Worksport Ltd 10-Q

Item 1. Financial Statements Worksport Ltd. Condensed Consolidated Balance Sheets September 30, 2024 (Unaudited) December 31, 2023 Assets Current Assets Cash and cash equivalents $ 1,857,685 $ 3,365,778 Accounts receivable, net 466,442 463,122 Other receivable 153,967 165,865 Inventory (note 4) 6,138,060 3,631,492 Related party loan (note 8) 14,303 - Prepaid expenses and deposits (note 5) 256,600 1,497,249 Total Current Assets 8,887,057 9,123,506 Investments (note 10) 90,731 90,731 Property and Equipment, net (note 6) 13,966,210 14,483,436 Right-Of-Use Asset, net (note 11) 658,152 917,354 Intangible Assets, net 1,337,008 1,338,889 Total Assets $ 24,939,158 $ 25,953,916 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable and accrued liabilities $ 2,456,000 $ 1,451,181 Payroll taxes payable 111,591 85,010 Related party loan (note 8) - 2,192 Current portion – Long term debt (note 12) 190,000 5,300,000 Current lease liability (note 11) 248,540 328,229 Total Current Liabilities 3,006,131 7,166,612 Long Term – Lease Liability (note 11) 433,214 608,761 Long Term Debt (note 12) 5,136,738 - Total Liabilities 8,576,083 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, 30,920,397 and 17,436,805 shares issued and outstanding, respectively (note 7) 3,092 2,032 Additional paid-in capital 72,512,085 64,685,693 Share subscriptions receivable ( 1,577 ) ( 1,577 ) Share subscriptions payable 4,034,205 1,814,152 Accumulated deficit ( 60,176,150 ) ( 48,313,177 ) Cumulative translation adjustment ( 8,580 ) ( 8,580 ) Total Shareholders’ Equity 16,363,075 18,178,543 Total Liabilities and Shareholders’ Equity $ 24,939,158 $ 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 and Nine Months Ended September 30, 2024 and 2023 (Unaudited) 2024 2023 2024 2023 Three Months ended September 30, Nine Months ended September 30, 2024 2023 2024 2023 Net Sales $ 3,122,359 $ 458,483 $ 5,556,535 $ 690,259 Cost of Goods Sold 2,875,186 368,796 4,975,277 541,841 Gross Profit 247,173 89,687 581,258 148,418 Operating Expenses General and administrative 2,875,255 3,091,488 8,495,959 6,965,901 Sales and marketing 661,238 380,847 1,206,807 1,473,910 Professional fees 621,728 539,126 2,332,069 2,899,190 (Gain) loss on foreign exchange ( 5,832 ) ( 2,265 ) 1,853 ( 2,407 ) Total operating expenses 4,152,389 4,009,196 12,036,688 11,336,594 Loss from operations ( 3,905,216 ) ( 3,919,509 ) ( 11,455,430 ) ( 11,188,176 ) Other Income (Expense) Interest expense ( 229,701 ) ( 113,838 ) ( 487,463 ) ( 466,830 ) Interest income - 38,992 3,054 237,598 Rental income (note 17) - 45,057 76,866 139,892 Gain on settlement of debt - - - 7,493 Total other income (expense) ( 229,701 ) ( 29,789 ) ( 407,543 ) ( 81,847 ) Net Loss $ ( 4,134,917 ) $ ( 3,949,298 ) $ ( 11,862,973 ) $ ( 11,270,023 ) Loss per Share (basic and diluted) $ ( 0.14 ) $ ( 0.23 ) $ ( 0.47 ) $ ( 0.65 ) Weighted Average Number of Shares (basic and diluted) 29,432,794 17,429,685 25,540,754 17,252,521 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 September 30, 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 July 1, 2023 100 $ 0 17,413,810 $ 1,742 $ 58,615,849 $ ( 1,577 ) $ 1,494,885 $ ( 40,704,944 ) $ ( 8,580 ) $ 19,397,375 Issuance for services and subscriptions payable - - - - 739,046 - 119,367 - - 858,413 Share issuance - - 22,995 2 88,407 - - - - 88,409 Stock option forfeiture - - - - 19,406 - - - 19,406 Net loss - - - - - - - ( 3,949,298 ) - ( 3,949,298 ) Balance at September 30, 2023 100 $ 0 17,436,805 $ 1,744 $ 59,462,708 $ ( 1,577 ) $ 1,614,252 $ ( 44,654,242 ) $ ( 8,580 ) $ 16,414,305 Balance at July 1, 2024 100 $ 0 28,520,704 $ 2,852 $ 69,230,341 $ ( 1,577 ) $ 5,964,290 $ ( 56,041,233 ) $ ( 8,580 ) $ 19,146,093 Issuance for services and subscriptions payable - - 16,693 2 1,071,713 - 280,184 - - 1,351,899 Share issuance (note 16) - - 2,383,000 238 2,210,031 - ( 2,210,269 ) - - - Net loss - - - - - - - ( 4,134,917 ) - ( 4,134,917 ) Balance at September 30, 2024 100 $ 0 30,920,397 $ 3,092 $ 72,512,085 $ ( 1,577 ) $ 4,034,205 $ ( 60,176,150 ) $ ( 8,580 ) $ 16,363,075 The accompanying notes form an integral part of these condensed consolidated financial statements. 