What is the relationship between Golden Krust Caribbean Restaurant and Golden Krust Caribbean Bakery, Inc.?
Golden_Krust_Caribbean_Restaurant Franchise · 2024 FDDAnswer from 2024 FDD Document
-----------| | Federal Income Tax Expense | $ (56,475) | $ - | | State and Local Tax Recovery (Expense) | (19,107) | 71,877 | | Recovery of (Provision for) Income Taxes | $ (75,582) | $ 71,877 |
NOTE 7 RELATED PARTIES
The Company, through common ownership, has a relationship with Golden Krust Caribbean Bakery, Inc. (Bakery), which provides a significant amount of the food and beverage products that are sold in the Company's restaurants, as well as in the franchisees of the Company. Additionally, general and administrative functions and resources are shared between the two companies. These general and administrative expenses, charged to selling, general, and administrative expenses on the consolidated statements of operations, were $142,186 and $145,391 during 2023 and 2022, respectively.
During 2023 and 2022, Bakery sales to the Company-owned restaurants aggregated approximately $605,000 and $922,000, respectively.
The Company also entered into an agreement with Bakery, whereby any related party receivables or payables will accrue interest at a rate of 1% per annum on any balances between the two companies. At December 31, 2023 and 2022, there were amounts due between the two companies of $75,031 and $4,657,186, respectively. Interest on these balances, charged to interest expense in the statements of operations totaled $7,630 and $44,615 for 2023 and 2022, respectively.
In November 2023, the Company agreed to pay Bakery $5,180,961 through a promissory note. The note has a term of 84 months and will mature on October 31, 2029. For the first 36 months, the Company will pay a monthly installment of $87,35
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Golden Krust Caribbean Restaurant's 2024 Franchise Disclosure Document, Golden Krust Franchising, Inc. has a relationship with Golden Krust Caribbean Bakery, Inc. through common ownership. The Bakery is a key supplier, providing a significant amount of the food and beverage products sold in both company-owned and franchised Golden Krust Caribbean Restaurant locations. This close relationship also involves shared general and administrative functions and resources.
Financially, this relationship is reflected in several ways. During 2023 and 2022, Bakery sales to Golden Krust Caribbean Restaurant's company-owned restaurants totaled approximately $605,000 and $922,000, respectively. Additionally, there's an agreement in place where any receivables or payables between the two entities accrue interest at a rate of 1% per annum. As of December 31, 2023 and 2022, the amounts due between the companies were $75,031 and $4,657,186, respectively, with interest on these balances totaling $7,630 and $44,615 for the same years.
Furthermore, in November 2023, Golden Krust Caribbean Restaurant agreed to pay the Bakery $5,180,961 through a promissory note. This note has an 84-month term, maturing on October 31, 2029. For the first 36 months, Golden Krust Caribbean Restaurant will pay monthly installments of $87,354, which includes 10.5% interest. After this initial period, the monthly installment will be adjusted based on the remaining balance and prevailing interest rates. This financial interdependence highlights the importance of the Bakery to the overall Golden Krust Caribbean Restaurant system.
For a prospective franchisee, this related-party transaction means that a significant portion of the supplies will be purchased from an affiliated entity. While this could streamline supply chains, it also warrants careful consideration of pricing, quality control, and potential conflicts of interest. A franchisee should seek clarity on how these related-party transactions are managed to ensure fair and competitive terms.