Explanation

This specific risk was not identified in the FDD package. Item 2 indicates that the principal managers of the franchisor have several years of experience in related entertainment and marketing ventures prior to forming this franchise. However, it is always important to assess if management's experience directly translates to supporting a franchise network, as this can impact the quality of training, operational guidance, and strategic leadership you receive.

Potential Mitigations

• It is prudent to interview current franchisees about their direct experiences with the management team's competence and support.
• A business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• Directly asking the management team about their experience in franchising during your discovery process can provide valuable insights.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that the franchisor is owned by FunBox Holdings, LLC, and does not suggest ownership by a private equity firm. When a franchisor is owned by a private equity fund, there can be a focus on short-term returns which may not always align with the long-term health of franchisees' businesses. This can manifest in cost-cutting on support or pressure to increase fees.

Potential Mitigations

• An attorney can help you research the ownership structure of the franchisor and any parent companies for potential private equity involvement.
• A business advisor can assist in researching the track record of any parent company to understand their typical approach to managing portfolio companies.
• Engaging with existing franchisees can reveal any shifts in company culture or operational focus that might indicate a change in ownership philosophy.

Explanation

This risk was not identified in the FDD package, as Item 1 clearly discloses the existence of a parent company, FunBox Holdings, LLC. A risk would arise if a franchisor were controlled by a parent whose identity or financial condition was hidden. While the parent is disclosed here, its financial statements are not included, which constitutes a separate risk related to the franchisor's overall financial transparency and stability, particularly given the franchisor's own weak financial position.

Potential Mitigations

• An attorney should always verify that the ownership structure described in Item 1 is complete and includes all relevant parent and affiliate entities.
• If a parent company exists, especially one guaranteeing obligations, your accountant should confirm if its financials are required to be disclosed under franchise law.
• In a situation where parent financials are missing but should be present, you should request them from the franchisor for a complete risk assessment.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD clearly states, "We have no predecessors." This means the current franchisor entity did not acquire the business system from a prior company. When predecessors exist, it is important to review their history for any signs of trouble, such as litigation or high franchisee turnover, as these issues could potentially carry over to the new ownership.

Potential Mitigations

• An attorney can help confirm the franchisor's corporate history and ensure there are no undisclosed predecessor entities.
• Independent online research can sometimes reveal if the brand or key personnel were associated with prior business entities.
• It is always good practice to ask long-tenured franchisees about the history of the brand and its management.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. While a minor legal matter is noted in the financial statement footnotes, it does not represent a pattern of franchisee-initiated lawsuits alleging fraud or misrepresentation. A history of such litigation would be a major red flag, suggesting potential systemic problems with the franchisor's sales practices or business model.

Potential Mitigations

• Your attorney should always review the litigation disclosures in Item 3 carefully for any lawsuits that are concerning.
• Even without disclosed litigation, a business advisor can help you conduct online searches for news articles or franchisee complaints.
• A discussion with current and former franchisees can often provide insight into any past or present disputes with the franchisor.