UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended: March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-40681

A close up of a logo

Description automatically generated

Worksport Ltd.

(Exact Name of Small Business Issuer as specified in its charter)

Nevada		35-2696895
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

55G East Beaver Creek Rd.,

Richmond Hill, Ontario, Canada

L4B 1E5

(Address of principal executive offices)

(Zip Code)

Registrant’s Telephone Number, including area code: (888) 554-8789

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common Stock	WKSP	The Nasdaq Stock Market LLC
Warrants	WKSPW	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit post such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 15, 2023, the Registrant had 17,163,810 shares of common stock, par value $0.0001 per share, issued and outstanding.

WORKSPORT LTD.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as at March 31, 2023 (Unaudited) and December 31, 2022	3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022 (Unaudited)	4
Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022 (Unaudited)	5
Condensed Consolidated Statements of Cash Flow for the three months ended March 31, 2023 and 2022 (Unaudited)	6
Notes to the Condensed Consolidated Financial Statements (Unaudited)	7-17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18-20

Item 3. Quantitative and Qualitative Disclosures About Market Risk	21

Item 4. Controls and Procedures	21

PART II OTHER INFORMATION

Item 1. Legal Proceedings	22

Item 1A. Risk Factors	22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3. Defaults Upon Senior Securities	22

Item 4. Mine Safety Disclosures	22

Item 5. Other Information	22

Item 6. Exhibits	23

SIGNATURES	24

Worksport Ltd.

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31, 2023			December 31, 2022
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	10,489,214		$	14,620,757
Accounts receivable net		100,614			62,601
Other receivable		272,555			268,032
Inventory (note 4)		1,603,795			1,346,372
Prepaid expenses and deposits (note 5)		2,238,968			2,034,345
Total Current Assets		14,705,146			18,332,107
Investments (note 12)		90,731			24,423
Property and Equipment, net (note 6)		12,793,184			11,900,672
Right-of-use asset, net (note 13)		1,166,396			1,238,055
Intangible Assets, net		1,340,775			1,268,873
Total Assets	$	30,096,232		$	32,764,130
Liabilities and Shareholders’ Deficit
Current Liabilities
Accounts payable and accrued liabilities	$	2,021,506		$	2,028,305
Payroll taxes payable		10,110			-
Related party loan (note 10)		2,192			46,096
Current lease liability (note 13)		399,011			387,329
Total Current Liabilities		2,432,819			2,461,730
Long Term – Lease Liability (note 13)		780,312			884,146
Loan payable (note 14)		5,300,000			5,300,000
Total Liabilities		8,513,131			8,645,876

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 9)		-			-
Common stock, $0.0001 par value, 299,000,000 shares authorized, 17,159,376 shares issued and outstanding, respectively (note 9)		1,716			1,716
Additional paid-in capital		57,275,920			56,919,625
Share subscriptions receivable		(1,577	)		(1,577	)
Share subscriptions payable		1,223,111			591,289
Accumulated deficit		(36,907,489	)		(33,384,219	)
Cumulative translation adjustment		(8,580	)		(8,580	)
Total Shareholders’ Equity		21,583,101			24,118,254
Total Liabilities and Shareholders’ Equity	$	30,096,232		$	32,764,130

The accompanying notes form an integral part of these condensed consolidated financial statements.

Worksport Ltd.

Condensed Consolidated Statements of Operations and Comprehensive Loss

For the Three Months Ended March 31, 2023 and 2022

(Unaudited)

	2023			2022
	Three Months ended March 31,
	2023			2022
Net Sales	$	31,925		$	47,784
Cost of Goods Sold		19,757			37,977
Gross Profit		12,168			9,807

Operating Expenses
General and administrative		2,129,612			600,858
Sales and marketing		544,351			720,488
Professional fees		868,611			1,487,579
Gain on foreign exchange		(458	)		(1,338	)
Total operating expenses		3,542,116			2,807,587
Loss from operations		(3,529,948	)		(2,797,780	)

Other Income (Expense)
Interest expense		(165,099	)		(25,095	)
Interest income		119,828			5,266
Rental income (note 18)		44,456			-
Gain on settlement of debt		7,493			-
Total other income (expense)		6,678			(19,829	)

Net Loss	$	(3,523,270	)	$	(2,817,609	)

Loss per Share (basic and diluted)	$	(0.21	)	$	(0.17	)
Weighted Average Number of Shares (basic and diluted)		17,159,376			16,988,033

The accompanying notes form an integral part of these condensed consolidated financial statements

Worksport Ltd.

