The Mark Wahlberg-backed fitness franchise F45 is hanging by a thread after releasing its restated financial accounts which show it has made a financial loss of more than $US370 million ($582 million) over the last two financial years.
The updated accounts for the financial year ending December 31, 2022 also included confirmation that the company faces legal action by football legend David Beckham and golfer Greg Norman, who are seeking damages of no less than $US20 million ($31.5 million) in the US District Court of California over payment for their endorsements of the business.
Mark Wahlberg and F45 co-founder Adam Gilchrist have been targeted by a shareholder class action while Greg Norman (in the background) is also suing the company.Credit: AP
Most of the money is owed to Beckham, who is alleging a breach of contract of his promotional agreement and is seeking $US18.85 million.
“The company disputes these claims and intends to vigorously defend itself,” F45 said in its financial statements.
But F45 also cautioned “there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial condition, or cash flows.”
The fitness group also confirmed its own investors have launched a class action against the company as well as current and former board members including Wahlberg and co-founder Adam (not the cricketer) Gilchrist. Pledge Capital is the lead plaintiff and US law firm Labaton Sucharow is its legal representative.
The investors allege misleading statements were made by the group ahead of its disastrous public float in July 2021.
Investors, some of whom paid $US16 per share in the July 2021 public float on the New York Stock Exchange (NYSE), watched the stock hit a record low of just US7.26¢ last month, just before it was ejected from the stock exchange.
F45 has filed a motion to dismiss the complaint and said the motion is expected to be fully briefed in November.
“The company intends to zealously defend against the allegations,” it said.
F45 started with one gym in Australia in 2013. It developed the global franchise on the back of 45-minute functional, high-intensity interval and circuit training classes. But trouble became apparent last year when a loan deal, to help fund the massive growth of its franchises, fell through. The company issued a significant downgrade and cut nearly half of its staff, which triggered further scrutiny of its operations.
The company has not held an earnings update since November last year and has lost two chief financial officers since then. The 2022 accounts are the first financial statements it has released since last year.
F45 has yet to release any of its financial results for the current financial year ending December 31, 2023.
The results are expected to show further losses and the business may need further funding after burning through more than $US136 million worth of cash over the 2021 and 2022 financial years. In the latest accounts, the company acknowledged risks to its ability to continue as a going concern. It has received fresh funding this year, but lenders have relaxed their debt covenants.
F45 admitted in July this year that it would need to restate its financial accounts dating to the 2021 financial year due to revenue reporting errors that mean losses were significantly higher than reported.
The delayed accounts have had a major impact on its growth with F45 saying it has not been able to sell any new franchises in the US market since April as it must provide a franchise disclosure document (FDD) to prospective franchisees from its prior financial year.
“As a result of the delay in our ability to provide audited financial statements as of and for the year ended December 31, 2022, we have not been able to update our FDDs for sales purposes during 2023. Therefore, we have not been able to sell any franchises in the United States in 2023 since April 2023 and will not be able to commence sales until the filing of our 2023 FDDs,” it said.
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