When does Pearce Bespoke recognize revenue from franchisees?

000 | | | Third | $38,000 | | | Fourth | $30,000 | | | Fifth | $25,000 | | | Thereafter | $20,000 | |

Note 2 – Summary of Significant Accounting Policies – Continued

The initial fees are paid in consideration of the rights granted in the franchise agreement and are non-refundable. The initial fees are recognized as revenue over the term of the initial franchise agreement, which is ten years. Subject to certain requisites, the Company may renew the term of a franchisee upon expiration of the initial term, for an additional ten-year periods. The renewal fee, to be no more than 25% or $10,000 of the then current initial franchise fee, whichever is greater, is paid in consideration of the rights granted in the franchise agreement and is non-refundable. The renewal fee is recognized as revenue over the term of the renewal period.

Opening Inventory & Equipment Fees

The initial equipment package fee is $8,000 from Pearce Bespoke (as defined in the franchise agreement. The franchisee obtains control of the equipment and revenue is recognized upon the execution of the franchise agreement.

If a franchise owner is operating under a semi-absentee owner model and hire a clothier immediately, franchisees are required to purchase a Clothier Inventory Package for $2,700 per clothier (as defined in the franchise agreement). The franchisee obtains control of the inventory and revenue is recognized upon the execution of the franchise agreement. This fee is assessed for each additional clothier added to a franchised location.

Franchise Royalties

Franchise royalties are calculated based upon either 10% of franchisee gross revenue or a minimum of $100 per week (as defined in the franchise agreement). In year 2 of operation the minimum fee will increase to $150 per week. In year 3 and beyond, the minimum fee will be $200 per week. Franchise royalties are collected and recognized as revenue on a weekly basis for the previous week's sales.

Brand Fund Revenue

Brand fund revenue is calculated at 2% of franchisee gross revenue (as defined in the franchise agreement). The Company may charge an additional brand fund fee not to exceed 3% of franchisee gross revenue. The Company will use the brand fund fee to conduct advertising research and public relations campaigns, develop websites and other online media programs, develop marketing materials such as television, radio, internet, and print advertising production, and promotional materials for use in each Franchisee's local market, and implement advertising and marketing campaigns. Brand fund revenues are collected and recognized as revenue on a weekly basis for the previous week's sales.

Local Area Marketing Revenue

Local area marketing revenue is calculated at 5% of franchisee gross revenue per month (as defined in the franchise agreement) and will begin in the first full month after the date the franchised business opens. Local area marketing revenue is recognized by the Company in the month charged.

Franchisees are required to participate in any local marketing cooperatives established by the Company.

Note 2 – Summary of Significant Accounting Policies – Continued

Technology Fee Revenue

Franchisees are required to pay $25 per week and are due weekly.

Point-Of-Sale (POS) System Subscription Fee

Franchisees are required to pay $438 per month for use of the POS system.

Pre-Opening Services

Pre-opening services include training and general assistance. The Company has adopted the franchisor practical expedient Accounting Standards Update (ASU) 2021-02, Franchisors – Revenue from Contracts with Customers (Subtopic 952-606), which allows the Company to treat pre-opening services as distinct from one another. Training is provided to the franchisee at no additional cost unless additional training is required. Additional training fees are recognized

Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)