Worksport Ltd 10-Q

Item 1. Financial Statements Worksport Ltd. Condensed Consolidated Balance Sheets (Unaudited) March 31, 2024 December 31, 2023 (Unaudited) Assets Current Assets Cash and cash equivalents $ 3,536,980 $ 3,365,778 Accounts receivable, net 156,344 463,122 Other receivable 155,327 165,865 Inventory (note 4) 6,539,846 3,631,492 Related party loan (note 8) 14,303 - Prepaid expenses and deposits (note 5) 342,159 1,497,249 Total Current Assets 10,744,959 9,123,506 Investments (note 10) 90,731 90,731 Property and Equipment, net (note 6) 14,313,885 14,483,436 Right-Of-Use Asset, net (note 11) 803,006 917,354 Intangible Assets, net 1,338,262 1,338,889 Total Assets $ 27,290,843 $ 25,953,916 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable and accrued liabilities $ 2,261,869 $ 1,451,181 Payroll taxes payable 3,625 85,010 Related party loan (note 8) - 2,192 Loan payable (note 12) 5,300,000 5,300,000 Current lease liability (note 11) 278,064 328,229 Total Current Liabilities 7,843,558 7,166,612 Long Term – Lease Liability (note 11) 546,566 608,761 Total Liabilities 8,390,124 7,775,373 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 7) - - Common stock, $ 0.0001 par value, 299,000,000 shares authorized, 24,100,201 and 20,320,503 shares issued and outstanding, respectively (note 7) 2,410 2,032 Additional paid-in capital 69,018,715 64,685,693 Share subscriptions receivable ( 1,577 ) ( 1,577 ) Share subscriptions payable 1,917,585 1,814,152 Accumulated deficit ( 52,027,834 ) ( 48,313,177 ) Cumulative translation adjustment ( 8,580 ) ( 8,580 ) Total Shareholders’ Equity 18,900,719 18,178,543 Total Liabilities and Shareholders’ Equity $ 27,290,843 $ 25,953,916 The accompanying notes form an integral part of these condensed consolidated financial statements. 3 Worksport Ltd. Condensed Consolidated Statements of Operations and Comprehensive Loss For the Three Months Ended March 31, 2024 and 2023 (Unaudited) 2024 2023 Three Months ended March 31, 2024 2023 Net Sales $ 512,637 $ 31,925 Cost of Goods Sold 475,181 19,757 Gross Profit 37,456 12,168 Operating Expenses General and administrative 2,674,318 2,129,612 Sales and marketing 66,777 544,351 Professional fees 943,778 868,611 Gain on foreign exchange ( 7,951 ) ( 458 ) Total operating expenses 3,676,922 3,542,116 Loss from operations ( 3,639,466 ) ( 3,529,948 ) Other Income (Expense) Interest expense ( 123,598 ) ( 165,099 ) Interest income 3,054 119,828 Rental income (note 16) 45,353 44,456 Gain on settlement of debt - 7,493 Total other income (expense) ( 75,191 ) 6,678 Net Loss $ ( 3,714,657 ) $ ( 3,523,270 ) Loss per Share (basic and diluted) $ ( 0.18 ) $ ( 0.21 ) Weighted Average Number of Shares (basic and diluted) 21,188,070 17,159,376 The accompanying notes form an integral part of these condensed consolidated financial statements. 4 Worksport Ltd. Condensed Consolidated Statements of Shareholders’ Equity For the Three Months Ended March 31, 2024 and 2023 (Unaudited) 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, 2023 100 $ 0 17,159,376 $ 1,716 $ 56,919,625 $ ( 1,577 ) $ 591,289 $ ( 33,384,219 ) $ ( 8,580 ) $ 24,118,254 Issuance for services and subscriptions payable - - - - 356,295 - 631,822 - - 988,117 Net loss - - - - - - - ( 3,523,270 ) - ( 3,523,270 ) Balance at March 31, 2023 100 $ 0 17,159,376 $ 1,716 $ 57,275,920 $ ( 1,577 ) $ 1,223,111 $ ( 36,907,489 ) $ ( 8,580 ) $ 21,583,101 Balance at January 1, 2024 100 $ 0 20,320,503 $ 2,032 $ 64,685,693 $ ( 1,577 ) $ 1,814,152 $ ( 48,313,177 ) $ ( 8,580 ) $ 18,178,543 Balance 100 $ 0 20,320,503 $ 2,032 $ 64,685,693 $ ( 1,577 ) $ 1,814,152 $ ( 48,313,177 ) $ ( 8,580 ) $ 18,178,543 Issuance for services and subscriptions payable - - 214,537 21 1,138,109 - 103,433 - - 1,241,563 Shares issued (note 7) - - 2,877,161 288 3,194,913 - - - - 3,195,201 Warrant exercise - - 688,000 69 - - - - - 69 Net loss - - - - - - - ( 3,714,657 ) - ( 3,714,657 ) Balance at March 31, 2024 100 $ 0 24,100,201 $ 2,410 $ 69,018,715 $ ( 1,577 ) $ 1,917,585 $ ( 52,027,834 ) $ ( 8,580 ) $ 18,900,719 Balance 100 $ 0 24,100,201 $ 2,410 $ 69,018,715 $ ( 1,577 ) $ 1,917,585 $ ( 52,027,834 ) $ ( 8,580 ) $ 18,900,719 The accompanying notes form an integral part of these condensed consolidated financial statements. 