note converted was $ 182,565 . As a result, the Company recognized a loss of $ 44,274 on settlement of debt. During the year ended December 31, 2021, Leonite converted its remaining outstanding principal and interest into common shares. Leonite received 204,622 common shares at $ 1.80 per share valued at $ 368,319 . 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, 2022 and 2021, the convertible promissory note has been repaid in full. 11. Shareholders’ Equity During year ended December 31, 2022, the following transactions occurred: The Company issued 10,000 common shares to a consultant for services received valued at $ 86,000 , of which $ 66,329 was issued from share subscriptions payable. During the same period, the Company issued 80,000 common shares for consulting, advisory services, and employee compensation valued at $ 240,000 . The Company issued 45,000 shares of restricted stock to members of the board valued at $ 260,100 from share subscriptions payable. The Company recognized consulting expense of $ 487,602 to share subscriptions payable from restricted shares and stock options to be issued. As of December 31, 2022, the restricted shares have no t been issued. Refer to note 23 and 24 for additional disclosures of shareholders’ equity. 54 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 11. Shareholders’ Equity (continued) 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 common shares relating to the Reg-A public offering. Of the shares issued, 15,500 common shares valued at $ 31,200 were from share subscription payable and 750 common shares valued at $ 1,500 were cancelled and refunded. The Company raised $ 3,003,321 and incurred share issuance cost of $ 123,984 . During the year ended December 31, 2021, the Company had an 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 23). A cumulative 3,483,636 common shares were issued in connection with offering for $ 21,805,361 , incurring share issuance costs of $ 4,335,908 . As of December 31, 2021, the Company issued an aggregate of 4,986,046 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 1 warrant for two additional common shares at $ 2 per unit. As such, the Company issued 2,040,990 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 common shares. As of December 31, 2021, 2,287,511 common shares were issued valued at $ 8,454,564 . Refer to note 23. During the year ended December 31, 2021, the Company entered into a loan settlement agreement with a loan holder to issue 62,006 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 in loans payable, resulting in the Company recognizing a gain on settlement of $ 46,176 . Refer to note 20. 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 note payable settlement agreement with a note holder to issue 36,048 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 in promissory notes payable, resulting in the Company recognizing a gain on settlement of $ 8,997 . Refer to note 9. 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 common shares at $ 1.80 per share valued at $ 368,319 . As of the date of the settlement, the Company had $ 325,667 in convertible promissory notes payable, resulting in the Company recognizing a loss of $ 42,651 on settlement of debt. Refer to note 10. During the year ended December 31, 2021, the Company issued 1,717,535 common shares to Steven 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 agreeing to return 900 Series A Preferred Stock to the Company. During the year ended December 31, 2021, the Company entered into consulting agreements with third party consultants for 380,000 shares of common stock valued at $ 1,648,700 for consulting services. As of December 31, 2021, the Company issued 370,000 common shares valued at $ 1,562,700 to the third-party consultants for services received. The remaining 10,000 common shares will be expensed throughout the term of the agreement as the Company accrues the stock payable. As of December 31, 2021, the Company recorded $ 66,329 to share subscriptions payable for the outstanding 10,000 post-stock split common shares. As of December 31, 2021, the Company expensed $ 337,091 to advertising and consulting and capitalized $ 502,534 to intangible assets. 