Explanation

The franchisor explicitly flags its financial condition as a special risk. Item 21 financials confirm this, showing net income plummeted from over $500,000 in 2023 to just $1,118 in 2024, despite revenue growth. This severe drop raises questions about the company's profitability and ability to support you, as ongoing support is funded by operating profits, not just new franchise fees. The California addendum also mandates surety bonds due to inadequate capitalization.

Potential Mitigations

• A thorough review of the franchisor's financial statements with your accountant is critical to assess the company's stability and cash flow.
• Discuss the implications of the sharp decline in profitability and reliance on franchise fees with a business advisor.
• Your attorney should explain the protections offered by the state-mandated surety bond mentioned in the addendum.

Explanation

Item 20 data reveals significant risks. In 2023, one of eleven franchises ceased operations, a notable churn rate. More critically, as of the end of 2024, there were 34 franchise agreements signed for locations that have not yet opened, compared to only 15 operating franchises. This large pipeline of unopened units is flagged as a "Special Risk" and could indicate systemic issues with site selection, build-out, or franchisee financing that you may also face.

Potential Mitigations

• Speaking with former franchisees listed in Item 20 is essential to understand why they left the system; your attorney can help frame questions.
• Inquire with current franchisees about the site selection and opening process to gauge the difficulty and time involved with guidance from a business advisor.
• Your accountant can help you model the financial impact of potential opening delays on your initial investment.

Explanation

The system is growing quickly, with the number of franchised units increasing substantially over the last three years and 34 more agreements signed for future locations. This rapid expansion, combined with the franchisor's disclosed financial weakness and large number of unopened units, may strain its ability to provide the necessary site selection, opening, and operational support to all franchisees. Quality of support could diminish as resources are stretched thin across a growing system.

Potential Mitigations

• A business advisor can help you assess if the franchisor's support infrastructure seems adequate for its growth pace.
• It is important to ask current franchisees, both new and established, about the current quality and responsiveness of franchisor support.
• An analysis of the franchisor's financials with your accountant can help determine if they have reinvested in support staff and systems.

Explanation

The franchisor, Big Air Franchising, LLC (Big Air LLC), discloses in Item 1 that it has been offering franchises since 2015 but has never operated a Big Air Trampoline Business itself. While its affiliates have operational experience, you are contracting with an entity that lacks direct, hands-on experience running the very business it is franchising. This could affect the quality and practicality of the support, systems, and training you receive from the franchisor entity.

Potential Mitigations

• A discussion with your business advisor is important to evaluate the risks of partnering with a franchisor that doesn't operate its own locations.
• Questioning current franchisees about the practical value of the training and operational guidance is a critical due diligence step.
• Your attorney should review the franchisor's contractual obligations to provide support and determine if they are specific and enforceable.

Explanation

The franchisor entity itself has no direct experience operating a Big Air park. Item 2 shows the key executives' experience primarily dates to the company's formation in 2015. While affiliates operate parks, your agreement is with a franchisor whose management may lack the depth of experience that comes from running multiple units over many years through various economic cycles. This could impact strategic decisions and the quality of operational guidance.

Potential Mitigations

• Thoroughly vetting the management team's background in both the specific industry and in managing a franchise system is a task for your business advisor.
• It is crucial to speak with existing franchisees about the quality of management's decisions and support.
• Your attorney can help assess if the franchisor has hired other staff with deeper franchise experience to compensate.