Item 1. Business
ITEM
1. BUSINESS
Overview
Worksport
Ltd., through its subsidiaries, designs, develops, manufactures, and owns the intellectual property (“IP”) on a portfolio
of tonneau cover, solar integration, portable power station, and NP (non-parasitic), hydrogen-based green energy products and solutions
for the automotive aftermarket accessories, power storage, residential heating, and electric vehicle-charging industries. We seek to
provide consumers with next-generation automotive aftermarket accessories while capitalizing on growing consumer interest in clean energy
solutions and power grid independence.
Corporate
History
The
Company was incorporated in the State of Nevada on April 2, 2003 under the name Franchise Holdings International, Inc. (“FNHI”).
On December 16, 2014, FNHI acquired 100% of the outstanding equity of Worksport Ltd., a corporation formed in the Province of Ontario
on December 13, 2011, formerly known as Truxmart Ltd. (“Worksport Ontario”), pursuant to which Worksport Ontario became a
wholly-owned subsidiary of FNHI. In May 2020, FNHI changed its name from “Franchise Holding International Inc.” to “Worksport
Ltd.”
On
May 21, 2021, the Board of Directors (“Board”) 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 Financial Industry Regulatory Authority
(“FINRA”) corporate action was announced on August 3, 2021. FINRA declared the 1-for-20 reverse stock split effective on
August 4, 2021.
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. 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. On November 4, 2022, Steven Rossi was issued 1,000 shares of Series A Preferred
Stock of Terravis at par value of $0.0001, representing 100% of the authorized Series A Preferred Stock, in consideration for services
rendered. The shares of Series A Preferred Stock vote together with the common stock of Terravis, unless prohibited by law, and have
51% voting power, regardless of how many shares of Series A Preferred Stock are outstanding.
3
Worksport
Acquisition Corporation was incorporated in the State of Delaware on December 28, 2021. On January 1, 2022, the Company was issued 1,000
shares of common stock at par value of $0.0001 per share, representing 100% of the outstanding equity of Worksport Acquisition Corporation.
Worksport
USA Holding Corporation was incorporated in the State of Colorado on March 11, 2022. On March 11, 2022, the Company was issued 1,000
shares of common stock at par value of $0.0001 per share, representing 100% of the outstanding equity of Worksport USA Holding Corporation.
Worksport
USA Operations Corporation was incorporated in the State of Colorado on March 23, 2022. On March 23, 2022, the Company was issued 1,000
shares of common stock at par value of $0.0001 per share, representing 100% of the outstanding equity of Worksport USA Operations Corporation.
Worksport
New York Operations Corporation was incorporated in the State of New York on March 31, 2022. On April 1, 2022, the Company was issued
10,000 shares of common stock at par value of $0.0001 per share, representing 100% of the outstanding equity of Worksport New York Operations
Corporation.
Public
Offering
On
August 6, 2021, we 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 u nit 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. We received gross proceeds of
approximately $18.0 million from the Public Offering, and after deducting the underwriting commissions, discounts, and offering expenses
payable by us, we received net proceeds of approximately $16.1 million. We used the net proceeds for working capital, research &
development, marketing, and equipment.
Nasdaq
Uplisting
In
connection with the Public Offering, our common stock and Public Warrant commenced trading on The Nasdaq Capital Market under the symbols
“WKSP” and “WKSPW,” respectively, since August 4, 2021. Prior to the uplisting, our common stock was quoted on
the OTCQB Marketplace under the symbol “WKSP.”
Business
Developments
The
following highlights recent material developments in our business:
●
In
May 2022, we closed on the purchase of a commercial property (the “Property”) for $8,125,000 in the town of West
Seneca, Erie County, New York (the “Acquisition”) pursuant to a Purchase and Sale Agreement that we entered into
with J&M Distributing, Inc. We financed $5,300,000 in connection with the closing of the Acquisition pursuant to a Loan Agreement
that we entered into with Northeast Bank (“Lender”), of which we issued a Promissory Note to the Lender guaranteed
by Worksport Ltd. and secured by the Property per a Mortgage and Security Agreement entered into with the Lender. The Property
consists of two parcels of land: (i) one parcel consisting of approximately 14 acres improved by a building containing approximately
152,847 square feet; and (ii) a second parcel consisting of approximately four acres of vacant land. Currently, our manufacturing
operations are in China. With the acquisition of the Property, we plan to move our manufacturing operations to the United States.