55 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 11. Shareholders’ Equity (continued) During the year ended December 31, 2021, the Company issued 259,808 common shares valued at $ 741,159 for consulting and prepaid services, $ 241,559 of which was issued from share subscriptions payable. As of December 31, 2021, the Company recognized consulting expenses of $ 497,752 . During the same period, the Company issued 150,000 common shares valued at $ 390,000 for consulting services as well as 3,350 common shares valued at $ 24,121 for employee compensation. During the year ended December 31, 2021, the Company granted and issued 775,000 restricted shares of the Company valued at $ 4,121,000 to consultants for services to be rendered over a period of 12 and 24 months. Upon issuance, 775,000 of the restricted shares vested immediately. As of December 31, 2021, the Company recognized consulting and advertising expense of $ 796,000 and $ 3,325,000 , respectively, to prepaid expense. During the year ended December 31, 2021, the Company granted 45,000 restricted shares of the Company to directors of the Company. Upon being granted, 15,000 of the restricted shares vested immediately, and 30,000 vested on January 1, 2022. As of December 31, 2021, the Company recognized consulting expense of $ 258,618 to share subscriptions payable. As of December 31, 2022, the restricted shares have been issued. Refer to note 23 and 24 for additional disclosures related to shareholders’ equity for consulting expense of $ 37,000 related to warrant issuance and $ 1,551,111 to share subscriptions payable for consulting and advertising expense related to stock options. During the year ended December 31, 2021, the Company completed a share consolidation of the Company’s issued and outstanding common shares based on twenty (20) pre-consolidation shares to one (1) post-consolidation share. As a result of the share consolidation, an anti-dilution clause was triggered, resulting in the Company issuing 237,500 common shares valued at $ 86,687 . For the years ended December 31, 2022 and 2021, 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 2022 and 2021, the Company was authorized to issue 100 shares of its Series A and 100,000 of its 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. 12. Related Party Transactions During the year ended December 31, 2022, the Company recorded salaries expense of $ 387,308 (2021 - $ 410,573 ) related to services rendered to the Company by its CEO. During the same period the Company recorded salaries expense of $ 265,858 (2021 - $ 125,707 ) to an officer and director of the Company. As of December 31, 2022 and 2021, the Company has a payable of $ 46,096 and $ 35,547 to the CEO. During the year ended December 31, 2021, the Company paid a director of the Company $ 50,000 for services rendered from 2015 to 2020. During the year ended December 31, 2021, the Company paid $ 59,203 to a U.S.-based corporation of which the Company’s CEO and director is also a stockholder. Refer to note 11 and 24 for additional related party transactions. 56 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 13. Income Taxes a) The income tax expense for the years ended December 31, 2022 and 2021 is reconciled per the schedule below: Schedule of Reconciliation of Income Tax 2022 2021 Loss before income taxes $ ( 12,534,414 ) $ ( 7,897,086 ) State income taxes, net of federal benefits ( 626,721 ) ( 394,855 ) Non-deductible portion of meals and entertainment 41,409 19,899 Share base compensation 562,530 1,007,220 Interest and penalty 100,000 - Adjusted net loss for tax purposes ( 12,457,196 ) ( 7,264,822 ) Statutory rate 21 % 21 % Income tax benefit ( 2,616,011 ) ( 1,525,613 ) Increase in valuation allowance 2,616,011 1,525,613 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, 2022 and 2021 are as follows: Schedule of Deferred Income Tax Assets 2022 2021 Net operating loss carry forwards $ 4,189,777 $ 2,358,455 Amortization 482,691 32,265 Change in operating lease ( 9,964 ) 16,208 Share base compensation 4,336,903 3,976,468 Deferred tax assets, gross 8,999,407 6,383,396 Deferred tax assets not recognized ( 8,999,407 ) ( 6,383,396 ) Net deferred tax asset $ - $ - Deferred income taxes within each jurisdiction on the balance sheets at December 31, 2022 and 2021 are as follows: Schedule of Deferred Income Taxes Within Each Jurisdiction 2022 2021 United States $ 6,454,407 $ 4,925,396 Canada 2,545,000 1,458,000 Deferred income taxes 2,545,000 1,458,000 Valuation allowance ( 8,999,407 ) ( 6,383,396 ) Net deferred tax asset $ - $ - 57 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 13. Income Taxes (continued) c) Cumulative Net Operating Losses The Company has non-capital losses carried forward of approximately $ 17,997,000 available to reduce future years’ taxable income. These losses will expire as follows: Schedule of Cumulative Non-capital Losses United States Canada Total 2034 $ 53,000 $ 183,000 $ 236,000 2035 161,000 368,000 529,000 2036 868,000 262,000 1,130,000 2037 1,472,000 59,000 1,531,000 2038 - 520,000 520,000 2039 - 193,000 193,000 2040 - 718,000 718,000 2041 - 3,000,000 3,000,000 2042 - 4,100,000 4,100,000 Non-capital losses carried forward Total $ 2,554,000 $ 9,603,000 $ 12,157,000 Never expire $ 5,840,000 $ - $ 5,840,000 These net operating loss carryforwards of approximately $ 17,997,000 may be offset against future taxable income. No tax benefit from these losses have been reported in the December 31, 2022 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 operating 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-than-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, 2022 and 2021. The Company does not expect the amount of unrecognized tax benefits to materially change within the next twelve months. The Company is required to file income tax returns in the U.S. and Canadian Federal jurisdictions, as well as the states of New York, New Jersey, and Utah and in the province of Ontario. The Company is no longer subject to income tax examinations by tax authorities for tax years ending before December 31, 2019. 