Explanation

This risk was not identified. The system is mature and has a large number of units. However, the significant growth in company-owned units, partly through reacquiring franchised outlets, suggests a shift in strategy. Rapid expansion can strain a franchisor's ability to provide support, so it is important to verify that support systems are robust and scalable to handle both franchised and the rapidly growing number of corporate-owned parks.

Potential Mitigations

• Discuss the franchisor's growth strategy and its capacity to support all units with a business advisor.
• Asking current franchisees about the quality and timeliness of franchisor support is a crucial due diligence step.
• Your accountant should review the franchisor's financials to assess if they have the resources to sustain their expanded corporate operations while supporting franchisees.

Explanation

This risk was not identified in the FDD package. Sky Zone is a well-established brand that began franchising in 2009 and has a large number of operating units. An unproven system would carry higher risks, such as having undeveloped operating manuals, minimal brand recognition, or an untested business model, which does not appear to be the case here. You should still perform due diligence on the brand's current market position.

Potential Mitigations

• For any franchise, consulting with a business advisor to evaluate the system's maturity and track record is a valuable step.
• Your attorney should review the franchisor's history and experience as detailed in Item 1 and Item 2.
• Speaking with a range of existing franchisees can provide insight into the stability and support of even a mature system.

Explanation

This specific risk was not identified, as trampoline parks have been an established entertainment concept for over a decade. However, the active entertainment industry is subject to changing trends. A prospective franchisee should evaluate the brand's ability to innovate and adapt. The FDD mentions the franchisor's right to change the system and introduce new attractions, which may be necessary to maintain long-term consumer interest and avoid becoming outdated in a competitive market.

Potential Mitigations

• With your business advisor, research the long-term viability of the active entertainment market in your specific area.
• Inquire with the franchisor about their research and development pipeline for new attractions and services.
• Discuss with existing franchisees how the franchisor has helped them adapt to changing consumer tastes and competition.

Explanation

This risk was not identified. The management team described in Item 2 appears to have significant experience in the franchise and service industries. However, it's worth noting that some key executives have been in their current C-level roles for a relatively short time (since 2023 or later). While not necessarily a risk, a prospective franchisee may want to understand the reasons for any recent executive turnover and its potential impact on the company's strategic direction and stability.

Potential Mitigations

• A business advisor can help you assess the collective experience of the management team listed in Item 2.
• During discussions with existing franchisees, you might inquire about their confidence in the current leadership team.
• Reviewing the professional backgrounds of the key executives on platforms like LinkedIn can provide additional context.

Explanation

The franchisor discloses its parent company structure in Item 1. Furthermore, the FDD includes audited consolidated financial statements in Exhibit F. Therefore, the specific risk of non-disclosure of a parent company does not appear to be present. However, the financial relationship between SFG and its parent, as evidenced by the large related-party receivable on the balance sheet, remains a significant point for analysis under the 'Disclosure of Franchisor's Financial Instability' risk.

Potential Mitigations

• Having your accountant carefully analyze the provided consolidated financial statements is a crucial step.
• Your franchise attorney should review the corporate structure disclosed in Item 1 to ensure it is clear and complete.
• Asking the franchisor to explain the financial relationship and cash flow between the parent and subsidiary entities can provide clarity.

Explanation

This risk was not identified in the FDD, as the franchisor states in Item 1 that it has no predecessors. A predecessor is a company from which the franchisor acquired the major portion of its assets. When a predecessor exists, it is important to review their history for any signs of trouble, such as litigation or high franchisee turnover, which could carry over to the current franchisor. Since none are listed, this specific risk is not applicable.

Potential Mitigations

• Your attorney should always verify the statements made in Item 1 regarding predecessors.
• Independent research, with the help of a business advisor, can sometimes uncover corporate history not detailed in the FDD.
• Asking long-term franchisees about the history of the brand and any prior ownership structures is good practice.