Why did Exit restate its 2023 financial statements?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
se accounts receivable balances individually represented 10% or more of the Company's total accounts receivable as follows:
For the year ended December 31, 2024, four customers accounted for 67% of the Company's accounts receivable balance. For the year ended December 31, 2023, four customers accounted for 66% of the Company's accounts receivable balance. For the year ended December 31, 2022, three customers accounted for 37% of the Company's accounts receivable balance.
NOTE 11 – RELATED PARTY TRANSACTIONS
In the ordinary course of business, the company periodically advances funds to and receives funds from one of its shareholders. For the year ended December 31, 2023, the advances to and from shareholder were non-interest bearing. Effective for the year ended December 31, 2024, the Company began imputing interest based on the blended annual federal rate of 5.03%. Interest accrued during the year ended December 31, 2024 totaled $714, which was capitalized and added to the principal balance of the note. As of December 31, 2024 and 2023, the total outstanding balance of stockholder advances, including accrued and capitalized interest, is $14,860 and $14,250, respectively payable on demand.
NOTE 12 - RESTATEMENT
In 2024, it was discovered that the Company had not correctly accounted for various receivables it had submitted for reimbursement to Exit Realty Corp. International for advertising costs incurred during the year ended December 31, 2023, which resulted in under reported accounts receivable and over reported advertising costs. As a result, the Company has restated the 2023 financial statements to report the correct balances.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company restated its 2023 financial statements because it had not correctly accounted for certain receivables related to advertising costs. Specifically, Exit had submitted these receivables to Exit Realty Corp. International for reimbursement. This error led to an underreporting of accounts receivable and an overreporting of advertising costs in the original 2023 financial statements. The restatement was performed to correct these balances.
In 2023, Exit applied for reimbursements from Exit Realty Corp. International totaling $49,162 for advertising costs. The company also reclassified reimbursements from sponsorship revenue to advertising costs for the years ended December 31, 2023, in the amount of $34,952. In addition to the reclassification in 2023, the Company recognized an additional $14,210 of reimbursements receivable, which resulted in a total decrease of $49,162 to advertising costs for the year ended December 31, 2023.
For a prospective franchisee, this restatement indicates that Exit has taken steps to ensure the accuracy of its financial reporting. While restatements can sometimes raise concerns, the explanation provided suggests that the issue was identified and corrected. It is advisable for potential franchisees to review the restated financial statements carefully and seek clarification from Exit regarding the specific changes made and their impact on the company's financial performance. Understanding the details of the restatement can provide a clearer picture of Exit's financial health and stability.