ITEM 1. BUSINESS
Narrative Description of the Business
Our History
We were originally incorporated as FSGI Corporation under the laws of the State of Florida in 1997 as a holding company for the purpose of acquiring Financial Standards Group, Inc. (FSG). That year FSGI Corporation acquired FSG, a Florida company organized in October 1989, to assist credit unions in performing financial services. FSG offered financial services to credit unions as a wholly-owned subsidiary until its sale in January 2000.
On December 21, 1998, FSGI Corporation, at the time a publicly traded company trading on the OTCBB as FSGI, acquired all of the outstanding common stock of The Martial Arts Network On-Line, Inc., a wholly owned subsidiary of The Martial Arts Network, Inc. The Martial Arts Network On-Line, Inc., a company organized under the laws of the State of Florida, was developed in 1996 by its parent company The Martial Arts Network, Inc. as an electronic forum dedicated to promoting education and awareness of martial arts through its web site. Upon issuance of shares, and options to purchase shares of FSGI Corporation’s common stock to The Martial Arts Network, Inc., that company became the controlling stockholder of FSGI Corporation.
FSGI then changed its name to TMANglobal.com, Inc. (“TMAN”) as the result of a merger between FSGI Corporation and The Martial Arts Network On-Line, Inc. on December 21, 1998.
Franchise Holdings was incorporated in the State of Nevada on April 2, 2003. Franchise Holdings International, Inc. completed a merger with TMAN Global.com Inc. on April 30, 2003. This merger was in the nature of a change in domicile of the Florida corporation to the State of Nevada, as well as the acquisition of a new business. Since the inception of our current business operations, we have been in the business of acquiring franchise, license and distribution rights in new and emerging growth companies.
On December 16, 2014, Franchise Holdings International, Inc. (FNHI) entered into a three party Definitive Share Exchange Agreement (the “Agreement”) to acquire all issued and outstanding shares of Truxmart Ltd. (The Company” or Truxmart”), an Ontario (Canada) corporation located at 8820 Jane St, Vaughan, Ontario, L4K 2M9 Canada, for 40,0000,000 shares of FNHI (the “FNHI Shares”), when sufficient authorized shares are available, which will represent 75.32% of the outstanding shares of FNHI (the “Share Exchange”), calculated post-issuance. The Agreement was with Steven Rossi (“Rossi”), the sole shareholder of Truxmart and with Truxmart. Prior to the Share Exchange, Rossi held all outstanding shares of Truxmart, consisting of 4,791 Class A common shares and Truxmart owned 2,300,000 common shares of FNHI, representing an 80.961285% ownership stake in FNHI. Pursuant to the Share Exchange, Rossi acquired from Truxmart, its 2,300,000 FNHI common shares and is to acquire an additional 37,700,000 shares of FNHI from FNHI, when sufficient authorized shares were available, in exchange for all 4,791 outstanding common shares of Truxmart. Truxmart is now the wholly-owned subsidiary of FNHI, with FNHI holding all 4,791 outstanding shares of Truxmart common stock.
On August 25
th
, 2017 Franchise Holdings International, Inc. (FNHI) Completed a corporate reorganization (the “Reorganization”) in accordance with Section 251(g) of the Delaware General Corporation Law, pursuant to which the Company became a wholly-owned subsidiary of a newly formed entity which became the successor public entity (the “Successor Issuer”). In connection with the Reorganization, the Company redomiciled into Delaware and changed its name to Franchise Transition Inc., and the Successor Issuer took the name Franchise Holdings International, Inc. As one result, the assets and liabilities of the Company, remain the assets and liabilities of such entity. Pursuant to the Reorganization, the outstanding shares of the Company were exchanged for shares of the Successor Issuer on a one-for-one basis.
Operations
General
Truxmart was founded in 2011 to take advantage of the limited innovation provided by existing tonneau cover manufacturers. Tonneau covers have remained much the same in price and design since 2005 with one main company controlling a majority of the tonneau cover market. This dynamic market segment is in need of a new innovative manufacturer of high quality, functional, and aggressively priced tonneau covers. Truxmart has developed multiple products for all of the most prominent pick up trucks available in North America. Details of each product can be found at www.Truxmartcovers.com. Truxmart sells its products through wholesalers in Canada and the U.S. and through third-party online retailers.
