Worksport Ltd 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 43 Audited Consolidated Balance Sheets at December 31, 2024 and 2023 45 Audited Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2024 and 2023 46 Audited Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2024 and 2023 47 Audited Consolidated Statements of Cash Flow for the years ended December 31, 2024 and 2023 48 Notes to Audited Consolidated Financial Statements 49 42 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Worksport Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Worksport Ltd. and Subsidiaries (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the years 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, 2024 and 2023, and the results of its operations and its cash flows for the years 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 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit, that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. 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 these 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 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 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 audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the 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 audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide 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. Inventory Description of the Matter As of December 31, 2024, the Company’s inventory balance was approximately $5.190 million. As reported in Note 3, inventory has increased over the past year as the Company has shifted to full scale production in its West Seneca manufacturing facility. The Company evaluates its inventory for obsolescence on an ongoing basis by considering historical usage as well as requirements for future orders. 43 Given the inherent uncertainty and significant judgments necessary to value inventory and its related obsolescence, auditing management’s estimates involved a high degree of auditor judgment. How We Addressed the Matter in Our Audit Our auditing procedures related to inventory valuation included the following, among others: ● We evaluated the appropriateness and consistency of management’s methods used to value inventory and 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 write-offs of inventory during the year. ● We tested the completeness and accuracy of management’s inventory detail. ● We developed an independent expectation of the obsolescence reserve based on our knowledge of the Company’s inventory, including analysis of slow-moving items and historical usage and compared it to actual. ● We performed a lower of cost or net realizable value analysis by selecting a sample of items included in inventory at year-end. ● We selected a sample of purchases made throughout the year to ensure they were included in inventory at the proper weighted-average value. ● We selected a sample of purchases made before and after the year end to ensure proper cut-off was achieved. ● During our physical inventory observation, we toured the Company’s facility and examined inventory on hand to determine the completeness and existence of ending inventory. ● We examined management’s overhead analysis and performed procedures to test its completeness and accuracy. Shareholders’ Equity and Related Transactions Description of the Matter As discussed in Notes 7, 15, and 16 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 2 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 27, 2025 PCAOB ID Number: 130 44 Worksport Ltd. Consolidated Balance Sheets December 31, 2024 and 2023 2024 2023 ASSETS Current assets Cash and cash equivalents $ 4,883,099 $ 3,365,778 Accounts receivable, net 42,589 463,122 Other receivable 169,728 165,865 Inventories, net (Note 3) 5,190,054 3,631,492 Prepaid expenses and deposits (Note 6) 192,192 1,497,249 Total Current assets 10,477,662 9,123,506 Investment (Note 11) 66,308 90,731 Property and equipment, net (Note 4) 13,644,226 14,483,436 Operating lease right-of-use assets (Note 12) 595,415 917,354 Intangible assets, net (Note 5) 953,049 1,338,889 Total assets $ 25,736,660 $ 25,953,916 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 1,526,630 $ 1,260,285 Accrued liabilities and other 800,283 190,896 Accrued compensation 377,112 85,010 Related party loan - 2,192 Long-term debt, current portion (Note 13) 222,992 5,300,000 Lease liability, current portion (Note 12) 246,535 328,229 Total current liabilities 3,173,552 7,166,612 Lease liability, excluding current portion (Note 12) 368,472 608,761 Long-term debt, excluding current portion (Note 13) 4,781,005 - Total liabilities 8,323,029 7,775,373 Shareholders’ equity Series A & B Preferred Stock, $ 0.001 par value, 10,010 shares authorized, 100 Series A and 0 Series B issued and outstanding, respectively (Note 7) - - Common stock, $ 0.001 par value, 29,900,000 shares authorized, 4,016,205 and 2,032,050 shares issued and outstanding, respectively (Note 7) 4,016 2,032 Additional paid-in capital 79,781,674 64,685,693 Share subscriptions receivable ( 1,577 ) ( 1,577 ) Share subscriptions payable 2,115,064 1,814,152 Accumulated deficit ( 64,476,966 ) ( 48,313,177 ) Cumulative translation adjustment ( 8,580 ) ( 8,580 ) Total shareholders’ equity 17,413,631 18,178,543 Total liabilities and shareholders’ equity $ 25,736,660 $ 25,953,916 See accompanying Notes to Consolidated Financial Statements. 45 Worksport Ltd. Consolidated Statements of Operations and Comprehensive Loss December 31, 2024 and 2023 2024 2023 Net sales $ 8,484,379 $ 1,529,632 Cost of sales 7,578,729 1,289,118 Gross profit 905,650 240,514 Operating expenses Research and development 2,289,940 1,669,318 General and administrative 8,678,994 7,974,362 Sales and marketing 2,386,504 1,483,054 Professional fees 3,030,931 3,853,134 Gain on foreign exchange ( 14,885 ) ( 2,693 ) Total operating expenses 16,371,484 14,977,175 Loss from operations ( 15,465,834 ) ( 14,736,661 ) Other income (expense) Interest expense ( 726,095 ) ( 616,214 ) Interest income 37,492 239,353 Rental income (Note 17) 76,413 184,564 Other ( 85,765 ) - Total other income (expense) ( 697,955 ) ( 192,297 ) Net loss ( 16,163,789 ) ( 14,928,958 ) Loss per share (basic and diluted) $ ( 5.84 ) $ ( 8.44 ) Weighted average number of shares (basic and diluted) 2,768,732 1,768,991 See accompanying Notes to Consolidated Financial Statements. 