Business context and reporting period
The supplied filing is Franchise Holdings International, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017; it describes sales of Truxmart truck accessories. This does not match the request metadata identifying Worksport Ltd. Investors should verify the issuer and filing before relying on this summary. The report was signed February 15, 2018.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Revenue | $68,484 | $169,747 |
| Gross profit / margin | $5,902 / 9% | $36,174 / 21% |
| Operating expenses | $68,612 | $1,519,072 |
| Net loss | $1,103,382 | $3,056,800 |
| Loss per share, basic and diluted | $0.01 | $0.02 |
Six-month operating cash use was $31,206; investing cash use was $4,873; financing provided $43,302. Cash was $24,425 at June 30. Current assets were $279,227 versus current liabilities of $224,620; total liabilities were $388,875 and shareholders’ deficit was $52,968. Secured notes totaled $262,346, including $98,091 current. Substantially all assets were pledged as collateral.
Changes versus prior comparable periods
- Six-month revenue rose 42% from $119,375; second-quarter revenue rose about 168% from $25,867. Management attributed growth to distributor shipments, an opening private-label order, and improved inventory availability versus 2016.
- Six-month gross margin improved to 21% from 14%, while quarterly margin fell to 9% from 41%, which management attributed to introductory pricing and lower-margin new-product sales.
- Six-month net loss increased from $329,286. Major unusual drivers included $1.36 million of CEO share-based compensation, a $1.035 million debt-settlement loss, and a $484,720 derivative loss.
- Shares outstanding on the June 30 balance sheet increased to 215,787,240 from 68,088,142 at year-end, principally reflecting note conversions and shares issued to the CEO. The filing separately reports 119,127,240 shares outstanding as of February 15, 2018.
Outlook, risks and unusual items
Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing the six-month loss, accumulated deficit of $8,244,956, and dependence on adequate operating cash flow or additional financing. No specific financial guidance is provided. Revenue was concentrated: two customers accounted for 73.2% of six-month sales, and management warned that losing key customers could adversely affect the business.
A secured note bearing 40% interest was in default at June 30, 2017, although the lender had taken no enforcement action. The filing also reports subsequent noncompliance with certain debt covenants and describes later financing and equity agreements, including a term sheet for loans of up to $500,000; these are not June 30 cash or debt balances. The company disclosed ineffective disclosure controls due to limited staff and lack of a formal audit committee with a financial expert, but later in the same filing states the controls were effective at a reasonable-assurance level. A prior-period misstatement was corrected, including omitted shares and related prepaid expense.
Important facts to verify
- Confirm this filing belongs to the intended company: the document names Franchise Holdings International, Inc., not Worksport Ltd.
- Reconcile the conflicting control-effectiveness statements and the reported share counts at June 30, 2017 and February 15, 2018.
- Verify current status and terms of the defaulted secured note, covenant compliance, and subsequent financing and share agreements.
- Assess the company’s going-concern funding needs, customer concentration, and the actual cash impact of the reported financing and equity transactions.