Throughout 2014 and 2015we completed a private placement, pursuant to Rule 506(b) of Regulation D, and raised $910,000. We are hoping to raise up to an additional $1,000,000 over the next twelve months. Also, working capital will be generated from internal operations. We also reserve the right to examine possible additional sources of funds, including, but not limited to, equity or debt offerings, borrowings, or joint ventures.
Nature of Products and Services
In 2015, Full-size pickup truck sales increased 6% to 2,187,173 units in the United States in calendar year 2015, an increase of more than 120,000 units compared with 2014, in the United States. Canadian pickup truck sales stumbled at the tail end of 2015 but increased at a 5% clip in calendar year 2015, growth that was twice as fast as the overall industry, with total sales of 349,575 pickup trucks. Canadian consumers and businesses registered 333,522 new pickup trucks over the course of 2014’s twelve months, a 5.4% increase compared with the 2013 calendar year. US consumers and businesses registered 1,888,665 new pickup trucks over the course of 2014’s twelve months, a 4.9% increase compared with 2013. (www.goodcarbadcar.net)
Ford Motor Co (F.N), the top seller in Canada, said 2016 was its best year for Canadian sales since 1989, largely because of demand for its F-Series pickups. The automaker said in a statement it sold 304,618 vehicles in Canada in 2016, up 9.4 percent in 2015.
(http://www.reuters.com/article/us-canada-autos-idUSKBN14O1YJ)
The 2016 year-end sales numbers ticked off just ahead of the record year in 2015, recording 17.5 million sales of light trucks inclusive of pickup trucks, suv’s and cross-overs within the USA. And slightly more than 15 percent of that was mid-size, half-ton and heavy-duty pickup truck sales. In fact, when comparing the total mid-size pickup sales from 2015, 2016 was up 26 percent (448,398 versus 357,406), though much of that has to do with the fact that the top-selling Toyota Tacoma has been significantly upgraded, the GM Colorado and Canyon trucks a 2.8L Duramax Diesele all-new Honda Ridgeline has re-entered the marketplace.
The full-size segment is also up but, as you might expect, by a smaller amount (2,244,142 versus 2,187,173, or not quite 3 percent). Of course, the big news in this segment was the all-new Ford Super Duty, but Nissan also made a big splash with its all-new half-ton Titan.
Overall, total sales for all pickup trucks were up in 2016 by almost 6 percent over 2015 (2,692,540 versus 2,544,579). Many believe auto sales have peaked and we’re likely to see a slow decline in the market for several years. Still, year-end December 2016 sales were strong and only Chevrolet’s Silverado, GMC’s Sierra and Toyota’s Tundra finished 2016 worse off than they did in 2015.
(http://news.pickuptrucks.com)
Ram sold more pickup trucks in the United States during April 2017 than Chevrolet. Truck sales numbers are in. This is the second month this calendar year that Ram full-size truck lineup is outselling Chevrolet. Chevy Silverado is still in second place with Year-To-Date number, but the sales are declining when compared to same time periods last year.
Ford F-Series is still number one in United States sales. Even if you combine the Silverado and Sierra sales together, these are still lower than the F-Series numbers. Although, Ford sales in April were about even when compared to last year (-0.2%).
Toyota Tundra is also sliding down in sales, but it has a firm grasp on the fifth place. The Nissan Titan is gaining sales with the availability of the half-ton and XD variants, but raw numbers are still relatively low. Nissan sold 4,033 Titans in April.
(http://www.tfltruck.com/2017/05/2017-april-pickup-truck-sales-sales-report/)
The August 2017 sales numbers for the United States are in. Ford F-Series continues to lead in full-size pickup truck sales. Chevrolet is now comfortable in second place for sales in August and so far this year. Ram struggled a little in August, but the company hold the third position without much worry. GMC Sierra sales started to come up as well, but they are still down when compared to last year. Toyota Tundra had a fairly good month and about even for the month. Nissan Titan is still struggling to get sales momentum.
