What was the change in contract liabilities for Itan in 2023?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
summary of opened franchise locations:
| 2023 | 2022 | |
|---|---|---|
| Franchise locations, beginning of year | 31 | 31 |
| Opened franchise locations | - | := |
| Closed franchise locations | 2 | - |
| Franchise locations, end of year | 29 | 31 |
During 2023 and 2022, the number of franchise locations owned by a related party were five and eight, respectively (see note 5).
NOTE 7 ACCRUED LIABILITIES
Accrued Liabilities consist of the following:
| Accrued payroll | $ | 4,743
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, contract liabilities increased to $115,000 as of December 31, 2023. In 2022, Itan had no contract liabilities. This increase is related to a ten-year, non-refundable Area Development Agreement (ADA) signed in December 2023.
The ADA pertains to the opening of ten to twenty Itan salons over a ten-year period. The full amount of the agreement, $115,000, was recognized as a contract liability as of December 31, 2023. This amount will be recognized as revenue on a straight-line basis over the term of the ADA. For the years ended December 31, 2023 and 2022, there were no allocations towards revenue on the statements of earnings.
For a prospective Itan franchisee, this signifies that Itan is securing area development agreements, which provide them with upfront capital. The recognition of the full agreement amount as a liability in 2023, with subsequent revenue recognition over the ten-year term, reflects Itan's accounting practices for such agreements. This arrangement could provide Itan with a consistent revenue stream over the coming years as they fulfill the terms of the ADA.