Explanation

This specific risk was not identified in the FDD Package. Item 20 tables show a very small number of franchised outlets with no terminations or cessations to date. While currently low, this data provides limited insight due to the system's youth. High turnover is a critical red flag in mature systems, often indicating franchisee dissatisfaction, lack of profitability, or poor franchisor support. Monitoring these numbers in future FDDs would be prudent.

Potential Mitigations

• With your business advisor, you should still contact the few existing franchisees listed in the FDD to discuss their satisfaction and profitability.
• An accountant can help you analyze the outlet tables each year to spot any emerging negative trends in franchisee turnover.
• Your attorney can advise on how to interpret Item 20 data, especially the reasons listed for outlets ceasing operations.

Explanation

This risk was not identified as a primary concern in the FDD Package. The business operates in the location-based virtual reality entertainment sector. While this is a modern and technology-driven industry, it appears to be an evolution of entertainment concepts rather than a temporary fad. However, any business reliant on new technology and specific entertainment trends requires ongoing innovation to maintain consumer interest and long-term viability. The risk is that the concept's appeal could diminish over time without sufficient evolution.

Potential Mitigations

• With a business advisor, you should independently research the long-term trends and sustainability of the virtual reality entertainment market.
• It is prudent to ask the franchisor about their research and development plans for new 'Experiences' and technology to keep the brand fresh.
• Your financial advisor can help assess the business's resilience to economic shifts and changes in consumer entertainment spending.

Explanation

This specific risk was not prominently identified in the FDD Package. The management team described in Item 2 appears to have relevant experience in business operations and, in some cases, franchising. However, the franchise system itself is young, and some key franchise-facing personnel are recent hires. The effectiveness of the management team in supporting a growing franchise network is a factor that will become clearer over time. The globally distributed nature of the team could also present communication or coordination challenges.

Potential Mitigations

• It is advisable to discuss the management team's accessibility and responsiveness with current franchisees.
• A business advisor can help you evaluate the resumes in Item 2 to assess the depth of direct franchising and industry experience.
• Your attorney can help you frame questions for the franchisor regarding their management structure and support systems.

Explanation

This risk was not identified in the FDD Package. Item 1 does not indicate that GloStation or its parent companies are owned by a private equity firm. The ownership structure appears to be held within the Sandbox VR Inc. corporate family. Therefore, the specific risks associated with PE ownership, such as a focus on short-term returns over long-term system health, do not appear to be present based on the provided disclosures.

Potential Mitigations

• Your attorney should always verify the ownership structure detailed in Item 1 of the FDD.
• During your due diligence, asking the franchisor about any potential future sale of the company is a reasonable step to take with your business advisor.
• An accountant can help you understand the potential implications of different ownership structures on a franchise system's financial health.

Explanation

This risk was not identified in the FDD Package. Item 1 states clearly, 'We have no predecessors.' Therefore, there are no historical challenges or inherited issues from a prior company that would need to be disclosed or analyzed. Your evaluation of the franchisor's stability and experience should be based on its own history since its formation in 2017.

Potential Mitigations

• Your attorney should always confirm statements in the FDD, such as the claim of having no predecessors, during their review.
• A business advisor can help you focus your due diligence on the franchisor's own operating history as disclosed in the FDD.
• An accountant can analyze the financial statements of the current entity to assess its track record since inception.