Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements." This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

Worksport Ltd., through its subsidiaries, designs, develops, manufactures, and owns the Intellectual Property 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.

Rising Popularity of Electric Vehicles

Electric Vehicles (EVs) have been increasing in consumer interest, whether that interest takes the form of vehicle pre-orders, sales, or investments. As we begin marketing our Worksport SOLIS and COR, we plan to market the SOLIS as a must-have accessory for electric light duty vehicle owners while simultaneously riding the coattails of EV popularity to promote our other products (COR and conventional tonneau covers) to the very large population of Americans that have an interest in EVs without the funds to purchase them. Further, participating in the EV space allows us to target consumers with an interest in cutting-edge technologies - a great market in which to promote our COR portable power system.

Regulatory Environment Favoring Electric Vehicles

The Build Back Better Bill was a strong indication of upcoming and favorable U.S. regulations. Many regulations that improve North America's EV charging infrastructure or provide grants to businesses operating in the EV space would benefit us. While we are primarily focused on the light duty vehicle market, our energy products are particularly useful for electric light duty pickup trucks and, therefore, are positioned to benefit greatly from any bill that increases the prevalence of such vehicles. However, President Donald Trump has signed an executive order titled Unleashing American Energy in which he has indicated his administration will be reversing the electric vehicle mandates of Joe Biden's former administration, and he has further paused billions of dollars in funding allocated towards electric vehicle charging stations. The future of the U.S.'s regulatory environment surrounding electric vehicles is uncertain.

Limited Competitive Landscape

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, 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.

Economic Conditions and Market Trends

As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.

Tariffs and Supply Chain Impact

Our hybrid manufacturing model, which includes sourcing certain products and components from overseas-particularly from China-exposes us to risks associated with tariffs and evolving global trade policies. Tariffs on imported raw materials, components, and finished goods have increased our input costs and may continue to do so in the future. During fiscal 2025, increases in certain material and component costs attributable, in part, to tariffs contributed to higher cost of goods sold; however, these increases were offset by higher production volumes, improved overhead absorption, and operational efficiencies, resulting in an overall improvement in gross margins compared to the prior fiscal year. These impacts are both direct, through duties applied to imported products and components, and indirect, as suppliers and logistics providers may pass through increased costs associated with tariff regimes and related trade restrictions.

While we have taken steps to mitigate these risks through supplier diversification, a portion of our supply chain remains dependent on foreign sources. As a result, tariffs and other trade measures may continue to increase our cost of goods sold and may impact product pricing and margins to the extent not offset by operational efficiencies or pricing actions. In addition, changes in U.S. trade policy or further escalation of tariffs could disrupt supply availability or increase lead times, which may adversely affect our operations and results of operations.

Geopolitical and Macroeconomic Conditions

Recent geopolitical developments, including conflicts in the Middle East involving Iran, have contributed to volatility in global financial markets, higher energy prices and inflationary pressures. While we do not have direct exposure to the affected regions through our suppliers, customers or operations, these conditions may adversely affect our business. In particular, increases in global energy and transportation costs may increase our cost of goods sold, and inflationary pressures may increase the cost of materials sourced from our suppliers, including suppliers in Asia. In addition, such conditions may adversely affect consumer discretionary spending, which could reduce demand for our products. Volatility in the capital markets may also affect our ability to raise capital on favorable terms. The extent and duration of these conditions remain uncertain and could adversely affect our business, financial condition and results of operations.

Climate Change

Climate change threatens to cause many foreseeable as well as unforeseeable ramifications. In cautious preparation for those that are foreseeable, we strategically began 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.

We believe our Worksport SOLIS and Worksport COR products will be received positively by the public for their resilience to, and even increased utility as a result of, Climate Change. However, we acknowledge the potentially negative environmental impacts of poor battery recycling and increasing demand for precious metals. We are actively researching ways to lower such environmental impacts.

Inflation

Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions and tariffs. Increasing prices of the component materials for parts of our goods may impact the availability, quality and price of our products as suppliers search for alternatives to existing materials and increase the prices they charge. Our suppliers may also fail to provide consistent quality of product as they may substitute lower cost materials to maintain pricing levels. Rapid and significant changes in commodity prices may negatively affect our profit margins, and it may be difficult to mitigate worsened margins through customer pricing actions and cost reduction initiatives.

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 indebtedness arrangements 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.

High interest rates have also resulted in a shift in institutional holdings away from micro-cap equities, which has negatively influenced our stock's trading volume. We continue to forge relationships with institutional investors and analysts in order to maintain a healthy trading volume.

