When did the celebrity resign from the board of directors at Stretch Zone?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
o Financial Statements December 31, 2024 and 2023
NOTE F - CELEBRITY ENDORSEMENT AND MARKETING
In January 2021, the Company entered into an agreement with a board member whereby a celebrity endorsement contract was established for a term of four years with the ability for the Company to use the celebrity's likeness for an additional twelve months. Effective March 31, 2023, the celebrity resigned from the board of directors and is no longer considered a related party. The agreement calls for annual payments relating to increased royalty revenue, with a minimum payment for year one of $200,000. Effective June 2023, the agreement was modified to limit the payment to quarterly payments of $125,000, with the first payment due on September 30, 2023. The terms of the original contract were extended to December 31, 2028. The 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.
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, a celebrity who had a celebrity endorsement contract with Stretch Zone resigned from the board of directors effective March 31, 2023. Following the resignation, the celebrity was no longer considered a related party. The initial agreement with the celebrity was established in January 2021 for a four-year term, which allowed Stretch Zone to use the celebrity's likeness for an additional twelve months.
The agreement with the celebrity stipulated annual payments tied to increased royalty revenue, with a minimum payment of $200,000 for the first year. In June 2023, the agreement was modified to specify quarterly payments of $125,000, with the first payment due on September 30, 2023. Despite the celebrity's resignation, the terms of the original contract were extended to December 31, 2028.
Stretch Zone paid $632,497 in 2023 related to this agreement. Additionally, the celebrity was granted the opportunity to open 20 stores valued at $533,250 under a consolidated area development agreement encompassing three development areas as of December 31, 2021. The value of these stores was determined based on Stretch Zone's arrangements with third-party entities.
Stretch Zone also issued 11,468 units of Class C units valued at $385,186 on September 1, 2023, as additional compensation to the celebrity, which was included in the celebrity endorsement. The value of the unvested Class C units amounted to approximately $1,733,000.