Condensed Consolidated Statements of Shareholders’ Deficit

For the Three Months Ended March 31, 2023 and 2022

(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, 2022		100	$	0		16,951,034	$	1,696	$	54,608,472	$	(1,577	)	$	430,116		$	(20,849,805	)	$	(8,580	)	$	34,180,322
Issuance for services and subscriptions payable		-		-		50,000		5		604,397		-			(64,847	)		-			-			539,555
Net loss		-		-		-		-		-		-			-			(2,817,609	)		-			(2,817,609	)
Balance at March 31, 2022		100	$	0		17,001,034	$	1,701	$	55,212,869	$	(1,577	)	$	365,269		$	(23,667,414	)	$	(8,580	)	$	31,902,268
Balance		100	$	0		17,001,034	$	1,701	$	55,212,869	$	(1,577	)	$	365,269		$	(23,667,414	)	$	(8,580	)	$	31,902,268

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
Balance		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		100	$	0		17,159,376	$	1,716	$	57,275,920	$	(1,577	)	$	1,223,111		$	(36,907,489	)	$	(8,580	)	$	21,583,101

The accompanying notes form an integral part of these condensed consolidated financial statements

Worksport Ltd.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2023 and 2022

(Unaudited)

	2023			2022
Operating Activities
Net Loss	$	(3,523,270	)	$	(2,817,609	)
Adjustments to reconcile net loss to net cash from operating activities:
Shares, options and warrants issued for services		1,453,617			1,224,677
Depreciation and amortization		194,974			52,839
Accrued interest		-			7,874
Change in operating lease		(20,493	)		(55,505	)
		(1,895,172	)		(1,587,724	)
Changes in operating assets and liabilities (note 11)		(1,039,238	)		(554,762	)
Net cash used in operating activities		(2,934,410	)		(2,130,184	)

Cash Flows from Investing Activities
Investment		(66,308	)		-
Purchase of property and equipment		(1,086,921	)		(614,046	)
Net cash used in investing activities		(1,153,229	)		(614,046	)

Financing Activities
Shareholder Assumption of Debt		(43,904	)		(1,863	)
Net cash used in financing activities		(43,904	)		(1,863	)

Change in cash		(4,131,543	)		(2,758,395	)
Cash, restricted cash and cash equivalents - beginning of year		14,620,757			28,567,333
Cash, restricted cash and cash equivalents end of period	$	10,489,214		$	25,808,938
Supplemental Disclosure of non-cash investing and financing Activities
Shares issued for purchase of software	$	72,467		$	141,781
Shares base compensation	$	988,117		$	604,401
Supplemental Disclosure of cash flow information
Income tax paid		-			-
Interest paid		159,156			-

The accompanying notes form an integral part of these condensed consolidated financial statements.

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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022 filed with the SEC on March 31, 2023.

Worksport Ltd. (together with its subsidiaries, the “Company”) was incorporated in the State of Nevada on April 2, 2003 under the name Franchise Holdings International, Inc. (“FNHI”). In May 2020, FNHI changed its name to Worksport Ltd. During the year ended December 31, 2014, the Company completed a reverse acquisition transaction (the “Reverse Acquisition”) with TruXmart Ltd. (“TruXmart”). On May 2, 2018, Truxmart legally changed its name to Worksport Ltd. (“Worksport”). Worksport designs and distributes truck tonneau covers in Canada and the United States.

On May 21, 2021, the Board of Directors authorized the submission of a Certificate of Change/Amendment to the Nevada Secretary of State in which the Company sought to affect a reverse split of its common stock at the rate of 1-for-20 for the purpose of increasing the per share price for the Company’s stock in an effort to meet the minimum listing requirements of the NASDAQ. The Certificate of Change was submitted to the Nevada Secretary of State on May 21, 2021, and the FINRA corporate action was announced on August 3, 2021. FINRA declared the 1-for-20 reverse stock split effective on August 4, 2021. These condensed consolidated financial statements, including prior period comparative share amounts, have been retrospectively restated to reflect this reverse split.

Terravis Energy, Inc. (“Terravis”) was incorporated in the State of Colorado on May 5, 2021. On August 20, 2021, the Company was issued 100 common shares at par value of $0.0001 per share for a controlling interest in Terravis. During the year ended December 31, 2022, the Company was issued an additional 9,990,900 common shares of Terravis at par value of $0.0001 per share.

