What constitutes intentionally understating or underreporting Gross Sales, Royalty Fees or Marketing Contributions by an Alloy franchisee?
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 at any time can lead to serious repercussions. If a subsequent audit or evaluation within a 3-year period reveals an understatement of 3% or more, Alloy has the right to terminate the Franchise Agreement immediately. This applies in addition to any other legal or equitable remedies available to Alloy.
To verify the accuracy of reported sales, Alloy reserves the right to reconstruct sales figures using methods like the inventory extension method or any other reasonable analysis. Franchisees are obligated to accept such reconstructions unless they provide satisfactory evidence of their actual sales within 14 days of receiving notice of the understatement or variance. Full cooperation with Alloy or its representatives during these activities is mandatory, and any expenses incurred by Alloy due to a franchisee's lack of cooperation will be reimbursed by the franchisee.
This clause highlights the importance of accurate and transparent financial reporting for Alloy franchisees. Underreporting sales, even unintentionally, can lead to audits and potential financial penalties. Intentionally underreporting sales has even more severe consequences, including immediate termination of the franchise agreement. Prospective franchisees should understand the implications of this clause and ensure they have systems in place to accurately track and report their Gross Sales.