WKSP 10-K & 10-Q changes, risk factors and insider trading

InThe addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. The risks described below are not the only risks wefacing face.our Company. Additional risks and uncertainties not currentlypresently known to us or that we currently deembelieve to beare immaterial may also may materiallyadversely affect our business, financial condition orcondition, results of operations.operations Theor risks are listed below in no particular order.prospects

VariousWe factorshave raiseexpressed substantial doubt about the Company’sour ability to continue as a going concern.

Our business, results of operations and financial condition could be adversely affected by the effects of widespread public health pandemics,events suchor as COVID-19,outbreaks that are beyond our control.

A significant outbreak, epidemic or pandemic of contagious diseases in any geographic area in which we operate or plan to operate could result in a health crisis adversely affecting the economies and financial markets in which we operate as well as the overall demand for our products. In addition, any preventative or protective actions that governments implement or that we take in response to a health crisis, such as travel restrictions, quarantines, or site closures, may interfere with the ability of our employees, suppliers and customers to perform their responsibilities. Such resultsevents could have a materially adverse effect on our business. Any such public health events may also exacerbate other risks described in this “Risk Factors” section.

The USU.S. Central Bank has provided forward-looking guidance of relatively high interest rates plateauing for the near future.

We may need to invest in additional machinery, equipment and land if demand for our products is higher than anticipated or if we secure a supplier deal with a major original equipment manufacturer (OEM). With high interest rates, it will be less financially attractive to finance such purchases, which may lead to an otherwise higher burn rate. High interest rates increase the amount that we must pay forrelated to our mortgage on our West Seneca, NY property.indebtedness. At the same time, it lowers the attractiveness of refinancing, despite the fact that our anticipated positive future cash flows would allow us to seek financing from a broader selection of lenders.

Our business and operations would suffer in the event of computer system failures, cyberattacks or a deficiency in our cybersecuritycybersecurity, or an inability to effectively adopt and govern emerging technologies, including artificial intelligence, or a natural disaster.

There are growing risks related to the security, confidentiality and integrity of personal and corporate information stored and transmitted electronically due to increasingly diverse and sophisticated threats to networks, systems and data security. Potential attacks span a spectrum from attacks by criminal hackers, hacktivists, and nation state or state-sponsored actors, to employee malfeasance and human or technological error. The increasing availability and use of artificial intelligence technologies may further increase these risks by enabling more targeted phishing attempts, fraud, social engineering, malicious code development and other cyber intrusions, and our own or our third-party service providers’ use of artificial intelligence tools may create additional risks relating to data privacy, confidentiality, intellectual property, accuracy, bias, internal controls and regulatory compliance.

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely (including our vendors, contractors and other third-party partners who process information on our behalf or have access to our systems), are vulnerable to damage from computer viruses, malware, ransomware, phishing attacks and other forms of social engineering, denial-of-service attacks, third party or employee theft or misuse and other negligent actions, natural disasters, terrorism, war, telecommunication and electrical failures, cyberattacks or cyber-intrusions over the internet, security incidents, disruptions, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If we or our third-party service providers fail to adopt, implement, monitor or govern artificial intelligence technologies effectively and responsibly, or if such technologies produce inaccurate, misleading or unauthorized outputs or actions, our operations, decision-making, customer relationships, reputation or compliance efforts could be adversely affected. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims (including class claims) and liability, substantial remediation costs, regulatory enforcement, liability under data protection laws, additional reporting requirements and damage to our reputation, and the further development of our product lines could be delayed.

To mitigate risks associated with cybersecurity attacks, we have cybersecurity insurance coverage in the aggregate amount of $1,000,000 per annual policy period,period , which covers damages from a range of potential cybersecurity issues including but not limited to property damage, damage, computer crime, privacy liability, privacy regulatory defense, cyber extortion, and post breach remediation.

