What is the relationship between pre-opening activities and the access to Bombs Away's intellectual property?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company's primarily performance obligation under the franchise agreement mainly includes granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including initial training and other such activities commonly referred to collectively as "pre-opening activities", which are recognized as a single performance obligation. The Company expects that certain pre-opening activities provided to the franchisee will not be brand specific and will provide the franchisee with relevant general business information that is separate and distinct from the operation of a company-branded franchise unit. The portion of pre-opening activities that will be provided that is not brand specific is expected to be distinct as it will provide a benefit to the franchisee and is expected not to be highly interrelated or interdependent to the access of the Company's intellectual property, and therefore will be accounted for as a separate distinct performance obligation. All other pre-opening activities are expected to be highly interrelated and interdependent to the access of the Company's intellectual property and therefore will be accounted for as a single performance obligation, which is satisfied by granting certain rights to access the Company's intellectual property over the term of each franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the company considers the relationship between pre-opening activities and access to its intellectual property when recognizing revenue from franchise fees. Bombs Away divides pre-opening activities into two categories: brand-specific and non-brand-specific.
Activities that are not brand-specific, such as general business information, are treated as a separate performance obligation. This means Bombs Away recognizes revenue for these services as they are rendered, independently of the franchisee's access to Bombs Away's intellectual property.
However, other pre-opening activities are considered highly interrelated and interdependent with access to Bombs Away's intellectual property. These activities are bundled together as a single performance obligation. Bombs Away recognizes revenue for these activities over the term of the franchise agreement, essentially as the franchisee utilizes the company's intellectual property. Therefore, the franchisee's access to Bombs Away's intellectual property is directly linked to how Bombs Away accounts for a significant portion of the initial franchise fee related to pre-opening activities.