On January 20, 2022, the board of directors of Terravis and the board of directors of the Company, as the sole stockholder of Terravis, adopted the Terravis Energy, Inc. 2022 Equity Incentive Plan (the “Terravis 2022 Plan”). Under the Terravis 2022 Plan, Terravis’ board of directors or a committee designated by the board of directors may grant incentive stock options, nonqualified stock options, shares of restricted stock, restricted stock units, performance shares, performance units and stock appreciation rights to eligible participants consisting of employees of Terravis, member of Terravis’ board of directors, advisors and consultants to Terravis. The Terravis board of directors authorized and reserved 1,500,000 shares of Terravis common stock under the Terravis 2022 Plan, subject to adjustment for any stock splits of Terravis’ common stock or reorganization, recapitalization, or acquisition of Terravis.

On April 6, 2022, Lorenzo Rossi and Steven Rossi, both of whom are members of Terravis’ board of directors, were granted non-qualified stock options under the Terravis 2022 Plan exercisable for 750,000 and 250,000 shares of Terravis’ common stock, respectively, with exercise prices of $0.01 per share exercisable from the date of grant until the tenth anniversary of the date of grant.

On April 12, 2022, Steven Rossi, William Caragol, and Ned L. Siegel, all of whom are members of Terravis’ board of directors, were granted non-qualified stock options under the Terravis 2022 Plan exercisable for 250,000, 50,000, and 50,000 shares of Terravis’ common stock, respectively, with exercise prices of $0.01 per share exercisable from the date of grant until the tenth anniversary of the date of grant.

On November 4, 2022, Terravis filed an amendment to its articles of incorporation with the Colorado Secretary of State, pursuant to which the Terravis board of directors attached a certificate of designation designating 1,000 shares of its authorized preferred stock as Series A Preferred Stock with a par value $0.0001 per share. According to the certificate of designation, holders of the Series A Preferred Stock do not have any dividend, conversion or liquidation rights. Unless otherwise prohibited by law or the Series A Preferred Stock certificate of designation, the Series A Preferred Stock shall vote together with the outstanding shares of common stock of Terravis as one class on any matter put forth before the common stockholders. For so long the Series A Preferred Stock is outstanding, the holders of the Series A Preferred Stock shall be entitled to 51% of the total votes on all matters regardless of the actual number of shares of Series A Preferred Stock then outstanding, and the holders of the common stock and any other shares of capital stock of Terravis entitled shall be entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power. On November 4, 2022, the Company issued 1,000 shares of Series A Preferred Stock to Steven Rossi, the Chief Executive Officer and President of the Company.

During the year ended December 31, 2022, Worksport New York Operations Corporation and Worksport USA Operations Corporation were incorporated in the state of New York and Colorado, respectively. During the year ended, the Company was issued 1,000 common shares at par value of $0.0001 of Worksport USA Operations Corporation. On April 1, 2022, the Company was issued 10,000 common shares of Worksport New York Operations Corporation.

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.

2. Going Concern

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, 2023, the Company had net loss of $3,523,270 (2022- $2,817,609). As at March 31, 2023, the Company has working capital of $12,272,327 (December 31, 2022 - $15,870,377) and had an accumulated deficit of $36,907,489 (December 31, 2022 - $33,384,219). The Company has never generated profit from operations and relies on debt and equity financing for continued operations. The Company’s ability to continue as a going concern is dependent upon the ability to generate cash flows from operations and obtain financing. The Company intends to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps management is taking will be successful.

The Company has historically operated at a loss, although that may change as sales volumes increase. As of March 31, 2023, the Company had working capital of $12,272,327 (December 31, 2022 – $15,870,377) and an accumulated deficit of $36,907,489 (December 31, 2022 - $33,384,219). As of March 31, 2023, the Company had cash and cash equivalents of $10,489,214 (December 31, 2022 - $14,620,757). Despite the company almost having completed its purchasing of large manufacturing machinery, operational costs are expected to remain elevated and, thus, decrease cash and cash equivalents. Concurrently, the Company intends to begin manufacturing and increasing sales volumes within 2023, which should mitigate the effects of operational costs on cash and cash equivalents; this view is supported by the fact that the manufacturing facility of the Company is near completion and is expected to start generating more substantial revenue in the second quarter of 2023, barring unforeseeable delays.

The Company has successfully raised cash, and it is positioned to do so again if deemed necessary or strategically advantageous. During the year ended December 31, 2021, the Company, through its Reg-A public offering, private placement offering, underwritten public offering, and exercises of warrants, raised an aggregate of approximately $32,500,000. On September 30, 2022, the Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 13, 2022 allowing the Company to issue up to $30,000,000 of common stock and up to $13,000,000 of common stock that may be issued and sold under an At The Market Offering Agreement dated as of September 30, 2022.

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Based on its current operating plans, the Company believes it has a sufficient level of funding for anticipated operations, capital expenditures and debt repayments for a period of at least 12 months from the issuance date of this Quarterly Report. Still, these factors, among others, indicate the existence of a material uncertainty that cast substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments could be material.