46 Worksport Ltd. Consolidated Statements of Shareholders’ Equity December 31, 2024 and 2023 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 December 31, 2022 100 $ - 1,715,937 $ 1,716 $ 56,919,625 $ ( 1,577 ) $ 591,289 $ ( 33,384,219 ) $ ( 8,580 ) $ 24,118,254 Issuance for services and subscriptions payable - - 25,000 25 3,271,084 - 1,222,863 - - 4,493,972 Shares issued (Note 7) - - 202,413 202 4,475,578 - - - - 4,475,780 Warrant exercise (Note 15) - - 88,700 89 - - - - - 89 Stock option forfeiture (Note 16) - - - - 19,406 - - - - 19,406 Net loss - - - - - - - ( 14,928,958 ) - ( 14,928,958 ) Balance at December 31, 2023 100 $ - 2,032,050 $ 2,032 $ 64,685,693 $ ( 1,577 ) $ 1,814,152 $ ( 48,313,177 ) $ ( 8,580 ) $ 18,178,543 Balance 100 $ - 2,032,050 $ 2,032 $ 64,685,693 $ ( 1,577 ) $ 1,814,152 $ ( 48,313,177 ) $ ( 8,580 ) $ 18,178,543 Issuance for services and subscriptions payable - - 66,710 67 3,009,004 - 300,912 - - 3,309,983 Shares issued (Note 7) - - 1,416,856 1,417 12,561,959 - ( 3,858,464 ) - - 8,704,912 Warrant inducement (Note 15) - - 284,000 284 ( 474,850 ) - 3,858,464 - - 3,383,898 Warrant exercise (Note 15) - - 216,589 216 ( 132 ) - - - - 84 Net loss - - - - - - - ( 16,163,789 ) - ( 16,163,789 ) Balance at December 31, 2024 100 $ - 4,016,205 $ 4,016 $ 79,781,674 $ ( 1,577 ) $ 2,115,064 $ ( 64,476,966 ) $ ( 8,580 ) $ 17,413,631 Balance 100 $ - 4,016,205 $ 4,016 $ 79,781,674 $ ( 1,577 ) $ 2,115,064 $ ( 64,476,966 ) $ ( 8,580 ) $ 17,413,631 See accompanying Notes to Consolidated Financial Statements. 47 Worksport Ltd. Consolidated Statements of Cash Flows December 31, 2024 and 2023 2024 2023 Operating activities Net loss $ ( 16,163,789 ) $ ( 14,928,958 ) Adjustments to reconcile net loss to net cash from operating activities: Shares, options and warrants issued for services 2,916,328 5,754,717 Depreciation and amortization 1,753,285 1,109,742 Change in operating lease ( 44 ) ( 13,784 ) Credit losses 57,395 - Adjustments to reconcile net income loss to cash provided by (used in) operating activities ( 11,436,825 ) ( 8,078,283 ) Changes in operating assets and liabilities (Note 10) 1,298,027 ( 3,852,297 ) Net cash used in operating activities ( 10,138,798 ) ( 11,930,580 ) Cash flows from investing activities Investments - ( 66,308 ) Purchase of property and equipment ( 528,235 ) ( 3,690,056 ) Net cash used in investing activities ( 528,235 ) ( 3,756,364 ) Financing activities Proceeds from issuance of common shares, net of issuance cost 8,736,114 4,475,869 Proceeds from warrant exercise (Note 15) 3,746,435 - Proceeds from line of credit 10,349,670 - Repayments on line of credit ( 6,758,422 ) - Proceeds from long-term debt 1,437,998 - Related party loan ( 2,192 ) ( 43,904 ) Repayments on short term and long-term debt ( 5,325,249 ) - Net cash provided by financing activities 12,184,354 4,431,965 Change in cash 1,517,321 ( 11,254,979 ) Cash and cash equivalents - beginning of year 3,365,778 14,620,757 Cash and cash equivalents end of year $ 4,883,099 $ 3,365,778 Supplemental disclosure of non-cash activities Shares issued for purchase of intangible assets $ - $ 72,466 Supplemental disclosure of cash flow information Income tax paid $ - $ - Interest paid $ 669,000 $ 626,000 See accompanying Notes to Consolidated Financial Statements. 48 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 1. Description of Business and Significant Accounting Policies The Company’s corporate history and business overview are described in detail in our most recent registration statement on Form S-1, filed with the SEC on July 3, 2024, which is incorporated herein by reference. For a description of material developments the Company has undertaken since that time, see Corporate History of Part I Item 1, Business of this report. Basis of presentation – The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). 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. Foreign currency translation and presentation – The consolidated financial statements are presented in United States Dollars. The functional currency of the Company and all its subsidiaries is the United States Dollar. 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. Use of estimates – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates and assumptions. Revenue recognition – In accordance with Accounting Standards Codification (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 cost of sales and presented net of related shipping and handling costs. Cost of sales – Includes costs of products sold, which include but are not limited to: purchased product, raw material, direct labor, shipping and handling costs, depreciation and amortization, indirect costs and overhead charges. Research and development – Research and development costs are expensed as incurred and include consulting and material costs. Advertising costs – The Company expenses advertising costs as incurred and includes expenses in selling and marketing. 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. Compensation expense is included in general and administrative expenses. Compensation 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). The Company elected to account for forfeitures when the forfeiture of the underlying awards occur. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or performance completion date. Income taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between 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. The Company recognizes interest accrued related to unrecognized tax benefits in interest expenses and penalties in operating expenses. The Company treats tax on the Global Intangible Low-Tax Income (“GILTI”) as a current period cost included in tax expense in the year incurred. The Company does not measure the impact of GILTI in the determination of deferred taxes. Cash and cash equivalents - All highly liquid investments with an original maturity of three months or less are considered cash equivalents. 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 includes restricted cash at December 31, 2023 of $ 730,802 and primarily represents funds held to satisfy obligations related to a financing arrangement. There is no restricted cash at December 31, 2024 (see Note 13). 49 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 1. Description of Business and Significant Accounting Policies (continued) Accounts receivable, net – Accounts receivable primarily consists of amounts that are due and payable from distributors, wholesalers, and private label partners. Receivables are stated at net realizable value, which approximates fair value. Receivables are reduced by an allowance for credit losses for amounts that may be uncollectible in the future. The allowance is determined by considering factors such as historical experience, credit quality, age of the accounts receivable, economic conditions and reasonable forecasted financial information that may affect a customer’s ability to pay. The allowance for credit losses at December 31, 2024 and 2024 is $ 15,000 and $ 0 , respectively. Inventories - Inventories are stated at the lower of cost or net realizable value. The cost of inventory is measured on a weighted average cost method. Cost includes purchase price of materials, freight, and related costs required to bring the goods to Company warehouses. Inventories are reviewed to determine if quantities are in excess of forecasted usage or if they become obsolete. Property and equipment, net – Property and equipment are measured at cost. Maintenance and repair costs are charged to expense when incurred. Depreciation is recognized on a straight-line method based on 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 or lease term, if shorter Manufacturing equipment 5 - 15 years Building 15 years Right-of-use assets - The Company recognizes leases in accordance with 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. Intangible assets – 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. Valuation of long-lived assets – 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, 2024 and 2023, the Company had no impairment losses related to intangible assets. 