How is the celebrity endorsement asset being amortized by Stretch Zone?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
e Company paid $500,000 and $632,497 for the years ended December 31, 2024, and 2023, respectively.
The agreement enabled the celebrity to open 20 stores valued at $533,250, under a consolidated area development agreement, encompassing three development areas on December 31, 2021. The Company determined the value of the 20 stores based on its current arrangements with third-party entities and recorded an asset, celebrity endorsement, and an offsetting deferred revenue for $533,250. The celebrity endorsement asset is being amortized on a straight-line basis over five years, modified for the amendment and extension, whereas the deferred revenue is being recognized as revenue ratably upon each store opening. During the years ended December 31, 2024 and 2023, the celebrity did not open any additional franchise locations, however one location was transferred and sold during each of the years ended December 31, 2024 and 2023. In 2023, the revenue for the eleven stores, was $279,640, and in 2024, the revenue for the nine stores was $231,476. At December 31, 2024 and 2023, the remaining unamortized deferred revenue was $213,300 for eight unopened franchise locations. These franchise locations paid the Company $231,476 and $285,273 in total revenue for the years ended December 31, 2024 and 2023 and there were $0 and $5,000 in accounts receivable, respectively.
The Parent issued 11,478 units of Class C units of the Parent, valued at $385,186, on September 1, 2023, as additional compensation to the celebrity and was included in the celebrity endorsement. The amortization of the celebrity endorsement was $121,568 and $97,297 for the years ended December 31, 2024 and 2023, respectively. The Company also issued 100,000 unit appreciation rights to the celebrity in December 2021. As of December 31, 2022, based on the appreciation in intrinsic value along with the probability of a change in control, which occurred on March 31, 2023 with the sale of the Company, the Company recorded a liability due to the unit appreciation rights to the celebrity of $12,256,470 which was
Source: Item 3 — Franchisee/Debtor's Warranties. (FDD pages 263–364)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, the celebrity endorsement asset, initially valued at $533,250, is amortized using a straight-line basis over five years. This amortization schedule is subject to modifications based on any amendments or extensions to the agreement. In addition to the initial valuation, 11,478 units of Class C units of the Parent, valued at $385,186, were issued on September 1, 2023, as additional compensation to the celebrity and included in the celebrity endorsement.
For the years ending December 31, 2024 and 2023, the amortization expenses recognized for the celebrity endorsement were $121,568 and $97,297, respectively. The deferred revenue associated with the celebrity endorsement is recognized ratably as each store opens. As of December 31, 2024 and 2023, the remaining unamortized deferred revenue was $213,300, which corresponds to eight unopened franchise locations.
For a prospective Stretch Zone franchisee, this means that the costs associated with celebrity endorsements are spread out evenly over a five-year period, which could impact the company's financial statements and profitability during that time. The modification of the amortization schedule based on amendments and extensions suggests that the actual amortization period could vary. The issuance of additional Class C units as compensation further complicates the valuation and amortization of this asset. Franchisees should consider how these non-cash expenses might affect the overall financial health and stability of Stretch Zone.