3. Significant Accounting Policies

The accounting polices 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, 2022.

4. Inventory

Inventory consists of the following at March 31, 2023 and December 31, 2022:

Schedule of Inventory

	March 31, 2023		December 31, 2022
Finished goods	$	1,319,427	$	1,200,759
Promotional items		101,660		50,790
Raw materials		182,708		94,823
Inventory	$	1,603,795	$	1,346,372

5. Prepaid expenses and deposits

As of March 31, 2023 and December 31, 2022 prepaid expenses and deposits consists of the following:

	March 31, 2023		December 31 , 2022
Consulting, services and advertising	$	775,833	$	1,313,799
Insurance		8,314		20,781
Deposit		1,454,821		699,765
	$	2,238,968	$	2,034,345

As of March 31, 2023 prepaid expense and deposit consists of $775,833 (December 31, 2022- $1,313,799) in prepaid consulting, services and advertising for third party consultants through the issuance of shares and stock options.

6. Property and Equipment

Major classes of property and equipment as at March 31, 2023 and December 31, 2022 are as follows:

Schedule of Property and Equipment

	March 31, 2023			December 31, 2022
Equipment	$	3,406,725		$	2,344,946
Furniture		143,449			143,449
Product molds		122,675			122,675
Computers		88,236			78,885
Leasehold improvements		691,562			675,751
Building		6,079,410			6,079,410
Land		2,239,405			2,239,405
Automobile		168,497			168,497
Deposits		605,000			605,000
Property and Equipment, gross
Less accumulated depreciation		(751,775	)		(557,346	)
Property and Equipment, net	$	12,793,184		$	11,900,672

7. Promissory Notes

The following tables shows the balance of the notes payable as of March 31, 2023 and December 31, 2022:

Schedule of Notes Payable

Balance as at December 31, 2021	$	263,211
Settlement		(263,211	)
Balance as at December 31, 2022 and March 31, 2023	$	-

During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest for $100,000. As a result of the settlement, the Company recognized a gain on settlement of debt of $163,211. Additionally, as a part of this settlement, there was accrued interest on these promissory notes included in accounts payable on the accompanying condensed consolidated balance sheets totaling $139,121 that was also settled; accordingly, the Company recognized a gain on settlement of debt for this amount.

During the year ended December 31, 2019, the promissory note holder advanced $88,120 to the Company. As of the date the amount was advanced, the terms of the note were under negotiation and, as a result, the note was due on demand. During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest, noted above.

During the year ended December 31, 2016, the Company issued a secured promissory note in the principal amount of $73,452 ($123,231 CAD). During the year ended December 31, 2018, the Company issued two additions to the original unsecured promissory note of July 2016, totaling $22,639 ($30,884 CAD). The secured promissory note bore interest at a rate of 18% per annum. The payment terms of the original note including these additions were due “upon completion of going public on the Canadian Securities Exchange, with no change in interest rate.” The secured promissory note was secured by all present and after-acquired property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of the secured promissory notes to be due on April 1, 2021. During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest, noted above. As of December 31, 2022, principal balance owing was $nil. As of March 31, 2023 and December 31, 2022, the accrued interest on this note payable was $nil.

During the year ended December 31, 2016, the Company issued secured promissory notes in the aggregate principal amount of $79,000. The secured promissory notes bore interest at a rate of 18% per annum, payable monthly. The secured promissory notes were secured by all present and after-acquired property and assets of the Company. During the year ended December 31, 2019, the Company extended the maturity dates of all secured promissory notes to be due on April 1, 2021. During the year ended December 31, 2022, the Company and promissory note holder reached an agreement to settle all outstanding promissory notes and interest, noted above. As of March 31, 2023 and December 31, 2022, the principal balance owing was $nil.

8. Convertible Promissory Notes

On February 25, 2020, the Company entered into an agreement with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which the Company issued to Leonite a secured convertible promissory note in the aggregate principal amount of $544,425 to be paid in tranches. As additional consideration for the purchase of the note, (i) the Company issued to Leonite 22,500 common shares, and (ii) the Company issued to Leonite a five-year warrant to purchase 45,000 common shares at an exercise price of $2.00 per share (subject to adjustment), which may be exercised on a cashless basis.

