Explanation

The audited financial statements for Worldwide Refinishing Systems, Inc. (DreamMaker) show consistent profitability, positive and growing shareholder equity, and a healthy current ratio where current assets exceed current liabilities. The auditor's report does not contain a 'going concern' qualification. Based on the provided financials, the company appears to be financially stable and capable of supporting the franchise system. This specific risk was not identified.

Potential Mitigations

• An accountant should still review the complete financial statements, including all footnotes, to confirm the assessment of financial health.
• In discussions with the franchisor, you might ask your business advisor to help you inquire about their plans for future investment in the brand and franchisee support.
• Your attorney should verify if any state has required DreamMaker to post a bond or escrow due to its financial condition.

Explanation

Item 20 data for 2022-2024 shows a relatively low rate of negative turnover. In 2024, there were 2 terminations out of 42 starting units (4.7%). In 2023, there were 3 terminations (7.1%), and in 2022 there was 1 termination and 2 non-renewals (6.9% total). While any turnover warrants investigation, these numbers do not suggest a systemic problem at this time. However, Item 20 also discloses that the franchisor uses confidentiality clauses with some former franchisees.

Potential Mitigations

• It is crucial to contact current and former franchisees from the lists in Exhibit D to discuss their experiences and reasons for leaving.
• A franchise attorney can help you formulate specific questions for the franchisor regarding the circumstances of each termination and non-renewal.
• When speaking with former franchisees, your business advisor can help you be aware that some may be legally unable to speak freely due to confidentiality clauses.

Explanation

The franchise system shows steady but not explosive growth over the past three years, adding 2-3 new franchised outlets each year. This pace appears manageable and is supported by the franchisor's stable financial statements in Item 21. The risk of growth outpacing the franchisor's ability to provide adequate support seems low based on the provided data. Therefore, this specific risk was not identified.

Potential Mitigations

• It is still wise to discuss the franchisor’s capacity for providing support with current franchisees, especially those who have joined recently.
• Engaging a business advisor can help you evaluate if the franchisor's current support infrastructure, as described in Item 11, is sufficient for its size.
• Your accountant can confirm that the franchisor's financial statements reflect continued investment in support systems.

Explanation

The franchisor, Worldwide Refinishing Systems, Inc., has been in business since 1975 and franchising the DreamMaker concept since 1996. Key executives have decades of experience in the industry and with the company, as shown in Item 2. The franchise system has been established for many years, with 43 active units at the end of 2024. Therefore, this is not an unproven system, and this risk is not identified.

Potential Mitigations

• A business advisor can still help you assess if the long-standing business model remains relevant and competitive in the current market.
• Discussions with long-term franchisees can provide valuable insight into how the system has evolved over time.
• Even with an established system, it's prudent for your attorney to review the full FDD package for any recent changes that might introduce new risks.

Explanation

The home remodeling industry is a well-established sector with consistent consumer demand driven by housing stock age and homeowner desire for updates. While specific design trends may change, the core need for kitchen and bathroom renovation is not typically considered a short-term fad. DreamMaker's long history, since 1996, further suggests a sustainable business model rather than a temporary trend. This risk is not identified.

Potential Mitigations

• To confirm long-term demand, you could have a business advisor help you research local market data for home remodeling services.
• It may be beneficial to discuss the evolution of service offerings with long-term franchisees to understand how the brand has adapted over time.
• You might also ask the franchisor about their process for research and development to stay ahead of design and technology trends.

Explanation

The key executives listed in Item 2 have extensive experience, with most having been with DreamMaker or in the remodeling industry for many years. For instance, the President has 29 years of industry experience, and the COO has 23 years with the company. This depth of experience suggests the management team is well-equipped to manage the franchise system and provide support. This risk was not identified.

Potential Mitigations

• It is still beneficial to speak with current franchisees to get their direct feedback on the quality and effectiveness of management's support and strategic direction.
• A business advisor can help you assess how the management team's experience translates into the quality of training and support programs outlined in Item 11.
• When speaking with the franchisor, you might inquire about their succession planning to ensure continuity of experienced leadership.

Explanation

Item 1 of the FDD does not disclose ownership by a private equity firm. The company, Worldwide Refinishing Systems, Inc., appears to be privately held by its long-term management team. Therefore, the specific risks associated with a private equity ownership model, such as a focus on short-term returns over long-term system health, do not appear to be present in this case.

Potential Mitigations

• Your attorney should still review the transfer provisions in the Franchise Agreement to understand your rights if the system is sold in the future.
• It can be useful to ask the franchisor about their long-term vision for the company to gauge their commitment to the brand.
• A business advisor can help you research the company's ownership history for any past private equity involvement.

Explanation

The FDD discloses that DreamMaker is a standalone corporation with no parent company. The financial statements provided in Item 21 are for the franchisor entity itself. As there is no parent company involved in guaranteeing obligations or acting as a key supplier, the risks associated with non-disclosure of a parent entity are not applicable here.

Potential Mitigations

• Your accountant should confirm that the provided financial statements are for the correct legal entity offering the franchise.
• It is good practice for your attorney to verify the corporate standing of the franchisor entity with the Texas Secretary of State.
• Always ensure that the entity name on the Franchise Agreement matches the name of the company disclosed in Item 1 and on the financial statements.

Explanation

Item 1 indicates the franchisor has operated under different names since its incorporation in 1975, but these are part of a continuous operational history, not acquisitions of failed systems. There is no disclosure of any predecessor entities from which DreamMaker acquired the business. Therefore, the risks associated with an incomplete or negative history of a predecessor are not present.

Potential Mitigations

• It's still valuable to ask long-tenured franchisees about the company's history and evolution over the years.
• A business advisor can help you understand the significance of the company's name changes and transition to the current business model.
• Your attorney can conduct public record searches to confirm the corporate history provided in Item 1.

Explanation

Item 3 of the FDD states, 'No litigation is required to be disclosed in this Item.' This indicates that in the last fiscal year, there has been no material litigation of the types that must be reported, such as actions involving fraud, violation of franchise law, or significant legal proceedings. The absence of a pattern of litigation is a positive indicator for the health of the franchise system.

Potential Mitigations

• Your attorney can independently search court records for any litigation involving the franchisor that may not have met the technical disclosure requirements of Item 3.
• It is still important to ask current and former franchisees about their experiences and whether they have had any significant disputes with the franchisor.
• A business advisor can help you assess whether the franchisor's dispute resolution process seems fair and effective, despite the lack of reported litigation.