Filing summary
Entity and period: The supplied filing is Franchise Holdings International, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, not a Worksport Ltd. filing or a quarterly report. The company’s operating business was TruXmart, which designs and sells pickup-truck tonneau covers in the United States and Canada. Investors should confirm the filing and issuer identity before relying on this summary.
Financial performance and condition
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $651,667 | $593,004 |
| Gross profit | $119,086 | $157,603 |
| Gross margin | 18% (reported) | 27% (reported) |
| Net loss | $3,487,757 | $479,341 |
| Cash used in operating activities | $542,042 | $31,646 |
| Cash at year-end | $14,466 | $155,735 |
- Revenue rose approximately 10%. U.S. revenue increased about 16% to $431,000; Canadian revenue was $220,000 versus $221,000 reported in U.S. dollars. Online-retailer sales rose 30% to $434,533 and accounted for over 63% of revenue. Distributor sales declined to $127,654.
- Cost of sales rose 22% to $532,581, and reported gross margin fell from 27% to 18%. Management attributed the margin pressure partly to Canadian-dollar weakness against the U.S. dollar.
- General and administrative expenses were $3,606,843, up from $636,944. Professional fees of $3,056,469 included substantial stock-based consultant/advisory costs; management specifically cited $2.61 million of shares issued for services. Cash-flow disclosures separately identify $2.87 million of professional fees paid in shares.
- Investing activities used $138,468. Financing activities provided $574,295, including share subscriptions and promissory-note proceeds. The year-end cash balance was sharply lower than in 2014.
- Year-end balance-sheet figures show current assets of $252,591 and current liabilities of $294,409, a working-capital deficit of $41,818. Total assets were $302,772, total liabilities $299,053, and shareholders’ equity $3,719.
- Promissory notes totaled $46,100 at year-end, of which $41,456 was current. A secured Canadian-dollar note carried a stated 40% interest rate and was secured by company assets.
Material changes and unusual items
- The company completed and issued 37.7 million shares connected with the 2014 reverse acquisition. It also issued substantial shares for consulting, advisory and sales services. Common shares outstanding were 66,885,082 at year-end; the controlling shareholder held 40 million shares, or 59.8%.
- The unusually large 2015 loss primarily reflects higher expenses, particularly professional fees and share-based compensation, rather than the relatively modest increase in sales.
- The first-generation TruXmart Forte was discontinued on December 1, 2015. Management estimated a second-generation Forte launch in Q2 2016 and Alpha-series product releases in late 2016; these are plans, not reported results.
- The company reported that four customers represented 76.6% of 2015 sales. It also disclosed dependence on a single Asian supplier source for inventory and contract manufacturing in China.
Outlook, risks and controls
- Management discussed product launches, online-channel growth and market expansion, but the filing provides no quantified revenue, earnings or cash-flow guidance.
- The audited financial-statement notes state that the 2015 loss and funding needs raise substantial doubt about the company’s ability to continue as a going concern. Management said additional financing may be needed, with no assurance it will be available on acceptable terms.
- Key risks include limited cash and operating history, intense competition, reliance on third-party manufacturers and distributors, foreign-exchange exposure, customer concentration, product-quality and liability exposure, and dependence on key personnel and intellectual property.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate staffing and segregation of duties, insufficiently communicated accounting procedures, and weaknesses in financial-statement disclosure controls. The auditor expressed an unqualified opinion on the financial statements but did not attest to internal controls.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. The independent auditor changed in January 2016; the prior auditor resigned and Haynie & Company was engaged.
Important facts for investors to verify
- Issuer mismatch: Confirm why the requested company is Worksport Ltd. while the supplied 10-K names Franchise Holdings International, Inc. and uses ticker FNHI.
- Conflicting loss figures: A risk-factor passage gives 2015 net loss as $3,044,167, while MD&A and the audited statements report $3,487,757.
- Conflicting liquidity and equity disclosures: A risk-factor passage states working capital of $439,803 and shareholder equity of $477,986, versus balance-sheet calculations of a $41,818 working-capital deficit and $3,719 equity.
- Share issuance and dilution: Reconcile the large consultant-share issuances, subscriptions payable/receivable, authorized-share changes and post-year-end issuances against the capitalization table and underlying agreements.
- Liquidity and financing: Verify debt repayment terms, current cash needs, financing availability and the company’s ability to fund operations while addressing the stated going-concern uncertainty.