14. Financial Instruments Credit Risk The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce its credit risk, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit balances. The Company incurred bad debt expense of $ 0 and $ 62,329 during the year ended December 31, 2022 and 2021. 58 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 14. Financial Instruments (continued) 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 its cash reserves, cash flows generated from operations, and 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 exposed to interest rate risk due to the variable interest rate of its mortgage, which is equal to the Prime Rate plus two hundred twenty-five basis points ( 2.25 % ) per annum. Concentration of Supplier Risk The Company purchases all of its finished goods from Meizhou, China. The Company carries significant strategic inventories of these materials and is currently establishing domestic assembly to reduce the risk associated with this concentration of finished good suppliers. Strategic inventories are managed based on demand. To date, the Company has been able to obtain adequate supplies of the materials used in the production of its products in a timely manner from existing sources. The loss of this key supplier or a delay in shipments could have an adverse effect on its business. Concentration of Customer Risk A customer is considered to be significant if they account for greater than 10 % of the Company’s annual sales. The loss of any key customer could have an adverse effect on the Company’s business. For the year ended December 31, 2022, two customers made up 50 % ( 38 % and 12 % individually) of revenue. For the year ended December 31, 2021, three customers made up 77 % ( 33 % , 29 % , and 15 % individually) of revenue. 15. 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, 2022 and 2021 are as follows: Schedule of Changes in Operating Assets and Liabilities 2022 2021 Decrease (increase) in accounts receivable $ 83 $ ( 2,228 ) Decrease (increase) in other receivable ( 83,311 ) ( 16,883 ) Decrease (increase) in inventory ( 844,600 ) ( 460,969 ) Decrease (increase) in prepaid expenses and deposits ( 529,438 ) ( 382,067 ) Increase (decrease) in lease liability 8,738 ( 2,111 ) Increase (decrease) in payroll taxes payable ( 112,189 ) 63,973 Increase (decrease) in accounts payable and accrued liabilities 995,340 187,510 Changes in operating assets and liabilities $ ( 565,377 ) $ ( 612,775 ) 59 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 16. Commitments and Contingencies During the year ended December 31, 2021, the Company entered into an agreement with a third-party advisor to reserve for sale and issuance 15,000 common shares for consulting services at $ 0.001 per share. 17. Reverse Stock Split On May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of 1-for-20 for the purpose of increasing the per share price of the Company’s stock in an effort to meet the minimum listing requirements of the NASDAQ. 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. 18. Investment During the year ended December 31, 2019, the Company entered into an agreement to purchase 10,000,000 shares of a privately owned US-based mobile phone development company for $ 50,000 – representing a 10 % equity stake. The shares have been issued to the Company. As of December 31, 2022 and 2021, the Company had advanced a total of $ 24,423 and is advancing tranches of capital as required by the Company. 19. Operating Lease Obligations 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 . During the year ended December 31, 2021, the Company entered into a second lease agreement for warehouse space to commence on June 1, 2021 and end on May 31, 2024 with monthly lease payments of $ 19,910 . During the year ended December 31, 2022, the Company signed a lease agreement for approximately 20,296 square feet to be used as its primary corporate office and R&D facility pursuant to a five-year lease, dated June 1, 2022 , for a variable rate averaging $ 22,101 per month over the lifetime of the lease. The Company also pays approximately $ 4,418 in additional fees per month, which varies year to year. 