Full-Size Truck Sales – August 2017
|
|
Aug 2017 #
|
|
|
Aug 2017/2016
|
|
|
YTD 2017 #
|
|
|
YTD
2017/2016 %
|
|
Ford F-Series
|
|
|
77,007
|
|
|
|
15.0
|
%
|
|
|
576,334
|
|
|
|
9.2
|
%
|
Chevrolet Silverado
|
|
|
54,448
|
|
|
|
3.9
|
%
|
|
|
363,354
|
|
|
|
-4.4
|
%
|
Ram
|
|
|
37,608
|
|
|
|
-7.0
|
|
|
|
327,759
|
|
|
|
5.0
|
%
|
GMC Sierra
|
|
|
17,254
|
|
|
|
-1.3
|
%
|
|
|
136,370
|
|
|
|
-6.8
|
%
|
Toyota Tundra
|
|
|
10,320
|
|
|
|
4.5
|
%
|
|
|
74,518
|
|
|
|
-1.1
|
%
|
Nissan Titan
|
|
|
3,521
|
|
|
|
182.1
|
%
|
|
|
31,776
|
|
|
|
274.3
|
%
|
(http://www.tfltruck.com/2017/09/template-full-size-truck-august-sales-report/)
Background
For many years, consumers have had very limited options available to them from tonneau cover manufacturers. The leading manufacturers in the North American market have had very few new model developments. The tonneau cover market can be divided into four main styles of covers:
1. Soft Folding & Roll-up covers (Vinyl covers)
2. Hard Folding & Standing Covers (Aluminum and FRP)
3. Solid one piece caps and lids (Plastic & Fiberglass)
4. Retractable Covers (Plastic & Aluminum)
We believe the consumer favors models that are the least cumbersome, most functional, and lowest initial cost. Solid one piece covers and retractable covers are the least desirable because of their limited functionality and overall cost. Therefore, the most popular covers in today’s market are soft and hard folding/rolling tonneau covers.
Market Analysis and Distribution
The Specialty Equipment (aftermarket) consists of three major types of customers which include; master warehouse distributor, dealer / wholesaler, and end retail consumer. Master warehouse distributors will stock and distribute product to their customers, which are usually local dealers and wholesalers. Dealers and wholesalers are local stores which sell product to some businesses and retail consumers in their area and online. Dealers will purchase most of their product from their local distributor who will deliver to them regularly. Retail end consumers are simply the end user of your product. Truxmart currently sells its product line through distributors and dealer networks.
The OEM market consists of vehicle manufactures with corporate offices and distribution points globally. Specifically, within North America the OEM market would consist of corporate offices and warehouses in Canada, USA, and Mexico. Target OEM’s for Truxmart would be:
Toyota Motor Co.
Ford Motor Co.
Nissan Motor Co.
General Motors
FCA Automotive (RAM Trucks)
Presently (2017), each vehicle manufacture above purchases their OEM brand tonneau covers (tonneau cover installed at the factory) from an independent accessory manufacturer, such as Truxmart. No vehicle manufacturer designs and manufacturers their own tonneau covers.
Truxmart’s target market includes master warehouse distributors and dealers.
In the Canadian market, Truxmart does the majority of its business with warehouse distributors, and select dealer customers. In the US market, Truxmart’s customer base is mostly dealers and wholesalers.
Truxmart USA is a supplying member of one of the largest aftermarket buying groups in the USA. American Aftermarket Group (AAG), owned by Line-X coatings, consists of over 700 car and truck accessory stores. Being a supplying member of AAG gives Truxmart access to most of the large truck accessory dealers, wholesalers, and online stores in the USA. Our products are sold to AAG members by the sales staff at AAG and all customer service and maintenance is done through phone calls, emails, and infrequent visits.
Truxmart Canada sells to only select dealers in Ontario as well as the largest warehouse distributor in eastern Canada. Robert Thibert in Chteauguay, QC has over 600,000 square feet of warehouse space in three provinces in Canada. Robert Thibert is responsible for stocking and selling our product to their customer base in Canada. Truxmart dealer sales in Ontario are to only select dealers who assist with product feedback.
Regular contact is made with our customer base about new product, promotions, updates, and general sales by phone, email, and in person, when possible.
