Explanation

The Item 20 tables show a growing system. However, in 2023, two franchises were terminated out of a starting base of 32 franchised units. While the overall number is low, these terminations in a young system warrant further investigation. The system did grow from 48 to 56 units in 2024 with no terminations or cessations reported for that year.

Potential Mitigations

• It is crucial to contact former franchisees listed in Exhibit I, especially those who were terminated, to understand their experiences and reasons for leaving the system.
• Discussing the specific circumstances of the 2023 terminations with the franchisor can provide important context.
• Your attorney can help you formulate appropriate questions for former franchisees to assess systemic issues versus isolated incidents.

Explanation

This risk was not identified. The business concept, selling hand-crafted ice pops, is a well-established segment of the frozen dessert market. While specific flavors or marketing may follow trends, the core product has demonstrated long-term consumer demand and is not dependent on a fleeting fad.

Potential Mitigations

• Engaging a business advisor to research local market competition and long-term consumer trends for specialty food items can help validate market stability.
• It is wise to review the franchisor's plans for product innovation and adaptation with your business advisor to ensure long-term relevance.
• Discussing sales seasonality with existing franchisees can help in developing a robust annual business plan.

Explanation

While the parent company has operated since 2010, the franchising entity has only been in business since 2021. The named Franchise Coordinator and Marketing Manager have limited franchising-specific experience. Although the founders have deep industry experience, their track record in managing a franchisee network is short, which could present a risk related to the quality of system-wide support.

Potential Mitigations

• Speaking with current franchisees about the quality of support and management's understanding of franchisee needs is a crucial due diligence step.
• Your business advisor can help you assess whether the management team's skills, though strong in operations, are translating effectively to franchise system management.
• Clarifying the specific roles and experience of each member of the franchise support team is advisable.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is a wholly owned subsidiary of Rainbow Umbrella, LLC, which appears to be a related entity controlled by the founders, not a private equity firm. This suggests management's focus may be on the long-term health of the brand rather than short-term investor returns.

Potential Mitigations

• It is good practice to confirm the ownership structure and any plans for a future sale of the company with the franchisor directly.
• Your attorney should review the 'Assignment' clause in the Franchise Agreement to understand your rights if the company is sold in the future.
• A business advisor can help you understand the potential impacts of different ownership structures on a franchise system.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Rainbow Umbrella, LLC, and the ultimate owner of the marks, King of Pops, Inc. The relationship between these entities is described, and the franchisor's financial statements are provided. There is no indication of an undisclosed parent company whose financials are being withheld.

Potential Mitigations

• Your attorney should confirm that the disclosed corporate structure is clear and that all relevant entities are properly identified.
• An accountant can help assess the financial relationships and dependencies between the franchisor and its parent companies as disclosed.
• It is prudent to verify the legal standing and history of all named parent and affiliate companies with your attorney.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose any predecessors for King of Pops LLC. The company was formed in 2021 to franchise the existing King of Pops concept, so it does not appear to have acquired the system from a prior entity or have a predecessor with a history that would need to be scrutinized.

Potential Mitigations

• Your attorney should always verify the corporate history disclosed in Item 1 to ensure no predecessor information has been omitted.
• Reviewing public records for the business name can sometimes reveal historical information; a business advisor may assist with this research.
• Asking long-term employees or contacts about the company's history can provide additional context.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this item." The absence of disclosed litigation, especially claims from franchisees, is a positive indicator, suggesting a non-contentious early history for the franchise system.

Potential Mitigations

• It is always a good practice to perform independent online searches for any news or legal actions involving the franchisor, as not all disputes may meet the disclosure threshold.
• Your attorney can advise on the types of litigation that are material and must be disclosed under franchise law.
• Asking current franchisees about their relationship with the franchisor can reveal potential areas of conflict not reflected in litigation.