Worksport Ltd 10-K

ITEM 1. BUSINESS Overview Worksport Ltd., through its subsidiaries, designs, develops, manufactures, and owns the IP on a variety of tonneau covers, solar integrations, and NP (Non-Parasitic), Hydrogen-based true green energy solutions for the sustainable, clean energy, and automotive industries. Worksport Ltd. seeks to capitalize on the growing shift of consumer mindsets towards clean energy integrations with its proprietary solar solutions, mobile energy storage systems (ESS), and NP (Non-Parasitic), Hydrogen-based technology. Corporate History The Company was incorporated in the state of Nevada on April 2, 2003 under the name Franchise Holdings International, Inc. (“FNHI”). In December 2014, FNHI acquired 100% of the outstanding equity of Worksport Ltd., an Ontario, Canada corporation formed in 2011 (“Worksport Ontario”), pursuant to which Worksport Ontario became a wholly-owned subsidiary of FNHI. Upon acquiring Worksport Ontario, FNHI abandoned all previous business plans and has been focusing on developing the tonneau business. In May 2020, FNHI changed its name to Worksport Ltd. Terravis Energy Inc. (“Terravis”) was incorporated in the State of Colorado on May 24, 2021. On August 20, 2021, the Company was issued 100 shares of common stock at par value of $0.0001 per share, representing 100% of the outstanding equity of Terravis. On January 20, 2022, Terravis issued an additional 9,999,900 shares of Common Stock to Worksport Ltd. at a par value of $0.0001, representing 100% of the outstanding equity of Terravis. Public Offering On August 6, 2021, the Company consummated an underwritten public offering (the “Public Offering”) of an aggregate of 3,272,727 units, pursuant to a registration statement on Form S-1, as amended (File No. 333-256142) and a registration statement on Form S-1 (File No: 333-258429). The public offering price was $5.50 per unit and each unit consisted of one share of common stock and one warrant (“Public Warrant”) to purchase one share of common stock for $6.05 per share (110% of the unit offering price) from the date of issuance until the third anniversary of the issuance date. The Company received gross proceeds of approximately $18.0 million from the Public Offering, and after deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of approximately $16.1 million. The Company used the net proceeds for Working Capital, R&D, Marketing, and Equipment. Nasdaq Uplisting In connection with the Public Offering, the Company’s common stock and Public Warrants commenced trading on the Nasdaq Capital Market under the symbols “WKSP” and “WKSPW” since August 4, 2021. Prior to the uplisting, the Company’s common stock was quoted on the OTCQB Marketplace under the symbol, “WKSP.” Products We have developed soft vinyl tonneau covers and hard aluminum tonneau covers. Covers are offered in three or four-panel options. Once installed, our tonneau covers latch against the bed of the truck and fold up against the back window of the truck cab. Our current products include the SC (Soft Cover) line: SC3, SC3pro, and SC4. 4 SC3 The SC3 was Worksport’s first product introduced in 2011 and is fitted with a powder coated lightweight aluminum frame and rear cam latches. The tri-fold cover is ultra-violet (UV) protected vinyl tri-layer material that seals around the truck bed with a rubber gasket designed to protect cargo from moisture and debris. SC3pro The SC3pro was introduced in 2012 and has been upgraded from the SC3 to include our patented “Smart Latch” system. The SC3pro offers the same features as the SC3; however, the Smart Latch system allows the operator to open the cover by simply pulling a release cable. SC4 The SC4 began production in 2021 and is expected to launch in Q2 of 2022. We believe that this will be the first vinyl wrapped tonneau cover to fold in four sections. This cover will also allow its users full bed access by being foldable upwards toward the rear window of the truck. This cover will be more compact when folded parallel to the back window of the truck which will reduce wind resistance and rear window obstruction. Products in Pre-Production Worksport is currently developing the following products: TC3 The TC3 is currently in the pre-production stage, estimated to launch in the second quarter of 2022. The TC3 design will fold with three sections, allowing 2/3 bed access. The cover will have one latching point that is manually operated by the user. The cover panels will be made from formed aluminum, ultra-strong 5052 alloy panels with a matte black powder coated surface, for a durable finish. Like the SC3pro, TC3 will also offer a cable-operated latching system that allows for one-sided operation by the user. Options on the TC3 will include expandable cargo division and storage solutions. 