A partial list of our customers includes:
Enterprise Robert Thibert (Quebec, Canada)
Trailer Parts Etc. (Florida, USA)
Auto Zone (California)
Turn 5 Distributing
Competition
Companies that compete in this market are Truck Hero Group, Tonno Pro and Rugged Liner however not all companies charge competitive prices:
The Extang (TruckHero) Trifecta retails in the USA for $425. The Tonno Pro Tri Fold retails for $269. The Rugged Liner Tri Fold retails for $329. Whereas the Truxmart Tri Fold retails for CAD$259; US$239.
The Extang Solid Fold retails in the USA for $799. The Rugged Liner Hard Fold retails for $689. The Truxmart Forte retails at CAD$699; US$689.
Low profile Roll-Up covers are manufactured by many different companies. The two most popular Roll-Up covers are the Truxedo (TruckHer) Low-ProQT, which retails for $499 and the Tonno Pro Low-Roll which retails for $269. The Truxmart Roll-Up retails for $CAD299; US$269.
Truck Hero Group is the holding company for Extang Corporation, TruXedo, Inc., BedRug, Inc, UnderCover Inc., Advantage Truck Accessories Inc, Retrax Inc, and BAK Industries, NFAB, RealTruck.Com, Auto Customs, and ARE Truck Caps. They account for the majority of the competing brands in North America.
The area of biggest growth in the tonneau cover market is in the area of aggressively priced hard folding tonneau covers. Currently, the market distribution is shared by three primary participants, with LKQ/Keystone considered the market leader.
Sales, Marketing and Distribution Strategy
Truxmart’s sales strategy is constantly changing and dynamic. Sales are made through warehouse distributors, as they typically handle product sales and promotion through their in-house sales department. To fully saturate the market a business must entice the retail consumer to purchase its product by way of a strong internet presence which will consist of YouTube videos and commercials, an interactive website, search engine optimization, social media, etc. The next step is to have strong working relationships and reputations among dealers and wholesalers who purchase Truxmart’s product, either directly or through distributors.
Truxmart hopes to become the leader in the tonneau cover market through innovation. Our main objective is to design and engineer our products to better suit todays new, dynamic, and innovative models of light trucks.
Truxmart hopes to become a significant player in our market segment by always maintaining a strong emphasis on customer service, innovation, quality, and a robust global branding.
Truxmart’s target market is North, Central, and South America with future plans to expand globally to other market opportunities. Truxmart intends to earn revenues from both the automotive specialty equipment market as well as OEM production for vehicle manufactures, globally.
Truxmart also plans to gain market share and core value by internally engineering our products to best suit the evolving needs of the consumer as well as a strong intellectual property portfolio (1 Granted Patent, 3 patent applications in Canada and USA – as of 2017)
The Company’s current product lines are as follows:
1. Truxmart Tri Fold (introduced in 2011)
The Truxmart Tri Fold is our staple soft folding tonneau cover. The Tri Fold is made with features such as stainless steel hardware, double coated vinyl tarp, and all aluminum and plastic coated front clamps. The Tri Fold is made available to our customer base at an average cost savings of 5% over competing products.
2. Truxmart Smart Fold (introduced in 2012)
The Truxmart Smart Fold is our second product to market and offers our patented rear Smart Latch system. The Smart Fold is the first innovation in the rear latching system offered on soft folding tonneau covers. The Smart Fold cover comes with all of the same features as the Tri Fold but with a new rear latch system that allows the cover to be opened by simply pulling a release cable which is a new innovation in the soft tri fold segment of our market.
The Company introduced three new products at the Specialty Equipment Manufacturers Association (SEMA) show in Las Vegas in November 2014. These products were the following:
3. Truxmart Forte (DISCONTINUED DECEMBER 1, 2015
)
The Truxmart Forte was the world’s first completely solid folding tonneau cover to be constructed using powder coated galvanized steel. The Truxmart Forte was also the first tonneau cover to come with a removable tool bag that acts as a cargo divider when installed. This tool bag could be removed from the tonneau cover, zippered together, and carried using a shoulder or hand strap.
4. Truxmart Quad-Fold (Introduced 2015)
The Truxmart Quad-Fold will be the first vinyl wrapped tonneau cover to fold in four sections. This cover will also allow its users full bed access by being foldable upwards towards the rear window of the truck. We chose to make the world’s first quad folding cover so this cover is more compact when standing parallel to the back window of a truck, thus eliminating wind resistance and rear window obstruction.