50 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 1. Description of Business and Significant Accounting Policies (continued) Product warranties - The Company currently offers a three year limited 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. Financial instruments - 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, and accounts payable and accrued liabilities, 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. We do not hold or issue financial instruments for trading purposes. Related party transactions - All transactions with related parties are in the normal course of operations and are measured at the exchanged amount. Reclassifications – Certain prior year amounts have been reclassified to conform to current year’s presentation. The Company reclassified accrued liabilities of $ 800,283 and $ 190,896 for the fiscal years ended December 31, 2024 and 2023, respectively, which were reclassified from accounts payable and accrued liabilities to accrued liabilities and other to better align functional classification of obligations. The Company also reclassified research and development costs of $ 2,289,940 and $ 1,669,318 for the fiscal years ended December 31, 2024 and 2023, respectively, which were reclassified from general and administrative expense, to research and development expense. This change improves the disclosure of costs to develop new products and technologies and reflects the Company’s ongoing investment in innovation. This change also provides a more accurate depiction of the Company’s operating performance. Recent accounting pronouncements Recent accounting pronouncements adopted In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 “ Segment Reporting (Topic 280) : Improvements to Reportable Segment Disclosures ” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We adopted this standard for the year ended December 31, 2024, and applied the amendments retrospectively to all prior periods presented. Refer to Note 18, Segment Reporting. The adoption of this standard did not have a material effect on the financial statements and related disclosures. Recent accounting pronouncements not yet adopted In December 2023, the FASB issued ASU 2023-09 “ Income Taxes (Topics 740) : Improvements to Income Tax Disclosures ” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on the financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, “ Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures” to enhance disclosure of specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the face of the income statement. ASU 2024-03 is effective beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on the financial statements and related disclosures. The Company considers the applicability and impact of all ASUs. ASUs not listed were assessed and determined to be either not applicable or had or are expected to have an immaterial impact on the financial statements and related disclosures. 51 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 2. Going Concern As of December 31, 2024, the Company had $ 4,883,099 in cash and cash equivalents. The Company also has availability on its revolving line of credit of $ 892,000 . The Company has generated only limited revenues and has relied primarily upon capital generated from public and private offerings of its securities. Since the Company’s acquisition of Worksport in 2014, it has never generated a profit. As of December 31, 2024, the Company had an accumulated deficit of $ 64,476,966 . 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, 2024, the Company had net losses of $ 16,163,789 (2023 - $ 14,928,958 ). As of December 31, 2024, the Company had working capital of $ 7,304,110 (2023 – $ 1,956,894 ) and had an accumulated deficit of $ 64,476,966 (2023 - $ 48,313,177 ). The Company has not generated profit from operations since inception and to date has relied 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 equity and/or debt 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 and margins improve. As of December 31, 2024, the Company had cash and cash equivalents of $ 4,883,099 (2023 - $ 3,365,778 ). Despite the Company having completed its purchasing of large manufacturing machinery for phase one output levels, operational costs are expected to remain elevated and, thus, further decrease cash and cash equivalents. Concurrently, the Company intends to continue its ramp-up of manufacturing and increasing sales volumes in 2025, which should mitigate the effects of operational costs on cash and cash equivalents as it releases new product lines; this view is supported by the fact that the manufacturing facility of the Company was completed for initial production output in 2023 and quickly began improving output and sales during 2024. 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 prospectus supplement covering the offering, issuance and sale of up to $ 13,000,000 of common stock that may be issued and sold under an At The Market Offering Agreement dated September 30, 2022 (“ATM Agreement”), with H.C. Wainwright & Co., LLC, as the sales agent (“HCW”). Pursuant to the ATM Agreement, HCW is entitled to a commission equal to 3.0 % of the gross sales price of the shares of common stock sold. Through December 31, 2024, the Company has sold and issued 761,408 shares of common stock in consideration for net proceeds of $ 6,247,097 under the ATM Agreement. On November 2, 2023, the Company consummated a registered direct offering pursuant to which the Company issued 192,500 shares of common stock and 157,500 pre-funded warrants to an institutional investor for a total net proceeds of $ 4,261,542 . Concurrently with the registered direct offering, the Company issued the same institutional investor 700,000 warrants in a private sale. The warrants are exercisable for 700,000 shares of common stock for $ 13.40 per share six months after issuance and until five and a half years from the issuance date, subject to beneficial ownership limitations as described in the warrants. The Company registered the 700,000 shares of common stock underlying the warrants on a Form S-1 (333-276241) which was declared effective by the SEC on December 29, 2023. On March 20, 2024, the Company consummated a registered direct offering pursuant to which the Company issued 237,224 shares of common stock and 147,789 pre-funded warrants to the same institutional investor as in the Company’s registered direct offering on November 2, 2023, for a total net proceeds of $ 2,629,083 . Concurrently with the registered direct offering, the Company issued the institutional investor 770,026 warrants in a private sale. The warrants are exercisable for 770,026 shares of common stock for $ 7.40 per share six months after issuance until five and a half years from the issuance date, subject to beneficial ownership limitations as described in the warrants. The Company registered the 770,026 shares of common stock underlying the warrants on a Form S-1 (333-278461) which was declared effective by the SEC on April 8, 2024. On December 13, 2024, the Company filed a Prospectus Supplement to amend Amendment No. 1 to the prospectus supplement dated as of November 5, 2024, prospectus supplement dated as of October 13, 2022, and the prospectus dated as of October 13, 2022 to increase the maximum amount of shares that we are eligible to sell pursuant to the Sales Agreement under General Instruction I.B.6. to $ 4,962,092 of shares of our common stock not including whatever had been sold prior to this filing date. To date, the Company’s principal sources of liquidity consist of net proceeds from public and private securities offerings and cash exercises of outstanding warrants. Management is focused on transitioning towards revenue as its principal source of liquidity by growing existing product offerings as well as the Company’s customer base. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot provide assurances it will be able to raise additional capital on acceptable terms, or at all. 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. Still, certain factors 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. 52 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 3. Inventories Inventory consists of the following at December 31, 2024 and 2023: Schedule of Inventory 2024 2023 Raw materials $ 3,373,704 $ 1,812,163 Finished goods 1,343,006 1,717,669 Work in progress 473,344 101,660 Inventories, net $ 5,190,054 $ 3,631,492 4. Property and Equipment Major classes of property and equipment at December 31, 2024 and 2023 are as follows: Schedule of Property and Equipment 2024 2023 Building $ 6,079,410 $ 6,079,410 Manufacturing equipment 5,830,999 5,390,014 Land 2,239,405 2,239,405 Leasehold improvements 862,504 861,332 Product molds 524,476 524,476 Warehouse equipment 512,700 469,502 Electrical equipment 185,261 185,261 Automobile 172,645 168,497 Furniture 154,065 146,049 Computers 114,786 84,070 Property and equipment, at cost 16,676,251 16,148,016 Less accumulated depreciation ( 3,032,025 ) ( 1,664,580 ) Property and equipment, net $ 13,644,226 $ 14,483,436 During the years ended December 31, 2024 and 2023, the Company recognized depreciation expense of $ 1,367,445 and $ 1,107,292 , respectively. 5. Intangible Assets Intangible assets consist of costs incurred to establish the patent rights related to the quick latch and soft vinyl quad-fold tonneau cover technologies, Worksport trademarks, licenses, and software costs. The Company’s utility patents and design registrations were issued between 2014 and 2024 . The patents and software are amortized on a straight-line basis over their useful life. The Company’s trademark, licenses, and other indefinite life intangible assets are reassessed every year for impairment. The Company determined that impairment is not necessary for the current year ended December 31, 2024. The components of intangible assets as of December 31, 2024 and 2023 are as follows: Schedule of Components of Intangible Assets 2024 2023 Software $ 1,150,000 $ 1,150,000 License 103,329 103,329 Patent 62,706 62,706 Trademark 5,150 5,150 Other 29,451 29,451 Intangible assets, gross carrying amount 1,350,636 1,350,636 Less accumulated amortization ( 397,587 ) ( 11,747 ) Intangible assets, net $ 953,049 $ 1,338,889 Amortization expense for the years ended December 31, 2024 and 2023 was $ 385,840 and $ 2,450 , respectively. 53 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 5. Intangible Assets (continued) Estimated amortization of the patent and software over the next five years and beyond December 31, 2024 is as follows: Schedule of Estimated Amortization of Patent and Software 2025 $ 385,842 2026 $ 385,842 2027 $ 2,508 2028 $ 2,508 2029 $ 2,508 Thereafter $ 35,911 6. Prepaid Expenses and Deposits As of December 31, 2024 and 2023, prepaid expenses and deposits consists of the following: Schedule of Prepaid Expenses and Deposits 2024 2023 Consulting, services and advertising $ 35,740 $ 5,215 Insurance 65,938 - Deposits 90,514 1,492,034 Prepaid expenses and deposits $ 192,192 $ 1,497,249 Deposits include prepayments for manufacturing equipment and raw materials used in the production of finished goods. 7. Shareholders’ Equity During year ended December 31, 2024, the following transactions occurred: During the year ended December 31, 2024, the Company sold 758,995 shares of common stock for a total net proceeds of $ 6,032,789 . The sale of shares was in connection with the shelf registration statement on Form S-3 effective on October 13, 2022, allowing the Company to issue up to $ 30,000,000 of common stock and prospectus supplement covering the offering, issuance and sale of 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 recognized consulting expense of $ 747,366 to share subscriptions payable from restricted shares and stock options to be issued. As of December 31, 2024, the restricted shares have not been issued. As of December 31, 2024, the Company issued 84,594 restricted shares with a value of $ 438,992 . During the year ended December 31, 2024, in connection with the sale of 237,224 shares of common stock, the Company also sold 147,789 pre-funded warrants and issued 770,026 warrants exercisable for a total of 770,026 shares of common stock for $ 0.001 and $ 7.40 , respectively, per share. The Company received net proceeds of $ 1,093,492 associated with the sale of the pre-funded warrants. The pre-funded warrants are immediately exercisable until all the pre-funded warrants are exercised. During the period, 147,790 warrants were exercised for 147,790 shares of common stock for $ 150 . Refer to Note 15, Warrants. During the year ended December 31, 2024, the Company closed a sale of 95,000 shares of common stock for proceeds of $ 380,000 . In connection with the sale of common stock, the Company issued 190,000 warrants. Refer to Note 15, Warrants. As of December 31, 2024, the shares have not been issued. Refer to Note 15, Warrants and Note 16, Equity Compensation for additional disclosures related to shareholders’ equity. 54 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 7. Shareholders’ Equity (continued) During year ended December 31, 2023, the following transactions occurred: During the year ended December 31, 2023, the Company sold 9,913 shares of common stock for a total net proceeds of $ 214,238 . The sale of shares was in connection with the shelf registration statement on Form S-3 effective on October 13, 2022, allowing the Company to issue up to $ 30,000,000 of common stock and prospectus supplement covering the offering, issuance and sale of 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 recognized consulting expense of $ 1,222,863 to share subscriptions payable from restricted shares and stock options to be issued. As of December 31, 2023, the restricted shares have not been issued. During the same period, the Company issued 25,000 shares of common stock for consulting services valued at $ 635,000 . During the year ended December 31, 2023, the Company closed a sale of 192,500 shares of common stock for $ 2,579,500 . The Company incurred share issuance expense of $ 428,300 . In association with the sale of common shares, the Company also issued 157,500 pre-funded warrants and 700,000 warrants. For the years ended December 31, 2024 and 2023, the Company was authorized to issue 29,900,000 shares of its common stock with a par value of $ 0.001 . All shares were ranked equally with regards to the Company’s residual assets. During 2024 and 2023, the Company was authorized to issue 10 shares of its Series A and 10,000 of its Series B Preferred Stock with a par value of $ 0.001 . Series A Preferred Stock have voting rights equal to 30 shares of common stock, per share of Preferred Stock. Series B Preferred Stock have voting rights equal to 1,000 shares of common stock, per share of Preferred Stock . 