UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended June 30, 2016

or

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from _______________ to ______________

Commission File Number: 000-27631

3120 Rutherford Road, Suite 414

Vaughan, Ontario, Canada L4K 0B2

(Address of principal executive offices) (Zip Code)

(888) 554-8789

Registrant's telephone number, including area code

______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One).

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

As of August 1, 2016, the number of shares outstanding of the registrant's class of common stock was 67,288,142.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying notes form an integral part of these financial statements.

The accompanying notes form an integral part of these financial statements.

The accompanying notes form an integral part of these financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following management's discussion and analysis ("MD&A") should be read in conjunction with financial statements of FNHI for the three and six months ended June 30, 2016 and 2015, and the notes thereto. Additional information relating to FNHI is available at www.fnhi.net

Safe Harbor for Forward-Looking Statements

Certain statements included in this MD&A constitute forward-looking statements, including those identified by the expressions anticipate, believe, plan, estimate, expect, intend, and similar expressions to the extent they relate to FNHI or its management. These forward-looking statements are not facts, promises, or guarantees; rather, they reflect current expectations regarding future results or events. These forward-looking statements are subject to risks and uncertainties that could cause actual results, activities, performance, or events to differ materially from current expectations. These include risks related to revenue growth, operating results, industry, products, and litigation, as well as the matters discussed in FNHI's MD&A under Risk Factors. Readers should not place undue reliance on any such forward-looking statements. FNHI disclaims any obligation to publicly update or to revise any such statements to reflect any change in the Company's expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this report.

Results of Operations

Revenue

For the six months ended June 30, 2016, revenue generated from the entire line of TruXmart products was $119,375, as compared to $270,272 for the six months ended June 30, 2015. The year over year decrease of approximately 56% was mainly attributable the availability of inventory to satisfy customer orders. During the six months ended June 30, 2016, the Company incurred a shortage of inventory that resulted in a reduced amount of sales for the period. For the three months ended June 30, 2016, revenue generated from the entire line of TruXmart products was $25,867 as compared to $192,096 for the three months ended June 30, 2015. The year over year decrease of approximately 87% was mainly attributable to not having sufficient levels of inventory to fulfill orders.

For the six months ended June 30, 2016, revenue generated in Canada was $77,602 compared to $119,823 for the same period in 2015, a decrease of 35%. This decrease in sales is attributable to the introduction of the new products into Canada as a test market before introducing into the USA. For the three months ended June 30, 2016, revenue generated in Canada was $10,288 compared to $90,618 for the same period in 2015, a decrease of 89%. In addition to effect of insufficient levels of inventory to satisfy orders during the period ended June 30, 2016, the relative weakening of the Canadian Dollar compared to the United States Dollar during the first six months of fiscal 2016 had a negative effect on reported revenues as a result of translating the sales denominated in Canadian Dollars to United States Dollars for financial statement reporting purposes. Canadian Dollar Sales decreased to CDN$103,342 from CDN$148,017, an decrease of 30% during the six months ended June 30, 2016. For the three months ended June 30, 2016, Canadian Dollar sales decreased to CDN$13,701 from CDN$112,440 during the three months ended June 30, 2015. For the six months ended June 30, 2016 revenue generated in the United States was $41,774 compared to $150,449 for the same period in 2015. For the three months ended June 30, 2016 revenue generated in the United States was $13,469 compared to $100,938 for the same period in 2015. These represent year-over-year decreases in US- source revenue of approximately 72% and 87%, respectively, and is primarily attributable to limited inventory in stock.

Sales from online retailers of the TruXmart products decreased from $139,043 in the six months ended June 30, 2015 to $41,575 in the six months ended June 30, 2016, a decrease of 70%. The online retailers accounted for over 34% of total revenue for the six months ended June 30, 2016, compared to 65% for the six months ended June 30, 2015. Distributor sales decreased from $62,280 in 2015, to $51,332 in 2016. The remaining revenues consist of sales from key area dealers.

Sales from online retailers of the TruXmart products decreased from $102,113 in the three months ended June 30, 2015 to $ $12,771.61 in the three months ended June 30, 2016, a decrease of 87%. The online retailers accounted for over 56% of total revenue for the three months ended June 30, 2016, compared to 47% for the three months ended June 30, 2015. Distributor sales decreased from $62,280 in three months ended June 30^th, 2015, to $6,675 in 2016. The remaining revenues consist of sales from key area dealers.