5 Worksport: Terravis System We are currently developing a three-component system called the Terravis System. The Terravis System is a first-of-its-kind mobile power generator & energy storage system that consists of a solar tonneau cover called the Worksport SOLIS, a portable core battery called the Worksport COR, and an XCX Accessory Rail – securely fixed to the truck’s bed with use of specially-designed and patented clamps. The XCX system is used to secure the SOLIS tonneau cover using our patented Pro Series latches and can be used to secure additional accessories along with COR energy storage system, COR batteries, and a solar controller. The Terravis System is capable of charging and storing up to 6kWh of energy on the go. This energy can be used for emergencies, outdoor activities, or work ranging from a contractor to drone operator. The Terravis System’s integrated track systems can be used for a variety of add-on options such as chrome trim, tie downs, cargo cleats, textile storage bags, seating, cargo racks, sliding system and others. Our sales efforts for our Terravis System will be focused on the North American markets, for companies such as Workhorse, Atlis, Bollinger, Hercules, as well as Toyota, Stellantis, GM and Ford trucks. Worksport SOLIS The SOLIS Hybrid Solar Tonneau Cover is fitted with cutting edge Monocrystalline solar panels, capable of generating up to 600 watts of power. The SOLIS is based on our Tough Cover framework and can provide up to 10 additional miles for EV pick-up trucks. This is based on a 98kWh battery under optimal conditions at 85% efficiency. Worksport SOLIS uses our TC (tough cover) design and builds on it by integrating highly advanced solar panels. The solar panels are secured to our 16 Gauge 5052 alloy panels both mechanically and using specialized adhesives, and those panels ensure our covers are extremely strong and durable. SOLIS allows current pick-up truck owners to utilize sustainable energy through advanced solar power technology to charge their COR energy storage systems (ESS) and upcoming EVs. While folded over the bed of the truck, the SOLIS is designed to charge power banks and portable batteries, turning any truck into a mobile micro-grid power station. Worksport COR The COR ESS (energy storage system) is a standalone product that can use energy created from SOLIS, our solar cover, and utilize the stored energy on the go, anywhere. Worksport COR is the most unique portable battery system on the market today. Not only does COR allow users to swap a depleted battery for a fully charged one, but it does so without a drop in power output for up to 15s with a load of 1800W. These innovations allow COR to go beyond a simple lifestyle product for work and leisure, as it’s a tool that could potentially save a life in the event of an emergency. 6 The COR’s main battery, a Lithium Nickel Manganese Oxide (Li-MNC) battery, boasts a capacity of 1534Wh while its Hot Swap Lithium Iron Phosphate (Li-MNC) battery has a capacity of 78.6Wh. The COR’s built-in inverter allows 2000W of power with an output voltage of 120V AC (frequency of 60Hz) and input voltage of 48V. The system allows Bluetooth connection for monitoring and controlling the COR and its external batteries. Manufacturing As of December 31, 2021, all Worksport products were manufactured in a facility located in Meizhou, China according to our specifications, schematics and blueprints. We believe that production at the factory can be increased within 30 days to facilitate volumes up to ten times the current output without any adverse effects on quality or craftsmanship. We are currently in the process of establishing manufacturing presence within North America and are working towards closing on a property in West Seneca, New York. Management and seller are under contract for the property, and management plans to close on the property in April of 2022 barring any unforeseen problems or delays. Management believes that having manufacturing capability in North America will increase quality control and production efficiency as well as lower landed costs. Intellectual Property The Company currently holds a broad collection of intellectual property rights relating to certain aspects of its parts and accessories, and services. This includes patents, trademarks, service marks, and trade secrets. Although the Company believes the ownership of such intellectual property rights is an important factor in its business and that its success does depend in part on such ownership, the Company relies primarily on the innovative skills, technical competence and marketing abilities of its personnel. Patents Our current intellectual portfolio consists of five (5) issued U.S. utility patents, one (1) issued Canadian utility patent, and twenty (20) pending patent applications: four (4) U.S. utility applications, seven (7) U.S. provisional applications, seven (7) U.S. design applications, and two (2) Canadian utility applications. We also in the process of preparing several other provisional and design patent applications. Granted U.S. patents will expire between 2032 and 2036, excluding any patent term adjustment that might be available following the grant of the patent. If issued, pending applications would expire in 2041, excluding any patent term adjustment that might be available following the grant of the patent. Patents issued on the provisional applications, if any, would expire