Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," and similar terms. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this Form 10-Q are made based on current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, various factors, uncertainties, and risks should be specifically considered that could affect future results or operations. These factors, uncertainties and risks may cause actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. These risks and uncertainties described and other information contained in the reports filed with or furnished to the SEC should be carefully considered before making any investment decision with respect to the Company's securities. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Unless otherwise stated, all information presented herein is based on the Company's fiscal calendar, and references to particular years, quarters, months or periods refer to the Company's fiscal years ended December 31st and the associated quarters, months and periods of those fiscal years. Each of the terms "Company" and "Worksport" as used herein refers collectively to Worksport Ltd. and its subsidiaries, unless otherwise stated.

The following discussion should be read in conjunction with the Company's Annual Report Form 10-K for the fiscal year ended December 31, 2025 filed with the U.S. Securities and Exchange Commission (the "SEC") on March 26, 2026 and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.

OVERVIEW

Worksport Ltd., through its subsidiaries, designs, develops, manufactures and sells tonneau covers, portable energy storage systems, and solar-integrated automotive accessories, and is developing other energy technologies, including pre-commercial non-parasitic heat-pump technology. The Company owns intellectual property associated with these products and technologies. We seek to expand our automotive-accessory business while commercializing selected clean-energy products and technologies, subject to product-development, regulatory, manufacturing, market-acceptance and financing risks.

Rising Popularity of Electric Vehicles

Electric Vehicles (EVs) have been increasing in consumer interest, whether that interest takes the form of vehicle pre-orders, sales, or investments. As we begin marketing our Worksport SOLIS and COR, we plan to market the SOLIS to electric light duty vehicle owners and to leverage consumer interest in EVs to promote our other products (COR and conventional tonneau covers) to the very large population of Americans who have an interest in EVs without the funds to purchase them. Further, participating in the EV space allows us to target consumers with an interest in cutting-edge technologies - a market in which to promote our COR portable power system.

Regulatory Environment Favoring Electric Vehicles

Many regulations that improve North America's EV charging infrastructure or provide grants to businesses operating in the EV space would benefit us. While we are primarily focused on the light duty vehicle market, our energy products are particularly useful for electric light duty pickup trucks and, therefore, could benefit from any bill that increases the prevalence of such vehicles. However, President Donald Trump has signed an executive order titled Unleashing American Energy in which he has indicated his administration will be reversing the electric vehicle mandates of Joe Biden's former administration, and he has further paused billions of dollars in funding allocated towards electric vehicle charging stations. The future of the U.S.'s regulatory environment surrounding electric vehicles is uncertain.

Limited Competitive Landscape

Our conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, in a consolidated and competitive market. The Worksport COR portable power station, however, operates in a much wider yet unsaturated market. The global Portable Power Station market is quickly growing, and the competitive landscape is far from consolidated. The solar tonneau cover market is in its infancy, and we believe we are among the early entrants in this market. To ensure we do not fall behind future competitors, we are highly focused on protecting our intellectual property both domestically and abroad.

Economic Conditions and Market Trends

As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.

Tariffs and Supply Chain Impact

Our hybrid manufacturing model, which includes sourcing certain products and components from overseas-particularly from China-exposes us to risks associated with tariffs and evolving global trade policies. Tariffs on imported raw materials, components, and finished goods have increased our input costs and may continue to do so in the future. During fiscal 2025, increases in certain material and component costs attributable, in part, to tariffs contributed to higher cost of goods sold; however, these increases were offset by higher production volumes, improved overhead absorption, and operational efficiencies, resulting in an overall improvement in gross margins compared to the prior fiscal year. These impacts are both direct, through duties applied to imported products and components, and indirect, as suppliers and logistics providers may pass through increased costs associated with tariff regimes and related trade restrictions.

While we have taken steps to mitigate these risks through supplier diversification, a portion of our supply chain remains dependent on foreign sources. As a result, tariffs and other trade measures may continue to increase our cost of goods sold and may impact product pricing and margins to the extent not offset by operational efficiencies or pricing actions. In addition, changes in U.S. trade policy or further escalation of tariffs could disrupt supply availability or increase lead times, which may adversely affect our operations and results of operations.