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 and lease liability as of December 31, 2022 and 2021 is as follows: Schedule Right-of-use Asset December 31, 2022 December 31, 2021 Right-of-use asset $ 1,238,055 $ 515,819 Current lease liability $ 387,329 $ 212,929 Long-term lease liability $ 884,146 $ 316,988 60 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 19. Operating Lease Obligations (continued) The following is a summary of the Company’s total lease costs: Schedule of Lease Costs December 31, 2022 December 31, 2021 Operating lease cost $ 409,179 $ 166,027 The following is a summary of cash paid in 2022 and 2021 for amounts included in the measurement of lease liabilities: Schedule of Measurement of Lease Liabilities December 31, 2022 December 31, 2021 Operating cash flow $ 400,130 $ 166,027 Maturities of lease liability are as follows: Future minimum lease payments as of December 31, 2022: Schedule of Future Minimum Lease Payments 2023 $ 493,026 2024 361,298 2025 269,645 2026 and thereafter 394,926 Total future minimum lease payments 1,518,895 Less: amount representing interest ( 247,420 ) Present value of future payments 1,271,475 Current portion 387,329 Long term portion $ 884,146 20. Loans payable a) During the year ended December 31, 2022, the Company entered into a loan agreement with a third party for the purchase of property located in West Seneca, New York, the details of which are disclosed in the Company’s Form 8-K filed with the United States Securities and Exchange Commission on May 11, 2022. The Company received $ 5,300,000 with an interest rate of prime plus 2.25 % with an initial maturity date of May 10, 2024 and the option to extend the loan for an additional year. In order to service the loan throughout the term, the Company deposited $ 667,409 in a restricted account. As of December 31, 2022, the balance in the restricted account was $ 411,016 and is included in cash and cash equivalents on the accompanying balance sheet. b) During the year ended December 31, 2020, the Company received loans of $ 32,439 , $ 10,000 , and $ 108,000 from an unrelated third party with an interest rate of 10 % per annum and a maturity date of December 31, July 22 and August 31, 2021 , respectively. During the year ended December 31, 2021, the Company agreed to repay the outstanding principal and interest through the issuance of 62,006 common shares at $ 0.09 per share. As of December 31, 2021, the Company accrued interest of $ 1,319 . As of the date of the settlement agreement, the Company had $ 150,439 of principal and $ 7,348 of interest outstanding, resulting in the Company recognizing a gain on settlement of $ 46,176 for the year ended December 31, 2021. There are no amounts owing, and the loan has been fully settled. c) During the year ended December 31, 2020, the Company received $ 28,387 ($ 40,000 CAD) 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, 2023 resulted in loan forgiveness of 25 percent ( 25 %). As of September 30, 2022, the Company made a repayment of $ 28,387 ($ 40,000 CAD) and, as of February 14, 2023, received the forgiven debt of $ 7,383 ($ 10,000 CAD), see note 27. At December 31, 2022, there are no amounts owing, and the loan has been fully settled. 61 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 21. Government Assistance During the COVID-19 pandemic, the Government of Canada was providing funding through the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs in order to provide financial relief to Canadian businesses affected by COVID-19. The CEWS program provided a reimbursement of salaries for eligible employers based on a decrease in revenues. The CERS program provided a reimbursement of rent expenses paid by eligible parties based on a decrease in revenues. During the year ended December 31, 2021, the Company recognized CEWS of $ 125,812 ($ 157,866 CAD) and CERS of $ 13,628 ($ 16,974 CAD) as a reduction in general and administrative expense on the consolidated statements of operations. 22. Loss per Share For the year ended December 31, 2022, loss per share is $ 0.72 (basic and diluted) compared to that of the year ended December 31, 2021 of $ 0.69 (basic and diluted) using the weighted average number of shares of 17,078,480 (basic and diluted) and 11,504,147 (basic and diluted), respectively. There are 299,000,000 shares authorized and 17,159,376 and 16,951,034 shares issued and outstanding, as at December 31, 2022 and 2021, respectively. 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, 2022, the Company has 3,939,924 warrants convertible to 4,239,924 common shares, 2,645,000 restricted stock to be issued, and 785,000 stock options exercisable for 785,000 common shares for a total underlying common shares of 7,669,924 . As at December 31, 2021, the Company had 5,658,315 warrants convertible to 6,649,305 common shares, 45,000 restricted stock to be issued, and 712,500 stock options exercisable for 712,500 common shares for a total underlying common shares of 7,406,805 . 