5 Worksport Ltd. Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2024 and 2023 (Unaudited) 2024 2023 Operating Activities Net Loss $ ( 3,714,657 ) $ ( 3,523,270 ) Adjustments to reconcile net loss to net cash from operating activities: Shares, options and warrants issued for services 1,241,563 1,453,617 Depreciation and amortization 383,147 194,974 Change in operating lease 1,988 ( 20,493 ) Adjustments to reconcile net income loss to cash provided by (used in) operating activities ( 2,087,959 ) ( 1,895,172 ) Changes in operating assets and liabilities (note 9) ( 706,645 ) ( 1,039,238 ) Net cash used in operating activities ( 2,794,604 ) ( 2,934,410 ) Cash Flows from Investing Activities Investments - ( 66,308 ) Purchase of property and equipment ( 212,969 ) ( 1,086,921 ) Net cash used in investing activities ( 212,969 ) ( 1,153,229 ) Financing Activities Shareholder assumption of debt ( 16,495 ) ( 43,904 ) Proceeds from warrant exercise 69 - Proceeds from issuance of common share, net of issuance cost 3,195,201 - Net cash received from financing activities 3,178,775 ( 43,904 ) Change in cash 171,202 ( 4,131,543 ) Cash, restricted cash and cash equivalents - beginning of period 3,365,778 14,620,757 Cash, restricted cash and cash equivalents end of period $ 3,536,980 $ 10,489,214 Supplemental Disclosure of non-cash investing and financing Activities Shares issued for purchase of software $ - $ 72,467 Supplemental Disclosure of cash flow information Income tax paid $ - $ - Interest paid $ 144,020 $ 159,156 The accompanying notes form an integral part of these condensed consolidated financial statements. 6 Worksport Ltd. Notes to the Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation and Business Condition a) Interim Financial Information The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary in order to make the financial statements not misleading and for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three months period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 28, 2024. 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. b) 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”). c) Basis of Measurement The Company’s financial statements have been prepared on the accrual basis. d) Consolidation The Company’s condensed 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. e) Functional and Reporting Currency These condensed consolidated financial statements are presented in United States dollars (USD or US$). The functional currency of the Company and its subsidiaries are United States dollar. For purposes of preparing these condensed consolidated financial statements, transactions denominated in Canadian dollars (CAD or C$) were converted to United States dollars 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 condensed consolidated statement of operations. f) Use of Estimates The preparation of condensed unaudited 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 condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 7 2. Going Concern As of March 31, 2024, the Company had $ 3,536,980 in cash and cash equivalents. The Company has generated only limited revenues and has relied primarily upon capital generated from public and private offerings of its securities. Since the Company’s acquisition of Worksport in fiscal year 2014, it has never generated a profit. As of March 31, 2024, the Company had an accumulated deficit of $ 52,027,834 . The accompanying condensed 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 three months ended March 31, 2024, the Company had net losses of $ 3,714,657 (2023 - $ 3,523,270 ). As of March 31, 2024, the Company had working capital of $ 2,901,401 (December 31, 2023 – $ 1,956,894 ) and had an accumulated deficit of $ 52,027,834 (December 31, 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. Despite the Company having mostly completed its purchasing of large manufacturing machinery, 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 2024, 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 was completed for initial production output in 2023 and has started to generate revenue in the third quarter of 2023. 