5 Worksport Ltd. Condensed Consolidated Statements of Shareholders’ Equity For the Nine Months Ended September 30, 2024 and 2023 (Unaudited) 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 - - 250,000 25 2,428,139 - 1,022,963 - - 3,451,127 Share issuance - - 27,429 3 95,538 - - - - 95,541 Stock option forfeiture - - - - 19,406 - - - - 19,406 Net loss - - - - - - - ( 11,270,023 ) - ( 11,270,023 ) Balance at September 30, 2023 100 $ 0 17,436,805 $ 1,744 $ 59,462,708 $ ( 1,577 ) $ 1,614,252 $ ( 44,654,242 ) $ ( 8,580 ) $ 16,414,305 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 - - 333,841 33 2,896,431 - 571,858 - - 3,468,322 Share issuance (note 7) - - 5,260,161 526 5,404,944 - ( 2,210,269 ) - - 3,195,201 Shares issued - - 5,260,161 526 5,404,944 - ( 2,210,269 ) - - 3,195,201 Warrant inducement (note 16) - - 2,840,000 284 ( 474,850 ) - 3,858,464 - - 3,383,898 Warrant exercise (note 14) - - 2,165,892 217 ( 133 ) - - - - 84 Net loss - - - - - - - ( 11,862,973 ) - ( 11,862,973 ) Balance at September 30, 2024 100 $ 0 30,920,397 $ 3,092 $ 72,512,085 $ ( 1,577 ) $ 4,034,205 $ ( 60,176,150 ) $ ( 8,580 ) $ 16,363,075 Balance 100 $ 0 30,920,397 $ 3,092 $ 72,512,085 $ ( 1,577 ) $ 4,034,205 $ ( 60,176,150 ) $ ( 8,580 ) $ 16,363,075 The accompanying notes form an integral part of these condensed consolidated financial statements. 6 Worksport Ltd. Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2024 and 2023 (Unaudited) 2024 2023 Operating Activities Net Loss $ ( 11,862,973 ) $ ( 11,270,023 ) Adjustments to reconcile net loss to net cash from operating activities: Shares, options and warrants issued for services 3,105,869 4,711,868 Depreciation and amortization 1,019,867 1,019,556 Change in operating lease 3,966 ( 16,004 ) Adjustments to reconcile net income loss to cash provided by (used in) operating activities ( 7,733,271 ) ( 5,554,603 ) Changes in operating assets and liabilities (note 9) ( 225,941 ) ( 2,639,744 ) Net cash used in operating activities ( 7,959,212 ) ( 8,194,347 ) Cash Flows from Investing Activities Investments - ( 66,308 ) Purchase of property and equipment ( 500,760 ) ( 3,446,161 ) Net cash used in investing activities ( 500,760 ) ( 3,512,469 ) Financing Activities Net change in related party loan ( 16,495 ) ( 43,904 ) Proceeds from warrant exercise 3,746,435 - Proceeds from issuance of common share, net of issuance cost 3,195,201 95,541 Proceeds from line of credit 7,339,525 - Net proceeds from long term debt 1,437,998 - Repayment of line of credit ( 3,450,785 ) - Repayment of long term debt ( 5,300,000 ) Net cash received from financing activities 6,951,879 51,637 Change in cash ( 1,508,093 ) ( 11,655,179 ) Cash, restricted cash and cash equivalents - beginning of year 3,365,778 14,620,757 Cash, restricted cash and cash equivalents end of period $ 1,857,685 $ 2,965,578 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 $ 487,000 $ 477,000 The accompanying notes form an integral part of these condensed consolidated financial statements. 7 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 and nine month periods ended September 30, 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. 8 2. Going Concern As of September 30, 2024, the Company had $ 1,857,685 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 September 30, 2024, the Company had an accumulated deficit of $ 60,176,150 . 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 and nine months ended September 30, 2024, the Company had net losses of $ 4,134,917 (2023 - $ 3,949,298 ) and $ 11,862,973 (2023 - $ 11,270,023 ). As of September 30, 2024, the Company had working capital of $ 5,880,926 (December 31, 2023 – $ 1,956,894 ) and had an accumulated deficit of $ 60,176,150 (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 completed its purchasing of large manufacturing machinery for current output needs, 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 and beyond, 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 started to generate revenue in the third quarter of 2023, registering its highest quarterly sales total in the Company’s history in the third quarter of 2024. The Company has successfully raised cash and 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 September 30, 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. 9 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 September 30, 2024 and December 31, 2023, inventory consists of the following: Schedule of Inventory September 30, 2024 December 31, 2023 Finished goods $ 1,913,228 $ 1,717,669 Promotional items 101,660 101,660 Raw materials 4,123,172 1,812,163 Inventory $ 6,138,060 $ 3,631,492 As of September 30, 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, as well as their raw materials to capitalize on demand generated from the Company’s 2024 sales campaigns. 5. Prepaid expenses and deposits As of September 30, 2024 and December 31, 2023, prepaid expenses and deposits consist of the following: Schedule of Prepaid Expenses and Deposits September 30, 2024 December 31, 2023 Consulting, services, and advertising $ 237,594 $ 5,215 Deposits 19,006 1,492,034 Prepaid expenses and deposits, net $ 256,600 $ 1,497,249 As of September 30, 2024, prepaid expenses and deposits consists of $ 237,594 (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. 