We may not be able to accurately estimate the demand for our tonneau covers, which could result in inefficiencies in our production and hinder our ability to generate profits.revenue.

If we fail to accurately predict our manufacturing requirements,requirements accurately, we will incur the risk of having to pay for production capacities that we reserved but will not be able to use or that we will not be able to secure sufficient additional production capacities at reasonable costs in the event product demand exceeds expectations. A single contract with an OEM, private labelOEM or key distributor can significantly increase demand for our products, requiring investments in expanded operational capacity including personnel, equipment and potentially potential facilities.

Our ability to achieve our expansion objectives and to manage our growth effectively depends upon a variety of factors, including our ability to internally develop products, to attract and retain skilled employees, to successfully position and market our products, to protect our existing intellectual property, to capitalize on the potential opportunities we are pursuing with third parties, and to acquire sufficient funding whether internally or externally. To accommodate growth and compete effectively, we will need working capital to maintain adequate inventory levels, develop additional procedures and controls and increase, train, motivate and manage our workforce.work force. There is no assurance that our personnel, systems, procedures and controls will be adequate to support our potential future operations. There is no assurance that we will generate higher revenues from our prospective sales partners nor be able to capitalize on additional third-party manufacturers.

We rely on twoone supplierssupplier for the production of our outsourced finishedsoft goodstonneau covers, which may hinder our ability to grow.

We purchase all of our soft tonneau covers from twoa supplier sourceslocated in Foshan, China. We carry significant strategic inventories of these finished goods to reduce the risk associated with this concentration of suppliers. Strategic inventories are managed based on demand. While we are now manufacturing hard tonneau covers in the United States,U.S., the loss of onethis or both of these supplierssupplier or a delay in shipments could have a material adverse effect on our soft tonneau cover sales and business.

Our success depends to a significant degree upon our ability to develop, maintainmaintain, and protect proprietary products and technologies. As ofHowever, December 31, 2024, we own 18 utility patents, 23 design registrations, and 79 pending utility and design patent applications worldwide. However, patents provide only limited protection of our intellectual property. The assertion of patent protection involves complex legal and factual determinations and is therefore uncertain and potentially expensive. We cannot provide assurance that patents will be granted with respect to our pending patent applications, that the scope of any patents we might obtain will be sufficiently broad to offer meaningful protection, protection, or that we will develop additional proprietary products that are patentable. In fact, any patents which might issue from our patent applications pending with the United StatesU.S. Patent and Trademark Office could be successfully challenged, invalidated or circumvented. This could result in our pending patent rights failing to create an effective competitive barrier. Losing a significant patent or failing to get a patent issued from a pending patent application we consider significant could have a material adverse effect on our business.

Filing, prosecuting and defending patents covering our current and future product candidates and technology platforms in all countries throughoutworldwide the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection but where patent enforcement is not as strong as that in the United States.U.S.. These products may compete with our products in jurisdictions where where we do not have any issued or licensed patents, and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights, generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the worldworldwide may be inadequate to obtain a significant commercial advantage from the intellectual property property that we develop or license.

The costs of resolving any patent litigation or other intellectual property proceeding, even if resolved in our favor, could be substantial. Many of our potential competitors will be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. In some instances, competitors may proceed with litigation or other proceedings pertaining to infringement of their intellectual property as a means to hinder or devaluate the target defendant company, with no intention of the matter being resolved in their favor. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other intellectual property proceedings may also consume significant management time and costs. Substantial additional costs may be evident in the event that litigation or other proceedings were initiated against us because we would have to seek legal defense or counsel in the province (Canada) or state (U.S.) or province (Canada) where the litigation or legal proceedings were filed. Failure to adequately protect our intellectual property rights rights could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage, and and a decrease in our revenue which would adversely affect our business, prospects, financial condition and operating results.