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. As of March 31, 2024, the Company has sold and issued 604,048 shares of common stock in consideration for net proceeds of $ 780,356 under the ATM Agreement. On November 2, 2023, the Company consummated a registered direct offering pursuant to which the Company issued 1,925,000 shares of common stock and 1,575,000 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 7,000,000 warrants in a private sale. The warrants are exercisable for 7,000,000 shares of common stock for $ 1.34 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 7,000,000 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 2,372,240 shares of common stock and 1,477,892 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 7,700,264 warrants in a private sale. The warrants are exercisable for 7,700,264 shares of common stock for $ 0.74 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 7,700,264 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. 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. 8 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. 3. Significant Accounting Policies The accounting policies used in the preparation of these condensed consolidated interim financial statements are consistent with those of the Company’s audited financial statements for the year ended December 31, 2023. 4. Inventory As of March 31, 2024 and December 31, 2023, inventory consists of the following: Schedule of Inventory March 31, 2024 December 31, 2023 Finished goods $ 5,984,977 $ 1,717,669 Promotional items 101,660 101,660 Raw materials 453,209 1,812,163 Inventory $ 6,539,846 $ 3,631,492 As of March 31, 2024, the value of finished goods on-hand increased due to stockpiling of hard tonneau covers, which have higher values than stockpiled soft tonneau covers, in preparation for 2024 sales campaigns. 5. Prepaid expenses and deposits As of March 31, 2024 and December 31, 2023, prepaid expenses and deposits consist of the following: Schedule of Prepaid Expenses and Deposits March 31, 2024 December 31, 2023 Consulting, services, and advertising $ 59,009 $ 5,215 Deposits 283,150 1,492,034 Prepaid expenses and deposits, net $ 342,159 $ 1,497,249 As of March 31, 2024, prepaid expenses and deposits consists of $ 59,009 (December 31, 2023 - $ 5,215 ) in prepaid consulting, services, and advertising for third party consultants through the issuance of shares and stock options. Amounts in deposits relate to prepayments for manufacturing components and finished goods. 9 6. Property and Equipment As of March 31, 2024 and December 31, 2023, major classes of property and equipment consist of the following: Schedule of Property and Equipment March 31, 2024 December 31, 2023 Equipment $ 2,955,303 $ 2,784,098 Manufacturing equipment 3,248,180 3,260,679 Furniture 154,065 146,049 Product molds 524,476 524,476 Computers 96,056 84,070 Leasehold improvements 895,593 861,332 Building 6,079,410 6,079,410 Land 2,239,405 2,239,405 Automobile 168,497 168,497 Property and Equipment, gross 168,497 168,497 Less accumulated depreciation ( 2,047,100 ) ( 1,664,580 ) Property and Equipment, net $ 14,313,885 $ 14,483,436 7. Shareholders’ Equity (Deficit) During three months ended March 31, 2024, the following transactions occurred: During the three months ended March 31, 2024, the Company sold 504,921 shares of common stock for a total net proceeds of $ 566,118 . 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 $ 407,621 to share subscriptions payable from restricted shares and stock options to be issued. As of March 31, 2024, the Company issued 214,537 restricted shares with a value of $ 304,188 . During the three months ended March 31, 2024, the Company closed a sale of 2,372,240 shares of common stock for net proceeds of $ 1,535,591 . In association with the sale of common stock, the Company issued 1,477,892 pre-funded warrants and 7,700,264 warrants totaling proceeds of $ 1,093,492 . Refer to note 14. Refer to note 15 for additional shareholders’ equity (deficit) details. During