Explanation

The audited financial statements in Exhibit B show Kampgrounds of America, Inc. (KOA) is a financially substantial company with significant positive net worth and consistent profitability. This risk was not identified. Financial stability is important as it suggests the franchisor has the resources to support franchisees and grow the brand.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's complete financial statements, including all footnotes and the auditor's report.
• Discussing the company's financial health and strategic plans with your business advisor can provide additional context for your investment decision.

Explanation

The data in Item 20 does not indicate a high rate of franchisee turnover. In 2024, the total number of franchises that were terminated, not renewed, or ceased operations for other reasons was approximately 3.5% of the total at the start of the year. Low turnover can suggest franchisee satisfaction and system health.

Potential Mitigations

• Speaking with former franchisees listed in Exhibit H is crucial to understand their reasons for leaving the system.
• Your attorney can help you formulate questions to ask both the franchisor and former franchisees about the circumstances of any departures.
• Your accountant can help you analyze the multi-year turnover trends provided in the FDD's Item 20 tables.

Explanation

This risk was not identified. FDD Item 20 data shows that the KOA system is mature and not undergoing rapid expansion; the number of franchised outlets has remained relatively stable over the past three years. This suggests the franchisor's support resources are not likely to be strained by rapid growth.

Potential Mitigations

• It is still valuable to discuss the franchisor's future growth strategy and support infrastructure with your business advisor.
• Confirming the quality and responsiveness of current support with existing franchisees is a key due diligence step.

Explanation

This risk is not present. Kampgrounds of America, Inc. (KOA) is a highly mature and well-established franchise system, having been in business since 1960 and offering franchises since 1963, as detailed in Item 1. An established system often has proven operating procedures and strong brand recognition.

Potential Mitigations

• Engaging a business advisor to assess how a mature brand fits with your personal and financial goals is still a prudent step.
• Reviewing the franchisor's long-term business history and recent performance with your accountant can provide valuable context.

Explanation

The risk of this being a fad business was not identified. Campgrounds are part of a long-established and enduring travel and recreation industry. While market trends can shift, the core business model is not based on a short-term fad, which suggests greater potential for long-term consumer demand.

Potential Mitigations

• A business advisor can help you conduct independent market research on the long-term trends and competitive landscape for the outdoor hospitality industry.
• Discussing the business's resilience to economic cycles with your financial advisor is a wise part of planning.

Explanation

This risk was not identified. Item 2 shows that the KOA executive team has extensive and long-term experience within both the company and the broader outdoor hospitality industry. Experienced leadership is important as it can provide stable governance and knowledgeable support for the franchise system.

Potential Mitigations

• It is still beneficial to research the public reputation and track record of the key executives.
• Discussing the management team's strategic vision with current franchisees can provide insights into their leadership.

Explanation

This risk was not identified. The FDD indicates long-term, stable ownership under KOAH, Inc., with key individuals having been involved since the 1980s. The ownership structure does not appear to be a typical private equity model focused on short-term returns, which can be a risk factor in some franchise systems.

Potential Mitigations

• Your attorney can help you research the ownership structure of the franchisor and its parent company to understand their history and potential investment horizon.
• Asking current franchisees about any changes in philosophy or support resulting from ownership is a valuable due diligence step.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, KOAH, Inc., in Item 1. The provided financial statements are consolidated, giving a picture of the overall financial entity. Proper disclosure of parent companies is vital for a complete assessment of the franchisor's financial backing and stability.

Potential Mitigations

• Your attorney should always verify that the parent company is properly disclosed in Item 1 of the FDD.
• An accountant can confirm if the provided financial statements adequately reflect the consolidated enterprise as required.

Explanation

This risk is not applicable as Item 1 states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. Understanding predecessor history is important as it can reveal past issues with a brand or system that may have been inherited.

Potential Mitigations

• Your attorney should always confirm the predecessor disclosures in Item 1.
• In any franchise review, your business advisor can help research the brand's history, even if no formal predecessors are listed.

Explanation

The FDD discloses one pending lawsuit in Item 3 related to alleged intellectual property infringement, not a pattern of franchisee-initiated fraud claims. A single lawsuit does not indicate a systemic problem. A pattern of litigation alleging fraud can be a significant red flag about a franchisor's practices.

Potential Mitigations

• Your attorney should review the details of any disclosed litigation to understand the nature of the claims and potential implications.
• Conducting independent public record searches for the franchisor can sometimes reveal cases not required to be disclosed.