What are the primary sources of revenue for Big Blue Swim School?

The Company derives its revenues from franchisees located throughout the United States. The economic risks of the Company's revenues are dependent on the strength of the economy in the United States and the Company's ability to collect on its contracts. The Company disaggregates revenue from contracts with franchisees by timing of revenue recognition by type of revenue, as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Initial and renewal franchise fees allocated to the right to access the Company's intellectual property are recognized as revenue on a straight-line basis over the term of the respective franchise agreement. DRAs consist of an obligation to grant the right to open two or more units. These development rights are not distinct from franchise

Royalties are earned as a percentage of franchisee gross revenues over the term of the franchise agreement, as defined in each respective franchise agreement. Franchise royalties represent sales-based royalties that are related entirely to the use of the Company's intellectual property and are recognized as franchisee sales occur and the royalty is deemed collectible.

The Company maintains a brand fund established to collect and administer funds contributed for use in advertising, marketing, research and development, public relations, social media management and customer relationship management programs and materials for the benefit of franchise units. Brand fund fees are collected from franchisees based on a percentage of franchisee gross revenues and are payable monthly. The Company has determined that it acts as a principal in the collection and administration of the brand fund and therefore will recognize the revenues and expenses related to the brand fund on a gross basis. The Company has determined that the right to access its intellectual property and administration of the brand fund are highly interrelated and therefore are accounted for as a single performance obligation. As a result, revenues from the brand fund represent sales-based royalties related to the right to access the Company's intellectual property, which are recognized as franchisee sales occur.

The Company maintains a market introduction program established to collect and administer funds contributed for use in production and media placement in marketing for the benefit of franchised units. Market introduction program revenues are collected from franchisees based on a maximum fixed fee, as defined in the franchise agreement. The revenue is charged ratably beginning approximately five months before the franchised unit opens and will continue for approximately three months after operations begin, as the Company incurs the marketing expenses. The Company has determined that it acts as a principal in the collection and administration of the market introduction program and therefore recognizes the revenues and expenses related to the market introduction program on a gross basis. The Company has determined that the right to access its intellectual property and administration of the market production program are highly interrelated and therefore are accounted for as a single performance obligation. Revenues from the market introduction program are received within a 12-month period, which are therefore recognized as the marketing fees are charged and expenses incurred.

Source: Item 21 — FINANCIAL STATEMENTS (FDD page 75)