8. Income Taxes a) The income tax expense for the years ended December 31, 2024 and 2023 is reconciled per the schedule below: Schedule of Reconciliation of Income Tax 2024 2023 Loss before income taxes Domestic $ ( 10,319,000 ) $ ( 11,405,000 ) Foreign ( 5,845,000 ) ( 3,524,000 ) Total ( 16,164,000 ) ( 14,929,000 ) Federal statutory income tax rate 21.0 % 21.0 % State taxes, net of federal benefits ( 0.7 )% ( 0.2 )% Share based compensation 1.3 % 0.9 % Limitation on depreciation and amortization deduction 0.9 % 0.4 % Capitalized research and development expenditures 0.4 % 0.4 % Other - ( 0.1 )% Effective income tax rate 22.9 % 22.3 % Income tax benefit ( 3,383,000 ) ( 2,606,000 ) Estimated research and development credit ( 90,000 ) ( 90,000 ) Increase in valuation allowance 3,473,000 2,696,000 Provision for income taxes $ - $ - 55 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 8. Income Taxes (continued) b) Deferred Income Tax Assets The tax effects of temporary differences that give rise to the deferred income tax assets at December 31, 2024 and 2023 are as follows: Schedule of Deferred Income Tax Assets 2024 2023 Net operating loss carry forwards $ 10,029,000 $ 6,931,000 Differences in bases of depreciation of property and equipment 465,000 120,000 Lease liability - ( 3,000 ) Share based compensation 1,352,000 1,415,000 Research and development credit 180,000 90,000 Deferred tax asset, gross 12,026,000 8,553,000 Deferred tax assets not recognized ( 12,026,000 ) ( 8,553,000 ) Net deferred tax asset $ - $ - Deferred income taxes within each jurisdiction on the balance sheets at December 31, 2024 and 2023 are as follows: Schedule of Deferred Income Taxes Within Each Jurisdiction 2024 2023 United States $ 7,488,000 $ 4,291,000 Canada 4,538,000 4,262,000 Deferred income taxes 12,026,000 8,553,000 Valuation allowance ( 12,026,000 ) ( 8,553,000 ) Net deferred tax asset $ - $ - c) Cumulative Net Operating Losses The Company has non-capital losses carried forward of approximately $ 43,999,000 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 - 2,854,000 2,854,000 2042 - 3,771,000 3,771,000 2043 - 2,686,000 2,686,000 2044 - 5,032,000 5,032,000 Non-capital losses carried forward Total $ 2,554,000 $ 16,646,000 $ 19,200,000 Never expire $ 24,199,000 $ - $ 24,199,000 Effective for 2023, the Tax Cuts and Jobs Act (“TCJA” of 2017 requires taxpayers to capitalize and amortize research and development costs pursuant to IRC Section 174. Domestic expenses are amortized over a 5 year period and foreign over a 15 year period. As a result of the TCJA, a deferred tax asset was established beginning in 2023 and is reflected in the table above. Realization of deferred tax assets is dependent, in part, upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income, tax planning strategies and carryback opportunities in making its assessment of the recoverability of tax assets. Net operating loss carryforwards of approximately $ 43,399,000 may be offset against future taxable income. No tax benefit from these losses have been reported in the December 31, 2024 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. 56 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 8. Income Taxes (continued) 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 does not expect the amount of unrecognized tax benefits to materially change within the next twelve months. The Company is subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax regulations with each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. The Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for tax years ending before December 31, 2020 in the U.S. The Company is no longer subject to non-U.S. income tax examinations by tax authorities for tax years ending before December 31, 2014. 9. Financial Instruments and Fair Value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows: Level 1 – Quoted prices in active markets for identical assets and liabilities. Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities. Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require. The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, revolving line of credit, and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value because of the short-term nature of these instruments. The Company’s revolving line of credit is based on a variable interest rate and is reflected in the financial statements at carrying value which approximates fair value at December 31, 2024. The Company’s long-term debt is based on a fixed interest rate, and its carrying amount approximates fair value at December 31, 2024. The fair value of the revolving line of credit and long-term debt is classified as Level 2 within the fair value hierarchy and is estimated based on quoted market prices. The Company is exposed to market risks such as fluctuation in foreign currency exchange rates and interest rates. Derivative instruments may be used to offset some of the effects of these market risks on the expected future cash flows and on certain existing assets and liabilities. The Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. Market Risks Foreign 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. Interest Rate Risk The borrowing under the Company’s Line of Credit Facility and Equipment Financing is at variable interest rates and exposes the Company to interest rate risk. If interest rates increase, debt service obligations on variable rate indebtedness will increase even though the amount borrowed may not change. 57 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 9. Financial Instruments and Fair Value (continued) Concentration of Risk Concentration of Supplier Risk The Company has historically purchased all of its soft tonneau cover finished goods from Meizhou, China, and it began purchasing soft tonneau cover finished goods from a second supplier in Foshan, China in late 2023. The Company carries significant strategic inventories of these materials and is increasing its purchasing from the supplier in Foshan to lower supplier concentration risk . Further, the Company has established domestic assembly of its hard tonneau cover product line to further reduce the risk associated with this concentration of finished good suppliers. The company primarily sources raw materials for domestic production and assembly from vendors in Europe, Southeast Asia, and North America. 