The possibility of delivery delays, product defects and other production-side risks stemming from our use of outsourced manufacturers and suppliers cannot be eliminated. In particular, inadequate production capacity among outsourced manufacturers could result in us being unable to supply enough product amid periods of high product demand, the opportunity costs of which could be substantial. ThisIn addition, risk is partially offset by the fact that we domestically manufactureif our lineoutsourced ofmanufacturers hardor tonneausuppliers covers,are whichunable isor responsibleunwilling forto adopt new production methods, automation, quality systems or other technological improvements necessary to support our current or future products on a larger portiontimely ofand cost-effective basis, our salesmanufacturing costs, thanproduct ourquality, outsourcelaunch manufacturedtiming softand tonneauability covers.to compete could be adversely affected

We participate in the automotive aftermarket equipment industry which is highly competitive for a relatively limited customer base. Companies that compete in this market include Real Truck (formerly Truck Hero),RealTruck, Truck Accessories Group, and Agri-Cover, Inc., among others. Many of our current competitors are significantly better funded and have longer operating histories than we do.

The existence of any defects, errors or failures in our products or the misuse of our products could also lead to product liability claims or lawsuits against us. While we had insurance$5,000,000 in umbrella coverage on top of $2,000,000our for$1,000,000 aggregate product liability coverage as of the yeardate endedof Decemberthis 31, 2024,prospectus, we have no assurance that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available at economical prices, if at all. To that extent, product liability insurance is conditional and up for further investigation. A successful product liability claim could result in substantial costs for us. Even if we are fully insured as it relates to a claim, a claim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and results of operations.

We may produce products of inferior quality or perceived inferior quality which would cause us to lose customers.

Although we make an effort to ensure the high quality of our light truck tonneau cover products, they could from time to time contain defects, anomalies or malfunctions that are undetectable at the time of shipment. These defects, anomalies or malfunctions could be discovered after our products are shipped to customers, resulting in the return or exchange of our products, customers’ claims for compensatory damages or discontinuation of the use of our products, which could negatively impact our operating results. We do not presently have product recall (or similar function) insurance that protects a company against broad-scale product manufacturing defects, engineering defects and the costs related to a broad product recall such as shipping, replacement or repairs. Even if in place, there is no guarantee that the full costs of any reimbursements or claims, lawsuits or litigation would be covered by such insurance.

Evolving U.S. trade regulations and policies with China have in the past and may in the future have a material and adverse effect on our business, financial condition and results of operations.

Our soft tonneau covers and some raw materials are sourced from China. AnyThe restrictionsU.S. government has recently imposed a variety of tariffs, duties and other trade measures on imports from China, and there is an increasing risk of further changes to tariffs or tariffsother trade restrictions. Any tariffs, duties, quotas, export controls, sanctions or other trade restrictions imposed on products that we or our suppliers import import for sale or production in the U.S. would adversely and directly impact our cost of sales.goods sold and could force us to seek alternative suppliers, which may not be as cost effective or readily available. In addition, changes in U.S. trade regulations and policies could have an adverse impact on trade relations between the U.S. and certain foreign countries, which could materially and adversely affect our relationships with our international suppliers and reduce the supply of goods available to us. Further, we cannot predict the extent to which the U.S. or foreign governments will adoptimplement changesnew toor existingmodified trade regulations and policies, which creates uncertainties in planning planning our sourcing strategies and forecasting our margins. Although we are taking steps to mitigate these risks, including evaluating alternative sourcing and manufacturing strategies, the COR energy storage system is expected to be manufactured initially in China, we and our manufacturing partner are actively evaluating potential U.S. production options for future periods. However, transitioning to domestic production may involve significant costs, regulatory approvals and operational challenges, and there is no guarantee that it will be operational in the anticipated timeframe. If additional tariffs or other trade measures are imposedimplemented on our products ,products, or other retaliatory trade measures are taken, our costs could increase, and we may be required to raise our prices, which could materially and adversely affect our results. In addition, extended trade tensions and regulatory uncertainties may disrupt our supply chain, delay production or negatively impact our ability to compete in the market.

