What are the consequences if an Alloy franchisee intentionally understates or underreports Gross Sales, Royalty Fees or Marketing Contributions?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
related thereto. Furthermore, if you intentionally understate or underreport Gross Sales at any time, or if a subsequent audit or evaluation conducted within the 3-year period reveals any understatement of your Gross Sales of 3% or more, in addition to any other remedies provided for in this Agreement, at law or in equity, we have the right to terminate this Agreement immediately. In order to verify the information that you supply, we have the right to reconstruct your sales through the inventory extension method or any other reasonable method of analyzing and reconstructing sales. You agree to accept any such reconstruction of sales unless you provide evidence in a form satisfactory to us of your sales within a period of 14 days from the date of notice of understatement or variance. You must fully cooperate with us or our representative in performing these activities and any expenses incurred by us from your lack of cooperation shall be reimbursed by you.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, intentionally understating or underreporting Gross Sales can lead to serious repercussions. If Alloy discovers that a franchisee has intentionally underreported their Gross Sales, or if an audit reveals an understatement of 3% or more within a 3-year period, Alloy has the right to immediately terminate the Franchise Agreement. This applies in addition to any other legal or equitable remedies Alloy might pursue.
To verify sales information, Alloy can reconstruct sales data using methods like the inventory extension method or any other reasonable analysis. The franchisee must accept this sales reconstruction unless they provide satisfactory evidence of their actual sales within 14 days of receiving notice of the understatement.
Furthermore, the franchisee is obligated to fully cooperate with Alloy or its representatives during audits or evaluations. Any expenses Alloy incurs due to a franchisee's lack of cooperation must be reimbursed by the franchisee. This highlights the importance of accurate and transparent financial reporting to maintain a good standing with the Alloy franchise and avoid potential termination or financial penalties.