What financial understatement threshold triggers a default related to gross revenue reporting for a Brain Balance franchise?

According to Brain Balance's 2025 Franchise Disclosure Document, an understatement of gross revenue (GR) by a franchisee can trigger an event of default. Specifically, if an audit of the franchisee's books and records reveals that the reported gross revenue to Brain Balance is understated by five percent (5%) or more for any calendar year, it constitutes an event of default.

This means that Brain Balance has the right to take action against the franchisee, as detailed in the franchise agreement. This can include termination of the agreement with only five days written notice, without the opportunity to correct the issue. Brain Balance can also cease providing services and benefits to the franchisee until the franchisee becomes current with payments and reports, and has corrected all other defaults. However, Brain Balance's decision to cease providing services does not relieve the franchisee of their ongoing obligations under the agreement.

For a prospective Brain Balance franchisee, this highlights the importance of accurate financial record-keeping and transparent reporting of gross revenue. Underreporting, even if unintentional, can lead to serious consequences, including potential termination of the franchise agreement. Franchisees should ensure they have robust accounting practices in place to accurately track and report all revenue to avoid triggering this default provision.

It is also important to note that the franchise agreement outlines other events of default, such as failure to make payments, breach of the software agreement, or damaging the reputation of Brain Balance. Franchisees should carefully review the entire agreement to understand all potential triggers for default and ensure compliance with all terms and conditions.