Explanation

The provided audited financial statements for Amazing Athletes Franchise Systems, LLC (AAFS) appear stable, showing consistent profitability and positive net worth. However, the documents note that its parent company, Super Sports Holdings, LLC, does not guarantee AAFS's obligations. Additionally, the balance sheet indicates significant financial transactions with affiliates. While AAFS seems financially sound on its own, its performance could be linked to the health of the broader corporate family, which is not fully detailed.

Potential Mitigations

• An accountant should review the financial statements, including footnotes on related party transactions, to assess the franchisor's standalone stability.
• Discuss the lack of a parent company guarantee and its potential implications with your franchise attorney.
• Your business advisor can help you research the reputation and stability of the parent company, Youth Athletes United.

Explanation

This risk was not identified in the FDD package. The franchise system has been in operation since 2018, with a predecessor history dating back to 2008, indicating a level of maturity. While Item 20 shows steady growth, it does not appear to be at a rate that would typically strain the support systems of an established franchisor. Evaluating a franchisor's ability to support its growth is important to ensure you receive adequate assistance.

Potential Mitigations

• Discuss the franchisor's infrastructure for franchisee support, such as the number of field consultants per franchisee, with a business advisor.
• Your attorney should review the support obligations outlined in Item 11 of the FDD to understand the level of assistance you are contractually guaranteed.
• An accountant can review the franchisor's financial statements (Item 21) to assess if they are reinvesting in support systems.

Explanation

This specific risk was not identified. While the current franchisor entity was formed in 2018, Item 1 discloses that it acquired an existing franchise system with a history dating back to 2008. The management team described in Item 2 also appears to have prior industry and franchise experience. An unproven system can be risky due to a lack of brand recognition and tested operational procedures.

Potential Mitigations

• A business advisor can help you investigate the history and reputation of any predecessor companies mentioned in Item 1.
• Consulting with long-term franchisees from the list in Item 20 can provide insight into the system's evolution and stability.
• Your attorney should review the details of the asset acquisition to understand what was transferred from the predecessor.

Explanation

The FDD package does not suggest this is a fad business. Developmental sports and fitness programs for children represent an established segment of the child enrichment and education industry. This type of business generally relies on consistent parental demand for child development activities rather than a fleeting trend. A key consideration when buying any franchise is the long-term viability and consumer demand for its products or services.

Potential Mitigations

• A business advisor can help you research the long-term market trends for children's enrichment programs in your local area.
• Speaking with existing franchisees can provide insight into customer retention and the sustainability of demand.
• An accountant can help you model the financial performance based on conservative, long-term enrollment assumptions.

Explanation

This risk was not identified in the FDD. Item 2 details the background of the management team, indicating they possess significant experience in the franchise industry and with related children's sports concepts under the Youth Athletes United parent company. The President of Amazing Athletes, Jared Taylor, was previously a multi-unit franchisee within the system. Inexperienced management can be a significant risk, potentially leading to poor support and strategic errors.

Potential Mitigations

• It is still prudent to ask existing franchisees about their direct experiences with the management team's competence and responsiveness.
• Your business advisor can help you research the performance of other franchise brands managed by the same parent company and leadership.
• An attorney can help clarify the roles and responsibilities of the executives listed in Item 2.

Explanation

The franchisor discloses its parent companies in Item 1 but does not provide their financial statements, noting that they do not guarantee the franchisor's obligations. While the franchisor entity itself appears financially stable according to its own audited statements in Item 21, the lack of a parent guarantee means you must rely solely on the resources of the direct franchisor entity to fulfill its support and other contractual duties.

Potential Mitigations

• Your accountant should assess the franchisor's standalone financial capacity to meet its obligations without relying on any parent support.
• Discuss the legal implications of the parent not guaranteeing the franchisor's obligations with your franchise attorney.
• Consider this lack of a backstop in your overall risk assessment with a business advisor.

Explanation

This risk does not appear to be present. The FDD discloses a clear line of predecessors in Item 1, and no significant negative history, such as bankruptcy (Item 4) or material litigation (Item 3), is reported for these entities. A clean and transparent predecessor history is generally a positive sign, though it is always important to understand the full background of the franchise system you are joining.

Potential Mitigations

• Engaging a business advisor to perform public records searches on predecessor companies can sometimes uncover additional information.
• It is wise to ask long-tenured franchisees about their experiences under any previous ownership.
• An attorney can help you understand the legal transition of assets and obligations from any predecessors.

Explanation

This risk was not identified in the FDD package. Item 3 explicitly states that there is no material litigation required to be disclosed. The absence of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, is a positive indicator for the health of the franchise system and its relationship with its franchisees. A pattern of litigation can be a major red flag about a franchisor's practices.

Potential Mitigations

• An attorney can still perform independent searches of court records to verify the absence of litigation.
• During discussions with current and former franchisees, it is useful to ask about any past or pending disputes they are aware of.
• Reviewing Item 3 carefully with your lawyer is a critical step in any FDD analysis.