Why does Brain Balance consider itself the principal in transactions involving enrollment kits?
Brain_Balance Franchise · 2025 FDDAnswer from 2025 FDD Document
y the franchisee or due to the default of the franchisee, the Company recognizes the remaining initial franchise fee as revenue earned, as no further performance obligations need to be satisfied, and the initial franchise fee is not refundable per the franchise agreement.
December 31, 2024, 2023, and 2022
Note 2 - Significant Accounting Policies (Continued)
Enrollment and virtual program kit revenue represents the fees earned by the Company from the enrollment kits that are purchased by franchisees from a third-party supplier and the Company, respectively. These kits are given to students as part of their enrollment in the center, and revenue is recognized at the time of purchase. The Company has determined that it is acting as principal in these transactions, as the Company assumes the inventory and has responsibility to provide goods based on its specifications. Coaching fee revenue represents fees earned by the Company for additional coaching and trainings requested by the franchisees. Revenue is recognized over time as the coaching is provided. Other revenue consists of fees
Source: Item 23 — RECEIPTS (FDD pages 72–292)
What This Means (2025 FDD)
According to Brain Balance's 2025 Franchise Disclosure Document, Brain Balance considers itself the principal in transactions involving enrollment kits because it assumes the inventory risk and is responsible for providing goods based on its specifications. Enrollment and virtual program kit revenue represents the fees earned by Brain Balance from these enrollment kits, which franchisees purchase from a third-party supplier and Brain Balance, respectively. These kits are provided to students as part of their enrollment in the center. Revenue from these kits is recognized at the time of purchase.
This means that Brain Balance takes on the responsibility for ensuring the kits meet certain standards and specifications. As the principal, Brain Balance manages the inventory and bears the risk if the kits are not sold or are defective. This arrangement is significant for franchisees because they are required to purchase these kits, and the revenue recognition timing impacts the financial reporting for Brain Balance.
For the years ended December 31, 2024, 2023, and 2022, Brain Balance recognized $1,255,867, $1,198,850, and $1,470,031, respectively, in revenue at a point in time, which includes revenue from these enrollment kits. This accounting treatment reflects Brain Balance's role in controlling the inventory and ensuring the specifications of the kits are met, further solidifying its position as the principal in these transactions.