in 2042, excluding any patent term adjustment that might be available following the grant of the patent. All patents issued to our Chief Executive Officer, Steven Rossi, have been assigned to the Company or will be assigned to the Company upon being issued by the USPTO. Trademarks The Company has twenty-eight (28) trademarks in various states of pending, registered and allowed in the United States, Canada, China, European Union, Australia, New Zealand, and United Kingdom. Governmental Programs, Incentives and Regulations Globally, both the operation of our business by us and the ownership of our products by our customers are impacted by various government programs, incentives and other arrangements. Our business and products are also subject to numerous governmental regulations that vary among jurisdictions. 7 Programs and Incentives We are in the process of applying for several sales tax, energy, and mortgage incentives, each containing their own sets of guidelines and agreements by which we must abide in order to continue receiving said incentives. While we are not currently bound by these agreements, we expect these agreements to take effect in 2022. Regulations Our portable power station (Worksport COR) is subject to various U.S. and international regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, which may present a risk in transportation. We plan to conduct testing to demonstrate our compliance with such regulations. We use lithium-ion cells in our energy storage products. The use, storage and disposal of our battery packs are regulated under existing laws and are the subject of ongoing regulatory changes that may add additional requirements in the future. The Market Our revenue is directly proportional to sales of pickup trucks. The following chart using SEMA 1 data from 2021 shows sales of specialty equipment retail sales of aftermarket automotive accessories in the United States in billions from 2014, through 2020 and estimates those sales into 2024. 1. SEMA. Automotive Specialty-Equipment Retail Sales Reach New High . Retrieved from www.sema.org This current growth trend is fueled by a decade average of strong overall economic performance, including an ongoing decade average decline in unemployment and growth in consumer spending. A strong economy paired with rising consumer confidence suggest that consumers are willing to spend capital on discretionary items, such as specialty automotive parts. While new vehicle sales have leveled off, they still remain at near-record highs—close to 15 million per year. Recently announced tariffs on imported steel, aluminum, etc. and other policy changes could affect the economy and the automotive industry, however, demand continues to remain strong for new pickup trucks in North America. The Statista Market Outlook suggests that pickup trucks will continue to be the number one selling vehicle in North America. Pickup truck upgrades are the largest sector of the specialty equipment industry, accounting for 27% of total retail dollars (about $12.03 Billion). In the United States alone, there are over 158.6 million registered light trucks. Despite the growth of crossover vehicles (CUV) overall, full-size pickups remain the most common vehicle subtype on the road today. This is likely driven by the continued popularity of domestic half-ton pickups ( e.g., Ford F-150, Chevrolet Silverado, Ram 1500) throughout the United States, especially in the U.S. southern states. Further, in 2021, roughly 75% of vehicles sold in the USA were light trucks. While there is increasing interest in electrification by automakers, less than 1% of light vehicles are electrified thus far. This will be the decade where mass adoption takes place. The electric pickup truck market is very promising. Under the push of EV’s worldwide and legal policies in states like California banning non-eco truck sales by 2035, we believe that a sizable amount of customers will be looking to purchase and upgrade to newer trucks. EV pickup truck sales are suggested to grow at a 58% change of annual growth rate (CAGR) between 2020 and 2030. 8 Of the roughly 56 million pickups in the United States today, nearly 60% of them are either GM Full-Size or Ford F-Series, and account for almost 12% of all vehicles on the road. The Ram Pickup is third. All three brands are ideal target markets for our products. 2021 New Pickup Truck Sales in the United States by Month (All Models) With 2021 year-end sales of approximately 726,000 units, the Ford F-Series was the best-selling light truck in the United States 1 . The Ford F-Series is a series of full-size pickup trucks, the most popular variant being the F-150 1 . The 14th generation of this model was released in 2020. Pickup truck sales growth in the U.S. decreased in 2021 compared with 2020. U.S. pickup truck sales came to around 2.84 million units in 2021 2 , compared to 2.96 million units in 2020 3 . This decline is largely attributed to chip shortages causing a decrease in trucks manufactured. With the exception of Toyota pickups, light trucks built by U.S.-based automakers continue to be favorites among U.S. vehicle buyers. 