When preparing Amorino's financial statements, what is management required to evaluate regarding the company's ability to continue as a going concern?
Amorino Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company was formed to act as the franchisor for Amorino, and is wholly owned by its parent. Since inception, the Company has incurred net losses and has reported a deficit of member's equity. As described previously, the operations of the Company are interrelated with its parent and affiliate. Management expects to continue operating the business as a going concern. Management believes that the Company has sufficient cash on hand and that liabilities such as deferred revenue do not represent amounts that will require future settlement in cash. Should it become necessary, the Parent has committed to provide additional financing if the Company is unable to meet its obligations on its own.
Source: Item 22 — CONTRACTS (FDD pages 80–81)
What This Means (2025 FDD)
According to Amorino's 2025 Franchise Disclosure Document, management must evaluate the company's ability to continue as a going concern when preparing financial statements. This evaluation includes assessing whether the company has sufficient cash on hand and whether liabilities, such as deferred revenue, will require future settlement in cash. Amorino's management believes they have sufficient cash and that deferred revenue will not require cash settlement.
Since its inception, Amorino has incurred net losses and reported a deficit in member's equity. The company's operations are closely tied to its parent company and affiliate. The parent company has committed to providing additional financing if Amorino cannot meet its obligations independently.
This commitment from the parent company is a crucial factor in the assessment of Amorino's ability to continue as a going concern. Without this support, there could be substantial doubt about Amorino's ability to continue operating. Prospective franchisees should be aware of this reliance on the parent company's financial support and consider the potential risks associated with it.