What do contract liabilities represent for Crave Cookies?

According to the 2025 Crave Cookies FDD, contract liabilities represent Crave Cookies's obligation to provide goods or services to a customer after receiving payment. Specifically, these liabilities consist of deferred franchise fee revenues on the balance sheet. This means that Crave Cookies has received franchise fees but has not yet earned the revenue because they have not yet fulfilled their obligations to the franchisee.

For a prospective Crave Cookies franchisee, this is important because it reflects how Crave Cookies recognizes revenue. The FDD states that a portion of the proceeds from the sale of franchises is recognized as revenue when Crave Cookies has performed substantially all services for the franchise, typically upon completion of new franchise training and the commencement of business by the franchisee. The remaining portion is recognized over the expected life of the franchise agreement.

Crave Cookies generally requires the entire franchise fee to be paid upon execution of the franchise agreement. Consequently, the company recognizes deferred revenue until specific revenue recognition criteria have been met. This deferred revenue is what constitutes the contract liabilities on the balance sheet. This accounting practice is common in franchising, as the initial franchise fee covers various services and rights provided over the term of the franchise agreement, not just at the outset.