Explanation

Item 20 data does not show a high rate of terminations, with only three in 2023. However, the number of transfers to new owners is notable (9 in 2023, 11 in 2022). A high transfer rate can sometimes mask underperforming units being sold under distress. Additionally, the table shows zero units 'Ceased Operations for Other Reasons' over three years, which may warrant further inquiry to understand how store closures are categorized.

Potential Mitigations

• Engaging a business advisor to analyze the franchisee turnover and transfer rates in Item 20 is a prudent step.
• You should contact former franchisees from the provided list to understand their reasons for leaving the system.
• Your franchise attorney can help you formulate questions for the franchisor regarding the circumstances of the numerous transfers.

Explanation

While the Pizza Factory brand has operated since 1982, the franchisor entity is a new company formed in late 2024 under new ownership. The executive team also appears to be recently appointed. While leveraging an established brand, this new franchising entity lacks a long-term track record of its own in managing the system and providing support. This presents a risk that the support structure and company culture may change under the new leadership.

Potential Mitigations

• A business advisor can help you investigate the track record and franchising experience of the new parent company and its management team.
• You should speak with franchisees who have been with the system through the ownership transition to understand any changes in support.
• Your attorney should review any changes in the franchise agreement offered by the new entity compared to the predecessor's agreement.

Explanation

Item 2 indicates that some key executives of the new franchisor entity are relatively new to their roles within this specific system, having started in 2024 or 2025. While they may have prior industry experience, their track record with this particular brand and support system is short. A new management team may implement changes or have a different support philosophy than the predecessor, which can introduce uncertainty for franchisees.

Potential Mitigations

• Thoroughly vetting the specific franchising and operational experience of the key executives listed in Item 2 is a crucial step for your business advisor.
• You should ask current franchisees about their direct experiences with the new management team's responsiveness and support quality.
• Your attorney can help you understand how the new management's background might influence their interpretation of the franchise agreement.

Explanation

The franchisor's parent company, Wonder Franchises, LLC, appears to be a franchise holding company. This structure can sometimes prioritize investor returns over the long-term health of franchisees. The Franchise Agreement also gives the franchisor the right to sell or assign the brand and your agreement to another company without your consent. This could result in a new owner with a different philosophy or less experience, potentially impacting the support and direction of the system.

Potential Mitigations

• A business advisor can help you research the parent company's reputation and its track record with other franchise brands, if any.
• It is important to ask your attorney to explain the implications of the franchisor's right to assign the agreement to a new owner.
• You should discuss with current franchisees if they have observed any changes in focus or support since the new ownership took over.

Explanation

The FDD discloses that the current franchisor is a new entity that acquired the assets from a long-time predecessor, Pizza Factory, Inc. Item 3 discloses litigation against this predecessor involving franchisee claims of negligent misrepresentation and fraud related to site selection assistance, which was settled. While this litigation did not involve the current franchisor, it is part of the system's history and may indicate past issues in the franchise relationship that could be relevant.

Potential Mitigations

• Your attorney should carefully review all disclosures related to the predecessor, including the details of the past litigation in Item 3.
• A conversation with long-term franchisees about their experiences under the predecessor's management could provide valuable context.
• Inquiring with the new franchisor about what changes have been made to address issues that may have existed under the predecessor is advisable.

Explanation

Item 3 discloses one past lawsuit against the predecessor franchisor brought by a franchisee alleging fraud, negligent misrepresentation, and other claims related to site selection support. While this is not a broad pattern of many lawsuits, the nature of the allegations is serious. The matter was settled, with the predecessor agreeing to pay up to $65,000. This history could suggest potential issues in the franchisor-franchisee relationship or sales process that you should carefully consider.

Potential Mitigations

• Having your attorney thoroughly review the details of the litigation disclosed in Item 3 is a critical step.
• You should ask the franchisor what steps they have taken to prevent similar disputes from arising with franchisees in the future.
• Speaking with other franchisees about their experience with the site selection and support process is an important part of due diligence.