1. Statista, Inc. The best-selling light trucks in the United States in 2021 . Retrieved from www.statista.com. 2 . GOODCARBADCAR. 2021 U.S Pickup Truck Sales Analysis . Retrieved from goodcarbadcar.net 3 . GOODCARBADCAR. 2020 U.S Pickup Truck Sales Analysis . Retrieved from goodcarbadcar.net Distribution We distribute our tonneau covers through wholesalers, private labels, distributors, and online retail channels in Canada and the United States. We will provide our tonneau covers through Original Equipment Manufacturers and our own eCommerce platform. The specialty equipment (aftermarket) consists of three major types of customers, which include master warehouse distributors, dealers and wholesalers, and retail end consumers. Master warehouse distributors stock and distribute products to their customers, which are usually local dealers and wholesalers. Dealers and wholesalers are local stores which sell products to some businesses and retail consumers in their area and online. Dealers purchase most of their products from their local distributor who deliver to them regularly. Retail end consumers are simply the end users of the products. 9 Competition In our estimation, for many years, consumers looking to purchase tonneau covers have had a limited number of options available, mostly including: Soft Folding & Roll-up covers (Vinyl covers); Solid one piece caps and lids (Plastic & Fiberglass); Retractable Covers (Plastic & Aluminum); and Hard Folding & Standing Covers (Aluminum and FRP). Solid one piece covers and retractable covers are the least desirable because of their limited functionality and overall cost. We believe that consumers want a less cumbersome tonneau cover with high functionality and at a lower cost. That is why the most popular covers in today’s market are soft and hard folding/rolling tonneau covers, and the biggest growth opportunity in the tonneau cover market is the aggressively priced hard folding tonneau cover market niche. Our largest competitor is Truck Hero, which has acquired upwards of 16 independent tonneau cover brands in North America. Truck Hero’s products directly compete with our products. Our other competitors include LEER, Access, Truck Covers USA and Paragon. We believe that by being independent, aggressively priced, innovative, and operationally sound, we will be able to grow revenues with minimal sales effort while continuing to develop our relationships with our larger clients. Furthermore, we believe our Company is currently the only independent Business-to-Business (B2B) producer of tonneau covers in the United States and Canada that does not yet sell directly to customers (B2C). Worksport believes that we can expand our current customer base throughout our current and future markets and intends to enter various B2C channels to boost sales of new products. The Company plans to expand to other markets outside the United States and Canada. We intend to generate revenue in new markets including but not limited to the automotive specialty equipment market and global Original Equipment Manufacturers. Our goal is to become the leader in the tonneau cover market through innovation. Our main objective is to design and engineer our products to better suit today’s new, dynamic, and innovative models of light trucks and electric trucks, whether that be through Worksport’s Terravis System or through innovations within its subsidiary, Terravis Energy, Inc. Research and Development We will spend for research and development activities on an ongoing basis. The company is actively acquiring new engineering and design assets, both in-house and third-party. The Company’s subsidiary, Terravis Energy, Inc., researches green energy solutions for home and community power as well as Electric Vehicle DC charging. Much of the Company’s research and development is focused on hydrogen fuel cell power, which serves as a strong basis for grid-independent power solutions. Environmental Compliance We are committed to high environmental standards and carry out our activities and operations in compliance with all relevant and applicable environmental regulations and best industry practices. Costs of environmental regulatory compliance are not expected to be significant. Employees We currently employ eleven full-time employees, including our Chief Executive Officer. We intend to hire additional employees as our operations grow. We rely on independent contractors for additional labor, as needed. 10 Executive Offices Our principal business address and R&D facility is located at 7299 E Danbro Crescent, Mississauga, ON L5N 6P8, Canada while our secondary business address is 3120 Rutherford Road, Suite 414, Vaughan, ON L4K 0B2, Canada. Our main telephone number is (888) 554-8789. Our main website is www.worksport.com and our website for Terravis is www.goterravis.com. The contents of our websites are not incorporated by reference into this annual report. ITEM 1A. RISK FACTORS As a “smaller reporting company,” are not required to provide the information required by this Item 1A. ITEM 1B. UNRESOLVED STAFF COMMENTS None.