How does Dermani Medspa apply payments made by franchisees?
Dermani_Medspa Franchise · 2025 FDDAnswer from 2025 FDD Document
rketing costs are expensed as incurred and are made at the Company's discretion. Advertising and marketing expenses for the year ended December 31, 2024 was $248,452.
Revenue Recognition
The Company recognizes revenue in accordance with FASB Accounting Standard Codification (ASC) 606, Revenue from Contracts with Customers. Some of the more pertinent revenue recognition policies are as follows:
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Franchise Sales
Franchise sales comprise revenue from the sale or renewal of franchises. A fee is charged upon sale or renewal. Under this arrangement, franchisees are granted the right to operate a center using the "dermani MEDSPA®" system for an initial term of ten (10) years with the right to renew for two (2) additional consecutive successor terms of five (5) years each subject to certain conditions being met. The Company is required to provide initial training regarding the system and provide assistance in accordance to the Franchise Agreement.
The Company recognizes revenue from franchise fees during the year in which the related performance obligations are provided to franchisees. The Company has identified three performance obligations delivered as part of the franchise fee related to initial training of franchisees, store location assistance, and rights to intellectual property.
Source: Item 23 — RECEIPTS (FDD pages 66–311)
What This Means (2025 FDD)
According to Dermani Medspa's 2025 Franchise Disclosure Document, the company recognizes revenue from franchise fees during the year in which the related performance obligations are provided to franchisees. Dermani Medspa identifies three performance obligations related to the franchise fee: initial training, store location assistance, and rights to intellectual property.
The revenue from initial training is recognized when the training is completed, with the transaction price determined using a cost-plus margin approach. Revenue from store location assistance is recognized when the franchisee's agreement is signed, also using a cost-plus margin approach for the transaction price. The revenue from providing the right to intellectual property is recognized ratably over the ten-year term of the franchise agreement, with the transaction price determined using the residual approach.
Furthermore, Dermani Medspa collects royalty fees weekly based on weekly sales, recognizing the revenue each week as sales occur. This means that a portion of the initial franchise fee is recognized upfront upon completion of training and signing of the agreement, while another portion is recognized over the ten-year franchise term. Royalty fees, on the other hand, are consistently recognized as revenue on a weekly basis, aligning with the franchisee's sales.