23. Warrants During the year ended December 31, 2022, an aggregate of 250,121 warrants were exercised primarily on a cashless basis for 73,321 common shares, and 1,599,179 Reg-A public offering and private placement warrants expired. During the year ended December 31, 2021, a total of 2,488,721 warrants were exercised for 2,287,511 common shares. 1,637,709 warrants were exercised at $ 4.00 per share, 317,000 warrants were exercised at $ 6.05 per share, and 494,500 warrants were exercised on a cashless basis for 293,290 common shares. During the same period, the 39,512 warrants were exercised on a cashless basis related to a convertible promissory note (please refer to note 10). For the year ended December 31, 2021, 2,287,511 common shares were issued from warrant exercises. During the year ended December 31, 2021, the Company issued 1,502,409 and 2,040,990 warrants convertible to 1 and 2 common shares each exercisable for a period of 12 and 18 months, respectively. The warrants were issued in connection with the Reg-A public offering and private placement offering, respectively. The exercise price of the warrants is $ 4.00 per share. During the year ended December 31, 2022, the Company and a warrant holder reached an agreement to extend the exercisable period of 300,000 warrants, convertible to 2 common shares each, for an additional 12 months. During 2021, the Company issued 3,763,636 warrants convertible to 1 common share at an exercise price of $ 6.05 per share exercisable for a period of 36 months. 3,272,727 warrants were purchased through the underwritten public offering and 490,909 over-allotment warrants were purchased by the underwriter. The warrants were issued in connection with the underwritten public offering. During the year ended December 31, 2021, the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company issued an additional 150,000 warrants for a total of 250,000 warrants valued at $ 37,000 . The exercisable period of the warrants was also amended to a period of five years beginning on January 14, 2021 . The warrants are convertible to 1 common share each exercisable at $ 2 per share. During the year ended December 31, 2022, the warrants were exercised on a cashless basis for 73,321 common shares. 62 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 23. Warrants (continued) During the year ended December 31, 2021, the Company issued 130,909 representative warrants to the Company’s underwriters. The representative warrants are not exercisable until January 30, 2022. The representative warrants are exercisable for 130,909 common shares at $ 6.05 per share until August 3, 2024. As of December 31, 2022, the Company recognized a value of $ 273,993 for the representative warrants to share issuance cost. During the year ended December 31, 2021, 26,815 warrants expired. As of December 31, 2022, the Company has the following warrants outstanding: Schedule of Warrants Exercise Price Exercise price Number outstanding Remaining Contractual Life (Years) Expiry date $ 4.00 300,000 1.22 December 31, 2024 $ 6.05 3,446,515 1.60 August 3, 2024 $ 6.05 130,909 1.59 August 6, 2024 $ 2.40 62,500 2.22 March 20, 2025 3,939,924 1.58 Schedule of Warrants Activity December 31, 2022 December 31, 2021 Number of warrants Weighted average price Number of warrants Weighted average price Balance, beginning of year 5,652,827 $ 5.14 716,815 $ 3.46 Issuance 130,909 $ 6.05 7,457,036 $ 4.99 Expired ( 1,593,691 ) $ ( 4.00 ) ( 26,815 ) $ 4.00 Exercise ( 250,121 ) $ ( 2.00 ) ( 2,494,209 ) $ 4.22 Balance, end of period 3,939,924 $ 5.84 5,652,827 $ 5.14 24. Stock Options and Performance Share Units Under the Company’s 2015 Equity Incentive Plan, the number of common shares reserved for issuance under the option plan shall not exceed 10% of the issued and outstanding common shares of the Company, have a maximum term of 10 years, and vest at the discretion of the Board of Directors. All equity-settled, share-based payments are ultimately recognized as an expense in the statement of operations with a corresponding credit to “Additional Paid in Capital.” If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different than that estimated on vesting. 63 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 24. Stock Options and Performance Share Units (continued) Performance Share Units On November 11, 2022, 700,000 performance stock units (“PSUs”) granted December 29, 2021, as described below, were modified to include new terms pertaining to the PSU vesting schedule. The PSUs vest in 5% increments according to the modified schedule that correlates with the Company’s stock price. The first 5% of the PSUs vest upon the Company’s stock price closing at $2.25. 