There are risks associated with outsourced production in China, and their laws which may have a material adverse effect on our financial stability.

We purchasehave historically purchased all our soft tonneau cover finished goods from one to two suppliers in China. Changes in Chinese laws and regulations, or their interpretation, or the imposition of confiscatory taxation or restrictions are matters over which we have no control. While the Chinese government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization, there is no assurance that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

In that context, we may have to evaluate the feasibility of acquiring alternative or fallback manufacturing capabilities to support the production of our existing and future soft tonneau cover products. Such a development could adversely affect our cost structure inasmuch as we would be required to support sales at an acceptable cost and might have relatively limited time to adapt. We have mitigated such risks by stockpiling soft tonneau covers for domestic sales, but we will still rely on outsource manufacturing for additional soft cover production, as we have not manufactured our own soft tonneau covers in the past and are not planning to do so in the short term. That is because developing these technological capabilities and building or purchasing a facility will increase our expenses with no guarantee that we will be able to recover our investment in our manufacturing capabilities.

Climate change threatens to cause many foreseeable as well as unforeseeable ramifications. In cautious preparation for those that are foreseeable, we have strategically begunbegan domestic manufacturing operations in Western New York – an economically growing region not immediately threatened by climate change to the same extent as other regions and possibly one that may benefit from future population migrations within the U.S. 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.

Additionally, as central banks and the U.S. Federal Reserve increase interest rates to combat global inflation, the cost of debt financing increases. The U.S. Federal Reserve has begun to decrease interest rates in 2024, but they may persist at an elevated level for the foreseeable future. Our $6,000,000indebtedness mortgage on our West Seneca property and our $1,487,000 in equipment financingarrangements both have floating interest rates, meaning we are susceptible to variable monthly mortgage and debt interest costs as a result of changes in interest rates.

We faced significantly higher ocean freight, trucking, and container handling costs as well as last mile delivery costs in 2021 and 2022 than we did in previousrecent 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 fromduring latecertain 2023periods throughdue mid-2024to asgeopolitical a result of Houthi attacks against cargo ships in the Red Seatensions and thedisruptions concurrentaffecting declineglobal in activity across the Panama Canal,shipping routes, the shipping routes used by Worksport have not faced dramatic price hikes. Regardless, Worksport is closely monitoring international shipping costs.

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

Our discussion and analysis of consolidated results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United StatesU.S. of America. The preparation of these consolidated financial statements requires us to make estimates assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by our application of accounting principles, which are discussed in Note 1 – Description Description of Business and Summary of Significant Accounting Policies of Part II, Item 8, Financial Statements and Supplementary Data, of this report. We believe the accounting policies discussed below are the most critical in understanding and evaluating our financial results. These critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.

The following is a discussion of our results of operations infor 2024the fiscal year ended December 31, 2025 compared to 2023.the fiscal year ended December 31, 2024.

Net sales increased the year ended December 31, 20242025, compared to the same period the prior year due to increased sales of tonneau covers to a private label partner, various dealers and distributors, and end users via the Company’s online marketplace.marketplace and various dealers and distributors. The Company increased its product offerings in 2025 to also include the AL4 and HD3 covers to end customers. The Company continues to focus on establishing new and strengthening existing business-to-consumer and business-to-business channels while also strengthening customer support to increase customer satisfaction and enable high product turnover. Worksport has successfully bolstered its business-to-consumer sales channels in 2024,2025, and it is now focusing on increasing cost efficiencies in these sales channelschannel as well as establishingexpanding newits presence in additional business-to-business sales channels.channel territories. For the business-to-consumer channels,channel, we are focused on lowering our customer acquisition cost throughoutwith 2025.additional focus on brand awareness and shift away from reliance on conversion marketing to increase brand awareness. For the business-to-business channels, channel, we have assembled a strong team of both internal and external sales representatives, and we are actively presenting our product offerings to various dealers, wholesalers, and retailers across the U.S. and Canada. We intend to continue gradually increasing output capacity through refined production processes and increased personnel.