Gasoline Prices and Supply Chain Issues

We faced significantly higher ocean freight, trucking, and container handling costs as well as last mile delivery costs in recent 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 during certain periods due to geopolitical tensions and disruptions affecting global shipping routes, the shipping routes used by Worksport have not faced dramatic price hikes. Regardless, Worksport is closely monitoring international shipping costs.

Our transition towards domestic manufacturing and assembly is anticipated to largely offset these higher costs, as we believe we will be less exposed to higher international shipping costs. We are also identifying North American suppliers of our products' components and will prioritize transport by rail when possible to avoid high trucking costs.

Foreign Currencies

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

Critical Accounting Policies

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 U.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 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.

Revenue Recognition - In accordance with Accounting Standards Codification (ASC) 606 Revenue from Contracts with Customers, sales are recognized when (1) products are shipped, with no right of return except for defective products, and the title and risk of loss has passed to customers; and (2) when they are delivered based on the terms of the sale, and there is an identifiable contract with a customer with defined performance obligations, the transaction price is determinable, and the entity has fulfilled its performance obligation. Revenue related to shipping and handling costs billed to customers is included in net sales, and the related shipping and handling costs are included in cost of sales.

Inventory Valuation - At December 31, 2025, we had inventories of $9,530,671, or 57% of our current assets. Inventories are stated at the lower of cost or net realizable value with cost determined on a weighted average basis. We record valuation reserves to provide for slow-moving or obsolete inventory by principally using a formula-based method that increases the valuation reserve as the inventory ages. We also take specific circumstances into consideration. We consider overall inventory levels in relation to forecasted demand. Changes in these and other factors, such as low demand or technological obsolescence, could cause us to establish or increase our inventory reserves, which would negatively impact our gross margin.

Reviews of Impairment of Long-Lived Assets - Long-lived assets held for use, which primarily includes finite-lived intangible assets, property, plant and equipment, and right-of-use assets, are evaluated for impairment whenever events or circumstances indicate that the undiscounted cash flows to be generated by their use over their expected useful lives and eventual disposition are less than carrying value. The long-term nature of these assets requires the estimation of their cash inflows and outflows several years into the future and only takes into consideration technological advances known at the time of the impairment test.

Income Taxes - Our annual tax rate is based on our operating results before taxes by jurisdiction, applicable statutory tax rates, the impacts of permanent differences, tax incentives, and tax planning opportunities in the jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and evaluating our tax positions. We record reserves against tax benefits when it is more likely than not that we will not sustain a position if the appropriate taxing jurisdiction had full information and examined our position. We adjust these reserves when facts and circumstances change, and there is a considerable amount of judgment in making these assessments. For further information, refer to Note 8, Income Taxes of Part III Item 8, Financial Statements and Supplementary Data, of this report.

Reverse Common Stock Split

On March 18, 2025, we effected the Reverse Stock Split at the ratio of 1:10, which immediately proportionally reduced the authorized number of shares of common stock from 299,000,000 to 29,900,000. Pursuant to the laws of the State of Nevada, shareholder approval was not required in order to effect the split as the Board has the authority to effect a reverse stock split without shareholder approval if the number of authorized shares of common stock is proportionally reduced as a result. No fractional shares were issued as a result of the Reverse Stock Split. Each fractional share was automatically rounded up to the next whole share.

The Reverse Stock Split was undertaken in order for us to regain compliance with the minimum bid requirement under Nasdaq Listing Rule 5550(a)(2).

Amendment to Articles of Incorporation

On April 17, 2025, our Board of Directors and majority stockholder approved an amendment to our articles of incorporation to increase the total number of authorized shares of capital stock from 30,900,000 to 55,000,000, consisting of an increase in the authorized number of shares of common stock from 29,900,000 to 45,000,000 and an increase in the authorized number of shares of preferred stock from 1,000,000 to 10,000,000. The amendment was filed with the State of Nevada and became effective on May 19, 2025. The increase in authorized capital provides the Company with additional flexibility to issue equity securities in connection with capital-raising transactions, strategic initiatives, or other corporate purposes.

Consolidated Results of Operations

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

		Years ended December 31,								Favorable (Unfavorable) 2025 vs. 2024
		2025				2024				Amount				%
Net sales		$	16,101,738			$	8,484,379			$	7,617,359				89.8	%
Cost of sales			11,626,831				7,578,729				(4,048,102	)			(53.4	)%
Gross profit			4,474,907				905,650				3,569,257				394.1	%
Research and development			1,538,923				2,289,940				751,017				32.8	%
General and administrative			14,806,326				11,709,925				(3,096,401	)			(26.4	)%
Sales and marketing			6,947,671				2,386,504				(4,561,167	)			(191.1	)%
Other operating income, net			(4,587	)			(14,885	)			(10,298	)			(69.2	)%
Loss from operations			(18,813,426	)			(15,465,834	)			(3,347,592	)			(21.6	)%
Interest expense			(592,755	)			(726,095	)			133,340				18.4	%
Other (expense) income			53,884				28,140				25,744				91.5	%
Net loss		$	(19,352,297	)		$	(16,163,789	)		$	(3,188,508	)			(19.7	)%
Per share data
Basic and diluted earnings per share		$	(3.16	)		$	(5.84	)		$	2.68				46.0	%