The note carried an original issue discount of $44,425 to cover Leonite’s legal fees, accounting fees, due diligence fees, and other transactional costs incurred in connection with the purchase of the note. Therefore, the purchase price of the note was $500,000. On February 28, 2020, the Company recorded $198,715, consisting of $182,500 for principal and $16,215 as an original issue discount. On September 1, 2020, the Company recorded an additional $310,322, consisting of $285,000 for principal and $25,322 as an original issue discount. As of December 31, 2021, the Company has recorded $509,037, consisting of $467,500 for principal and $41,537 as an original issue discount. Furthermore, the Company issued 22,500 shares of common stock valued at $123,390 and a debt-discount related to the warrants valued at $344,110. During the year ended December 31, 2020, Leonite converted $226,839 of the convertible promissory note into 126,022 common shares at $1.80 per share. The original value of the convertible note converted was $182,565. As a result the Company recognized a loss of $44,274 on settlement of debt. During the year ended December 31, 2021, Leonite converted its remaining outstanding principal and interest into common shares. Leonite received 204,622 common shares at $1.80 per share valued at $368,319. The original value of the convertible note converted including interest was $325,667. As a result, the Company recognized a loss of $42,651 on settlement of debt. In connection with the settlement, the Company expensed the remaining $148,027 of the original debt discount to interest expense. As of March 31, 2023 and December 31, 2022, the convertible promissory note has been repaid in full.

9. Shareholders’ Equity (Deficit)

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 notes 16 and 17 for additional shareholders’ equity (deficit).

During three months ended March 31, 2022, the following transactions occurred:

During the three months ended March 31, 2022, the Company issued 10,000 common shares to a consultant for services received valued at $86,000, $66,329 of which was issued from share subscriptions payable. During the same period the Company issued 40,000 common shares for consulting services valued at $86,400.

During the three months ended March 31, 2022, the Company recognized consulting expense of $1,482 to share subscriptions payable from restricted shares issued during the year ended December 31, 2021. As of March 31, 2022, the restricted shares have not been issued.

Refer to note 16 and 17 for additional shareholders’ equity (deficit).

As of March 31, 2023, 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, 2023, 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.

10. Related Party Transactions

During the three months ended March 31, 2023, the Company recorded salaries expense of $121,410 (2022 - $80,672) for the Company’s CEO. During the same period, the Company recorded salaries expense of $76,938 (2022 - $67,226) to an officer and director of the Company. As of March 31, 2023 the Company has a payable of $2,192 to the CEO.

Refer to note 17 for additional related party transactions.

11. 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, 2023 and 2022 are as follows:

	2023			2022
Decrease (increase) in accounts receivable	$	(38,013	)	$	6,733
Decrease (increase) in other receivable		(4,523	)		106,413
Decrease (increase) in inventory		(257,423	)		(290,041	)
Decrease (increase) in prepaid expenses and deposits		(742,590	)		(430,916	)
Increase (decrease) in lease liability		-			59,612
Increase (decrease) in taxes payable		10,110			(112,189	)
Increase (decrease) in accounts payable and accrued liabilities		(6,799	)		105,626
	$	(1,039,238	)	$	(554,762	)

12. 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, 2023 and December 31, 2022, 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, 2023, the Company purchased $66,308 ($90,000 CAD) of Guaranteed Investment Certificate (“GIC”). The GIC bears a variable interest rate and will mature on February 27, 2024. The anticipated earned interest on the GIC at maturity is $2,818 ($3,825 CAD).

13. Operating Lease Obligations

During the year ended December 31, 2019, the Company signed a lease agreement for warehouse space to commence on August 1, 2019 and end on July 31, 2022 with monthly lease payments of $2,221. During the year ended December 31, 2021 the Company entered into a second lease agreement for warehouse space to commence on June 1, 2021 and end on May 31, 2024 with monthly lease payments of $19,910.

During the year ended December 31, 2022, the Company signed a lease agreement for approximately 20,296 square feet to be used as its primary corporate office and R&D facility pursuant to a five-year lease, dated June 1, 2022, for a variable rate averaging $22,101 per month over the lifetime of the lease. The Company also pays approximately $4,418 in additional fees per month, which varies year to year.

The Company has accounted for its leases upon adoption of ASC 842 whereby it recognizes a lease liability and a right-of-use asset at the date of initial application beginning January 1, 2019. The lease liability is measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate of 10%. The Company has measured the right-of-use asset at an amount equal to the lease liability.