Net sales from online retailers of our products increased from $104,352$4,930,822 in 2024 to $11,933,269 in 2023 to $4,930,822 in 2024,2025, an increase of 4,625%.142%. Online retailers accounted for 58%74% of total net sales for the fiscal year ended December 31, 20242025 compared to 7%58% for the fiscal year ended December 31, 2023.2024. Distributor sales increased 6,120%884% for the fiscal year ended December 31, 2025 compared with the fiscal year ended December 31, 2024 compared with the year ended December 31, 2023 with net sales of $423,627 $4,168,469 and $6,811,$423,627, respectively. There were no private label sales in 2025. Private label sales accounted for 37% or $3,129,930 of net sales for the fiscal year ended December 31, 2024. We expect to continue to grow our fields of business as we develop unique products with enhanced utility to offer to other prospective clients clients in the U.S. and Canadian markets.

We distribute our hard tonneau covers and soft tonneau coversproducts in the U.S. and Canada through an expanding network of wholesalers, private labels, distributors, and otherdealers, and through online retailers,channels, including eBay,major Amazon,online Walmart,marketplaces and our owndirect-to-consumer e-commerce e-Commerceplatform. platformWe hostedintend onto Shopify.continue expanding both business-to-business and direct-to-consumer channels with product offerings Distributionunique viato each aforementionedof channelthese is expected to increase during 2025.channels. We have pursued and willalso continue to pursue relationships with Original Equipment Manufacturers with theoriginal intentionequipment ofmanufacturers distributingand throughfleet themcustomers as well.where appropriate.

We currently work closely with a large CanadianU.S. and a large U.S.Canadian distributor as well as online retailers to grow our customer base. We are progressing well in conversations with three other major distributors with strong market presences, which will allow us to promote to dealers and sell to jobbers in strategic regions. Lastly, we are in closing discussions with a network of nationwide U.S. dealers capable of bringing our product to all U.S. continental states.

Cost of sales increased by 488%, from $1,289,118 for the year ended December 31, 2023 to $7,578,729 for the year ended December 31, 2024. Our cost of sales, as a percentage of net sales, was approximately 89% and 84% for the years ended December 31, 2024 and 2023, respectively. The increasedecrease in the cost of sales as a percentage of sales was primarily due to two factors: (1) strategicincrease discountingproduction aimed at boosting trafficvolume to oursupport direct-to-consumersales onlinegrowth, marketplace,including introduction of new product lines during 2025, and (2) overhead allocation efficiencies associated with sold inventory produced in periods with limitedhigher production volume. These Ourimprovements 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 fiscal year, the overall effect of increased scale and production efficiencies resulted in an improvement in our gross margin. We continue to employ a discounting strategy isas part of a broader initiative to enhance market presence and build brand awareness. We anticipate this will well position us for sustained customer engagement in future periods, during which discounting may not be necessary to the same extent. Additionally, overhead absorption was initially higher due to the allocation of fixed costs over a smaller production volume earlier in 2024. As production volume grows and our manufacturing process becomes more efficient, we expect to allocate those same 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 from design engineering and testing functions toward production. This shift is intended to support ongoing production increases and drive long-term efficiencies in our cost structure.

We provide our distributors and online retailers an “all-in” wholesale price. This includes any import duty charges, including tariffs, 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 U.S. 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” in which clients are able to pick up inventory directly from our stocking warehouse.

Operating expenses increased for the year ended December 31, 2024 by $1,394,309, from $14,977,175 for the fiscal year ended December 31, 20232025 by to $6,916,849, from $16,371,484 for the fiscal year ended December 31, 2024,2024 to $23,288,333 for the fiscal year ended December 31, 2025, due to the following factors.

