Business context and reporting period
This is Franchise Holdings International, Inc.’s Form 10-K for the fiscal year ended September 30, 2014, filed December 19, 2014. Although the request identifies Worksport Ltd., the filing is for Franchise Holdings (FNHI); its financial statements are standalone FNHI figures and do not report TruXmart’s operating results. FNHI described itself as a development-stage company.
The filing discusses TruXmart Ltd., a tonneau-cover business selling through distributors, dealers, and online retailers. On December 16, 2014, FNHI entered into a definitive share-exchange agreement to acquire all TruXmart shares in exchange for 37.7 million FNHI shares, stated as 92.99% of FNHI after issuance. The filing says TruXmart would become wholly owned once the transaction closed; it does not clearly establish in this 10-K that closing had occurred. FNHI adopted TruXmart’s December 31 year-end, with the first consolidated post-acquisition 10-K expected for the year ended December 31, 2014.
Financial results and liquidity
| Metric | FY ended Sep. 30, 2014 | FY ended Sep. 30, 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $17,449 | $19,098 |
| Net loss | $17,449 | $19,098 |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Operating cash flow | $(15,986) | $(19,656) |
| Financing cash flow | $15,313 | $20,320 |
At September 30, 2014, the audited balance sheet reports cash and total assets of $309, accounts payable and total liabilities of $2,435, and shareholders’ deficit of $2,126. No debt is reported on that balance sheet. The company relied on $15,313 of capital contributions from its president and shareholders during 2014. With no revenue, a profit margin is not meaningful. The auditor’s report raises substantial doubt about FNHI’s ability to continue as a going concern.
Changes, outlook, and risks
- Net loss narrowed by $1,649 year over year, while operating cash use decreased by $3,670. Revenue remained zero.
- The filing’s MD&A gives different 2014 figures from the audited statements: net loss of $17,431 rather than $17,449, operating cash use of $15,968 rather than $15,986, and cash of $327 rather than the balance-sheet figure of $309. The audited statements report 2013 net loss of $19,098; MD&A text also contains a conflicting $19,908 figure.
- The filing says FNHI had no plans to raise funds in the next 12 months and expected working capital from operations, while also reserving the right to seek equity, debt, borrowings, or joint ventures. Given zero revenue and minimal cash, the going-concern warning is significant.
- TruXmart’s stated business risks include dependence on two contract manufacturers in China and third-party distributors, limited operating history and funding, stronger competitors, foreign-exchange exposure, reliance on key personnel, and product-quality and intellectual-property risks. The filing says product liability insurance was planned for the following 3–6 months and that product-recall insurance was not in place.
- FNHI reported no material legal proceedings and no off-balance-sheet arrangements. It reported no dividends paid or expected in the foreseeable future.
Important facts for investors to verify
- Whether and when the TruXmart share exchange closed, the final share count and ownership percentages, and the effect of the issuance on existing holders.
- TruXmart’s standalone financial results and the terms and results of the first consolidated reporting period; this 10-K does not provide them.
- The cash and loss discrepancies between MD&A and audited statements, and the company’s actual liquidity and funding arrangements after year-end.
- The status of the going-concern uncertainty, including whether related-party support continued and whether additional financing was obtained.
- The patent license’s terms and ownership: the filing says the patent is owned by Steven Rossi and licensed exclusively to TruXmart without royalties, with TruXmart responsible for maintenance expenses.
- The filing states disclosure controls were effective as of September 30, 2011, despite evaluating internal control as of September 30, 2014; investors should verify the intended date and any subsequent control assessment.