10 6. Property and Equipment As of September 30, 2024 and December 31, 2023, major classes of property and equipment consist of the following: Schedule of Property and Equipment September 30, 2024 December 31, 2023 Equipment $ 3,142,683 $ 2,784,098 Manufacturing equipment 3,340,463 3,260,679 Furniture 154,065 146,049 Product molds 524,476 524,476 Computers 96,056 84,070 Leasehold improvements 903,721 861,332 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 ( 2,682,566 ) ( 1,664,580 ) Property and Equipment, net $ 13,966,210 $ 14,483,436 7. Shareholders’ Equity (Deficit) During nine months ended September 30, 2024, the following transactions occurred: During the nine months ended September 30, 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 $ 753,069 to share subscriptions payable from restricted shares and stock options to be issued. As of September 30, 2024, the Company issued 333,841 restricted shares with a value of $ 382,700 . During the nine months ended September 30, 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. During the nine months ended September 30, 2024, the Company closed a sale of 950,000 shares of common stock for proceeds of $ 380,000 . In connection with the sale of common stock, the Company issued 1,900,000 warrants. Refer to note 14. As of September 30, 2024, the shares have not been issued. Refer to note 14, 15 and 16 for additional shareholders’ equity (deficit) details. During nine months ended September 30, 2023, the following transactions occurred: The Company sold 27,429 shares of common stock for a total net proceeds of $ 95,541 . 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 $ 1,022,963 to share subscriptions payable from restricted shares and stock options to be issued. As of September 30, 2023, the restricted shares have not been issued. During the same period the Company issued 250,000 shares of common stock for consulting services valued at $ 635,000 . Refer to note 15 for additional shareholders’ equity (deficit) details. As of September 30, 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 nine months ended September 30, 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 . 11 8. Related Party Transactions As of September 30, 2024, the Company has a receivable of $ 14,303 (December 31, 2023 – payable of $ 2,192 ) from the CEO. 9. Changes in Cash Flows from Operating Assets and Liabilities The changes to the Company’s operating assets and liabilities for the nine months ended September 30, 2024 and 2023 are as follows: Schedule of Changes in Operating Assets and Liabilities 2024 2023 Decrease (increase) in accounts receivable $ ( 3,320 ) $ ( 455,509 ) Decrease (increase) in other receivable 11,898 103,998 Decrease (increase) in inventory ( 2,506,568 ) ( 2,205,697 ) Decrease (increase) in prepaid expenses and deposits 1,240,649 26,200 Increase (decrease) in payroll taxes payable 26,581 43,738 Increase (decrease) in accounts payable and accrued liabilities 1,004,819 ( 152,474 ) Changes in operating assets and liabilities $ ( 225,941 ) $ ( 2,639,744 ) 10. Investments 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 September 30, 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. During the nine months ended September 30, 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). 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 did not exercise the one year extension option for this facility. During the nine months ended September 30, 2024, 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, 2024, for a monthly rent of $ 3,600 . 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. 12 The Company’s right-of-use asset and lease liability as of September 30, 2024, and December 31, 2023, are as follows: Schedule Right-of-use Asset September 30, 2024 December 31, 2023 Right-of-use asset $ 658,152 $ 917,354 Current lease liability $ 248,540 $ 328,229 Long-term lease liability $ 433,214 $ 608,761 The following is a summary of the Company’s total lease costs: Schedule of Lease Cost September 30, 2024 September 30, 2023 Operating lease cost $ 331,057 $ 368,984 The following is a summary of cash paid during the nine months ended September 30, 2024 and 2023 for amounts included in the measurement of lease liabilities: Schedule of Measurement of Lease Liabilities September 30, 2024 September 30, 2023 Operating cashflow $ 328,113 $ 378,102 The following are future minimum lease payments due as of September 30, 2024: Schedule of Future Minimum Lease Payments 2025 $ 294,437 2026 275,720 2027 187,453 Total future minimum lease payments 757,610 Less: amount representing interest ( 75,856 ) Present value of future payments 681,754 Current portion 248,540 Long term portion $ 433,214 12. Long term Debt 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 June 30, 2024, this account’s balance had changed to $ 386,164 , which is recorded under cash and cash equivalents in the accompanying financial statements. As of June 30, 2024, the outstanding principal and the accrued interest was an aggregate of $ 5,325,664 . This 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. This loan was subsequently refinanced, which is addressed in more detail below. 