We believe that by moving our manufacturing operations to the United States, we can (i) have better control over design and manufacturing
quality of our products, (ii) lessen supply chain risk, (iii) decrease shipping costs, and (iv) cut overall manufacturing costs.
●
On
September 30, 2022, we filed a shelf registration statement on Form S-3 (File No. 333-267696), which was declared effective by
the SEC on October 13, 2022 (the “Form S-3”), containing a base prospectus covering the offering, issuance and sale
by us of up to $30,000,000 of our common stock and prospectus supplement covering the offering, issuance and sale by us of up
to $13,000,000 of our common stock that may be issued and sold under an At The Market Offering Agreement dated as of September
30, 2022 (the “ATM Agreement”). Pursuant to the ATM Agreement, H.C. Wainwright & Co., LLC (“Wainwright”)
is entitled to a commission equal to 3.0% of the gross sales price of the shares of common stock sold. As of the filing date
of this Annual Report on Form 10-K, no securities have been sold pursuant to the Form S-3.
4
●
On November 14, 2022, our
shareholders approved the Worksport Ltd. 2022 Equity Incentive Plan (the “2022 Plan”). A total of 750,000 shares of common
stock were initially reserved for the issuance of awards under the 2022 Plan. The 2022 Plan contains an “evergreen formula”
pursuant to which the number of shares of common stock available for issuance under the 2022 Plan will automatically increase on
January 1 of each calendar year during the ten-year term of the 2022 plan, beginning with the calendar year 2023, by an amount of
shares of common stock so that the total amount of common stock available under the 2022 Plan is equal to 15% of the total number
of shares of common stock outstanding on December 31 st of the prior calendar year minus the total number of shares reserved
and available for issuance under the Worksport Ltd. 2015 Equity Incentive Plan and Worksport Ltd. 2021 Equity Incentive Plan. On
January 1, 2023, the authorized number of shares of common stock of the 2022 Plan was 2,518,502.
●
On
November 18, 2022, we engaged Lumsden & McCormick, LLP to replace Haynie & Company as our independent registered public accounting
firm.
Recent
Developments
●
On February 23, 2023, our
subsidiary, Terravis, announced the installation of its proprietary electric vehicle fast charging stations with two direct current
(DC) fast chargers at our factory in West Seneca, New York. Each station’s initial two charge points are rated at 120 kilowatt-hours
(kWh) and equipped with two CCS1 connectors (Combined Charging Standard: A standard for charging electric vehicles that uses Combo
1 or Combo 2 connectors to provide power at up to 350 kilowatts), also known as pistols. We are planning installations of additional
DC fast chargers in the near future as well, rated at a minimum of 240 kWh.
Products
We
have developed a series of soft and hard folding tonneau covers as well as energy products.
Soft
Tonneau Covers
Our
soft tonneau cover offering consists of vinyl wrapped tri- and quad-fold tonneau covers manufactured overseas in Meizhou, China. Enhanced
versions of our vinyl tri-fold soft tonneau covers are now available for purchase and marketed under a “PRO” designation;
our quad-fold soft tonneau covers will soon have an upgraded “PRO” version available as well. These upgraded versions include
our patented quick latch system, which allows the operator to open the cover by simply pulling a release cable – enabling single-sided
operation. Each soft cover is fitted with a powder-coated, lightweight aluminum frame and rear cam latches as well as 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.
Tri-fold
soft covers are a lower cost option when compared to quad-fold tonneau covers. Compared with Worksport tri-fold soft tonneau covers,
Worksport quad-fold covers have the additional benefit of enabling full truck bed access by being foldable upwards toward the rear window
of the truck. As the market’s first quad-folding vinyl-wrapped cover that will provide full truck bed access utilizing Worksport’s
Intellectual Property, Worksport’s soft quad-fold covers are compact when folded parallel to the back window of the truck while
avoiding obstruction of the rear brake light on most truck models.