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 these key suppliers or a delay in shipments could have an adverse effect on fulfillment of soft tonneau cover orders. 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, 2024, 37 % of the Company’s revenue is comprised of one customer. For the year ended December 31, 2023, 93 % of the Company’s revenue was comprised of one customer. 10. 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, 2024 and 2023 are as follows: Schedule of Changes in Operating Assets and Liabilities 2024 2023 Decrease (increase) in accounts receivable $ 387,561 $ ( 400,521 ) Decrease (increase) in other receivable ( 3,863 ) 102,167 Decrease (increase) in inventories ( 1,558,562 ) ( 2,285,120 ) Decrease (increase) in prepaid expenses and deposits 1,305,057 ( 776,709 ) Increase (decrease) in accounts payable and accrued liabilities 1,167,834 ( 492,114 ) Changes in operating assets and liabilities $ 1,298,027 $ ( 3,852,297 ) 11. Investment During the year ended December 31, 2024, $ 66,308 ($ 90,000 CAD) of the Company’s Guaranteed Investment Certificate (“GIC”) matured and the Company received $ 3,054 ($ 4,129 CAD) in interest income. During the same period, the Company reinvested the principal amount of $ 66,308 ($ 90,000 CAD) in a GIC. The GIC bears a variable interest rate and will mature on February 27, 2025. The anticipated earned interest on the GIC at maturity is $ 3,123 ($ 4,275 CAD). 58 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 12. Leases During the year ended December 31, 2022, the Company signed a lease agreement for approximately 20,296 square feet to be used as its then primary, now secondary corporate office and R&D facility pursuant to a five-year lease, dated June 1, 2022 , for a variable rate averaging $ 20,242 per month over the lifetime of the lease not inclusive of additional fees, which also vary and averaged $ 5,250 per month in 2024 not inclusive of taxes. During the year ended December 31, 2023, the Company signed a lease agreement for office space to be used as an R&D facility pursuant to a one-year lease with an option to extend the lease for an additional year , dated June 1, 2023, for a monthly rent of $ 3,350 . This lease was renewed effective June 1, 2024 at a rate of $ 3,600 per month with a termination date of May 31, 2025 . 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 estimated 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, 2024 and 2023 is as follows: Schedule Right-of-use Asset December 31, 2024 December 31, 2023 Right-of-use asset $ 595,415 $ 917,354 Current lease liability $ 246,535 $ 328,229 Long-term lease liability $ 368,472 $ 608,761 The following is a summary of the Company’s total lease costs: Schedule of Lease Cost December 31, 2024 December 31, 2023 Operating lease cost $ 409,464 $ 488,463 The following is a summary of cash paid in 2024 and 2023 for amounts included in the measurement of lease liabilities: Schedule of Measurement of Lease Liabilities December 31, 2024 December 31, 2023 Operating cashflow $ 412,933 $ 515,776 Maturities of lease liability are as follows: Future minimum lease payments as of December 31, 2024: Schedule of Future Minimum Lease Payments 2025 $ 294,860 2026 279,883 2027 113,123 Total future minimum lease payments 687,866 Less: amount representing interest ( 72,859 ) Present value of future payments 615,007 Current portion 246,535 Long term portion $ 368,472 59 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 13. Indebtedness Long-term debt consists of: Schedule of Long Term Debt December 31, 2024 December 31, 2023 Secured Loan Agreement (a) $ - $ 5,300,000 Revolving Credit Facility (b) 3,808,025 - Other (c) 1,456,485 - Long-term debt 5,264,510 5,300,000 Less deferred debt issuance cost ( 260,513 ) - Less current installments ( 222,992 ) ( 5,300,000 ) Long-term debt $ 4,781,005 $ - a) On May 4, 2022, the Company entered into a secured loan agreement (the “Loan Agreement”) with an external banking entity relating to the Company’s purchase of a 152,847 square-foot building situated on two parcels of land aggregating 18 acres of land located in West Seneca, New York (collectively, the “Property”) for a total purchase price of $ 8,150,000 on May 6, 2022. Under the terms of the Loan Agreement, the Company procured a total principal sum of $ 5,300,000 , bearing an interest rate of the prime rate plus 2.25 % annually, for the Company’s purchase of the Property and covering associated costs. To ensure the loan’s servicing over its duration, the Company allocated $ 667,409 into a specially designated account. The loan’s outstanding balance and accrued interest were due on August 10, 2024. The Company disclosed the material terms of the Loan Agreement in a Current Report on Form 8-K filed with the Securities and Exchange Commission on May 11, 2022. On February 4, 2024, the Company and Worksport New York Operations Corporation entered into a Forbearance Agreement with the Lender in connection with the Loan Agreement. On May 14, 2024, the Company successfully negotiated an extension of the maturity date for its $ 5.3 million Loan Agreement from an original due date of May 20, 2024 to a new maturity date of August 10, 2024. The Company has since refinanced this loan. b) On July 19, 2024, the Company, as the guarantor, and Worksport New York Operations Corporation as well as Worksport USA Operations Corporation, entered into a $ 6,000,000 Revolving Financing and Assignment Agreement with an external lending entity with a maturity date of July 18, 2026, or 24 months. Upon transaction close, the Company drew down approximately $ 5.06 million of the Revolving Credit Facility, net of $ 790,000 of interest reserve required to be withheld to ensure interest payments by the Company. The Company used $ 4.73 million of the drawn down amount to refinance the Company’s mortgage on the Company’s real property located at 2500 North America Dr. in West Seneca, New York, and additionally drew approximately $ 330,000 to fund operations. At December 31, 2024, the outstanding balance of this loan was $ 3,591,247 (net of issuance costs of $ 216,778 ). For collateral, the lender holds a first position on the Company’s major asset classes (accounts receivable, the factory in New York, and inventory) other than the Company’s equipment. A non-usage fee of 0.25 % is assessed quarterly and applied to the difference between the quarter’s average daily outstanding loan balance and the total credit facility amount. As of December 31, 2024, the Company had an available balance of $ 892,000 to borrow on the Revolving Credit Facility. c) On September 4, 2024, the Company, through its wholly owned subsidiary, Worksport USA Operations Corporation, entered into a $ 1,487,200 credit and security agreement with an external lending entity with a maturity date of September 1, 2027 , which is 36 months from initial funding. Upon transaction close, the Company received net proceeds of $ 1,412,750 (net of issuance costs of $ 43,735 ). The Company and its wholly owned subsidiary, Worksport New York Operations Corporation, serve as guarantors on the loan. For collateral, the lender holds a first position on the Company’s equipment, which is primarily manufacturing and warehousing equipment. 