Geopolitical and Macroeconomic Conditions

Recent geopolitical developments, including conflicts in the Middle East involving Iran, have contributed to volatility in global financial markets, higher energy prices and inflationary pressures. While we do not have direct exposure to the affected regions through our suppliers, customers, or operations, these conditions may adversely affect our business. In particular, increases in global energy and transportation costs may increase our cost of goods sold, and inflationary pressures may increase the cost of materials sourced from our suppliers, including suppliers in Asia. In addition, such conditions may adversely affect consumer discretionary spending, which could reduce demand for our products. Volatility in the capital markets may also affect our ability to raise capital on favorable terms. The extent and duration of these conditions remain uncertain and could adversely affect our business, financial condition and results of operations.

Climate Change

Climate change threatens to cause many foreseeable as well as unforeseeable ramifications. In cautious preparation for those that are foreseeable, we have strategically begun domestic manufacturing operations in Western New York. Further, we intend to lower our own carbon footprint by investing in energy-saving measures in our factory in West Seneca, NY. Considering climate change may also exacerbate geopolitical tensions, we are working to diversify our supply chain and lower our reliance on any particular region or country for raw materials in order to lower our exposure to climate change-induced economic or political instability.

We acknowledge the potentially negative environmental impacts of poor battery recycling and increasing demand for precious metals. We are actively researching ways to lower such environmental impacts.

Inflation

Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions and tariffs. Increasing prices of the component materials for parts of our goods may impact the availability, quality and price of our products as suppliers search for alternatives to existing materials and increase the prices they charge. Our suppliers may also fail to provide consistent quality of product as they may substitute lower cost materials to maintain pricing levels. Rapid and significant changes in commodity prices may negatively affect our profit margins, and it may be difficult to mitigate worsened margins through customer pricing actions and cost reduction initiatives.

Additionally, as central banks and the U.S. Federal Reserve adjust interest rates in response to evolving inflationary conditions, the cost of debt financing may fluctuate. While the Federal Reserve began reducing the federal funds rate in the latter half of 2024 and has continued reductions since, interest rates remain elevated relative to pre-2022 levels, and the pace and extent of future reductions remain uncertain. Our $6,000,000 revolving line of credit and our $1,487,000 in equipment financing both carry floating interest rates, meaning we remain susceptible to variable debt interest costs as a result of changes in interest rates.

High interest rates have also resulted in a shift in institutional holdings away from micro-cap equities, which has negatively influenced our stock's trading volume. We continue to forge relationships with institutional investors and analysts in order to maintain a healthy trading volume.

Gasoline Prices and Supply Chain Issues

We faced significantly higher ocean freight, trucking, and container handling costs as well as last mile delivery costs in recent years - all of which have increased our products' landed costs. Higher oil and gasoline prices further increased these costs, and while such prices have come down from their 2022 highs, we continue to closely monitor gasoline and shipping costs. While the Freight Rate Index has significantly increased during certain periods due to geopolitical tensions and disruptions affecting global shipping routes, the shipping routes used by Worksport have not faced dramatic price hikes. Regardless, Worksport is closely monitoring international shipping costs.

Our transition towards domestic manufacturing and assembly is anticipated to largely offset these higher costs, as we believe we will be less exposed to higher international shipping costs. We are also identifying North American suppliers of our products' components and will prioritize transport by rail when possible to avoid high trucking costs.

Foreign Currencies

We are subject to foreign exchange risk as we manufacture certain products and components in China, market extensively in both Canadian and U.S. markets, employ people residing in both the U.S. and Canada and, to date, have raised funds in Canadian Dollars. Meanwhile, we report results of operations in U.S. Dollars. Since our Canadian customers pay in Canadian Dollars, we are subject to gains and losses due to fluctuations in the USD relative to the Canadian Dollar. Our manufacturers in China are paid in USD to better avoid the relatively greater fluctuation of the Chinese Yuan. To the extent the U.S. dollar strengthens against any of these foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our operations.