5
Our
soft tonneau cover line includes:
●
Developed
○
The
Worksport SC3 – soft tri-fold introduced in 2011, first Worksport Ltd. product;
○
The
Worksport SC3 PRO –soft tri-fold with Smart Latch system introduced in 2012;
○
The
Worksport SC4 – soft quad-fold introduced in 2022; and
○
The
Worksport SC4 PRO –soft quad-fold with Smart Latch system to be introduced in 2023.
●
In Development
○
The
Worksport SCX – soft tri-fold with extendable frame.
Hard
Tonneau Covers
Our
hard line of tonneau covers includes tri- and quad-fold, aluminum flush-mounted and top-mounted folding tonneau covers. Our entire line
of hard folding tonneau covers will be manufactured in the USA. Our hard cover panels are designed with formed aluminum, ultra-strong
high temper formed alloy panels with a durable black surface. These panels will have significant dent resistance over many other tonneau
covers as they use thicker aluminum on the exterior surface as opposed to the sandwich style of most covers today. Designed to auto index
(center) in the truck bed and be only 7.5mm above the truck bed, it is a low profile, sleek look that is easy to install. Our hard covers
will be offered with the XCX rail upgrade, allowing future accessories such as expandable cargo division and storage solutions. Similar
to the soft cover line, our hard cover line products will each be available in upgraded versions utilizing our quick latch system, enabling
single-sided operation.
Our
hard tonneau cover line, all of which is in development, includes:
●
The
Worksport TC3 – top-mounted hard tri-fold;
●
The
Worksport TC3 PRO – top-mounted hard tri-fold with Smart Latch system;
●
The
Worksport FC3 – flush-mounted hard tri-fold;
●
The
Worksport FC4 – flush-mounted hard quad-fold; and
●
The
Worksport FC4 PRO – flush-mounted hard quad-fold with Smart Latch system.
Energy
Products
We
are researching and developing various energy-based products, two of which can be sold together as a kit: the Worksport SOLIS tonneau
cover (“SOLIS”) and the Worksport COR energy storage system (“COR”). This kit will be available for both end-consumers
and Original Vehicle Manufactures alike. This kit integrates tonneau cover, solar energy capture, and portable energy storage technologies
to convert pickup trucks to mobile microgrid power stations – allowing Worksport to compete within niche markets in each the automotive
aftermarket accessory, solar energy, and portable power station markets.
6
Worksport
SOLIS
The
SOLIS, a tonneau cover with integrated solar panels, is a unique, folding tonneau cover design founded on our top-mounted tough cover
design but with the addition of cutting edge, monocrystalline, semi-flexible solar panels and wiring system. These solar panels are secured
to aluminum alloy panels both mechanically and using specialized adhesives, which ensure the covers are extremely strong, durable, and
secure. The SOLIS cover is intended to be sold as an Original Equipment Manufacturer product, as it can be integrated into the design
of leading electric pickup trucks; consequently, we have and will continue forging relationships with electric pickup truck manufacturers,
including but not limited to Workhorse, Atlis, Bollinger, and Hercules as well as Toyota, Stellantis, General Motors, Ford, Nissan, and
Rivian.
The
solar panels that we plan to integrate into the SOLIS cover are capable of generating 170-180 watts per square meter. For example, as
tested outdoors, the SOLIS cover is capable of generating approximately 460 watts of power on a RAM 6’5” truck bed. When
integrated into the design of an electric pickup truck, this power generation can be converted to additional vehicle mileage. The specific
added mileage is dependent on many factors including but not limited to region of the world in which the vehicle is driven, weather conditions,
season, temperature, hours of sun light per day, and average irradiance. For example, assuming a solar power density of 170 W/m 2 ,
battery capacity of 98 kWh, mileage range of 300 miles, average hours of sun per day of 6 hours, average irradiance per day of 700 W/m 2 ,
and surface area of 2.7 m 2 , the SOLIS cover is estimated to provide 5.6 additional miles of range to an electric pickup truck
per day.