The Company’s right-of-use asset and lease liability as of March 31, 2023 and December 31, 2022 are as follows:

Schedule Right-of-use Asset

	March 31, 2023		December 31, 2022
Right-of-use asset	$	1,166,396	$	1,238,055
Current lease liability	$	399,011	$	387,329
Long-term lease liability	$	780,312	$	884,146

The following is a summary of the Company’s total lease costs:

Schedule of Lease Costs

		March 31, 2023				March 31, 2022
Operating lease cost		$	126,034			$	70,501

The following is a summary of cash paid during the three months ended March 31, 2023 and 2022 for amounts included in the measurement of lease liabilities:

		March 31, 2023				March 31, 2022
Operating cashflow		$	122,156			$	70,501

Maturities of lease liability are as follows:

Future minimum lease payments as of March 31, 2023:


2023	$	370,870
2024		361,298
2025		269,645
2026		277,767
2027 and thereafter		117,158
Total future minimum lease payments		1,396,738
Less: amount representing interest		(217,415	)
Present value of future payments		1,179,323
Current portion		399,011
Long term portion	$	780,312

14. Loan payable

During the year ended December 31, 2022, the Company entered into a loan agreement with a third party for the purchase of property located in West Seneca, New York, the details of which are disclosed in the Company’s Form 8-K filed with the United States Securities and Exchange Commission on May 11, 2022. The Company received $5,300,000 with an interest rate of prime plus 2.25% with an initial maturity date of May 10, 2024 and the option to extend the loan for an additional year. In order to service the loan throughout the term, the Company deposited $667,409 in a restricted account. As of March 31, 2023 the balance in the restricted account was $309,513 (December 31, 2022 - $411,016) and is included in cash and cash equivalents on the accompanying balance sheet.

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 has made 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, 2023 and December 31, 2022, there are no amounts owing, and the loan has been fully settled.

15. Loss per Share

For the three months ended March 31, 2023, loss per share is $0.21 (basic and diluted) compared to that of the three months ended March 31, 2022 of $0.17 (basic and diluted) using the weighted average number of shares of 17,159,376 (basic and diluted) and 16,988,033 (basic and diluted), respectively.

There are 299,000,000 shares authorized and 17,159,376 and 17,001,034 shares issued and outstanding, as at March 31, 2023 and 2022, respectively. The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Company’s outstanding warrants and convertible promissory notes were excluded due to the anti-dilutive effect they would have on the computation. As at 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. As at March 31, 2022, the Company had 5,586,523 warrants convertible to 6,577,513 common shares, 1,070,000 restricted stock to be issued, and 722,500 stock options exercisable for 722,500 common shares and 700,00 performance stock units for a total underlying common shares of $9,070,013.

16. Warrants

During the three months ended March 31, 2023, the Company and a stock options holder reached an agreement to cancel all 400,000 stock options in exchange for extending the exercisable period of 300,000 warrants to December 31, 2024.

During the year ended December 31, 2022, an aggregate of 250,121 warrants were exercised primarily on a cashless basis for 73,321 common shares, and 1,599,179 Reg-A public offering and private placement warrants expired.

During the year ended December 31, 2022, the Company and a warrant holder reached an agreement to extend the exercisable period of 300,000 warrants, convertible to 2 common shares each, for an additional 12 months.

During the year ended December 31, 2021, the Company and warrant holder reached an agreement to amend a previous warrant agreement. The Company issued an additional 150,000 warrants for a total of 250,000 warrants valued at $37,000. The exercisable period of the warrants was also amended to a period of five years beginning on January 14, 2021. The warrants are convertible to 1 common share each exercisable at $2 per share. During the year ended December 31, 2022 the warrants were exercised on a cashless basis for 73,321 common shares.

During the year ended December 31, 2021, the Company issued 130,909 representative warrants to the Company’s underwriters. The representative warrants are not exercisable until January 30, 2022. The representative warrants are exercisable for 130,909 common shares at $6.05 per share until August 3, 2024. As of December 31, 2022, the Company recognized a value of $273,993 for the representative warrants to share issuance cost.

As of March 31, 2023, the Company has the following warrants outstanding:

Schedule of Warrants Exercise Price

	Exercise price	Number outstanding	Remaining Contractual Life (Years)	Expiry date
$	4.00	300,000	1.76	December 31, 2024
$	6.05	3,446,515	1.35	August 3, 2024
$	6.05	130,909	1.35	August 6, 2024
$	2.40	62,500	1.97	March 20, 2025
		3,939,924	1.56

Schedule of Warrants Activity

	March 31, 2023				December 31, 2022
	Number of warrants		Weighted average price		Number of warrants			Weighted average price
Balance, beginning of year		3,939,924	$	5.84		5,652,827		$	5.14
Issuance		-	$	-		130,909		$	6.05
Expired		-	$	-		(1,593,691	)	$	(4.00	)
Exercise		-	$	-		(250,121	)	$	(2.00	)
Balance, end of period		3,939,924	$	5.84		3,939,924		$	5.84

17. Stock Options and Performance Share Units

Under the Company’s 2015 Equity Incentive Plan, the number of common shares reserved for issuance under the option plan shall not exceed 10% of the issued and outstanding common shares of the Company, have a maximum term of 10 years, and vest at the discretion of the Board of Directors.