three months ended March 31, 2023, the following transactions occurred: The Company recognized consulting expense of $ 631,822 to share subscriptions payable from restricted shares and stock options to be issued. As of March 31, 2023, the restricted shares have not been issued. Refer to note 15 for additional shareholders’ equity (deficit) details. As of March 31, 2024, 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 regard to the Company’s residual assets. During the three months ended March 31, 2024, the Company was authorized to issue 100 shares of its Series A and 100,000 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. 8. Related Party Transactions During the three months ended March 31, 2024, the Company recorded salaries expense of $ 121,752 (2023 - $ 121,410 ) for the Company’s CEO. During the three months ended March 31, 2024, the Company recorded salaries expense of $ 77,155 (2023 - $ 76,938 ) to an officer and director of the Company. As of March 31, 2024, the Company has a receivable of $ 14,303 (December 31, 2023 – payable of $ 2,192 ) from the CEO. 10 9. Changes in Cash Flows from Operating Assets and Liabilities The changes to the Company’s operating assets and liabilities for the three months ended March 31, 2024 and 2023 are as follows: Schedule of Changes in Operating Assets and Liabilities 2024 2023 Decrease (increase) in accounts receivable $ 306,778 $ ( 38,013 ) Decrease (increase) in other receivable 10,538 ( 4,523 ) Decrease (increase) in inventory ( 2,908,354 ) ( 257,423 ) Decrease (increase) in prepaid expenses and deposits 1,155,090 ( 742,590 ) Increase (decrease) in taxes payable ( 81,385 ) 10,110 Increase (decrease) in accounts payable and accrued liabilities 810,688 ( 6,799 ) Changes in operating assets and liabilities $ ( 706,645 ) $ ( 1,039,238 ) 10. Investments a) 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 March 31, 2024, and December 31, 2023, the Company had advanced a total of $ 24,423 and is advancing tranches of capital as required by the Company. b) During the three months ended March 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 $ 3,167 ($ 4,275 CAD). 11. 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. 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 . 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 initial amount equal to the lease liability. 11 The Company’s right-of-use asset and lease liability as of March 31, 2024, and December 31, 2024, are as follows: Schedule Right-of-use Asset March 31, 2024 December 31, 2023 Right-of-use asset $ 803,006 $ 917,354 Current lease liability $ 278,064 $ 328,229 Long-term lease liability $ 546,566 $ 608,761 The following is a summary of the Company’s total lease costs: Schedule of Lease Costs March 31, 2024 March 31, 2023 Operating lease cost $ 133,796 $ 126,034 The following is a summary of cash paid during the three months ended March 31, 2024 and 2023 for amounts included in the measurement of lease liabilities: Schedule of Measurement of Lease Liabilities March 31, 2024 March 31, 2023 Operating cashflow $ 135,784 $ 122,156 The following are future minimum lease payments as of March 31, 2024: Schedule of Future Minimum Lease Payments 2025 $ 343,496 2026 278,352 2027 279,815 2028 46,863 Total future minimum lease payments 948,526 Less: amount representing interest ( 123,896 ) Present value of future payments 824,630 Current portion 278,064 Long term portion $ 546,566 12. Loan payable a) On May 4, 2022, the Company, as the guarantor, and Worksport New York Operations Corporation (“Worksport New York”), as the borrower (the “Borrower”) entered into a secured loan agreement (the “Loan Agreement”) with an external banking entity (the “Lender”) 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 Borrower 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. By the close of March 31, 2024, this account’s balance had changed to $ 558,358 , which is recorded under cash and cash equivalents in the accompanying financial statements. As of March 31, 2024, the outstanding principal and the accrued interest was an aggregate of $ 5,347,479 . This outstanding balance and