Company: WKSP
Filing Date: 2025-03-27
Form Type: 10-K
Source: 0001641172-25-000850
Chunk: 320

Company: Worksport Ltd
Filing Date: 2025-03-27
Form: 10-K
Item: Item 7
Chunk 320
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 prospective clients
in the U.S. and Canadian markets.

We
distribute our hard tonneau covers and soft tonneau covers in the U.S. and Canada through an expanding network of wholesalers, private
labels, distributors, and other online retailers, including eBay, Amazon, Walmart, and our own e-Commerce platform hosted on Shopify.
Distribution via each aforementioned channel is expected to increase during 2025. We have pursued and will continue to pursue relationships
with Original Equipment Manufacturers with the intention of distributing through them as well.

We
currently work closely with a large Canadian and a large U.S. 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

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 increase in the cost of sales as a percentage of sales was primarily due to two factors: (1) strategic discounting aimed at boosting
traffic to our direct-to-consumer online marketplace, and (2) overhead allocation associated with sold inventory produced in periods
with limited production volume. Our discounting strategy is 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 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”