All equity-settled, share-based payments are ultimately recognized as an expense in the statement of operations with a corresponding credit to “Additional Paid in Capital.” If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different than that estimated on vesting.

Performance Share Units

On November 11, 2022, 700,000 performance stock units (“PSUs”) granted December 29, 2021, as described below, were modified to include new terms pertaining to the PSU vesting schedule. The PSUs vest in 5% increments according to the modified schedule that correlates with the Company’s stock price. The first 5% of the PSUs vest upon the Company’s stock price closing at $2.25. 50% will have vested at a closing price of $5.31, and 100% will have vested at a closing price of $13.76. The fair value of the PSUs was estimated to be $1,254,460. As of March 31, 2023, no PSUs have vested, and the Company recognized $62,723 (2022 - $0) in consulting expense.

On December 29, 2021, the Company granted 400,000 and 300,000 performance stock units (“PSUs”) to the Company’s Chief Executive Officer and a director, respectively. The PSUs were to vest in 5% increments according to a schedule that correlates with the Company’s stock price. The first 5% of the PSUs was to have vested upon the Company’s stock price closing at $3.00. 50% was to have vested at a closing price of $16.50, and 100% was to have vested at a closing price of $31.50. The fair value of the PSUs was estimated to be $1,344,570. As of March 31, 2023, no PSUs have vested, and the Company recognized $0 (2022 - $115,400) in consulting expenses.

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, 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. The options shall vest in two equal installments on March 14, 2024, and 2025. The fair value of the options on the grant date was estimated to be $98,670. The Company recognized $2,295 in wages and salary and consulting expenses during the three months ended March 31, 2023.

During the three months ended March 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. The options shall vest in two installments; a) one fiscal quarter the Company generates $3,600,000 in sales with at least 20% unit margin and b) one fiscal quarter the Company generates $5,400,000 in sales with at least 30% unit margin. The fair value of the options on the grant date was estimated to be $129,191. The Company recognized $4,807 in wages and salary expenses during the three months ended March 31, 2023.

During the three months ended March 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. The options shall vest in three equal installments on January 30, 2023, March 1, 2023, and September 1, 2023. The fair value of the options on the grant date was estimated to be $486,600. The Company recognized $136,430 in consulting expenses during the three months ended March 31, 2023.

During the three months ended March 31, 2023, the Company issued 360,000 stock options to directors with an exercise price of $1.66 and expiring on January 30, 2033. The options shall vest in six equal installments on January 30, 2023, July 31, 2023, January 30, 2024, July 30, 2024, January 30, 2025, and July 30, 2025. The fair value of the options on the grant date was estimated to be $592,560. The Company recognized $38,963 in consulting expenses during the three months ended March 31, 2023.

During the year ended December 31, 2022, the Company granted 10,000 and 50,000 options to advisors with an exercise price of $2.19 and $2.37, respectively, expiring on February 7, 2027, and May 5, 2032, respectively. The options vested immediately upon issuance. The fair values of the options on the grant date were estimated to be $21,780 and $261,400, respectively. The Company recognized $0 (2022 - $21,780) in consulting expense during the three months ended March 31, 2023.

During the year ended December 31, 2022, the Company granted 12,500 options to a consultant with an exercise price of $1.60 expiring on November 29, 2032. The options are earned in four equal installments on February 27, 2023, May 29, 2023, August 29, 2023, and November 27, 2023. The options shall vest one year after being earned on February 27, 2024, May 29, 2024, August 29, 2024, and November 27, 2024. The fair value of the options on the grant date was estimated to be $18,725. The Company recognized $4,720 (2022 - $0) in consulting expenses during the three months ended March 31, 2023.

During the year ended December 31, 2022, Terravis Energy, Inc., a subsidiary of the Company, granted an aggregate of 1,350,000 of Terravis Energy, Inc. stock options to its officers and directors. The stock options have an exercise price of $0.01 and will expire on April 12, 2032. The options vested immediately upon issuance. The fair value of the options on the grant date was estimated to be immaterial.

On July 23, 2021, the Company granted 15,000 options to a director with an exercise price of $5.50 and an expiry date of July 23, 2026. The stock options vested on January 1, 2022. The fair value of the options on the grant date was estimated to be $129,480. The Company recognized $0 (2022 - $799) to consulting expense during the three months ended March 31, 2023.

On August 6, 2021, the Company granted 140,000 options to directors, advisors, and officers with an exercise price of $5.50 and an expiry date of August 6, 2026. The stock options vested on January 1, 2022. The fair value of the options on the grant date was estimated to be $754,189. The Company recognized $0 (2022 - $5,096) to consulting expenses during the three months ended March 31, 2023.

