Explanation

This risk was not identified. The data in Item 20 does not indicate overly rapid expansion; in fact, the rate of new franchise openings appears to be moderating. Uncontrolled growth can strain a franchisor's resources, potentially leading to inadequate support for franchisees. It is generally a positive sign when a system grows at a sustainable pace.

Potential Mitigations

• You should still discuss the franchisor’s capacity for providing support with current franchisees as a part of general due diligence.
• A business advisor can help you evaluate if the current level of franchisor support seems adequate for the system's size.
• Asking the franchisor about their future growth plans can provide insight into their long-term strategy.

Explanation

This specific risk was not identified. Item 2 indicates that the key executive, Russell Scholl, has served as President and CFO since 2018 and has also been the CFO of the affiliate, Brain State Technologies LLC, since 2015. This suggests continuity and relevant experience within the specific business and industry. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate support.

Potential Mitigations

• It is still prudent to conduct due diligence on the broader management team's background with your business advisor.
• Inquiries with current franchisees about the quality and effectiveness of management's support and strategic direction are always recommended.
• Understanding the depth of the entire management team's experience in franchising can be a valuable exercise.

Explanation

This risk was not identified in the FDD. Item 1 indicates the parent company is Brain State Holding Company Inc., but there is no disclosure of ownership by a private equity firm. Franchises owned by private equity firms can sometimes face pressures for short-term returns that may not align with the long-term health of franchisees. This does not appear to be a concern here.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor and its parent company through public records.
• It is always good practice to ask about any anticipated changes in ownership structure with the franchisor.
• A business advisor can help research the history of the parent company for any other relevant information.

Explanation

This risk was not identified. The FDD discloses a parent company, Brain State Holding Company Inc., and key affiliates like Braintellect, LLC. However, the franchisor provides its own audited financial statements in Item 21 as required. There is no indication that the parent company is guaranteeing obligations or that its financials are required for a complete risk assessment and have been withheld.

Potential Mitigations

• An accountant should still review the relationship between the franchisor and its parent and affiliates as described in the FDD.
• Your attorney can clarify the legal and financial relationships and any obligations that might flow between the entities.
• Understanding the roles of all affiliated companies, especially those that are mandatory suppliers, is a key part of due diligence.

Explanation

This risk appears to be low. Item 1 mentions that an affiliate, Brain State Technologies LLC (BST), has operated a similar business since 2006, and Cereset LLC itself was formed in 2018. While BST could be considered a predecessor in a practical sense, the FDD does not frame it as a formal predecessor from which assets were acquired. The history seems transparently linked, and Items 3 and 4 report no legacy litigation or bankruptcy issues.

Potential Mitigations

• Your attorney should review the relationship between Cereset, LLC and its affiliate BST to ensure all historical context is clear.
• Asking long-term franchisees about their experience with the system under the BST name could provide valuable historical context.
• A business advisor can help assess if the transition from the affiliate's model to the current franchise model has been smooth.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates there is no current, material litigation against the franchisor involving claims of fraud, misrepresentation, or franchise law violations. The absence of such litigation is a positive indicator, though it does not guarantee future disputes will not arise.

Potential Mitigations

• Your attorney can perform independent searches for litigation that may not have met the technical disclosure requirements of Item 3.
• It is still wise to ask current and former franchisees about their experiences and if they have had any significant disputes with the franchisor.
• A business advisor can help you assess the overall health of franchisee relations within the system.