Currently, TruXmart has one major distributor in Canada, one in the United States, along with its own contracted distribution and inventory facility in Pennsylvania. This does not include multiple independent online retailers.

Although TruXmart currently supports a total of 16 dealers and distributors, TruXmart believes the trend of increasing sales through online retailers will continue to outpace the traditional distribution business model. Moreover, reputable online retailer's customers tend to provide larger sales volumes, greater margin of profit as well as greater protection against price erosion.

Cost of Sales

Cost of sales decreased for the first six months of 2016 as compared to the first six months of 2015 by 53% from $218,007 to $102,586, representing 86% of revenue. This decrease was primarily due to a corresponding decrease in sales for the period as well as the addition of shipping and freight costs to cost of sales which were expensed in prior periods. Our cost of sales, as a percentage of sales, was approximately 81% and 86% for the six months ended June 30, 2015 and 2016, respectively. During the three months ended June 30, 2016, cost of sales decreased by 90% to $15,369 from $155,721 in the three months ended June 30, 2015. This decrease was due to a corresponding decrease in sales for the period. Cost of sales, as a percentage of sales was approximately 81% and 59% for the three months ended June 30, 2015 and 2016. The decrease in the percentage of cost of sales is due to the majority of the sales for the period ended June 30, 2016 being to Canadian customers that generally have lower shipping costs than sales to U.S. customers. Freight costs were $16,142 and $36,550 for the six month periods ended June 30, 2016 and 2015, respectively, and $3,688 and $23,880 for the three month periods ended June 30, 2016 and 2015.

TruXmart provides its distributors and online retailers an "all-in" wholesale price. This includes any import duty charges, taxes and shipping charges. Discounts are applied if the distributor or retailer chooses to use their own shipping process. Certain exceptions apply on rare occasions where product is shipped outside the contiguous United Sates or from the United States to Canada. Volume discounts are also offered to certain higher volume customers.

Gross Margin

Gross margin percentage for the six month periods ended June 30, 2016 and 2015 were 14% and 19% respectively. The decrease in gross margin is primarily related to the fluctuation in foreign exchange rates used to translate Canadian Dollar sales into United States Dollars for purposes of financial reporting – while sales denominated in Canadian Dollars decreased by 30% and United States Dollars decreased by 72%, the decrease in aggregate sales reported in United States Dollars was 56 % as a result of the weakened Canadian Dollar.

Operating Expenses

Operating expenses for the six months ended June 30, 2016 were $191,906 compared to $857,230 for the six months ended June 30, 2015. Operating expenses for the three months ended June 30, 2016 were $107,693 compared to $816,364 for the three months ended June 30, 2015. Our general and administrative expense decreased by $53,460, from $102,504 to $49,044, during the six months ended June 30, 2016 and $65,222, from $84,437 to $19,215, during the three months ended June 30, 2016. This decrease is a result of decreased shipping and freight expenses. During the three and six month periods ended June 30, 2015, the Company had significant costs associated with shipping our new hard cover which costs about twice the amount of the other tonneau cover to ship. As sales of these covers were reduced during the three and six month periods ended June 30, 2016, so too were the associated shipping and freight expenses. Sales and marketing decreased by $70,919 to $38,588 from $109,507 during the six months ended June 30, 2016 and by $83,935 from $101,142 to $17,207 during the three months ended June 30, 2016. These decreases are due to decreased trade show expenses year-over-year as well as the fact that common shares with a fair value of $73,500 were issued during the three months ended June 30, 2015, a transaction that did not occur during the three or six month periods ended June 30, 2016. Professional fees which include accounting, legal and consulting fees, decreased from $646,820 for the six months ended June 30, 2015 to $97,889 for the six months ended June 30, 2016 and also decreased from $632,836 for the three months ended June 30, 2015 to $63,518 for the three months ended June 30, 2016.During the three months ended June 30, 2015, the Company issued shares of the Company's capital stock to various consultants with respect to marketing, brand development and capital and financial structuring. The Company incurred consulting expenses of $517,664 related to the fair value of the shares. The Company did not incur any such transactions during the three and six month periods ended June 30, 2016.