50% will have vested at a closing price of $5.31, and 100% will have vested at a closing price of $13.76. The fair value of the PSUs was estimated to be $ 1,254,460 . As of December 31, 2022, no PSUs have vested, and the Company recognized $ 35,100 in consulting expense. On December 29, 2021, the Company granted 400,000 and 300,000 performance stock units (“PSUs”) to the Company’s Chief Executive Officer and a director, respectively. The PSUs were to vest in 5% increments according to a schedule that correlates with the Company’s stock price. The first 5% of the PSUs was to have vested upon the Company’s stock price closing at $3.00. 50% was to have vested at a closing price of $16.50, and 100% was to have vested at a closing price of $31.50. The fair value of the PSUs was estimated to be $ 1,344,570 . As of December 31, 2022, no PSUs have vested, and the Company recognized $ 232,312 (2021 - $ 0 ) in consulting expense. Stock Options The Company uses the Black-Scholes option pricing model to determine fair value of stock options on the grant date. During the year ended December 31, 2022, the Company granted 10,000 and 50,000 options to advisors with an exercise price of $ 2.19 and $ 2.37 , respectively, expiring on February 7, 2027 and May 5, 2032 , respectively. The options vested immediately upon issuance. The fair values of the options on the grant date was estimated to be $ 21,780 and $ 261,400 , respectively. The Company recognized $ 283,180 in consulting expense during the year ended December 31, 2022. During the year ended December 31, 2022, the Company granted 12,500 options to a consultant with an exercise price of $ 1.60 expiring on November 29, 2032 . The options are earned in four equal installments on February 27, 2023, May 29, 2023, August 29, 2023 and November 27, 2023. The options shall vest one year after being earned on February 27, 2024, May 29, 2024, August 29, 2024 and November 27, 2024 . The fair values of the options on the grant date was estimated to be $ 18,725 . The Company recognized $ 1,642 in consulting expense during the year ended December 31, 2022. During the year ended December 31, 2022, Terravis Energy, Inc., a subsidiary of the Company, granted an aggregate of 1,350,000 of Terravis Energy, Inc. stock options to its officers and directors. The stock options have an exercise price of $ 0.01 and will expire on April 12, 2032 . The options vested immediately upon issuance. The fair value of the options on the grant date was estimated to be immaterial. On July 23, 2021, the Company granted 15,000 options to a director with an exercise price of $ 5.50 and an expiry date of July 23, 2026 . The stock options vested on January 1, 2022. The fair value of the options on grant date was estimated to be $ 129,480 . The Company recognized $ 799 (2021 - $ 128,681 ) to consulting expense during the year ended December 31, 2022. On August 6, 2021, the Company granted 140,000 options to directors, advisors, and officers with an exercise price of $ 5.50 and an expiry date of August 6, 2026 . The stock options vested on January 1, 2022. The fair value of the options on grant date was estimated to be $ 754,189 . The Company recognized $ 5,105 (2021 - $ 749,084 ) to consulting expense during the year ended December 31, 2022. 64 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 24. Stock Options and Performance Share Units (continued) On September 1, 2021, the Company granted 400,000 options to a consultant with an exercise price of $ 5.32 and an expiry date of September 1, 2026 . The options have a vesting period of 6 months from the initial grant date ; 100,000 shall vest on March 1, 2022, 100,000 shall vest on September 1, 2022, 100,000 shall vest on March 1, 2023, and 100,000 shall vest on September 1, 2023. The fair value of the options on grant date was estimated to be $ 2,112,000 . The Company recognized $ 1,058,917 (2021 - $ 352,972 ) to consulting expense during the year ended December 31, 2022. The Consultant has since agreed to forfeit these options; see note 27. On October 7 and November 2, 2021, the Company granted to advisors 5,000 and 62,500 options with exercise prices of $ 5.50 and $ 5.24 , respectively. The options will expire on October 7, 2026 and November 2, 2026 , respectively. The stock options vested on January 1, 2022. The fair value of the options on grant date was estimated to be $ 353,230 . The Company recognized $ 32,856 (2021 - $ 320,374 ) to consulting expense during the year ended December 31, 2021. On December 29, 2021, the Company granted an aggregate of 90,000 options to members of the board with an exercise price of $ 2.51 . The options will expire on December 29, 2026 . The options have a vesting period of 1 year from the initial grant date ; 10,000 vested on December 29, 2022, 10,000 shall vest on December 