Worksport
COR
The
COR or COR ESS (energy storage system) is a modular, portable power station uniquely designed to mount to the inside of a pickup truck
bed and enable battery swapping without an immediate drop in power output. The COR built-in inverter with an output voltage of 120V AC
(frequency of 60Hz) is capable of powering loads up to 3000W. Combined with its modular 48V batteries, it can store up to 6kWh of energy
on the go. Each additional modular battery adds 1.5kWh of energy storage. The COR main battery, a Lithium battery, boasts a capacity
of 1534Wh while its Hot Swap Lithium Iron Phosphate (Li-LFP) battery has a capacity of around 200Wh. The system allows Bluetooth connection
for monitoring and controlling the COR system and its external batteries.
Not
only does the COR system 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 15 seconds with a load of 3000W. This unique feature allows the COR system to be used in a variety of applications, including
but not limited to sporting and outdoor activities, disaster relief and general emergencies, and vocational activities ranging from contractor
to drone operator. While the COR system is designed to nicely complement the SOLIS tonneau cover, it will be purchasable as a standalone
product – allowing consumers to utilize stored energy, whether captured via grid or grid-independent energy sources, anywhere.
As Worksport’s first step into the energy storage market, the COR system is Worksport’s pioneer product within its future
COR platform.
Manufacturing
As
of December 31, 2022, all Worksport tonneau covers were manufactured in a facility located in Meizhou, China according to Worksport’s
specifications, schematics and blueprints. We believe 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
have purchased many production tools including injection molds, die cast molds, extrusion dies, and stamping dies – many of which
are residing among foreign suppliers who are currently utilizing said tooling to produce needed components for manufacturing or assembly
within the USA. We are concurrently diversifying this list raw material suppliers who can use our production tools to continue producing
our tonneau cover components, should trade with any particular or preferred raw material supplier become more expensive or difficult.
In
May of 2022, we purchased a 152,847 square foot production facility for domestic production, storage, and distribution, located in West
Seneca, New York. We have received the majority of all manufacturing equipment deemed necessary to begin production, and we are in the
process of installing and testing those machines, as well as training personnel to use those machines. Management believes that having
manufacturing capability in North America will increase quality control and production efficiency, as well as lower landed costs and
geopolitical risks.
Our
Plant-Readiness Team believes that we will begin initial, basic manufacturing and/or assembly at our USA-based production facility within
the second quarter of fiscal year 2023, improving our process on an on-going basis.
7
Intellectual
Property
We
currently hold a broad collection of intellectual property rights relating to certain aspects of our parts and accessories and services.
This includes patents, trademarks, copyrights and trade secrets. Although we believe the ownership of such intellectual property rights
is an important factor in our business and that our success does depend in part on such ownership, we rely primarily on the innovative
skills, technical competence and marketing abilities of our personnel.
Patents
As
of December 31, 2022, the Company’s patent portfolio consists of eight (8) issued U.S. utility patents, one (1) issued Canadian
utility patent, and twenty-seven (27) pending patent applications: eight (8) U.S. utility applications, seven (7) U.S. design applications,
three (3) PCT applications, six (6) Canadian utility applications, one (1) Chinese invention application, and two (2) Chinese design
applications. The Company is also in the process of preparing and filing several other utility and design patent applications across
relevant countries and jurisdictions.
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 20 years from the filing date of each application, excluding the filing date of
any provisional applications and excluding any patent term adjustment that might be available following the grant of the patent.
Trademarks
As
of December 31, 2022, the Company has 20 trademark registrations and 15 pending trademark applications in the United States, Canada,
China, and European Union.
The
Market
We
primarily compete in the Automotive Aftermarket Accessories and New Energy industries with a focus on the Tonneau Cover and the Portable
Power Station Markets.
