[startupcfo]

When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. Management most likely would consider, as a mitigating factor, the entity’s plans to:

The clear answer to me (and the right one) was an answering about leasing instead of purchasing a factory. Makes total sense.

What I didn’t understand was why this was an answer that hurts the company’s ability to continue:

issue stock options to key executives.

The rationale given is that ” Issuing stock options to key executives would increase ownership equity, but stock options involve a right to purchase stock at a certain price in the future. These options would cost the company money. ”

Why would stock options cost the company money? Stock options only create a scenario where those execs would pay cash into the company for stock right? Are they saying it would cost the company money because a strike price of $5 on options would hurt the company when the market price of the stock is $8?

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Missy]

Because issuing stock options won't mitigate the issues that raise concerns.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Tom]

I don't think the point is that stock options hurt going concern.

I believe it's that they are not a mitigating factor.

[startupcfo]

yeah but the rationale goes so far as to say “These options would cost the company money”

That's the part i'm questioning

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[demarcon]

Stock options are a form of compensation expense. You would be booking an expense onto your books at the grant date. Also, it costs money to issue stock, so depending on if you already had the stock in the treasury it could get expensive to issue it.

[Author]

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