Business Developments

The following highlights recent material developments in our business in the three months ended September 30, 2026:

	●	As previously disclosed in the Company's Current Report on Form 8-K filed with the SEC on August 14, 2026, on August 13, 2026, the Company received written notice from Nasdaq that it no longer satisfies the $1.00 minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2). The Company has until February 9, 2027 to regain compliance, which requires a closing bid price of at least $1.00 per share for at least 10 consecutive business days. If the Company does not regain compliance by that date, it may be eligible for an additional 180-calendar-day compliance period if it meets the applicable conditions, including providing written notice of its intention to cure the deficiency, by effecting a reverse stock split if necessary.
	●	As previously disclosed in the Company's Current Report on Form 8-K filed with the SEC on August 27, 2026, on August 27, 2026, the Company entered into a warrant exercise inducement letter with the holder of warrants effective on December 12, 2025 to purchase 3,840,421 shares of common stock. The holder exercised those warrants for cash at a reduced exercise price of $0.60 per share and the Company issued the holder new warrants to purchase up to 4,800,526 shares of common stock at an exercise price of $0.60 per share. The transaction closed on August 28, 2026, and the Company received gross proceeds of approximately $2,304,253, before deducting fees and expenses.
	●	As previously disclosed in the Company's Current Report on Form 8-K filed with the SEC on September 4, 2026, at the Annual Meeting of Shareholders held on September 3, 2026, the shareholders elected five directors, ratified the appointment of Lumsden & McCormick, LLP as the Company's independent registered public accounting firm for 2026, approved an advisory proposal supporting the Board's consideration of special dividends in connection with the sale of any business unit or material asset, and authorized the Board to effect one or more reverse stock splits at an aggregate ratio of not less than 1-for-2 and not greater than 1-for-250, or one or more forward stock splits, at any time before September 3, 2028.

Recent Developments

The following material developments occurred after September 30, 2026:

	●	On October 5, 2026, the Company filed a registration statement on Form S-3 (File No. 333-299283) to register the resale of the 4,800,526 shares of common stock issuable upon exercise of the warrants issued in the August 2026 warrant inducement transaction. The SEC declared the registration statement effective on October 13, 2026.
	●	On October 9, 2026, the Company filed a registration statement on Form S-8 to register an additional 1,452,276 shares of common stock issuable under the Company's 2022 Equity Incentive Plan.
	●	As previously announced in a press release furnished as an exhibit to the Company's Current Report on Form 8-K furnished to the SEC on November 4, 2026, the Company signed a non-binding term sheet to acquire a U.S. business that manufactures a patented truck bed accessory. Completion of the proposed acquisition is subject to due diligence, the negotiation and execution of definitive agreements, and the satisfaction of closing conditions. There can be no assurance that a definitive agreement will be signed or that the proposed acquisition will be completed.
	●	On November 9, 2026, the Board of Directors of the Company, upon the recommendation of the Compensation Committee, approved an option exchange program, grants of stock options to the Company's Chief Executive Officer and non-employee directors, and certain transaction bonus arrangements. See Part II, Item 5, "Other Information" of this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to our critical accounting estimates from those disclosed under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2025.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1, Description of Business and Significant Accounting Policies included in Item 1, Financial Statements of this report for further information regarding Financial Accounting Standards Board issued Accounting Standards Updates ("ASU").

CONSOLIDATED RESULTS OF OPERATIONS

The following is a discussion of our results of operations for the three months ended September 30, 2026 compared to the three months ended September 30, 2025

				​				​		Increase (Decrease)
		Three months ended September 30,								2026 vs. 2025
		2026				2025				Amount				%
Net sales		$	7,228,298			$	5,013,872			$	2,214,426				44.2	%
Cost of sales			5,039,591				3,445,088				1,594,503				46.3	%
Gross profit			2,188,707				1,568,784				619,923				39.5	%
Research and development			212,914				301,095				(88,181	)			(29.3	)%
General and administrative			3,581,905				3,698,756				(116,851	)			(3.2	)%
Sales and marketing			1,817,563				2,362,195				(544,632	)			(23.1	)%
(Gain) loss on foreign exchange			5,640				(491	)			6,131				1248.7	%
Loss from operations			(3,429,315	)			(4,792,771	)			1,363,456				(28.4	)%
Interest expense			(175,243	)			(138,887	)			(36,356	)			26.2	%
Other			5,166				2,979				2,187				73.4	%
Net loss		$	(3,599,392	)		$	(4,928,679	)		$	1,329,287				(27.0	)%
Per share data				​				​				​				​
Basic and diluted earnings per share		$	(0.26	)		$	(0.75	)		$	0.49				64.9	%

Net sales

For the three months ended September 30, 2026, net sales generated in the U.S. were $7,209,675, compared to $4,986,583 for the same period in 2025, an increase of approximately $2,223,092.