On September 1, 2021, the Company granted 400,000 options to a consultant with an exercise price of $5.32 and an expiry date of September 1, 2026. The options have a vesting period of 6 months from the initial grant date; 100,000 shall vest on March 1, 2022, 100,000 shall vest on September 1, 2022, 100,000 shall vest on March 1, 2023, and 100,000 shall vest on September 1, 2023. The fair value of the options on the grant date was estimated to be $2,112,000. The Company recognized $87,514 (2022 - $264,787) to consulting expenses during the three months ended March 31, 2023. Additionally, During the three months ended March 31, 2023, the Company and the stock options holder reached an agreement to cancel all 400,000 stock options in exchange for extending the exercisable period of 300,000 warrants to December 31, 2024.

On October 7 and November 2, 2021, the Company granted advisors 5,000 and 62,500 options with exercise prices of $5.50 and $5.24, respectively. The options will expire on October 7, 2026, and November 2, 2026, respectively. The stock options vested on January 1, 2022. The fair value of the options on the grant date was estimated to be $353,230. The Company recognized $0 (2022 - $5,294) to consulting expenses during the three months ended March 31, 2023.

On December 29, 2021, the Company granted an aggregate of 90,000 options to members of the board with an exercise price of $2.51. The options will expire on December 29, 2026. The options have a vesting period of 1 year from the initial grant date; 10,000 vested on December 29, 2022, 10,000 shall vest on December 29, 2023, and 10,000 shall vest on December 29, 2024. The fair value of the options on the grant date was estimated to be $224,280. The Company recognized $18,844 (2022 - $18,844) in consulting expenses during the three months ended March 31, 2023.

Schedule of Stock Options Activity

	March 31, 2023						December 31, 2022
	Number of stock options			Weighted average price			Number of stock options		Weighted average price
Balance, beginning of year		785,000		$	4.74			712,500	$	5.00
Granted		810,106		$	1.64			72,500	$	2.21
Cancelled		(400,000	)	$	(5.32	)		-	$	-
Balance, end of period		1,195,106		$	2.44			785,000	$	4.74

		Range of Exercise prices				Outstanding				Weighted average life (years)				Weighted average exercise price				Exercisable on March 31, 2023
Stock options		$	1.53-5.50				1,195,106				6.86			$	2.44				597,500

As of March 31, 2023 and December 31, 2022, Terravis Energy Inc. has the following options outstanding:

Schedule of Stock Options Activity

	March 31, 2023				December 31, 2022
	Number of stock options		Weighted average price		Number of stock options		Weighted average price
Balance, beginning of year		1,350,000	$	0.01		-	$	-
Granted		-	$	-		1,350,000	$	0.01
Balance, end of period		1,350,000	$	0.01		1,350,000	$	0.01

		Range of Exercise prices				Outstanding				Weighted average life (years)				Weighted average exercise price				Exercisable on March 31, 2023
Stock options		$	0.01				1,350,000				9.03			$	0.01				1,350,000

18. Rental Income

During the year ended December 31, 2022, the Company entered into a sublease agreement for its warehouse in Mississauga, Ontario, Canada. The sublease commenced on September 15, 2022 and will end on May 31, 2024 at $15,515 ($19,992 CAD) per month.

During the year ended December 31, 2022, the Company entered into a lease agreement in relation to its West Seneca property. Initially, the Company entered into a lease agreement with a third-party from July 1 to December 31, 2022 at $33,750 per month. Subsequently, on September 23, 2022, a mutual agreement was reached to terminate the lease agreement.

During the three months ended March 31, 2023, the Company recognized rental income of $44,456 (2022 - $0).

19. COVID-19

The outbreak of the coronavirus, specifically identified as “COVID-19,” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak are unknown at this time, as is the efficacy of the government and central bank interventions.

Additionally, while the potential economic impact and duration of such impact brought by the COVID-19 pandemic are difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies. The management and board of the Company are constantly monitoring this situation to minimize potential losses.

20. Subsequent Events

The Company has evaluated subsequent events through May 15, 2023. The following events occurred after the quarter-ended March 31, 2023:

	●	On April 21, 2023, the Company sold 4,434 common shares at $1.72 per share for $7,624. The sale of the common shares was in connection with the Form S-3 shelf registration statement, which was declared effective by the SEC on October 13, 2022 allowing the Company to issue up to $30,000,000 of common shares and up to $13,000,000 of common shares that may be issued and sold under the At The Market Offering Agreement dated as of September 30, 2022.

	●

SEC Form 10-Q filed by Worksport Ltd.