5. Truxmart Roll-Up (Introduced 2015)
The Truxmart Roll-Up cover takes from a long history of roll up covers in our market place. Although roll-up style covers have been in the market since the early 90’s, the Truxmart Roll-Up will offer a sleek, low-profile design, superior side seals, and rear smart latches that will allow its user to open this cover by simply pulling on the rear release loop.
6. Truxmart Forte (2
nd
Gen Lacunched in 2016 as Private Label in Canada Only)
)
Taking valuable information learned from the launch of the first generation Truxmart Forte. The all-new redesigned Truxmart Forte “GEN2” has been engineered to be easy to install and operate while being offered at an MAP price that fills a much needed void between soft and hard tonneau covers.
The GEN2 Forte cover will now be built using 6MM thick aluminum panels with a robust honeycomb core, coated in a durable matte-black scratch resistant powder coating. The GEN2 Forte cover will be 30% lighter and cost 25-30% less to manufacture. With robust packaging, the lighter weight GEN2 Forte will also save time and money with up to 10% more load quantity in a standard 40’ HC container, therefore maximizing value and product profitability. Notably, the GEN2 Forte will not come with the same cargo-division and tool bags as its predecessor, as cargo division and storage solutions are being closely reviewed and implemented with the Truxmart Alpha series of products.
The GEN2 Forte will be manufactured as a Truxmart branded product as well as a cornerstone product for private label manufacturing in North, Central, and South American markets.
In addition, we are currently re-engineering the Truxmart Smart Fold latch system based on consumer feedback. As a consequence, the next generation Smart Fold covers will be far easier to install and will be available for both domestic and imported light trucks.
Truxmart also launched its new Alpha series of tonneau covers at SEMA 2015. The Alpha products are set to be released late 2017, upon successful capital raise for new research and development. The Alpha and Alpha Helios model covers are anticipated to be very successful in the automotive aftermarket.
Production and Delivery
Truxmart products are manufactured to our specifications and design in China. All of our soft (vinyl) covers are made in a factory in Ningbo, China. All future Truxmart hard products are manufactured in China. Our soft cover factory is capable of producing 3,000 pieces per month and our hard cover factory is capable of producing 1,500 pieces per month. Production at both factories can be increased within thirty days to facilitate volumes up to ten times the Chinese contract manufacturers’ current output without any stress on their capacity.
Employees
Currently, we employ 1 full-time person. We may hire additional employees in the future to facilitate anticipated growth projections. We reimburse our employee for all necessary and customary business related expenses.
We have no plans or agreements which provide health care, insurance or compensation on the event of termination of employment or change in our control.
Proprietary Information
Patent
As of this date, the Company through Mr. Rossi has obtained one U.S. Patent. In addition, the Company retained patent counsel in October 2014 to file two provisional U.S. patent applications, also in this arena. Truxmart has paid $7,718 since approximately October 26, 2012, toward the costs of obtaining US Patent 8,814,249 - System for securing a truck bed cover, (filed October 26, 2012, granted May 1, 2014). This patent is owned by Steven Rossi, previously the sole stockholder of Truxmart. Under an exclusive license agreement between the Company and Mr. Rossi, dated November 26, 2014, Truxmart has the right to commercialize this patent. Under this agreement, Truxmart is not obligated to pay any royalties to Mr. Rossi. It is, however, obligated to pay any expenses incurred to keep the patent in full force and effect. In 2015 Steven Rossi, CEO of Truxmart, filed two patent applications and one provisional patent application all under exclusive license to Truxmart.
Government Regulation
We believe that governmental regulation will not be significant to us now or in the future.
Research and Development
We will spend for research and development activities on an ongoing basis.
Environmental Compliance
We believe that we are not subject to any material costs for compliance with any environmental laws.
How to Obtain our SEC Filings
We file annual, quarterly, and special reports, proxy statements, and other information with the Securities Exchange Commission (SEC). Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC’s website at www.sec.gov.
Our investor relations department can be contacted at our principal executive office at 3120 Rutherford Road, Suite 414, Vaughan, Ontario, Canada L4K 0B2. Our phone number is (888) 554-8789. Our website is www,franchiseholdingsinternational.com