The increase was primarily due to increased sales of tonneau covers to end users via various dealers and distributors. The Company increased its product offerings in 2026 to also include NEXUS covers to end customers. The Company continues to focus on establishing, as well as strengthening, its presence in both the direct-to-consumer and business-to-business sales channels while also strengthening customer support to increase customer satisfaction.

We distribute our products in the U.S. and Canada through an expanding network of wholesalers, distributors, and dealers, and through online channels, including major online marketplaces and our direct-to-consumer e-commerce platform. We intend to continue expanding both business-to-business and direct-to-consumer channels with product offerings to each of these channels. We also continue to pursue relationships with original equipment manufacturers and fleet customers where appropriate.

Net sales from online retailers of our products increased by $575,032, from $3,589,098 for the three months ended September 30, 2025 to $4,164,130 for the three months ended September 30, 2026. The $575,032 increase is a result of the Company's focus on lowering customer acquisition costs with direct-to-consumer sales by expanding its sales channel concentration in the business-to-business sale channel. This, in turn, allows the Company to reduce expenses normally attributed to conversion marketing. An intentional reduction in conversion marketing efforts decreases order volume, but yields efficient marketing spend and therefore an increase in average order value.

Cost of Sales

The increase in the cost of sales as a percentage of net sales was primarily offset by two efficiency factors: (1) increased production volume to support sales growth, including introduction of new product lines during 2026, and (2) overhead allocation efficiencies associated with higher production volume. These improvements partially offset increases in certain material, components, and landed costs, including the impact of tariffs on imported products and components sourced from overseas. While tariffs contributed to higher input costs during the three months ended September 30, 2026, the efficiency improvements partially offset the increase in input costs, and gross margin decreased by approximately one percentage point.

We continue to employ a discounting strategy as part of a broader initiative to enhance market presence and build brand awareness. We anticipate this will position us well for sustained customer engagement in future periods, during which discounting may not be necessary to the same extent. As production volume grows and our manufacturing process becomes more efficient, we expect to allocate fixed costs included in overhead absorption against a larger production volume base. This scaling will be facilitated by reallocating more of our existing human capital and machinery resources toward production.

We provide our distributors and online retailers with an "all-in" wholesale price. This includes any import duty charges, taxes, and shipping charges. Discounts are applied if the distributor or retailer chooses to use their own shipping process. Certain exceptions apply on rare occasions where product is shipped outside the contiguous United States or from the U.S. to Canada. Volume discounts are offered to certain high-volume customers, and we also offer a "dock price" or "pickup program" whereby clients are able to pick up product directly from our stocking warehouse.

Operating Expenses

Operating expense for the three months ended September 30, 2026 decreased by $743,533, from $6,361,555 for the three months ended September 30, 2025 to $5,618,022, for the three months ended September 30, 2026 mainly due to the following factors:

	●	Research and development expense decreased by $88,181, from $301,095 for the three months ended September 30, 2025 to $212,914 for the three months ended September 30, 2026. The decrease was related to developmental progress of our AL4 and NEXUS product lines, which required less research and development effort as resources were shifted to normal-course production.
	●	General and administrative expense decreased by $116,851, from $3,698,756 in 2025 to $3,581,905 in 2026. The decrease was primarily related to a maintained focus on operational efficiencies as the Company continues to add sales volume.
	●	Sales and marketing expense decreased by $544,632, from $2,362,195 in 2025 to $1,817,563 in 2026. The decrease in sales and marketing was primarily attributable to a reduction of approximately $1.0M in investor relations and awareness program costs, partially offset by an increase in customer facing marketing to support higher sales volume. Customer-facing marketing supported a 44% increase in net sales.

Other Income and Expenses

We reported net other expenses for the three months ended September 30, 2026 of $170,077, compared to $135,908 for the three months ended September 30, 2025. The increase in net other expenses was attributed to a greater use of our line of credit to fund working capital requirements, which contributed to an increase in interest expense.

Net Loss

Net loss for the three months ended September 30, 2026 was $3,599,392, compared to a net loss of $4,928,679 for the three months ended September 30, 2025 - a decrease of approximately 27.0%. The decrease in net loss can be attributed to the reduction in various operating expenses as we focus on maximizing cost efficiencies as we continue to scale.

