How does Brain Balance recognize revenue when a franchise agreement is terminated?

According to Brain Balance's 2025 Franchise Disclosure Document, when a franchise agreement is terminated, either voluntarily by the franchisee or due to the franchisee's default, Brain Balance recognizes the remaining initial franchise fee as revenue. This is because Brain Balance no longer has any further obligations to fulfill under the agreement, and the initial franchise fee is non-refundable as per the franchise agreement.

This policy means that Brain Balance recognizes the full initial franchise fee as revenue upon termination, regardless of how much service or support was actually provided to the franchisee. For a prospective franchisee, this highlights the importance of carefully considering the franchise agreement terms, as the initial fee is non-refundable even if the agreement is terminated early.

This revenue recognition practice is a standard accounting procedure. By recognizing the remaining initial franchise fee as revenue upon termination, Brain Balance aligns its financial reporting with the cessation of its obligations and the non-refundable nature of the fee. This approach provides clarity in the company's financial statements regarding revenue recognition in the event of franchise agreement terminations.