Tonneau
Cover Market
There
are various forms of tonneau covers, each with their advantages and disadvantages, available for consumption through direct-to-consumer
and retailer and dealer sales channels. Some forms of tonneau covers include but are not limited to:
●
Solid
One Piece Caps and Lids;
●
Retractable
Covers;
●
Soft
Folding & Roll-Up Covers; and
●
Hard
Folding & Standing Covers.
Solid
one piece covers and retractable covers tend to have limited functionality and tend to be priced higher when compared to other types
of tonneau covers. Soft and hard folding/rolling tonneau covers, in contrast, tend to be priced more competitively and, as such, are
a popular choice among tonneau cover consumers. Given these factors and our belief that we can develop less cumbersome, high functioning,
and low cost soft and hard folding covers, we focus primarily on developing soft and hard folding covers.
8
Our
tonneau cover revenue stream is largely proportional to sales of pickup trucks. Currently, there are 284.9 million vehicles in operation
in the USA 1 , 21%, or 59.5 million, of which are pickup trucks. 2 However, as a result of supply chain shortages,
rising interest rates, high prices, and slowing sales, it may take until 2025 for new-vehicle sales to return to pre-pandemic levels. 1
While new vehicle sales have decreased, we are well-positioned to capitalize on new vehicle sales; we offer tonneau covers for
each of the 10 most popular makes/models by projected 2022-2029 sales (including, for example, the Ford F-Series, RAM Pickups, and Chevrolet
Silverado), as well as the top 10 most accessorized pickup truck makes/models projected in 2022-2029. 2 Within the USA market,
pickup truck market revenue is expected to show a compound annual growth rate of 1.70% in 2023-2027. 3 Within this market,
pickup trucks are most popular within the southern region of the United States 2 , and the two largest state markets for pickup
trucks are by far Texas and California. 2 Globally, pickup truck market revenue is expected to show a compound annual growth
rate of 1.01% in 2023-2027. 4
Electric
pickup trucks are projected to gain a larger portion of the pickup truck market share each year through 2035 1 , as this submarket
is estimated to have a compound annual growth rate of 29.7% between 2022 and 2023. 5 However, a large headwind acting against
this trend is that pickup trucks tend to be more popular in areas with less-developed charging infrastructure 2 – a headwind
that the SOLIS cover directly addresses and positions us favorably for possible partnerships and deals with electric pickup truck manufacturers.
The
Specialty Equipment Aftermarket provides more specific insight into how often and for what reasons vehicle owners or renters are purchasing
accessories for their vehicles. Despite crossover utility vehicles being the most common vehicle type on the road in the USA 1 ,
pickup trucks are the largest market by sales within the USA for specialty equipment – constituting 31% of this market 2 ,
which translated to $16 billion in sales during 2021. 2 This market is expected to grow from $50.9 billion in 2021 to $58.66
billion by 2025. 6 Within this pickup truck accessory market, 34% of accessories are truck bed & utility modifications 2 ,
which is the submarket in which we operate. Truck bed covers are among the top product categories for aftermarket accessory purchases
in 2021 2 , and the size of the tonneau cover market within the USA was valued at $3 billion as of 2021. 7
As
discretionary consumer goods, the specialty automotive part market is subject to consumer spending trends. Per capita disposable income
fell 7.8% during 2022 as government stimulus ended; however, it is expected to increase slowly during 2023. 8 Further, while
the Federal Reserve has projected unemployment rates to increase in 2023 and subsequent years 9 , recent unemployment rates
are the lowest they have been in recent decades. 10 Together, these factors suggest consumer disposable income and unemployment
will need to be carefully monitored in order to accurately forecast the automotive aftermarket accessories’ market potential year-to-year.