14. Loss per Share For the year ended December 31, 2024, loss per share is $ 5.84 (basic and diluted) compared to that of the year ended December 31, 2023 of $ 8.44 (basic and diluted) using the weighted average number of shares of 2,768,732 (basic and diluted) and 1,768,991 (basic and diluted), respectively. There are 29,900,000 shares authorized with 4,016,205 and 2,032,050 shares issued and outstanding, at December 31, 2024 and 2023, 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 of December 31, 2024, the Company has 2,291,276 warrants convertible to 2,321,276 common shares, 117,018 restricted stock to be issued, and 192,784 stock options exercisable for 192,784 common shares for a total underlying common shares of 2,631,078 . As of December 31, 2023, the Company has 1,162,792 warrants convertible to 1,192,792 common shares, 57,021 restricted stock to be issued, and 506,386 stock options exercisable for 506,386 common shares for a total underlying common shares of 1,756,199 . 60 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 15. Warrants During the year ended December 31, 2024, in connection with the sale of 237,224 shares of common stock, the Company also sold 147,789 pre-funded warrants and issued 770,026 warrants exercisable for a total of 770,026 shares of common stock for $ 0.001 and $ 7.40 , respectively, per share. The Company received net proceeds of $ 1,093,492 associated with the sale of the pre-funded warrants. The pre-funded warrants are immediately exercisable until all of the pre-funded warrants are exercised. During the same period, 147,789 pre-funded warrants were exercised for 147,789 shares of common stock for $ 150 . During the year ended December 31, 2024, the Company closed a sale of 95,000 shares of common stock. In connection with the sale of common stock the Company issued 190,000 warrants. The warrants have an exercise price of $ 4.00 and an expiration date of September 21, 2029 . During the year ended December 31, 2024, 13,091 warrants issued on August 3, 2021, and 344,652 warrants issued on August 6, 2021, all of which having an exercise price of $ 60.50 , expired. During the year ended December 31, 2023, in connection with the sale of 192,500 shares of common stock the Company also sold 157,500 pre-funded warrants and 700,000 warrants convertible for 857,500 shares of common stock at an exercise price of $ 0.001 and $ 13.40 , respectively. The Company received net proceeds of $ 2,110,342 associated with the sale of the pre-funded warrants. During the same period, 88,700 pre-funded warrants were exercised for 88,700 shares of common stock for $ 89 . During the year ended December 31, 2024, the remaining 68,800 pre-funded warrants were exercised for 68,800 shares of common stock for $ 69 . On May 9, 2024, the Company entered into a warrant inducement agreement (the “Inducement”) with the holder of existing warrants to purchase an aggregate 700,000 shares at a reduced exercise price of $ 5.198 in consideration for the Company to issue new warrants to purchase up to 1,295,000 additional shares of common stock – resulting in gross proceeds of approximately $ 3,638,000 received by the Company. As a result of the Inducement and subsequent exercise, the Company determined the incremental fair value provided to the holder from both the adjustment in exercise price of the existing warrants and the fair value of the inducement warrants issued using the Black Scholes model. The total incremental fair value of $ 4,996,000 is recorded as a non-cash deemed dividend. The proceeds of the warrant inducement and issuance of 284,000 shares of common stock are recorded as capital in excess of par. The obligation to issue the remaining 416,000 shares was originally recorded as a share subscription payable. During the twelve months ended December 31, 2024, the Company issued 416,000 out of the 416,000 shares to be issued. During the year ended December 31, 2023, the Company and a stock options holder agreed to cancel all 40,000 stock options in exchange for extending the exercisable period of 30,000 warrants to December 31, 2024. Later in the year ended December 31, 2023, the expiration date for these warrants was extended to December 31, 2026, and the stock option holder was issued an additional 40,000 restricted stock units. 61 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2023 and 2022 15. Warrants (continued) During the year ended December 31, 2022, the Company and a warrant holder reached an agreement to extend the exercisable period of 30,000 warrants, convertible to 2 shares of common stock each, for an additional 12 months. During the year ended December 31, 2021, the Company issued 13,091 representative warrants to the Company’s underwriters. The representative warrants were not exercisable until January 30, 2022. The representative warrants were exercisable for 13,091 shares of common stock at $ 60.50 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, 2024, these representative warrants expired. As of December 31, 2024, the Company has the following warrants outstanding: Schedule of Warrants Exercise Price Exercise price Number outstanding Remaining Contractual Life (Years) Expiry date $ 24.00 6,250 0.22 March 20, 2025 $ 40.00 30,000 2.00 December 31, 2026 $ 7.40 770,026 4.72 September 20, 2029 $ 4.00 190,000 4.73 September 21, 2029 $ 5.20 1,295,000 4.91 November 26, 2029 2,291,276 4.78 The average remaining contractual life of outstanding warrants that expire is 4.78 years. Schedule of Warrants Activity December 31, 2024 December 31, 2023 Number of warrants Weighted average price Number of warrants Weighted average price Balance, beginning of year 1,162,792 $ 24.20 393,992 $ 58.36 Issuance 2,402,815 $ 5.49 857,500 $ 10.94 Expired ( 357,742 ) $ 60.50 - $ - Exercise ( 916,589 ) $ ( 3.97 ) ( 88,700 ) $ ( 0.001 ) Balance, end of period 2,291,276 $ 6.35 1,162,792 $ 24.21 16. Equity Compensation Under the Company’s 2015, 2021 and 2022 Equity Incentive Plans, the number of shares of common stock reserved for issuance under the option plan shall not exceed 10% of the issued and outstanding shares of common stock of the Company, have a maximum term of 10 years, and vest at the discretion of the Board of Directors. 