WKSP

Worksport Ltd. 10-K Summary: Fiscal Year Ended December 31, 2024

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2024. Worksport Ltd. (WKSP) designs, develops, and manufactures automotive accessories (tonneau covers) and clean energy solutions (solar tonneau covers, portable power stations, and heat pumps). The company operates in two reportable segments: Hard Tonneau Covers and Soft Tonneau Covers. It is classified as a smaller reporting company and a non-accelerated filer. The company maintains a manufacturing facility in West Seneca, NY, and outsources soft cover production to China.

Key Financial Metrics

Note: All share and per-share amounts have been retroactively adjusted for a 1:10 reverse stock split effected on March 18, 2025.

Material Changes vs. Prior Period

• Revenue Surge: Net sales increased by 455% year-over-year, driven by a shift from private label sales to direct-to-consumer and online retailer channels (which accounted for 58% of total sales in 2024). Hard tonneau cover sales grew significantly as domestic production ramped up.
• Margin Compression: Gross margin decreased from 15.7% to 10.7%. Management attributes this to strategic discounting to boost market share and the allocation of fixed overhead costs over a smaller production volume earlier in the year.
• Operating Expenses: Total operating expenses increased by approximately 9.3% to $16.37 million. Increases were seen in R&D ($2.29M), Sales & Marketing ($2.39M), and G&A ($8.68M), primarily due to hiring production personnel and marketing campaigns. Professional fees decreased by $0.82M due to insourcing processes.
• Debt Restructuring: The company refinanced its $5.3M mortgage on its NY facility with a new $6M revolving credit facility and a $1.49M term note for equipment financing.

Guidance, Outlook, Risks, and Unusual Items

• Going Concern Warning: Independent auditors have included an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern. The company has incurred recurring losses and relies on equity/debt financing to fund operations.
• Product Outlook: Management expects to transition toward gross profit as the principal source of liquidity. Key growth drivers include the launch of the SOLIS solar tonneau cover, the COR portable power station, and the AetherLux heat pump (capable of operating at -57°F).
• Recent Capital Raises: In 2024, the company raised approximately $12.5M through public/private offerings and warrant exercises. Subsequent to year-end (Feb 2025), a warrant inducement generated an additional ~$6.7M.
• Risks:
  • Customer Concentration: One customer accounted for 37% of 2024 revenue (down from 93% in 2023).
  • Supply Chain: Reliance on two Chinese suppliers for soft tonneau covers.
  • Regulatory: Potential changes in U.S. EV mandates and infrastructure funding under new administration policies.
  • Cybersecurity: The company acknowledges limited cybersecurity measures and no dedicated team, though it holds $1M in insurance coverage.
• Internal Controls: Management concluded that internal controls over financial reporting were not effective as of December 31, 2024, citing material weaknesses in documentation, segregation of duties, and system access. Remediation is expected in Q2 2025.

Investor Verification Checklist

• Verify the company's ability to secure additional financing given the "substantial doubt" going concern qualification.
• Monitor the execution of the SOLIS and COR product launches and their impact on revenue diversification beyond tonneau covers.
• Assess the timeline for remediation of material weaknesses in internal controls over financial reporting.
• Review the concentration risk regarding the single customer representing 37% of revenue.
• Track the impact of the 1:10 reverse stock split on liquidity and trading volume.
• Confirm the status of the $6M revolving credit facility and adherence to debt covenants.