For Dermani Medspa, what year is used as the basis for the unearned revenue changes disclosed in Note 8?
Dermani_Medspa Franchise · 2025 FDDAnswer from 2025 FDD Document
as, ranges of probable losses. When it has been determined that a loss is probable and the amount can be reasonably estimated, the Company will record a liability. For the year ended December 31, 2023, there were no material legal contingencies requiring accrual or disclosure.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2023
8. RIGHT OF FIRST REFUSAL
The Company has the "right of first refusal," which gives them the right to purchase and acquire a franchised business under various circumstances, as more fully described in the Franchise Disclosure Document. Management does not plan to exercise their right of first refusal.
9. UNEARNED REVENUE
Initial franchise fees are received upon the franchisee's signing of a franchise agreement. Three performance obligations are identified related to initial franchise fees as described in Note 2. The following table provides information about significant changes in the unearned revenue for the year ended December 31, 2023:
| The Company | has evaluated | all subsequent events | through April | 5, 2023, | the date these | financial |
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NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2023
10. OPERATING REVENUES
The Company's revenue is based on the timing of satisfaction of performance obligations. The Company has applied the optional exemption under paragraph 606‐10‐50‐14A(a).
Source: Item 23 — RECEIPTS (FDD pages 66–311)
What This Means (2025 FDD)
According to Dermani Medspa's 2025 Franchise Disclosure Document, the provided excerpts do not contain a "Note 8" regarding unearned revenue changes. However, the excerpts do contain information on operating revenues in the NOTES TO THE FINANCIAL STATEMENTS. Specifically, the financial statements as of December 31, 2023, state that $1,120,005 of initial franchise fees received have not been earned by the Company as of that date. Similarly, the financial statements as of December 31, 2022, state that $459,006 of initial franchise fees received have not been earned by the Company as of that date.
This means that Dermani Medspa recognizes revenue from franchise fees over time, as the services related to those fees are provided. The initial franchise fee is not fully earned upon payment but is instead recognized over the term of the franchise agreement, which is typically ten years. The unearned portion represents the amount of franchise fees received for which Dermani Medspa has not yet completed its performance obligations.
For a prospective franchisee, this accounting practice means that Dermani Medspa's reported revenue in any given year may not fully reflect the total franchise fees collected. It also highlights the importance of understanding the franchisor's obligations under the franchise agreement and the timing of when those obligations are fulfilled. A potential franchisee should inquire about the specific services included in the initial franchise fee and the timeline for their delivery to fully understand how Dermani Medspa recognizes revenue and what portion remains unearned at any point in time.
While the excerpts do not contain a "Note 8", they do provide insight into how Dermani Medspa handles revenue recognition, particularly concerning initial franchise fees. A prospective franchisee should consult the complete FDD and speak with the franchisor to gain a comprehensive understanding of all notes to the financial statements, including any that specifically address changes in unearned revenue.