Explanation

This risk was not identified. The franchisor's audited financial statements in Exhibit A for the fiscal years ending March 31, 2023, and March 31, 2024, show profitability and a positive net worth. Strong financials suggest the franchisor may have the resources to support the system. However, a company's financial health can change over time.

Potential Mitigations

• Engaging an accountant to review the franchisor's complete financial statements, including footnotes, is essential to assess their stability and business trends.
• A business advisor can help you evaluate whether the franchisor's financial health supports their plans for system growth and franchisee support.
• It is wise to have your attorney review any financial assurance mechanisms like bonds or escrow accounts if they are mentioned in the FDD.

Explanation

The franchisor’s system size has seen a net decrease over the past two fiscal years, suggesting contraction rather than rapid growth. While this avoids the risks associated with over-expansion, it may raise other questions about system health, which are highlighted in the 'High Franchisee Turnover' risk. The key concern is not that growth is too fast, but rather why the system is shrinking.

Potential Mitigations

• A business advisor can help you analyze the system's growth trajectory in the context of its age and market.
• In discussions with current franchisees, it is important to inquire about their perception of the system's overall health and growth prospects.
• Your accountant should review the franchisor's financials in Item 21 to assess if resources are being allocated to growth initiatives or franchisee support.

Explanation

This risk was not identified. The business of providing children's science education and entertainment has been in operation since 1995, suggesting a degree of sustained market demand rather than being a short-term fad. The franchisor also offers various programs, which may indicate an ability to adapt and evolve its offerings over time.

Potential Mitigations

• Engaging a business advisor to research the long-term demand for supplemental children's educational programs in your local market is a prudent step.
• In discussions with current franchisees, inquire about the stability of customer demand and the perceived longevity of the business model.
• The franchisor's plans for future program development and innovation, mentioned in Item 11, should be discussed to gauge their strategy for staying relevant.

Explanation

This risk was not identified. The executive team disclosed in Item 2 demonstrates extensive and long-term experience with the Mad Science system. For example, the CEO, President, and Chief Innovation Officer have been with the company since the 1990s or early 2000s. This suggests a deep familiarity with the business model and the franchising industry.

Potential Mitigations

• It is still valuable to verify the management team's reputation by speaking with current and former franchisees.
• A business advisor can help you formulate questions for the franchisor regarding their management philosophy and strategic vision.
• Even with experienced management, having your attorney review the FDD for the level of support committed to in the agreement is critical.

Explanation

This risk was not identified. Item 1 of the FDD does not indicate that Mad Science Group Inc. is owned by a private equity firm. It appears to be a privately held Canadian corporation with long-standing management, which suggests that operational decisions may be focused on long-term brand health rather than short-term investor returns typical of a private equity model.

Potential Mitigations

• Your attorney can help you confirm the ownership structure of the franchisor through public records or direct inquiry.
• It's beneficial to ask the franchisor about any potential plans for selling the company to understand future possibilities.
• A business advisor can help research the history of the company's ownership and any past changes.

Explanation

This risk was not identified. The FDD's Item 1 clearly discloses the parent company, 3908160 Canada Inc., and an affiliate that owns the intellectual property, Mad Science Licensing Inc. The franchisor, Mad Science Group Inc., provides its own audited financial statements in Exhibit A, which appear sufficient for assessing its financial health. There is no indication that a parent company's financials are required and being withheld.

Potential Mitigations

• An accountant should review the provided financial statements to confirm they are sufficient to evaluate the franchisor's stability.
• Your attorney can help you understand the relationship between the franchisor, its parent, and its affiliates, and how that structure impacts your agreement.
• It is wise to ask the franchisor to clarify the role and obligations of the parent company.

Explanation

This risk was not identified. Item 1 discloses that the franchisor was formerly named 2946033 CANADA, INC. but does not mention any other predecessors from which it acquired the business. The litigation history in Item 3 and the long tenure of the management team in Item 2 suggest a continuous operational history under the current ownership structure, rather than an acquisition from a prior, potentially troubled, entity.

Potential Mitigations

• Your attorney should confirm the corporate history and verify if there were any predecessors with a problematic past.
• Speaking with long-tenured franchisees can provide insights into the company's history and any previous ownership structures.
• Independent online research on the company's history can sometimes uncover information not detailed in the FDD, a task a business advisor might assist with.