The following is a discussion of our results of operations for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025

				​				​		Increase (Decrease)
		Nine months ended September 30,								2026 vs. 2025
		2026				2025				Amount				%
Net sales		$	15,770,758			$	11,358,835			$	4,411,923				38.8	%
Cost of sales			11,078,169				8,311,718				2,766,451				33.3	%
Gross profit			4,692,589				3,047,117				1,645,472				54.0	%
Research and development			632,429				975,529				(343,100	)			(35.2	)%
General and administrative			11,369,927				10,221,979				1,147,948				11.2	%
Sales and marketing			5,680,624				4,537,299				1,143,325				25.2	%
(Gain) loss on foreign exchange			1,654				(4,129	)			5,783				140.1	%
Loss from operations			(12,992,045	)			(12,683,561	)			(308,484	)			2.4	%
Interest expense			(414,462	)			(462,481	)			48,019				(10.4	)%
Other			13,290				22,415				(9,125	)			(40.7	)%
Net loss		$	(13,393,217	)		$	(13,123,627	)		$	(269,590	)			2.1	%
Per share data				​				​				​				​
Basic and diluted earnings per share		$	(1.12	)		$	(2.44	)		$	1.32				54.1	%

Net sales

For the nine months ended September 30, 2026, net sales generated in the U.S. was $15,714,080, compared to $11,284,538 for the same period in 2025, an increase of approximately 39.3%.

Net sales increased during the nine months ended September 30, 2026 compared to the same period in the prior year due to increased sales of hard tonneau covers to end users via various dealers and distributors. The Company increased its product offerings in 2025 to also include AL4 and HD3 covers to end customers. In 2026, the Company added the NEXUS product offering to its customers. The Company continues to focus on establishing, as well as strengthening, its presence in both the direct-to-consumer and business-to-business sales channels while also strengthening customer support to increase customer satisfaction and increase product turnover.

We distribute our products in the U.S. and Canada through an expanding network of wholesalers, distributors, and dealers, and through online channels, including major online marketplaces and our direct-to-consumer e-commerce platform. We intend to continue expanding both business-to-business and direct-to-consumer channels with product offerings unique to each of these channels. We also continue to pursue relationships with original equipment manufacturers and fleet customers where appropriate.

Net sales from online retailers of our products increased by $273,293, from $8,581,631 for the nine months ended September 30, 2025 to $8,854,924 for the nine months ended September 30, 2026. The 3.2% increase is a result of the Company's focus on lowering customer acquisition costs for direct-to-consumer sales and a presence in the business-to-business sales channel. This, in turn, allows the Company to reduce expenses normally attributed to conversion marketing. An intentional reduction in conversion marketing efforts decreases order volume, but results in more efficient marketing spend and a higher average order value.

Cost of Sales

The decrease in the cost of sales as a percentage of net sales was primarily driven by two factors: (1) increased production volume to support sales growth, including introduction of new product lines during 2025 and 2026, including NEXUS, and (2) overhead allocation efficiencies associated with higher production volume. These improvements offset increases in certain material, components, and landed costs, including the impact of tariffs on imported products and components sourced from overseas. While tariffs contributed to higher input costs during the nine months ended September 30, 2026, the overall effect of increased scale and production efficiencies resulted in an improvement in our gross margin.

We continue to employ a discounting strategy as part of a broader initiative to enhance market presence and build brand awareness. We anticipate this will position us well for sustained customer engagement in future periods, during which discounting may not be necessary to the same extent. As production volume grows and our manufacturing process becomes more efficient, we expect to allocate fixed costs included in overhead absorption against a larger production volume base. This scaling will be facilitated by reallocating more of our existing human capital and machinery resources toward production.

We provide our distributors and online retailers with an "all-in" wholesale price. This includes any import duty charges, taxes, and shipping charges. Discounts are applied if the distributor or retailer chooses to use their own shipping process. Certain exceptions apply on rare occasions where product is shipped outside the contiguous United Sates or from the U.S. to Canada. Volume discounts are offered to certain high-volume customers, and we also offer a "dock price" or "pickup program" whereby clients are able to pick up product directly from our stocking warehouse.

