Under what circumstances does Buona recognize Area Development Agreement (ADA) fees as non-refundable revenue?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company may also receive fees for Area Development Agreements which give the Franchisee rights to open future locations within their designated market area within the specified development schedule laid out in the agreement. Area development fees received are considered deferred revenue until 1) the franchisee executes the franchise agreements for the new locations or 2) the execution date in the ADA passes. In the event that new franchise agreements are signed within the terms of the development schedule, ADA fees are amortized over the course of the new franchise agreement. In the event that the deadline passes, ADA fees are recognized as non-refundable revenue.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, the company receives fees for Area Development Agreements (ADA), which grant franchisees the right to open future locations within a specific market area according to a development schedule. These ADA fees are initially considered deferred revenue. This means Buona doesn't immediately recognize the full amount as earned income. Instead, it waits until certain conditions are met.
Buona recognizes ADA fees as non-refundable revenue under a specific circumstance: when the execution date outlined in the Area Development Agreement passes. This implies that if a franchisee fails to open the agreed-upon number of locations within the set timeframe, Buona then recognizes the remaining unamortized ADA fees as revenue.
In contrast, if the franchisee successfully executes franchise agreements for new locations within the development schedule, the ADA fees are amortized over the course of the new franchise agreements. Amortization means that the fee is recognized as revenue gradually over the life of the franchise agreement, rather than all at once. This policy incentivizes franchisees to adhere to the development schedule outlined in their agreement, as failure to do so results in the immediate recognition of the remaining ADA fees as income for Buona.