		Years ended December 31,								Favorable (Unfavorable)
Percent of net sales		2025				2024				Percentage points
Cost of sales		72		%		89		%		17		%
Gross profit			28	%			11	%			17	%
Research and development expense			10	%			27	%			17	%
General and administrative expense			92	%			138	%			46	%
Sales and marketing expense			43	%			28	%			(15	)%

Net sales

For the year ended December 31, 2025, net sales generated in the U.S. was $16,010,083, compared to $8,397,570 for the same period in 2024, an increase of 91%. For the year ended December 31, 2025, net sales generated in Canada was $90,955, compared to $67,519 for the same period in 2024, an increase of 35%. For the year ended December 31, 2025, net sales generated outside the U.S. and Canada was $700, compared to $19,290 for the same period in 2024.

Net sales increased the year ended December 31, 2025, 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 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 2025, and it is now focusing on increasing cost efficiencies in these sales channel as well as expanding its presence in additional business-to-business sales channel territories. For the business-to-consumer channel, we are focused on lowering our customer acquisition cost with additional focus on brand awareness and shift away from reliance on conversion marketing to increase brand awareness. For the business-to-business 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 $4,930,822 in 2024 to $11,933,269 in 2025, an increase of 142%. Online retailers accounted for 74% of total net sales for the fiscal year ended December 31, 2025 compared to 58% for the fiscal year ended December 31, 2024. Distributor sales increased 884% for the fiscal year ended December 31, 2025 compared with the fiscal year ended December 31, 2024 with net sales of $4,168,469 and $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 in the U.S. and Canadian markets.

We distribute our products in the U.S. and Canada through an expanding network of wholesalers, distributors, and dealers, and through online channels, including major online marketplaces and our direct-to-consumer e-commerce platform. We intend to continue expanding both business-to-business and direct-to-consumer channels with product offerings unique to each of these channels. We also continue to pursue relationships with original equipment manufacturers and fleet customers where appropriate.

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

The decrease in the cost of sales as a percentage of sales was primarily due to two factors: (1) increase 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 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 as 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. 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.

We provide our distributors and online retailers an "all-in" wholesale price. This includes 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

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

	●	Research and development expense: The $751,017 (33%) decrease relates to our transition from development of certain hard covers in 2024 (e.g., HD3, AL4, certain energy products) to production in 2025. We continued our development initiatives with our energy products and other tonneau covers in 2025 with the anticipation of production of 2026.
	●	General and administrative expense: The $3,096,401 (26%) increase was related to increased employment as we expand our operations and further develop our products. We also incurred expenses related to ongoing investment relations initiatives to further our brand recognition to investors during the period.
	●	Sales and marketing expense: The $4,561,167 (191%) increase in sales and marketing is primarily attributable to the Company's online optimization efforts, online marking campaigns and other traditional branding initiatives to create brand and product awareness.

Other Income ((Expense)

The $159,084 (23%) decrease in other expenses can be attributed to decreased interest expense based on our components of indebtedness in 2025. In 2024, we converted from a traditional mortgage to a line of credit which is secured by our production facility.

Liquidity and Capital Resources

As of December 31, 2025, we had $5,945,894 in cash and cash equivalents and $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, 2025, we had net losses of $19,352,297 (2024 - $16,163,789). As of December 31, 2025, the Company had working capital of $10,061,578 (2024 - $7,304,110) and had an accumulated deficit of $83,873,790 (2024 - $64,476,966).

In their audit report, our independent auditors expressed that there is substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate cash flows from operations and obtain equity and/or debt financing. We intend to continue funding operations through equity and debt financing arrangements, which may be insufficient to fund our capital expenditures, working capital and other cash requirements in the long term. There can be no assurance that the steps our management is taking will be successful.

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, 2025, the Company received net proceeds of approximately $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.

We have raised significant funds during the 2025 fiscal year by utilizing the following public and private offerings:

At-the-Market Offering Program

During the fiscal year ended December 31, 2025, the Company sold 110,619 shares of its common stock under its at-the-market offering program pursuant to the At-the-Market Offering Agreement, dated September 30, 2022 (the "Sales Agreement"), as amended on November 14, 2025, with H.C. Wainwright & Co., LLC acting as sales agent. These sales resulted in gross proceeds of approximately $521,835 and net proceeds of approximately $504,372, after commissions and offering expenses. Under the Sales Agreement, the Company pays Wainwright a commission of 3.0% of the gross sales price of the shares sold through the at-the-market offering program.