Other Income and Expenses

Late in the 2015 fiscal year and in the first half of fiscal 2016, the Company borrowed funds for working capital requirements in exchange for promissory notes, one of which is convertible into shares of the Company's common stock. During the three and six month periods ended June 30, 2016, the Company incurred interest of $6,019 and $12,336, respectively, related to these notes. The remaining balance of interest expense relates to the amortization of debt issuance costs described below and regular bank charges and interest.

During the three and six month period ended June 30, 2016, the Company issued a convertible promissory note in the amount of $77,750 which was determined to be a hybrid financial instrument that included an embedded derivative that requires separation from the main financial instrument and recognition at fair value (see note 5 of the Financial Statements for the three and six month periods ended June 30, 2016 and 2015). At the time of origination, the fair value of the derivative liability was $136,479 and this amount was expensed as a loss on derivative. Between the time of origination and June 30, 2016, the fair value of the derivative liability increased by $874, resulting in a fair value of $137,353 as at June 30, 2016 and a net loss on derivative in the same amount during the three and six month periods ended June 30, 2016. In connection with the issuance of the convertible promissory note payable, the Company incurred debt issuance costs of $7,500 which are being amortized to debt issuance expense over the maturity period of the convertible promissory note. As a result, the Company incurred debt issuance costs expense of $246 which has been charged to interest expense during the three and six month periods ended June 30, 2016.

Net Loss

Net loss for the three and six month periods ended June 30, 2016 were $241,933 and $329,286, respectively, compared to net losses of $822,174 and $847,860 for the three and six month periods ended June 30, 2015. The decreases in the net losses were mainly due to the decrease in various expenses, in particular professional fees, sales and marketing and shipping expenses, as well as reduced gross margin as discussed above.

Liquidity and Capital Resources

Cash Flow Activities

Cash increased from $14,466 at December 31, 2015 to $32,252 at June 30, 2016. This increase was primarily the result of the receipt of the proceeds of the convertible promissory note payable issued during the three month period ended June 30, 2016. Accounts receivable decreased by $83,676 from $95,563 at December 31, 2015 to $11,887 at June 30, 2016. Inventory decreased by $39,889 from $129,006 at December 31, 2015 to $89,117 at June 30, 2016 largely as a result of the timing of the receipt of inventory shipments. Accounts payable and accrued liabilities increased by $45,344 from $248,300 at December 31, 2015 to $293,644 at June 30, 2016. The increase in payables is related to the accrual of various professional fees during the six months ended June 30, 2016.

Financing Activities

During the first six months of 2016, TruXmart funded working capital requirements principally through cash flows from operations, the issuance of a convertible promissory note in the amount of $77,750 and the receipt of outstanding share subscription proceeds of $9,900.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements with any party.

Critical Accounting Policies

Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The accounting policies that we follow are set forth in Note 2 to our financial statements as included in this quarterly report. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a "smaller reporting company," as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information in this Item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") (the Company's principal financial and accounting officer), of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. The framework used by management in making that assessment was the criteria set forth in the document entitled "Internal Control – Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based upon that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures are not effective as of June 30, 2016 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure for the reason described below.

Because of our limited operations, we have limited number of employees which prohibits a segregation of duties. In addition, we lack a formal audit committee with a financial expert. As we grow and expand our operations we will engage additional employees and experts as needed. However, there can be no assurance that our operations will expand.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations over Internal Controls

FNHI's management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within FNHI have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Our disclosure controls and procedures are designed to provide reasonable assurance of that our reports will be accurate. Our Chief Executive Officer and Principal Accounting Officer concludes that our disclosure controls and procedures were effective at that reasonable assurance level, as of the end of the period covered by this Form 10-Q. Our future reports shall also indicate that our disclosure controls and procedures are designed for this reason and shall indicate the related conclusion by the Chief Executive Officer and Principal Accounting Officer as to their effectiveness.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material or legal proceeding and, to our knowledge, none is contemplated or threatened.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the six months ended June 30, 2016, the Company did not complete any unregistered sale of equity securities.

Item 3. Defaults Upon Senior Securities

There have been no defaults upon senior securities.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

As a "smaller reporting company," as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information in this Item.

Item 6. Exhibits

(a) Exhibits

____________

* Filed as an exhibit to the registrant's Form 10-QSB, filed October 13, 1999 and incorporated by reference herein.

# Filed as an exhibit to the registrant's Form 10-Q, filed April 24, 2009 and incorporated by reference herein.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.