accrued interest are 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 entered into a Forbearance Agreement with the Lender in connection with the Loan Agreement. Pursuant to the Forbearance Agreement, the Lender agreed to forbear from commencing an action for judgement of foreclosure and sale, seeking an appointment of a receiver or collecting default accrued interest under the Loan until the occurrence of a Termination Event (as defined in the Forbearance Agreement) and the Company and Worksport waived all defenses in connection with the Worksport New York failure to maintain 1.20 to 1.0 debt service coverage ratio of net operating income to debt service under the Loan for each of the trailing twelve (12) months ended December 31, 2023, and the indirect sale of equity securities of Worksport New York as a result of the Company’s sale equity securities in November 2023 (the “Existing Defaults”). Pursuant to the Forbearance Agreement, the definition of “Permitted Transfers” in the Loan Agreement was amended to include the transfer of direct or indirect interest in the Company solely through a stock sale for capital raising purposes, subject to certain conditions, including no occurrence of an Events of Default (other than the Existing Defaults), change in ownership or control of the Company, no new 10% or greater owners, and no involvement of Sanctioned Persons. The Borrower must provide prior notice to Lender and satisfactory reporting of the results of the capital raise. On May 14, 2024, the Company successfully negotiated an extension of the maturity date for its $5.3 million Loan Agreement (Note 12) that was originally due on May 20th, 2024. The Company entered into an agreement with the lender to extend the maturity date to August 10th, 2024. See “Note 17 Subsequent Events.” b) 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 the repayment of $ 28,387 ($ 40,000 CAD) and, as of February 14, 2023, received the forgiven debt of $ 7,493 ($ 10,000 CAD). As at March 31, 2024 and December 31, 2023, there are no amounts owing, and the loan has been fully settled. 13. Loss per Share For the three months ended March 31, 2024, loss per share is $ 0.18 (basic and diluted) compared to that of the three months ended March 31, 2023, of $ 0.21 (basic and diluted) using the weighted average number of shares of 21,188,070 (basic and diluted) and 17,159,376 (basic and diluted), respectively. There are 299,000,000 shares authorized with 24,100,201 and 17,159,376 shares issued and outstanding, as at March 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 March 31, 2024, the Company has 20,118,080 warrants convertible to 20,418,080 common shares, 357,018 restricted stock to be issued, and 5,132,656 stock options exercisable for 5,132,656 common shares for a total underlying common shares of 25,907,754 . As of March 31, 2023, the Company has 3,939,924 warrants convertible to 4,239,924 common shares, 2,815,212 restricted stock to be issued, 700,000 performance stock units and 1,195,106 stock options exercisable for 1,195,106 common shares for a total underlying common shares of 8,950,242 . 12 14. Warrants During the three months ended March 31, 2024, in connection with the sale of 2,372,240 shares of common stock, the Company also sold 1,477,892 pre-funded warrants and issued 7,700,264 warrants exercisable for a total of 7,700,264 shares of common stock for $ 0.0001 and $ 0.74 , 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 year ended December 31, 2023, in connection with the sale of 1,925,000 shares of common stock the Company in a registered direct offering, the Company also sold 1,575,000 pre-funded warrants and 7,000,000 warrants exercisable for 7,000,000 shares of common stock for $ 0.0001 and $ 1.34 , respectively, per share. The Company received net proceeds of $ 2,110,342 associated with the sale of the pre-funded warrants. During the same period 887,000 pre-funded warrants were exercised for 887,000 shares of common stock for $ 89 . During the three months ended March 31, 2024, the remaining 688,000 pre-funded warrants were exercised for 688,000 shares of common stock for $ 69 . During the year ended December 31, 2023, the Company and a stock options holder agreed to cancel all 400,000 stock options in exchange for extending the exercisable period of 300,000 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 400,000 restricted stock units. As of March 31, 2024, the Company has the following warrants outstanding: Schedule of Warrants Exercise Price Exercise price Number outstanding Remaining Contractual Life (Years) Expiry date $ 6.05 130,909 0.34 August 3, 2024 $ 6.05 3,446,515 0.35 August 6, 2024 $ 2.40 62,500 0.97 March 20, 2025 $ 4.00 300,000 2.75 December 31, 2026 $ 1.34 7,000,000 5.09 May 2, 2029 $ 0.74 7,700,264 5.48 September 20, 2029 $ 0.0001 1,477,892 N/A Never 20,118,080 The average remaining contractual life of outstanding warrants that expire is 3.97 Schedule of Warrants Activity March 31, 2024 December 31, 2023 Number of warrants Weighted average price Number of warrants Weighted average price Balance, beginning of year 11,627,924 $ 2.78 3,939,924 $ 5.84 Issuance 9,178,156 $ 0.62 8,575,000 $ 1.09 Exercise ( 688,000 ) $ 0.0001 ( 887,000 ) $ 0.0001 Balance, end of period 20,118,080 $ 1.89 11,627,924 $ 2.78 15. Stock Options and Performance Share Units 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. 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. 13 Performance Share Units On May 1, 2023, the Company and Steven Rossi reached an agreement to modify 1,600,000 restricted stock units and 400,000 performance stock units issued on November 11, 2022, and December 29, 2021, respectively, and replace them with 2,000,000 stock options, as described below. On November 11, 2022, 700,000 performance stock units (“PSUs”) granted on December 29, 2021, as described below, were modified to include new terms pertaining to the PSU vesting schedule. 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. Stock Options The Company uses the Black-Scholes option pricing model to determine fair value of stock options on the grant date. During the three months ended March 31, 2024, Company issued 68,800 stock options to employees with an exercise price ranging from $ 0.57 to $ 1.41 and an expiration from January 31, 2029 to March 21, 2034. During the year ended December 31, 2023, the Company issued 1,500,000 stock options to Steven Rossi. The stock options have an exercise price of $ 1.44 and an expiration date of October 31, 2033 . During the year ended December 31, 2023, the Company issued 12,100 and 25,000 stock options to employees with an exercise price of $ 1.70 and $ 1.44 , respectively. The stock options will expire 10 years from the grant date. During the year ended December 31, 2023, the Company issued 321,150 stock options to employees, consultants and directors with an exercise price ranging from $ 2.55 to $ 4.20 which will expire at various points though August 23, 2033. During the year ended December 31, 2023, 49,500 stock options were cancelled upon the departure of employees. During the year ended December 31, 2023, the Company issued 2,000,000 stock options to Steven Rossi. The stock options have an exercise price of $ 1.74 and an expiration date of May 1, 2033 . During the year ended December 31, 2023, the Company issued 75,000 stock options to an employee with an exercise price of $ 2.43 and expiring on May 18, 2033 . During the year ended December 31, 2023, the Company issued 65,000 stock options to employees and a consultant with an exercise price of $ 1.53 and expiring on March 14, 2033 . During the year ended December 31, 2023, 15,000 stock options were cancelled upon the departure of employees. During the year ended December 31, 2023, the Company issued 85,106 stock options to an employee with an exercise price of $ 1.53 and expiring on March 14, 2033 . During the year ended December 31, 2023, the Company issued 300,000 stock options to a consultant with an exercise price of $ 1.66 and expiring on January 30, 2028 . During the year ended December 31, 2023, the Company issued 360,000 stock options to directors with an exercise price of $ 1.66 and expiring on January 30, 2033 . Schedule of Stock Options Activity March 31, 2024 December 31, 2023 