How are 'Gross Sales' defined for a Hydrodog franchise in the Franchise Agreement?

According to Hydrodog's 2025 Franchise Disclosure Document, "Gross Sales" are comprehensively defined within the Franchise Agreement. This definition is crucial because several fees, including the royalty fee (7% of Gross Sales or $250 per week, whichever is greater) and the marketing fund fee (2% of Gross Sales), are directly calculated from this figure.

Specifically, Hydrodog defines Gross Sales as all revenue a franchisee derives from operating the business. This includes all amounts received at or away from the HydroDog Vehicle for any services, products, or activities associated with Hydrodog's Marks, Copyrights, or System. Revenue sources encompass cash, checks, barter, credit or debit card transactions, and the redemption value of gift certificates, regardless of who issued them.

However, the definition also provides explicit exclusions. Gross Sales do not include federal, state, or municipal sales, use, or service taxes collected from customers and remitted to the appropriate taxing authority. Additionally, documented and verifiable customer refunds, adjustments, credits, and allowances actually made by the HydroDog Business are also excluded from the Gross Sales calculation. This ensures that franchisees are not paying royalties or marketing fees on amounts they never actually retain.

In practical terms, a Hydrodog franchisee must meticulously track all revenue streams and deductions to accurately calculate Gross Sales. Accurate reporting is essential, as underreporting Gross Sales by 2% or greater can trigger an audit, with the franchisee responsible for covering the cost of the inspection or audit, plus travel expenses. This thorough definition and the associated reporting requirements underscore the importance of maintaining accurate financial records for a Hydrodog franchise.