What primarily constitutes the advertising funds liabilities for Moes Southwest Grill?

According to Moe's Southwest Grill's 2025 Franchise Disclosure Document, the advertising funds liabilities primarily consist of accruals for future Ad Funds and Local Funds expenditures. These funds are collected from franchisees and Company SBRs (store, bakery, and restaurant) based on a percentage of revenues, as mandated by their franchise agreements and Company SBRs. The Ad Funds are administered by certain subsidiaries on behalf of the brand's franchise system. Similarly, certain subsidiaries oversee the collection and distribution of local advertising funds. These Local Funds can be either Franchisee-Managed or Company-Managed.

For Franchisee-Managed Local Funds, contributions are returned to these funds to be spent on Company-approved marketing activities. In contrast, Company-Managed Local Funds are administered by the Company, which manages the marketing spending on behalf of the franchisees. The revenues and expenses of the Ad Funds and Company-Managed Local Funds are reflected in the consolidated statements of operations as Advertising funds revenues and Advertising funds expenses, respectively.

The accrual of advertising costs occurs when the cumulative revenues of the advertising funds exceed the related cumulative advertising expenses, with costs accrued up to the amount of the cumulative surplus. This mechanism ensures that funds are available for future advertising and marketing efforts. The billing, collection, and subsequent distribution of Franchisee-Managed Local Funds are recorded as pass-through transactions within Advertising funds assets and Advertising funds liabilities. Therefore, a prospective franchisee should understand that their contributions to advertising funds are primarily used for future advertising expenditures, and the liabilities reflect the amounts accrued for these purposes.