\Other Income and Expenses((Expense)

As of December 31, 2024,2025, we had $4,883,099$5,945,894 in cash and cash equivalents and $892,000$3,448,016 of remaining available capacity on our revolving line of credit. We have historically generated only 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 fiscal year ended December 31, 2024, 2025, we had net losses of $16,163,789$19,352,297 (20232024 - $14,928,958$16,163,789). As of December 31, 2024,2025, the Company had working capital of $7,304,110 $10,061,578 (20232024 – $1,956,894$7,304,110) and had an accumulated deficit of $64,476,966 $83,873,790 (20232024 - $48,313,177 $64,476,966).

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 fiscal year ended December 31, 2024,2025, the Company received net proceeds of $12,482,549approximately $21.8 million from offerings. 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. Subject to the foregoing, we believe our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements.

SeptemberDecember 2025 2024Warrant Private OfferingInducement

PublicRegulation A Offering

Cash increased from $3,365,778 at December 31, 2023 to $4,883,099 at December 31, 2024 to $5,945,894 at December 31, 2025 – an increase of $1,517,321$1,062,795 or 45%.22%. The increase was primarily due to financing activities conducted during the periodfiscal year to support growth of ongoing operations.

Net cash used byin operating activities for the fiscal year ended December 31, 20242025 was $10,138,798,$17,314,390, compared to $11,930,580$10,138,798 in the prior year, driven driven by a shift to production and distribution of hard tonneau covers.

Accounts receivable decreasedincreased at December 31, 20242025 by $461,382 and decreased by $387,561 and increased by $400,521 in the prior year. The decreaseincrease in accounts receivable receivable when compared with 2024 was due to volume shifts from private label sales in 2023 to direct to consumer sales in 2024. The shift from private label sales to direct other business to consumerbusiness decreaseschannel thecustomers cashresulted conversionin timeline.an increase in accounts receivable in 2025 based on longer payment terms when compared with direct sales to consumers.

Inventory increased at December 31, 2025 by $4,340,617 and increased at December 31, 2024 by $1,558,562 and increased at December 31, 2023 by $2,285,120 due to a shift in production requirements requirements from soft tonneau covers to hard tonneau covers. Prepaid expenses and deposits increased by $338,669 at December 31, 2025 and decreased by $1,305,057 at December 31, 2024 and increased by $776,709 at December 31, 2023 due to deposits by us for the purchase of production equipment and inventory.

Accounts payable and accrued liabilities increased at December 31, 20242025 by $1,167,834$2,179,473 and decreasedincreased at December 31, 20232024 by $492,114,$1,167,834, respectively. respectively. These fluctuations were driven primarily by the transition to production activities in 2024.2024 and increased raw materials inventory purchases to support production in 2025.

Net cash used in investing activities for the fiscal year ended December 31, 20242025 was $528,235$1,119,503 compared to $3,756,364$528,235 in the prior year. The decrease increase in investing activities was primarily due to higher capital expenditures on various production equipment in 2023 to support the Company’s transition to production in 2024.2025.

Net cash provided by financing activities for the fiscal year ended December 31, 20242025 was $12,184,354$19,456,688 compared to $4,431,965$12,184,354 in the prior year. During the fiscal year ended December 31, 20242025 the Company received net proceeds of $21,823,476 from the sale of shares and pre-funded warrants. During the fiscal year ended December 31, 2024, the Company received net proceeds of $12,482,549 from the sale of shares and pre-funded warrants. During the year ended December 31, 2023, the Company received net proceeds of $4,475,869 from the sale of shares and pre-funded warrants.

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 26,202626, 2026 and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.

Our conventional tonneau covers are engineered for enhanced user experience and resistance to wear-and-tear, making them strong and competitive products in an otherwise consolidated and saturated market. The Worksport COR,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 it’s a market in which we have first-mover advantage. To ensure we do not fall behind future competitors, we are highly focused on protecting our intellectual property both domestically and abroad.

