How does Alloy account for the right to access its intellectual property and administration of the brand fund?

According to Alloy's 2025 Franchise Disclosure Document, the company has determined that the right to access its intellectual property and the administration of the brand fund are highly interrelated. Therefore, Alloy accounts for them as a single performance obligation. Revenues from the brand fund are considered sales-based royalties related to the right to access Alloy's intellectual property. These revenues are recognized as franchisee sales occur.

Alloy maintains a brand fund to collect and administer funds for advertising and promotional programs for franchise units. Brand fund fees are collected from franchisees based on a percentage of their gross sales. Alloy acts as the principal in the collection and administration of the brand fund, recognizing both the revenues and expenses related to the fund on a gross basis. This means Alloy includes the total revenue and total expenses in its financial statements rather than netting them out.

When brand fund fees exceed the related brand fund expenses in a reporting period, Alloy accrues advertising costs up to the amount of brand fund revenues recognized. This indicates that Alloy aims to align its advertising expenses with the revenue generated from the brand fund, ensuring that the funds collected are used for their intended purpose of advertising and promotion. This approach provides transparency and accountability in how Alloy manages and utilizes the brand fund for the benefit of its franchisees.