Worksport Ltd quarterly report, Q1 FY2015

Filing summary

Entity mismatch: The supplied filing is for Franchise Holdings International, Inc. (FNHI), not Worksport Ltd. It describes TruXmart’s truck tonneau-cover business. Confirm the issuer and filing before relying on this summary.

Business context and period

Unaudited Form 10-Q for the three months ended March 31, 2015, compared with the three months ended March 31, 2014. The company reported a 2014 reverse acquisition of TruXmart; the financial statements include TruXmart’s activities. Amounts below are U.S. dollars.

Financial results and liquidity

MetricQ1 2015Q1 2014
Revenue$78,176$165,256
Gross profit / margin$15,890 / 20.3%$57,388 / 34.7%
Net income (loss)($25,686)$15,520
Operating cash flow($14,914)($42)
Investing cash flow($58,321)($159)
Financing cash flow$272,846($7,015)

Revenue fell about 53% year over year; net margin was approximately -32.9%, versus 9.4% in Q1 2014. At March 31, cash was $349,809, current assets were $554,627, and current liabilities were $326,089, implying working capital of $228,538. Current liabilities included $317,887 of accounts payable and accrued liabilities, $5,084 of income taxes payable, and a $3,118 shareholder loan. The filing reports no material interest-rate exposure; it does not present a separate debt balance.

Changes, outlook, risks, and unusual items

  • Management attributed lower sales to preparation for new product lines and limited warehouse inventory. U.S.-source revenue fell about 59%; Canadian revenue fell about 35% in U.S.-dollar terms, partly due to currency translation.
  • Cost of sales was 80% of revenue, compared with 65% a year earlier. Management said shipping and freight costs were largely shifted into cost of sales from prior-period expense presentation.
  • Cash increased from $155,735 at year-end 2014, primarily due to $279,800 in share-subscription proceeds. Inventory rose to $172,543 from $88,766; management cited shipment timing.
  • The company relied on operating cash flow and stock issuance to meet obligations. It disclosed one inventory supplier source in Asia and significant customer concentration: two customers represented 75.8% of Q1 2015 sales.
  • Management provided no quantified revenue or earnings guidance. It expected online-retailer sales to continue outpacing traditional distribution, and described online channels as offering higher volume and margin potential.
  • Disclosure controls and internal control over financial reporting were reported ineffective. Cited material weaknesses included limited staffing, insufficiently communicated accounting procedures, and inadequate disclosure controls; management said it planned improvements as resources became available.
  • Subsequent events: 269,565 subscribed shares were issued on April 6, 2015, and 60,000 shares were issued for legal services under a settlement. The filing also says the company had not yet issued 37.7 million shares contemplated in the reverse acquisition because it was increasing its authorized share capital.
  • No material legal proceedings or off-balance-sheet arrangements were reported. Forward-looking statements were subject to risks, and management cautioned that quarterly results may not indicate full-year results.

Important facts to verify

  • Whether this FNHI filing is the intended document for the Worksport request.
  • The reverse-acquisition share structure, authorized-share increase, and status of the unissued shares and subscriptions.
  • How the company plans to fund operations and address the reported control weaknesses.
  • Inventory availability, supplier dependence, customer concentration, and the sales impact of planned product launches.
  • The treatment of shipping costs in cost of sales versus prior-period expenses when assessing margin trends.