December 2025 Warrant Inducement

On December 11, 2025, the Company entered into a warrant exercise inducement agreement with the holder of certain existing warrants originally issued on March 20, 2024 and March 3, 2025. Pursuant to the agreement, the holder exercised warrants to purchase 2,194,526 shares of the Company's common stock at a reduced exercise price of $2.90 per share, resulting in gross proceeds of approximately $6.4 million, before placement agent fees and other offering expenses. In consideration for the exercise, the Company issued new warrants to purchase up to 3,840,421 shares of common stock. The shares of common stock issuable upon exercise of the new warrants were registered for resale pursuant to the Company's registration statement on Form S-3 (File No. 333-292823), filed January 20, 2025 and declared effective January 28, 2025. The Company intends to use the net proceeds from the transaction for general corporate and working capital purposes. The Company engaged Maxim Group LLC as its exclusive financial advisor in connection with the transaction.

Regulation A Offering

Between June 2025 and October 2025, we conducted a Regulation A offering pursuant to which we sold units consisting of shares of Series C Preferred Stock and accompanying warrants, generating aggregate gross proceeds of approximately $10.0 million before fees and expenses.

February 2025 Warrant Inducement

On February 27, 2025, the Company entered into a warrant exercise inducement agreement with the holder of certain existing warrants originally issued on May 29, 2024. Pursuant to the agreement, the holder exercised warrants to purchase 1,295,000 shares of the Company's common stock at a reduced exercise price of $5.198 per share, resulting in gross proceeds of approximately $6.7 million, before placement agent fees and other offering expenses.

In consideration for such exercise, the Company issued new warrants to purchase up to 1,424,500 shares of its common stock at an exercise price of $6.502 per share, subject to adjustment. The new warrants become exercisable six months from the date of issuance and expire on the fifth anniversary of the date of issuance. The shares of common stock issuable upon exercise of the new warrants were registered for resale pursuant to the Company's registration statement on Form S-1 (File No. 333-286255), filed with the SEC on March 28, 2025 and declared effective on April 3, 2025. The Company used the net proceeds from the transaction for working capital and general corporate purposes. The Company engaged Maxim Group LLC as its exclusive financial advisor in connection with the transaction.

Consolidated Statement of Cash Flows

Cash increased from $4,883,099 at December 31, 2024 to $5,945,894 at December 31, 2025 - an increase of $1,062,795 or 22%. The increase was primarily due to financing activities conducted during the fiscal year to support growth of ongoing operations.

Operating Activities

Net cash used in operating activities for the fiscal year ended December 31, 2025 was $17,314,390, compared to $10,138,798 in the prior year, driven by a shift to production and distribution of hard tonneau covers.

Accounts receivable increased at December 31, 2025 by $461,382 and decreased by $387,561 in the prior year. The increase in accounts 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 other business to business channel customers resulted in 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 due to a shift in production 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 due to deposits by us for the purchase of production equipment and inventory.

Accounts payable and accrued liabilities increased at December 31, 2025 by $2,179,473 and increased at December 31, 2024 by $1,167,834, respectively. These fluctuations were driven primarily by the transition to production activities in 2024 and increased raw materials inventory purchases to support production in 2025.

Investing Activities

Net cash used in investing activities for the fiscal year ended December 31, 2025 was $1,119,503 compared to $528,235 in the prior year. The increase in investing activities was primarily due to higher capital expenditures on various production equipment in 2025.

Financing Activities

Net cash provided by financing activities for the fiscal year ended December 31, 2025 was $19,456,688 compared to $12,184,354 in the prior year. During the fiscal year ended December 31, 2025 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.

Contractual Obligations and Commercial Commitments

The following table summarizes our contractual obligations as of December 31, 2025 and 2024:

Contractual Obligations		December 31, 2025				December 31, 2024
Operating lease obligations		$	318,520			$	615,007
Equipment purchases		$	2,700,000			$	-
Total Contractual Obligations		$	3,018,520			$	615,007

We intend to fund our contractual obligations with working capital.

Off-Balance Sheet Arrangements

We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, results of operations or cash flows.

Recent Accounting Pronouncements

See Note 1, Description of Business and Summary of Significant Accounting Policies, included in Part II Item 8, Financial Statements and Supplementary Data, of this report for further information regarding Financial Accounting Standards Board issued Accounting Standards Updates ("ASU").