Operating Expenses

Operating expenses increased for the nine months ended September 30, 2026 by $1,953,956, from $15,730,678 for the nine months ended September 30, 2025 to $17,684,634 for the nine months ended September 30, 2026, mainly due to the following factors:

	●	Research and development expense decreased by $343,100, from $975,529 for the nine months ended September 30, 2025 to $632,429 for the nine months ended September 30, 2026. The decrease was related to developmental progress of our AL4 and NEXUS product lines, which required less research and development effort as resources were shifted to normal-course production.
	●	General and administrative expense increased by $1,147,948, from $10,221,979 in 2025 to $11,369,927 in 2026. The increase was related to consulting costs to support production and operational efforts.
	●	Sales and marketing expense increased by $1,143,325, from $4,537,299 in 2025 to $5,680,624 in 2026. The increase in sales and marketing was primarily attributable to marketing campaigns to promote brand awareness and new product lines.

Other Income and Expenses

We reported net other expenses for the nine months ended September 30, 2026 of $401,172, compared to $440,066 for the nine months ended September 30, 2025. The decrease in net other expenses was attributed to decreased interest expense on our line of credit as a result of reduced usage following cash inflows as a result of the December 2025 warrant inducement transaction.

Net Loss

Net loss for the nine months ended September 30, 2026 was $13,393,217, compared to a net loss of $13,123,627 for the nine months ended September 30, 2025 - an increase of approximately 2.1%. The increase in net loss can be attributed to the increase in various operating expenses as we focus on expanding our operations and promoting our brand awareness.

Liquidity and Capital Resources

As of September 30, 2026 and December 31, 2025, we had $2,528,222 and $5,945,894, respectively in cash and cash equivalents. As of September 30, 2026, we had $1,818,887 of remaining available capacity on our revolving line of credit compared with $3,448,016 of remaining available capacity as of December 31, 2025. The decrease in cash and cash equivalents was primarily a result of our cash used in operating activities to fund working capital requirements and support the production of our new product offerings. We have historically generated limited gross profit and have relied primarily upon capital generated from public and private offerings of our securities to fund continuing operations. Since the Company's acquisition of Worksport in 2014, it has never generated a profit. During the three and nine months ended September 30, 2026, we had net losses of $3,599,392 and $13,393,217, respectively (three months ended September 30, 2025 - $4,928,679; nine months ended September 30, 2025 - $13,123,627). As of September 30, 2026, the Company had working capital of $9,408,182 (As of December 31, 2025 - $10,061,578) and had an accumulated deficit of $97,348,858 (As of December 31, 2025 - $83,873,790).

In their fiscal 2025 audit report, our independent registered public accounting firm included an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate cash flows from operations and obtain equity and/or debt financing. We intend to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund our capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps our management is taking will be successful.

To date, our principal sources of liquidity consist of net proceeds from public and private securities offerings and cash exercises of outstanding warrants. During the nine months ended September 30, 2026, the Company received net proceeds of $7,100,326 from the offerings described below. Management is focused on transitioning towards gross profit as our principal source of liquidity by growing our existing product offerings and customer base and realizing manufacturing efficiency improvements. We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot ensure that we will be able to raise additional capital on acceptable terms, or at all.

We have raised funds during the nine months ended September 30, 2026 from the following public and private securities offerings:

ATM Shares

On November 14, 2025, the Company entered into an amendment to its At The Market Offering Agreement, dated September 30, 2022, with H.C. Wainwright & Co., LLC ("Wainwright") in connection with a new shelf registration statement on Form S-3 (File No. 333-291582), which was declared effective by the SEC on December 12, 2025. Pursuant to the amended ATM Agreement and the related prospectus supplement dated December 12, 2025, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $4.0 million through Wainwright as sales agent. During the nine months ended September 30, 2026, the Company sold 4,006,728 shares of common stock under the ATM Agreement for aggregate gross proceeds of approximately $4,496,875, resulting in net proceeds of approximately $4,357,740 after deducting commissions and offering expenses.

Because the Company's public float is below $75.0 million, sales under the ATM Agreement are subject to the limitations of General Instruction I.B.6 of Form S-3, which limits the amount of securities the Company may sell in primary offerings during any rolling 12-month period. As a result, the amount currently available for sale under the ATM Agreement may be significantly less than the aggregate amount registered under the Company's shelf registration statement.

Regulation A Offering

During the nine months ended September 30, 2026, we received $54,107 of proceeds net of issuance costs that had previously been held in escrow. The funds in escrow pertained to the 2025 Regulation A offering.

Registered Direct Offerings

During the nine months ended September 30, 2026, we completed two registered direct offerings with one institutional accredited investor and received gross proceeds of $722,870, resulting in net proceeds of approximately $599,226 after deducting issuance costs.