Number of stock options Weighted average price Number of stock options Weighted average price Balance, beginning of year 5,063,856 $ 1.96 785,000 $ 4.74 Granted 68,800 $ 1.17 4,743,356 $ 1.80 Cancelled - $ - ( 464,500 ) $ ( 5.02 ) Balance, end of period 5,132,656 $ 1.95 5,063,856 $ 1.96 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 March 31, 2024 Stock options $ 0.57 - 5.50 5,132,656 8.39 $ 1.95 1,250,625 14 As of March 31, 2024 and December 31, 2023, Terravis Energy Inc., a wholly owned subsidiary of the Company, has the following options outstanding: Schedule of Stock Options Activity March 31, 2024 December 31, 2023 Number of stock options Weighted average price Number of stock options Weighted average price Balance, beginning of year 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 March 31, 2024 Stock options $ 0.01 1,350,000 8.03 $ 0.01 1,350,000 16. 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 three months ended March 31, 2024, the Company recognized rental income of $ 45,353 (2023 - $ 44,456 ). 17. Subsequent Events The Company has evaluated subsequent events through May 15, 2024. The following events occurred after the three months ended March 31, 2024: ● On April 29, 2024, 13,300 stock options issued during the three months ended March 31, 2024 were forfeited with the termination of the employee with the Company. ● 16,667 RSU units were granted onto a Contractor on May 1, 2024 in consideration for services rendered in Q1 2024. ● On May 6, 2024, 1,477,892 pre-funded warrants issued during the three months ended March 31, 2024 were exercised for 1,477,892 shares of common stock for $ 148 . ● On May 8, 2024, the Company announced its receipt of a major grant from New York State Excelsior Jobs Program worth up to $ 2.8 million. The grant, following a strategic low-cost power award from New York Power Authority (NYPA) in April 2024, signifies additional state-level investment in the Company’s expanding operations. With growth exceeding NY State’s forecasts, the Company expects to create up to or over 280 new jobs from 2025 to 2030 and if achieved will receive cash benefits for the creation of these jobs, amounting to $2.8 million received over the next 10 years. ● On May 14, 2024, the Company and Worksport New York Operations Corporation (“Worksport New York”) entered into an Omnibus Amendment of Loan Documents (the “Loan Amendment”) with Northeast Bank (the “Lender”) in connection with that certain secured loan agreement, dated May 4, 2022 (the “Loan Agreement”), by and among the Company, as the guarantor (the “Guarantor”), Worksport New York, as the borrower (the “Borrower”), and the Lender in connection with the Company’s purchase of its 152,847 square foot facility and 18 acres of land in West Seneca, New York on May 6, 2022 for a total purchase price of $ 8,150,000 . Pursuant to the Loan Amendment, effective as of May 10, 2024, the Lender extended the initial maturity date of the Loan from May 10, 2024 to August 10, 2024 (the “Extended Maturity Date”). The Company also agreed to pay the Lender an extension fee of $ 106,000 (the “Extension Fee”) which was deemed fully earned as of the date of the Loan Amendment. However, the Lender agreed to postpone payment of the Extension Fee until the occurrence of (i) the Loan not being repaid in full by or on the Extended Maturity Date; or (ii) Loan being accelerated following an Event of Default or Termination Date (as defined in the Forbearance Agreement). If the Loan is repaid in full on or prior to the Extended Maturity Date, the Lender has agreed to waive the Extension Fee. In addition to the Extension Fee, the Company agreed to pay the Lender an exit fee of $ 106,000 (the “Exit Fee”) in the event the Loan is not repaid in full on or prior to the Extended Maturity Date or if the Loan has been accelerated following an Event of Default or in connection with a Termination Event (as defined in the Forbearance Agreement). If the Loan is repaid in full on or prior to the Extended Maturity Date (and not as a result of an acceleration following a Termination Event), the Company will not be required to pay the Exit Fee. 15