As a prospective franchisee or seller of a Cinnaholic franchise, what should I be aware of regarding the attached financial statements?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
ITEM 21 FINANCIAL STATEMENTS
Attached to this Document Disclosure as Exhibit H is our unaudited profit and loss statement and balance sheet as of April 30, 2025, and our audited financial statements for the periods ending December 31, 2024, December 31, 2023, and December 31, 2022. We have adopted the modified retrospective transition method provisions of FASB ASC Topic 606.
EXHIBIT H
FINANCIAL STATEMENTS
[SEE ATTACHED] THESE FINANCIAL STATEMENTS ARE PREPARED WITHOUT AN AUDIT. PROSPECTIVE FRANCHISEES OR SELLERS OF FRANCHISES SHOULD BE ADVISED THAT NO CERTIFIED PUBLIC ACCOUNTANT HAD AUDITED THESE FIGURES OR EXPRESSED HIS/HER OPINION WITH REGARD TO THE CONTENT OR FORM.
Balance Sheet
As of April 30, 2025
MUHAMMAD ZUBAIRY, CPA PC
Certified Public Accountant 646.327.7013
INDEPENDENT AUDITOR'S REPORT
To the Members of Cinnaholic Franchising, LLC
Opinion
We have audited the financial statements of Cinnaholic Franchising, LLC, which comprises the balance sheets as of December 31, 2024 and 2023, and the related statements of operations, and changes in members' (deficit), and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of Cinnaholic Franchising, LLC as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Cinnaholic Franchising, LLC, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Basis of Accounting-The accompanying financial statements have been prepared on an accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or disbursement of funds.
Franchise Arrangements-The Company's franchise arrangements generally include a license which provides for payments of initial fees as well as continuing royalties to the Company based upon a percentage of sales. Under this arrangement, franchisees are granted the right to operate a Cinnaholic bakery for a specified number of years.
Concentration of Credit Risk-Financial instruments primarily consist of cash and cash equivalents. The cash balances in the company's account as of December 31, 2024 was $54,178. The Company maintains its cash and cash equivalents with accredited financial institutions.
The non-refundable franchise fees received but not yet earned as of December 31, 2024 and 2023, were $2,728,141 and $3,288,772, respectively. Prepaid commissions paid but not expensed as of December 31, 2024 and 2023, were $884,883 and $972,229, respectively.
Marketing fund fees collected and expended for the years ending December 31, 2024 and 2023 were $309,415 and $610,238, respectively.
Marketing fund fees collected but not yet spent as of December 31, 2024 and 2023 were $0 and $0, respectively.
At December 31, 2024 and 2023, the balances due to a related party was $520,959 and $377,838, respectively.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 61)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, several aspects of the financial statements should be carefully considered by prospective franchisees or sellers. Exhibit H includes an unaudited profit and loss statement and balance sheet as of April 30, 2025, along with audited financial statements for the years ending December 31, 2024, December 31, 2023, and December 31, 2022. It is important to note that the financial statements as of April 30, 2025, are unaudited, meaning they have not been independently verified by a Certified Public Accountant.
The financial statements for the years 2022, 2023, and 2024 have been audited by Muhammad Zubairy, CPA PC. The auditor's report expresses an opinion that the financial statements present fairly the financial position, results of operations, and cash flows of Cinnaholic Franchising, LLC in accordance with accounting principles generally accepted in the United States of America. The audit was conducted following generally accepted auditing standards (GAAS), ensuring independence and adherence to ethical responsibilities.
The notes to the financial statements provide additional context. Notably, Cinnaholic's accounting policies follow the accrual basis, where revenues are recognized when earned and expenses when incurred, irrespective of cash flow. Franchise arrangements involve initial fees and ongoing royalties based on a percentage of sales. As of December 31, 2024, the company's cash balance was $54,178, compared to $42,590 as of December 31, 2023. The company also has contract liabilities related to non-refundable franchise fees, which were $2,728,141 as of December 31, 2024, and $3,288,772 as of December 31, 2023. Prepaid commissions were $884,883 and $972,229 for the same periods, respectively. These figures can help a prospective franchisee understand the financial obligations and revenue recognition practices of Cinnaholic.
Cinnaholic also collects marketing fund fees, which are restricted to advertising. In 2024, $309,415 was collected and expended, while in 2023, this figure was $610,238. Unused funds are carried forward, but the amounts unspent as of December 31, 2024 and 2023 were $0. Additionally, Cinnaholic engages in related party transactions, with balances due to a related party amounting to $520,959 as of December 31, 2024, and $377,838 as of December 31, 2023. These transactions are interest-free and payable upon demand. Understanding these aspects of Cinnaholic's financial practices is crucial for making an informed decision as a prospective franchisee or seller.