Explanation

Item 20 data from 2022 to 2024 shows a franchisee churn rate between approximately 3% and 6.5% per year, which is not unusually high for a system of this size. While not an immediate red flag, monitoring the number of outlets that have 'Ceased Operations for Other Reasons' is worthwhile. The primary concern in Item 20 is the large number of unopened franchises, which is addressed in the 'Unopened Franchises' risk.

Potential Mitigations

• Engage a business advisor to help you contact a broad sample of current and former franchisees from the list in Exhibit I to discuss their experiences.
• It is crucial to have your accountant help you analyze the three-year trend for all types of franchise exits disclosed in Item 20.
• Your attorney can help you formulate specific questions for the franchisor about the reasons for outlet cessations and terminations.

Explanation

This risk was not identified. TLGI, LLC (TLGI), formerly The Little Gym International, Inc., has been offering franchises since 1992 and has a large, established system with over 200 operating units. The franchisor and its parent company executives have extensive experience in franchising and related industries. An unproven system would present higher risks regarding brand recognition, operational support, and long-term viability, which does not appear to be the case here.

Potential Mitigations

• You should still perform thorough due diligence with your business advisor to understand the system's history and current strategic direction.
• It is always recommended to have your accountant review the franchisor's financials to confirm the stability of even a mature system.
• Consulting with your attorney about the terms of the agreement remains critical regardless of the franchisor's age.

Explanation

This risk was not identified. The business concept, focused on children's gymnastics and skills development, has been operating and franchising for over 30 years. This long history suggests sustained consumer demand and a business model that is not a short-term fad. A business tied to a fleeting trend would carry a higher risk of declining consumer interest, potentially leading to failure even if you are locked into a long-term franchise agreement.

Potential Mitigations

• It is still prudent to have a business advisor help you research local market competition and long-term demand for children's enrichment programs.
• A discussion with your financial advisor can help you create financial projections to assess the concept's ongoing profitability in your area.
• Your attorney should still be consulted to review all contractual obligations, regardless of the business model's maturity.

Explanation

This risk was not identified. FDD Item 2 details the business experience of the management team for both TLGI, LLC (TLGI) and its parent company, Unleashed Brands. The executives listed possess extensive prior experience in the franchise industry and in managing large-scale service businesses. Inexperienced management would present a higher risk of poor strategic decisions, inadequate franchisee support, and underdeveloped operational systems, which does not appear to be the case based on the disclosures.

Potential Mitigations

• Even with an experienced team, it is beneficial to have a business advisor help you research the recent performance of the franchise system under current leadership.
• Talking with current franchisees from the list in Exhibit I can provide direct feedback on the quality and effectiveness of management's support.
• Your attorney should still perform a full review of the FDD and franchise agreement, as experience does not preclude unfavorable terms.

Explanation

This risk was not identified. The FDD clearly discloses the parent company structure, from TLGI, LLC (TLGI) up to UA Holdings, LLC. Crucially, the franchisor has included the audited consolidated financial statements for the ultimate parent, UA Holdings, LLC, in Exhibit H. This provides financial transparency. The parent also provides a Guarantee of Performance. An undisclosed or financially opaque parent company would create significant risk about the true stability and backing of the franchise system.

Potential Mitigations

• It is vital that your accountant reviews the financial statements of both the franchisor and the parent company provided in Item 21 and Exhibit H.
• Your attorney should analyze the terms of the parent's Guarantee of Performance to determine the extent of the protection it offers you.
• A discussion with your business advisor can help assess how the parent company's overall strategy might impact The Little Gym brand.

Explanation

This risk was not identified. FDD Item 1 discloses that the current franchisor, TLGI, LLC (TLGI), was formerly The Little Gym International, Inc., and was acquired by Unleashed Brands in 2021. The FDD does not list any other predecessors from which it acquired the system's assets. A history involving multiple predecessors with negative track records (like bankruptcy or litigation) would be a significant concern, but that does not appear to be the case here.

Potential Mitigations

• When speaking with long-term franchisees from the list in Exhibit I, it is still a good practice to ask about their experience before the 2021 ownership change.
• Your attorney should confirm the corporate history described in Item 1 through public record searches.
• A business advisor can help you understand any strategic shifts that occurred after the franchisor's conversion to an LLC under new ownership.