Consumers
purchase automotive aftermarket accessories, as well as tonneau covers, specifically, for various reasons. According to recent reports,
97%, 92%, 80%, and 62% of pickup truck owners use their trucks for utility/work, travel/vacation, outdoor recreation, and off-road uses,
respectively. 2 Of those pickup truck owners who have purchased accessories for their trucks, 93%, 86%, 68%, and 43% of them
use their pickup trucks for day trips, carrying tools/gear, light off-roading, and car camping, respectively. 2 Pickup truck
owners who use their vehicles for outdoor recreation, work, or off-roading are much more likely to purchase accessories when compared
to those who use their vehicles for other purposes. 2 Worksport’s tonneau covers largely benefit truck owners using their
vehicles for any of these aforementioned purposes, and the SOLIS cover provides additional utility for those utilizing their trucks for
utility/work, outdoor recreation, and car camping, in particular.
Sales
of truck bed covers occur across several channels, among those including but not limited to part manufacturers, specialty retailers and
online retailers. For physical location sales, the most popular sales channels for truck bed covers include Specialty Retailers/Installers
and New Vehicle Dealerships, which constitute 17% and 11% of in-store sales, respectively. 6 For online sales, the most popular
sales channels for truck bed covers include Online Only General Retailer, Specialty Retailers/Installers, and Parts Manufacturers, which
constitute 23%, 19%, and 8% of online sales, respectively. 6 In the Fall of 2022, it was reported that roughly 59% of retailer
specialty equipment sales were sold through in-store/physical channels while the other 41% were sold through online channels. 11
It was further reported that roughly 50% of manufacturer specialty equipment sales were sold through in-store/physical channels
while the other 50% were sold through online channels. 11 Worksport aims to list its products on each of these highly-popular
in-person and online sales channels in order to maximize sales volumes.
1.
SEMA.
2023 Future Trends Report . Retrieved from www.sema.org
2.
SEMA.
Pickup Accessorization Report . Retrieved from www.sema.org
3.
Statista. Pickup Trucks – Worldwide . Retrieved from
https://www.statista.com/outlook/mmo/passenger-cars/pickup-trucks/united-states
9
4.
Statista. Pickup Trucks – Worldwide . Retrieved from
https://fr.statista.com/outlook/mmo/passenger-cars/pickup-trucks/worldwide
5.
Market
Decipher. Electric Pickup Truck Market Size, Statistics, Growth Trend Analysis, and Forecast Report, 2022 – 2032 . Retrieved
from https://www.marketdecipher.com/report/electric-pickup-trucks-market
6.
SEMA.
2022 Market Report . Retrieved from www.sema.org
7.
Arizton. U.S. Tonneau Covers Market - Industry Outlook & Forecast 2022-2027 . Retrieved from
https://www.arizton.com/market-reports/us-tonneau-covers-market
8.
IBIS
World. Per Capita Disposable Income . Retrieved from
https://www.ibisworld.com/us/bed/per-capita-disposable-income/33/#:
:text=Following%20the%20ending%20of%20government,when%20it%20may%20potentially%20hit.
9.
Federal Reserve Board. Summary of Economic Projections . Retrieved from
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf.
10.
Bureau of Labor Statistics. The Employment Situation – January 2023 . Retrieved from
https://www.bls.gov/news.release/pdf/empsit.pdf
11.
SEMA.
State of the Industry Report 2022 Fall . Retrieved from www.sema.org
Portable
Power Station Market
Compared
to the Tonneau Cover Market, the Portable Power Station Market is much younger and globalized. Gas and diesel generators have long been
used by consumers to generate electricity when they could not rely on the grid, whether it be for grid damages or the lack of grid in
remote areas. Unlike such generators, portable power stations do not generate electricity, themselves, but can also be used to provide
electricity during times of grid unreliability. These portable power stations are often charged by the grid via home outlets or independent
of the grid via consumers’ vehicles or solar panels.
The
Portable Power Station Market is large and growing. At a compound annual growth rate of 3.9% between 2022 and 2031 1 , the global
Portable Power Station market size was valued at $4.0 billion in 2021. 1 Within this global market, the largest regional market
is the North American market. 2 The highest compound annual growth rates in this regional market is expected to be those power
stations utilizing lithium-ion batteries for off-grid power applications 2 , which matches the COR system’s battery type
as well as intended usage.
When
paired with the SOLIS cover, the COR energy storage system will be a market outlier in that it can be charged safely while mobile whereas
competing portable power stations are intended to be stationary during charging.