62 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 16. Equity Compensation (continued) 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. Performance Share Units On May 1, 2023, the Company and Steven Rossi reached an agreement to modify 160,000 restricted stock units and 40,000 performance stock units (“PSUs”) issued on November 11, 2022, and December 29, 2021, respectively, and replace them with 200,000 stock options, as described below. On November 11, 2022, 40,000 and 30,000 PSUs granted on 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 $22.50, 50% will have vested at a closing price of $53.10, and 100% will have vested at a closing price of $137.60 as measured using the volume weighted average of the Company’s common stock for ten (10) consecutive trading days, with over $ 100,000 of trading volume on each of those days. The fair value of the PSUs was estimated to be $ 1,254,460 . As of December 31, 2024, 7,500 PSUs of the remaining 30,000 PSUs had vested, and the Company recognized $ 107,525 (2023 - $ 155,314 ) in consulting expenses. On December 29, 2021, the Company granted 40,000 and 30,000 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 $30.00, 50% was to have vested at a closing price of $165.00, and 100% was to have vested at a closing price of $315.00. The fair value of the PSUs was estimated to be $ 1,344,570 . Stock Options The Company uses the Black-Scholes option pricing model to determine fair value of stock options on the grant date. On July 23, 2024, the Company engaged in stock option repricing for certain employees, executive officers, and members of the board of directors of the Company. 538,896 stock options’ exercise prices were repriced to $ 7.042 , and all other criteria were unchanged. As a result of the modification in exercise prices, the Company recognized additional expense of $ 93,140 on the date of modification. During the year ended December 31, 2024, the Company issued 84,860 stock options to employees and directors with exercise prices ranging from $ 5.20 to $ 14.10 and expiration dates ranging from February 1, 2029 to November 19, 2034 . Of these stock options, 2,040 were subsequently cancelled. During the year ended December 31, 2023, the Company issued 474,336 stock options to employees, directors, and consultants with exercise prices ranging from $ 14.40 to $ 42.00 and expiration dates ranging from January 30, 2028 to October 31, 2033 . Of these stock options, 15,720 were subsequently cancelled. 63 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 16. Equity Compensation (continued) Schedule of Stock Options Activity December 31, 2024 December 31, 2023 Number of stock options Weighted average price Number of stock options Weighted average price Balance, beginning of period 506,386 $ 19.62 78,500 $ 47.41 Granted 84,860 $ 7.70 474,336 $ 18.01 Forfeited ( 11,310 ) $ ( 29.30 ) ( 46,450 ) $ ( 50.15 ) Balance, end of period 579,936 $ 7.14 506,386 $ 19.62 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, 2024 Stock options $ 5.70 - 55.00 579,936 7.87 $ 7.14 192,784 As of December 31, 2024 and December 31, 2023, Terravis Energy Inc., a subsidiary of the Company, has the following options outstanding: Schedule of Stock Options Activity December 31, 2024 December 31, 2023 Number of stock options Weighted average price Number of stock options Weighted average price Balance, beginning of period 1,350,000 $ 0.01 1,350,000 $ 0.01 Granted - $ - - $ - Balance, end of period 1,350,000 $ 0.01 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, 2024 Stock options $ 0.01 1,350,000 7.28 $ 0.01 1,350,000 17. 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 ended on May 31, 2024 at $ 15,515 ($ 19,992 CAD) per month. During the year ended December 31, 2024, the Company recognized rental income of $ 76,413 (2023 - $ 184,564 ). 64 Worksport Ltd. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 18. Segment Reporting The Company manages its business on a product basis and operates in the following two reporting segments for financial reporting purposes: (1) Hard Tonneau Covers and (2) Soft Tonneau Covers. The accounting policies of both reporting segments are the same as those described in Note 1, Description of Business and Summary of Significant Accounting Policies. The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer, who regularly reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance of the Company’s reporting segments. The CODM primarily focuses on net income to evaluate its reporting segments. The CODM also uses net income for evaluating pricing strategy and to assess the performance for determining the compensation of certain employees. Significant segment expenses reviewed, which represent the differences between segment revenue and segment net loss, consist of the following: Schedule of Revenue and Segment Net Loss Hard Tonneau Covers Soft Tonneau Covers Corporate / Eliminations Consolidated Hard Tonneau Covers Soft Tonneau Covers Corporate / Eliminations Consolidated For the year ended December 31, 2024 For the year ended December 31, 2023 Hard Tonneau Covers Soft Tonneau Covers Corporate / Eliminations Consolidated Hard Tonneau Covers Soft Tonneau Covers Corporate / Eliminations Consolidated Net sales $ 5,171,201 $ 3,313,178 $ - $ 8,484,379 $ - $ 1,285,734 $ 243,898 $ 1,529,632 Less: Cost of sales ( 4,663,491 ) ( 2,915,238 ) - ( 7,578,729 ) - ( 1,118,389 ) ( 170,729 ) ( 1,289,118 ) Selling, general and administrative ( 5,918,555 ) ( 4,762,105 ) ( 3,937,539 ) ( 14,618,199 ) ( 912,827 ) ( 6,596,626 ) ( 6,357,980 ) ( 13,867,433 ) Depreciation and amortization ( 1,206,499 ) ( 440,916 ) ( 105,870 ) ( 1,753,285 ) ( 52,935 ) ( 695,310 ) ( 361,497 ) ( 1,109,742 ) Net loss from continuing operations ( 6,617,344 ) ( 4,805,081 ) ( 4,043,409 ) ( 15,465,834 ) ( 965,762 ) ( 7,124,591 ) ( 6,646,308 ) ( 14,736,661 ) The following table presents the Company’s net sales disaggregated by geographic area: Schedule of Net Sales Disaggregated by Geographic Area Hard Tonneau Covers Soft Tonneau Covers Consolidated Hard Tonneau Covers Soft Tonneau Covers Consolidated 2024 2023 Hard Tonneau Covers Soft Tonneau Covers Consolidated Hard Tonneau Covers Soft Tonneau Covers Consolidated United States 5,111,378 3,286,193 8,397,570 - 1,510,177 1,510,177 Canada 59,823 7,695 67,519 - 6,811 6,811 Other - 19,290 19,290 - 12,644 12,644 Total 5,171,201 3,313,178 8,484,379 - 1,529,632 1,529,632 No asset information has been provided for the reported segments as the CODM does not regularly review asset information by reportable segment. As of December 31, 2024 and 2023, assets held in the U.S. accounted for 88 % and 80 % of total assets, respectively. 19. Legal Proceedings There are no legal proceedings except for routine litigation incidental to the business. 20. Subsequent Events The Company has evaluated subsequent events through March 27, 2025, which is the date the financial statements were available to be issued. The following events occurred after year-end: ● Through March 27, 2025, the Company has sold and issued 22,725 shares of common stock in consideration for net proceeds of $ 185,875 under the ATM Agreement. ● On February 27, 2025, the Company entered into a warrant inducement agreement (the “Inducement”) with the holder of existing warrants to purchase an aggregate 1,295,000 shares at a revised price of $ 5.20 in consideration for the Company to issue new warrants to purchase up to 1,424,500 additional shares of common stock at an exercise price of $ 6.502 each – resulting in gross proceeds of approximately $ 6,734,000 received by the Company. ● On March 18, 2025, Worksport effectuated a 1-for-10 reverse stock split of its common stock. The Company’s common stock continues to trade on the Nasdaq under the Company’s existing trading symbol, “WKSP”, and a new CUSIP number, 98139Q308, was assigned as a result of the reverse stock split. 65 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.