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 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 Event 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 was required to provide prior notice to Lender and satisfactory reporting of the results of the capital raise. 13 On May 14, 2024, the Company successfully negotiated an extension of the maturity date for its $ 5.3 million Loan Agreement 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. The Company has since refinanced this loan. 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 of 24 months from initial funding (July 2026). 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 September 30, 2024, the outstanding balance of this loan was $ 3,888,740 (net of issuance costs). 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 of 36 months from initial funding (September 2027). Upon transaction close, the Company received net proceeds of $ 1,437,998 (net of issuance costs). The Company and its wholly owned subsidiary, Worksport New York Operations Corporation, serve as guarantors on the loan. 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 September 30, 2024 and December 31, 2023, there are no amounts owing, and the loan has been fully settled. 13. Loss per Share For the three and nine months ended September 30, 2024, loss per share is $ 0.14 and $ 0.47 (basic and diluted) compared to the three and nine months ended September 30, 2023, of $ 0.23 and $ 0.65 (basic and diluted) using the weighted average number of shares of 29,432,794 and 25,540,754 (basic and diluted) as of September 30, 2024 and 17,429,685 and 17,252,521 (basic and diluted) as of September 30, 2023, respectively. There are 299,000,000 shares authorized with 30,920,397 and 17,436,805 shares issued and outstanding, as at September 30, 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 September 30, 2024, the Company has 22,912,764 warrants convertible to 23,212,764 common shares, 357,018 restricted stock to be issued, 300,000 performance stock units and 5,848,056 stock options exercisable for 5,848,056 common shares for a total underlying common shares of 29,717,838 . As of September 30, 2023, the Company has 3,939,924 warrants convertible to 4,239,924 shares of common stock, 170,212 restricted stock to be issued, 300,000 performance stock units and stock options exercisable for 3,576,256 shares of common stock, for a total underlying shares of common stock of 8,286,392 . 14. Warrants During the nine months ended September 30, 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 same period, 1,477,892 pre-warrants were exercised for 1,477,892 shares of common stock for $ 15 . 14 During the nine months ended September 30, 2024, the Company closed a sale of 950,000 shares of common stock. In connection with the sale of common stock the Company issued 1,900,000 warrants. The warrants have an exercise price of $ 0.40 and an expiration date of September 21, 2029 . During the nine months ended September 30, 2024, 130,909 warrants issued on August 3, 2021 and 3,446,515 warrants issued on August 6, 2021, all of which having an exercise price of $ 6.05 , expired. During the year ended December 31, 2023, in connection with the sale of 1,925,000 shares of common stock 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 nine months ended September 30, 2024, the remaining 688,000 pre-funded warrants were exercised for 688,000 shares of common stock for $ 69 . Further, during this same period, the Company induced the exercise of 7,000,000 warrants at a reduced exercise price of $ 0.5198 per share in consideration for the Company to issue new warrants to purchase up to 12,950,000 additional shares of common stock – resulting in gross proceeds of approximately $ 3,638,000 received by the Company. 