Why might the Department determine that Stretch Zone is not adequately capitalized?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE FRANCHISE DISCLOSURE DOCUMENT.
The Department has determined that we, the franchisor, have not demonstrated we are adequately capitalized and/or that we must rely on franchise fees to fund our operations.
The Commissioner has imposed a fee deferral condition, which requires that we defer the collection of all initial fees from California franchisees until we have completed all of our pre-opening obligations and you are open for business.
For California franchisees who sign a development agreement, the payment of the development and initial fees attributable to a specific unit in your development schedule is deferred until that unit is open.
Source: Item 22 — ITEM -22 CONTRACTS (FDD pages 84–89)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, the California Department of Financial Protection and Innovation (the Department) may determine that Stretch Zone has not demonstrated adequate capitalization. This determination means Stretch Zone may be perceived as lacking sufficient financial resources to meet its obligations and support its operations. The Department might also believe that Stretch Zone relies on franchise fees to fund its operations.
As a result of this determination, the California Franchise Investment Law imposes a fee deferral condition. This condition mandates that Stretch Zone defer the collection of initial franchise fees from California franchisees. The deferral lasts until Stretch Zone has fulfilled all its pre-opening obligations, and the franchisee's Stretch Zone studio is open for business. For franchisees in California who sign a development agreement, the payment of development and initial fees for each specific unit is also deferred until that unit is open.
This condition protects franchisees by ensuring that they do not pay fees until Stretch Zone has provided the necessary support to get their business operational. It also implies a risk for Stretch Zone, as its revenue stream from initial fees is delayed, potentially impacting its cash flow and ability to invest in further growth or support services. Prospective franchisees should carefully consider the implications of this deferral, both in terms of their own financial planning and the overall financial health of Stretch Zone.