How does Stretch Zone recognize revenue from equipment sales to franchisees?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
to start the fund and is included in the deferred revenue as discussed below.
Equipment Sales:
Equipment revenue consists of the sale of furniture. Equipment revenue is recognized upon transfer of control of the ordered items, generally upon shipment to each store. The Company recognizes revenue on a gross basis in these transactions as management has determined the Company to be the principal in these transactions.
Management determined the Company to be the principal because the Company is the primary obligor as it has latitude in establishing prices for the equipment sales to franchisees, takes inventory risk, the Company has supplier selection discretion, and is involved in the determination of product specifications, and the Company bears all credit risk associated with obligations to the equipment manufacturers.
The related cost of the equipment is recorded in operating expenses w
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, equipment revenue, which consists of furniture sales, is recognized when control of the ordered items is transferred to the franchisee, typically upon shipment to the store. Stretch Zone recognizes this revenue on a gross basis, meaning they record the full sale amount rather than deducting any costs. This is because Stretch Zone considers itself the principal in these transactions.
Stretch Zone has determined they are the principal because they have the authority to set prices for equipment sold to franchisees. They also bear the inventory risk, have the discretion to choose suppliers, are involved in determining product specifications, and bear all credit risk associated with obligations to the equipment manufacturers. This means Stretch Zone manages the entire process, from pricing and sourcing to handling any financial risks associated with suppliers.
For the years ending December 31, 2024, and 2023, the cost of this equipment recorded in operating expenses amounted to $203,896 and $340,815, respectively. This indicates the direct costs Stretch Zone incurs to provide the equipment to its franchisees. Prospective franchisees should understand that while Stretch Zone handles the equipment procurement and sales, the franchisees are responsible for purchasing the equipment necessary to operate their studios.