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 September 30, 2024, the Company has the following warrants outstanding: Schedule of Warrants Exercise Price Exercise price Number outstanding Remaining Contractual Life (Years) Expiry date $ 2.40 62,500 0.47 March 20, 2025 $ 4.00 300,000 2.25 December 31, 2026 $ 0.74 7,700,264 4.98 September 20, 2029 $ 0.40 1,900,000 4.98 September 21, 2029 $ 0.52 12,950,000 5.16 November 26, 2029 22,912,764 5.03 The average remaining contractual life of outstanding warrants that expire is 5.03 years. Schedule of Warrants Activity September 30, 2024 December 31, 2023 Number of warrants Weighted average price Number of warrants Weighted average price Balance, beginning of year 11,627,924 $ 2.42 3,939,924 $ 5.84 Issuance 24,028,156 $ 0.55 8,575,000 $ 1.09 Expired ( 3,577,414 ) $ 6.05 - $ - Exercise ( 9,165,892 ) $ 0.40 ( 887,000 ) $ 0.0001 Balance, end of period 22,912,774 $ 0.63 11,627,924 $ 2.42 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. 15 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, 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. 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. 5,388,956 stock options’ exercise prices were repriced to $ 0.7042 , 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 nine months ended September 30, 2024, the Company issued 804,600 stock options to employees and directors with exercise prices ranging from $ 0.57 to $ 1.37 and expiration dates ranging from February 1, 2029 to July 28, 2034 . Of these stock options, 8,300 were subsequently cancelled. During the year ended December 31, 2023, the Company issued 4,743,356 stock options to employees, directors, and consultants with exercise prices ranging from $ 1.44 to $ 4.20 and expiration dates ranging from January 30, 2028 to October 31, 2033 . Of these stock options, 81,600 were subsequently cancelled. 16 Schedule of Stock Options Activity September 30, 2024 December 31, 2023 Number of stock options Weighted average price Number of stock options Weighted average price Balance, beginning of period 5,063,856 $ 1.96 785,000 $ 4.74 Granted 804,600 $ 0.78 4,743,356 $ 1.80 Cancelled ( 20,400 ) $ ( 2.31 ) ( 464,500 ) $ ( 5.02 ) Balance, end of period 5,848,056 $ 0.73 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 September 30, 2024 Stock options $ 0.57 - 5.50 5,848,056 8.19 $ 0.73 1,798,750 As of September 30, 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 September 30, 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 September 30, 2024 Stock options $ 0.01 1,350,000 7.53 $ 0.01 1,350,000 16. Warrant Inducement On May 9, 2024, the Company entered into a warrant inducement agreement (the “Inducement”) with the holder of existing warrants to purchase an aggregate 7,000,000 shares at a reduced exercise price of $ 0.5198 . Pursuant to the Inducement, the exercising holder of the existing warrants received 12,950,000 inducement warrants and the Company received $ 3,639,000 from the exercise of the existing warrants. 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 2,840,000 shares of common stock are recorded as capital in excess of par. The obligation to issue the remaining 4,160,000 shares was originally recorded as a share subscription payable. During the nine months ended September 30, 2024, the Company issued 2,383,000 out of the 4,160,000 shares to be issued. 17 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 nine months ended September 30, 2024, the Company recognized rental income of $ 76,866 (2023 - $ 139,892 ). 18. Subsequent Events The Company has evaluated subsequent events through November 13, 2024. The following events occurred after the quarter ended September 30, 2024: ● On October 3, 2024, the Company announced its first partnership with a government agency for the sale of Worksport tonneau covers. This government agency has a fleet of an estimated two million pickup trucks nationwide. ● On October 9, 2024, the Company announced it is expanding its product line to include tonneau covers compatible with the Rivian R1T electric pickup truck. ● On October 17, 2024, the Company announced a strategic cost-saving initiative to cut $ 1.5 million in annual expenses without negatively impacting revenues. ● On October 17, 2024, the Company announced The Nasdaq Stock Market LLC provided formal notice that the Company is eligible for an additional 180 calendar days to regain compliance with the minimum $ 1 bid requirement under Nasdaq Listing Rule 5550(a)(2). ● On October 23, 2024, the Company announced its targeted market release of its highly anticipated AL4 Premium Tonneau Cover to be dated December 15 th , 2024, with a complementary preorder campaign announced as of October 29, 2024. ● On October 31, 2024, the Company announced that it’s SOLIS Solar tonneau cover has been improved to operate at 60V, thereby bringing a substantial cost savings to consumers and enabling a wider breadth of battery integrations. 18