The following highlights recent material developments in our business in the three months ended MarchJune 31,30, 2026:

The following is a discussion of our results of operations from the three months ended MarchJune 31,30, 2026 compared to the three months ended March 31,June 30, 2025

For the three months ended MarchJune 31,30, 2026, net sales generated in the U.S. was $3,306,645,$5,197,760, compared to $2,227,549$4,070,406 for the same period in 2025, an increase of approximately 48%.$1,127,354.

Net sales increased during the three months ended MarchJune 31,30, 2026 compared to the same period the prior year due to increased sales of tonneau covers to end users via the Company’s online marketplace and various dealers and distributors. The Company increased its product offerings in 20252026 to also include AL4 and HD3NEXUS 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 and increase product turnover.

Net sales from online retailers of our products decreased by $60,045,$301,739, from $1,871,085$4,992,533 for the threesix months ended MarchJune 31,30, 2025 to $1,811,040 $4,690,794 for the same period ended MarchJune 31,30, 2026. The 3%6.0% decrease is a result of the Company’s focus to lower our customer acquisition cost with additional focus on brand awareness and less focus on conversion marketing. The reduction in conversion marketing efforts decreased order volume, but this was offset by an increase in the average order value of our product offerings.

The decrease in the cost of sales as a percentage of sales was primarily driven by two factors: (1) increaseincreased production volume to support sales growth, including introduction of new product lines during 2025, 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 three six months ended MarchJune 31,30, 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 well 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.

Operating expenses increased for the threesix months ended MarchJune 31,30, 2026 by $1,945,596,$2,714,343, from $4,652,527$9,352,269 for the threesix months ended MarchJune 31, 30, 2025 to $6,598,123,$12,066,612, mainly due to the following factors:

We reported net other expenses for the threesix months ended MarchJune 31,30, 2026 of $84,345,$231,095, compared to $204,158$321,012 for threesix months ended March 31,June 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 for the threesix months ended MarchJune 31,30, 2026 was $5,828,522,$9,793,824, compared to a net loss of $4,460,464$8,194,948 for the threesix months ended MarchJune 31,30, 2025 – an increase of approximately 31%.19.5%. 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.

As of MarchJune 31,30, 2026 and December 31, 2025, we had $566,583$1,160,158 and $5,945,894, respectively in cash and cash equivalents. As of MarchJune 31, 30, 2026, we had $2,479,490$818,339 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 and decrease in the remaining available capacity on our revolving line of credit was primarily a result of our use of proceeds from our warrant inducement transaction in December 2025 to fund working capital requirements to support the production of our new product offerings. We have historically generated only 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 six months ended MarchJune 31,30, 2026, we had net losses of $5,828,522$3,965,303 and $9,793,824, respectively (three months ended MarchJune 31,30, 2025 - $4,460,464$3,734,484; six months ended June 30, 2025 - $8,194,948). As of MarchJune 31,30, 2026, the Company had working capital of $6,579,541$10,961,087 (As of December 31, 2025 - $10,061,578) and had an accumulated deficit of $89,729,030$93,721,747 (As of December 31, 2025 - $83,873,790).

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 threesix months ended MarchJune 31,30, 2026, the Company received net proceeds of $2,208,337$4,523,215 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. Subject to the foregoing, we believe our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements.

We have raised funds during the threesix months ended MarchJune 31,30, 2026 from the following public and private securities offerings:

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 threesix months ended MarchJune 31,30, 2026, the Company sold 1,468,6063,157,774 shares of common stock under the ATM Agreement for aggregate gross proceeds of approximately $2,232,530,$4,003,273, resulting in net proceeds of approximately $2,154,230 $3,869,882 after deducting commissions and offering expenses.

During the threesix months ended MarchJune 31,30, 2026, we received $54,107 of proceeds net of issuance cost that were previously held in escrow. The funds in escrow pertain to the Regulation A offering from 2025.