29, 2023, and 10,000 shall vest on December 29, 2024. The fair value of the options on grant date was estimated to be $ 224,280 . The Company recognized $ 73,941 (2021 - $ 0 ) in consulting expense during the year ended December 31, 2022. Schedule of Stock Options Activity December 31, 2022 December 31, 2021 Number of stock options Weighted average price Number of stock options Weighted average price Balance, beginning of year 712,500 $ 5.00 - $ - Granted 72,500 $ 2.21 712,500 $ 5.00 Balance, end of period 785,000 $ 4.74 712,500 $ 5.00 Schedule of Share-based Payment Arrangement, Option, Exercise Price Range Range of Exercise prices Outstanding Weighted average life (years) Weighted average exercise price Exercisable on December 31, 2022 Stock options $ 1.60 – 5.50 785,000 4.17 $ 4.74 512,500 As of December 31, 2022, Terravis Energy Inc. had the following options outstanding: Schedule of Stock Options Activity December 31, 2022 Number of stock options Weighted average price Balance, beginning of year - $ - Granted 1,350,000 $ 0.01 Balance, end of period 1,350,000 $ 0.01 Schedule of Share-based Payment Arrangement, Option, Exercise Price Range Range of Exercise prices Outstanding Weighted average life (years) Weighted average exercise price Exercisable on December 31, 2022 Stock options $ 0.01 1,350,000 9.28 $ 0.01 1,350,000 65 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 25. Rental Income During the year ended December 31, 2022, the Company entered into a sublease agreement for its warehouse in Mississauga, Ontario, Canada. The sublease commenced on September 15, 2022 and will end on May 31, 2024 at $ 15,515 ($ 19,992 CAD) per month. During the year ended December 31, 2022, the Company entered into a lease agreement in relation to its West Seneca property. Initially, the Company entered into a lease agreement with a third-party from July 1 to December 31, 2022 at $ 33,750 per month. Subsequently, on September 23, 2022, a mutual agreement was reached to terminate the lease agreement. During the year ended December 31, 2022, the Company recognized rental income of $ 213,383 . 26. 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. 27. Subsequent Events The Company has evaluated subsequent events through March 31, 2023, which is the date the financial statements were available to be issued. The following events occurred after year-end: ● On January 30, 2023, the Company and a stock options holder reached an agreement to cancel all 400,000 stock options in exchange for extending the exercisable period of 300,000 warrants to December 31, 2024. ● On January 30, 2023, the Company issued 360,000 stock options to members of the board. The stock options have an exercise price of $ 1.66 and an expiration date of January 30, 2033 . The stock options will vest in six equal installments of 60,000 commencing on the effective date of the grant and on each annual anniversary. ● On January 30, 2023, the Company issued 300,000 stock options to a consultant. The stock options have an exercise price of $ 1.66 and an expiration date of January 30, 2028 . The options have a vesting period with: 150,000 shall vest on grant date, 75,000 shall vest on March 1, 2023, and 75,000 shall vest on September 1, 2023. ● On February 14, 2023, the Company received $ 7,383 ($ 10,000 CAD) of forgiven debt from the Government of Canada for an interest-free loan issued by the Government of Canada as part of the COVID-19 small business relief program. 66 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 27. Subsequent Events (continued) ● On March 14, 2023, the Company issued 45,000 stock options to various employees. The stock options have an exercise price of $ 1.53 and an expiration date of March 14, 2033 . The options will vest in two equal installments of 22,500 on each of the following two annual anniversaries of the effective date of the grant. ● On March 14, 2023, the Company issued 20,000 stock options to a consultant. The stock options have an exercise price of $ 1.53 and an expiration date of March 14, 2033 . The options will vest in two equal installments of 10,000 on each of the following two annual anniversaries of the effective date of the grant. ● On March 14, 2023, the Company issued 85,106 stock options to a manager. The stock options have an exercise price of $ 1.53 and an expiration date of March 14, 2033 . The options will vest in two equal installments of 42,553 upon the completion of two milestones as approved by the Company’s Compensation Committee. ● On March 14, 2023, the Company issued 170,212 restricted stock units to a manager. The restricted stock units have a vesting period with: 21,280 shall vest on grant date, and 10,638 shall vest at the end of each subsequent three month period through August 31, 2026. 67 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.