August 2026 Warrant Inducement

On August 27, 2026, the Company entered into a warrant exercise inducement agreement with the holder of certain existing warrants originally issued on December 12, 2025. Pursuant to the agreement, the holder exercised warrants to purchase 3,840,421 shares of the Company's common stock at a reduced exercise price of $0.60 per share, for gross proceeds of $2,304,253, before deducting approximately $215,000 of placement agent fees and other offering expenses payable, resulting in estimated net proceeds of approximately $2,089,253. In consideration for the exercise, the Company issued new warrants to purchase up to 4,800,526 shares of common stock. The shares of common stock issuable upon exercise of the new warrants were registered for resale pursuant to the Company's registration statement on Form S-3 (File No. 333-299283), filed October 5, 2026, and declared effective October 13, 2026. The Company intends to use the net proceeds from the transaction for general corporate and working capital purposes. The Company engaged Maxim Group LLC as its exclusive financial advisor in connection with the transaction.

Consolidated Statement of Cash Flows

Cash and cash equivalents decreased from $5,945,894 at December 31, 2025, to $2,528,222 at September 30, 2026 - a decrease of $3,417,672 or 57.5%. The decrease was primarily due to the use of cash to fund working capital to support the production of existing product offerings and the expected growth of additional product offerings launched in 2026. The Company procured approximately $9.5 million of raw materials to support production of our expanded product lineup, including the SOLIS, COR and NEXUS product lines. Some of our new product offerings utilize raw materials common to existing product offerings. Approximately $0.6 million of these raw materials purchases remained in accounts payable as of September 30, 2026.

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2026 was $12,043,036, compared to $11,190,182 in 2025, primarily driven by the launch of additional product offerings during the nine months ended September 30, 2026. Net cash used in operating activities did not exceed the Company's net loss by approximately $1.3 million. The principal component of the change is attributable non-cash expenses, mainly equity compensation of $2,241,010 and depreciation and amortization expense of $1,266,787, which reduce reported earnings but did not require the use of cash during the period.

Accounts receivable increased at September 30, 2026 by $648,993 and increased by $472,485 in the prior year period. The increase in accounts receivable is based on the volume of shipment with various business-to-business customers as well as the concentration of customers in certain sales channels.

Inventory increased at September 30, 2026 by $52,868, and increased at September 30, 2025 by $1,645,437, as a result of the procurement of raw materials and production of finished goods to support the commercial launches of our COR, SOLIS and NEXUS product lines.

Prepaid expenses and other decreased by $68,344 at September 30, 2026, and increased by $865,634 at September 30, 2025 due to timing of advanced payments for professional services to support operations.

Accounts payable and accrued liabilities decreased at September 30, 2026 by $1,467,392 and increased by $1,477,537 at September 30, 2025 due to the timing of payment for raw materials and finished goods procured and produced in preparation for and support of the commercial launches of our COR, SOLIS and NEXUS product lines.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2026 was $274,877 compared to $1,067,257 for the nine months ended September 30, 2025. The decrease in investing activities was primarily attributable to the timing of machinery and equipment to support our production growth.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2026 was $8,900,241 compared to net cash provided by financing activities of $11,136,030 for the nine months ended September 30, 2025. Net cash provided by financing activities was principally attributable to our use of the ATM, whereby we received net proceeds of $4,357,740. We also received proceeds from our line of credit through net borrowings of $1,852,369 for the nine months ended September 30, 2026. In June 2026, we completed two registered direct offerings with one institutional accredited investor for gross proceeds of $722,870, resulting in net proceeds of approximately $599,226 after deducting issuance costs. In August 2026, we completed a warrant inducement and received gross proceeds of $2,304,253.

Material Contractual Obligations

On June 30, 2026, the Company amended an agreement pursuant to which it was released from an outstanding contractual obligation of approximately $2.7 million related to the acquisition of manufacturing equipment from Prima Power, representing approximately 90% of the total equipment cost of approximately $3.0 million. The amendment provides for Prima Power to retain the initial 10% equipment deposit of $300,000 to be applied to a future equipment purchase. The equipment deposit of $300,000 is included in other noncurrent assets as of September 30, 2026. Other than the indebtedness, leases, purchases, employment and other obligations disclosed in this Form 10-Q or incurred in the ordinary course of business, the Company had no material contractual obligations as of September 30, 2026.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, results of operations or cash flows.