Cash and cash equivalents decreased from $5,945,894 at December 31, 2025, to $566,583$1,160,158 at MarchJune 31,30, 2026 – a decrease of $5,379,311$4,785,736 or 90%.80.5%. The decrease was primarily due to the use of cash to acquire working capital based on supporting the production of existing product offerings as well as the expected growth of additional product offerings launched in 2026. The Company procured approximately $5.1$8.1 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 $1.0 million of these raw materials purchases remained in accounts payable as of MarchJune 31,30, 2026.

Net cash used in operating activities for the threesix months ended MarchJune 31,30, 2026 was $8,234,754,$11,677,145, compared to $3,839,918$6,935,033 in 2025, primarily driven by the launch of additional product offerings during the threesix months ended MarchJune 31,30, 2026. Net cash used in operating activities exceeded the Company’s net loss by approximately $2.4$1.8 million. The principal component of the change is attributable to the $2.1$2.5 million increase in inventory, reflecting the procurement of raw materials and production of finished goods to support the launch of new product offerings during the threesix months ended MarchJune 31,30, 2026: including SOLIS, COR, and NEXUS.

Accounts receivable decreasedincreased at MarchJune 31,30, 2026 by $23,759$503,358 and increased by $25,362$253,372 in the prior period. The decreaseincrease in accounts receivable is based on the timingvolume of shipment with various business-to-business customers andas well as the concentration of customers in certain sales channels.

Inventory increased at MarchJune 31,30, 2026 by $2,092,218,$2,535,745, and increased at MarchJune 31,30, 2025 by $583,116,$691,459, as a result of the procurement and production of raw materials and production of finished goods to support the successfulcommercial launches of our COR, SOLIS and NEXUS product lines.

Prepaid expenses and other decreased by $62,902$186,836 at MarchJune 31,30, 2026, and increased by $192,071$470,641 at MarchJune 31,30, 2025 due to timing of advanced payments for professional services to support operations.

Accounts payable and accrued liabilities decreased at MarchJune 31,30, 2026 by $1,562,383$1,248,251 comparedand toincreased anby increase of $390,691$469,362 at MarchJune 31,30, 2025 due to the payment for raw materials and finished goods procured and produced in preparation tofor and support of the successful commercial launches of our COR, SOLIS and NEXUS product lines.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 was $103,643$197,654 compared to $458,342$582,797 for the threesix months ended MarchJune 31,30, 2025. The decrease in investing activities was primarily attributable to our purchase of cryptocurrency and website enhancements in the prior period,2025, both of which are classified as intangible assets.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2026 was $2,959,086$7,089,063 compared to net cash provided by financing activities of $4,495,533$4,027,871 for the threesix months ended MarchJune 31,30, 2025. Net cash provided by financing activities were principally due to our use of the ATM, whereby we received net proceeds of $2,154,230.$3,869,882. We also received proceeds from our line of credit through net borrowings of $829,591$2,729,739 for the threesix months ended MarchJune 31, 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.

As of MarchJune 31,30, 2026, the Company hadamended an agreement that included an outstanding contractual obligation of approximately $2.1 million related to the acquisition of manufacturing equipment from Prima Power, representing approximately 70% of the total equipment cost of approximately $3.0 million. EquipmentThe depositsamendment totalingprovides approximatelyfor $859,000Prima arePower reflected into construction in progress onretain the Company’sinitial balance10% sheet,equipment and approximately $879,000deposit of capital expenditures related$300,000 to thebe applied to a future equipment were purchase. The equipment deposit of $300,000 is included in accountsother payablenoncurrent assets as of MarchJune 31,30, 2026. TheOther remaining amounts are expected to become due whenthan the equipmentindebtedness, islesses, delivered, purchases, employment and installationother milestonesobligations aredisclosed achieved.in this Form 10-Q or incurred in the ordinary course of business, the Company had no material contractual obligations as of June 30, 2026.