1. Allied Market Research. Portable Power Station Market . Retrieved from
https://www.alliedmarketresearch.com/portable-power-station-market-A11700
2. Markets And Markets. Portable Power Station Market . Retrieved from
https://www.marketsandmarkets.com/Market-Reports/portable-power-station-market-23592113.html
Distribution
We
distribute our tonneau covers in Canada and the United States through an expanding network of wholesalers, private labels, distributors,
and online retail channels, including eBay, Amazon, Walmart, and our own e-commerce platform hosted on Shopify. Distribution via each
aforementioned channel is expected to increase during 2023. We have pursued and will continue to pursue relationships with Original Equipment
Manufacturers with the intention of distributing through them as well.
The
specialty equipment aftermarket consists of three major types of customers, which include master warehouse distributors and big box stores,
dealers and wholesalers, and retail end consumers. Master warehouse distributors and big box stores 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 the end users of the products.
10
Competition
Tonneau
Cover Competitors
The
Tonneau Cover market is relatively consolidated with one industry leader, Real Truck (formerly Truck Hero), having the largest market
share. Real Truck has acquired upwards of 16 independent tonneau cover brands in North America, allowing it to concurrently target many
different niche markets but also potentially cannibalizing its own sales. We compete directly with Real Truck. Other competitors in this
space include Truck Accessories Group (Primarily Leer), Agricover (primarily Access), Truck Covers USA, and Paragon.
We
believe that being independent, innovative, operationally lean, and competitively priced will enable us to acquire a larger portion of
the existing market share. In order to execute on this, we intend to have a small and effective sales team to forge strong business-to-business
relationships, while turning inventory regularly through direct-to-consumer sales supported by a strong customer support team. Selling
above MAP (Minimum Advertised Price) and enforcing this policy will allow business customers to sell without competing with us and in
return support the growth of the distribution base. Our innovative covers are designed to serve purposes that no other tonneau cover
is currently capable of, some of which are specifically geared towards improving margins for distributors. Further, the SOLIS cover’s
inclusion of solar panels may be particularly attractive to electric pickup truck original equipment manufacturers, paving the path towards
an original equipment manufacturer relationship that may be lucrative beyond standard tonneau cover partnerships.
Portable
Power Station Competitors
The
Portable Power Station market is global and highly fragmented and includes many competitors from across the world including but not limited
to Alpha ESS Co., Ltd., Anker Technology, Bluetti, Chilwee Group Co., Ltd, Duracell, GES Group Limited Company, Jackery Inc., Lion Energy,
Milwaukee Tool, and Mitsubishi Corporation. Some of these competitors offer a line of Portable Power Stations, each with different power
capacities, sizes, and price points. Others specialize in few or even one Portable Power Station as to target a specific or niche submarket.
We
intend to be competitive by focusing on our portable power station’s biggest strengths – primarily it’s modularity
and Hot Swap battery. Modularity allows consumers not only to determine themselves the ideal stored energy capacity and price point they
are seeking but also to upgrade their COR system overtime based on their evolving needs.
Supply
of Components
Production
of our soft and hard cover product lines requires components including but not limited to injection molded plastics, rubber hinges, rubber
seals, foam corners, aluminum blanks, aluminum extrusions, and metal brackets. We believe that we can source materials needed for soft
and hard tonneau cover production from other suppliers without major delay should any preferred supplier no longer be suitable.
For
our domestically-assembled products, we have developed an extensive network of suppliers based in a diverse range of countries, including
but not limited to the USA, China, Romania, Spain, Turkey, and Canada. We are further diversifying our supply chain of tonneau cover
components by developing relationships with suppliers based in countries, including but not limited to Malaysia, Hungary, Czech Republic,
Estonia, Latvia, Slovakia, Bulgaria, Vietnam, Thailand, Poland, Finland, Italy, and Lithuania. For our COR and SOLIS components, we are
establishing relationships with suppliers based in countries, including but not limited to China, Germany, Romania, Turkey, Philippines,
and India. We actively seek to lower reliance on any country deemed a potential geo-political supply chain risk.
Research
and Development
We
invest in research and development activities on an ongoing basis. We are actively acquiring new engineering and design assets, both
in-house and third-party. Our industrial engineers are based in both Canada and the United States, and they have developed and are further
developing unique tonneau cover designs with enhanced user experience, cost-effective and sustainable materials, and automatable manufacturing
potential. Our electrical engineers are based in Canada and work heavily on sourcing solar panels with features suitable for the Company’s
SOLIS cover, as determined through deep product research and testing. Concurrently, the electrical engineering department is researching
and developing more size- and cost-effective methods of portable energy storage in order to offer the market a competitive portable energy
storage system with distinguishable and unique product features.
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Our
subsidiary, Terravis, researches green energy solutions for home and community power as well as Electric Vehicle DC charging and heat-pump
technology.
Governmental
Programs, Incentives and Regulations
Globally,
both the operation of our business 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.
Programs
and Incentives
We
have applied for and been granted tax, mortgage, wage, and energy cost relief in New York in addition to wage cost relief in Ontario.
These programs are provided by several agencies including the Erie County Industrial Development Agency, Empire State Development, NY
Power Authority, and The Canada Revenue Agency. Each of these incentive programs includes its own set of guidelines and requirements,
including but not limited to timely eligibility reporting, environmental regulation compliance, and headcount projection realization
– each of which we have agreed to and must abide by in order to continue realizing said incentives.
We
continue to seek additional incentives and grants in order to lower our operational costs as well as commit less capital to new product
initiatives.
Regulations
Our
COR portable power station 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.
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.
Human
Capital
As of December
31, 2022, we had a total of 25 employees, of which included 16 full-time employees in Canada and five full-time and four temporary
employees in the USA. We intend to hire additional employees as operations grow – particularly within our West Seneca, NY
manufacturing facility. We rely on few independent contractors for additional labor and are very selective in our use of
consultants.
Practices
and Policies
We
are an equal opportunity employer committed to inclusion and diversity and to providing a workplace free of harassment or discrimination.
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Compensation
and Benefits
We
believe that compensation should be competitive and equitable, and should enable employees to share in our success. We recognize our
people are most likely to thrive when they have the resources to meet their needs and the time and support to succeed in their professional
and personal lives. In support of this, we offer a variety of benefits for employees and invest in tools and resources that are designed
to support employees’ growth and development.
Inclusion
and Diversity
We
remain committed to our vision to build and sustain a more inclusive workforce that is representative of the communities we serve. We
continue to work to increase diverse representation, foster an inclusive culture, and support equitable pay and access to opportunity
for all employees.
Engagement
We
believe that open and honest communication among team members, managers, and leaders helps create an open, collaborative work environment,
where everyone can contribute, grow and succeed. Team members are encouraged to come to their managers with questions, feedback or concerns.
Health
and Safety
We
are committed to protecting our team members everywhere we operate and, as such, support employees with general safety trainings. We
have also taken additional health and safety measures during the COVID-19 pandemic.
Available
Information
Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to
Sections 13(a) and 15(d) of the Exchange Act, are filed with the SEC. Such reports and other information filed by us with the SEC are
available free of charge at investors.worksport.com/stock-information when such reports are available on the SEC’s website.
We periodically provide certain information for investors on our corporate website, worksport.com , and our investor relations
website, investors.worksport.com . This includes press releases and other information about financial performance, information
on environmental, social and governance matters, and details related to our annual meeting of shareholders. The information contained
on the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this filing. Further, our references
to website URLs are intended to be inactive textual references only.
Executive
Offices
Our
principal corporate office and research and development (“R&D”) facility is located at 55G East Beaver Creek Rd., Richmond
Hill, Ontario, L4B 1E5, Canada while our manufacturing and secondary business address is 2500 N. America Dr., West Seneca, NY 14224,
USA.
Our
main telephone number is (888) 554-8789. Our main website is www.worksport.com .
The contents of our website are not incorporated by reference into this Annual Report on Form 10-K.