Explanation

Item 20 tables show the number of franchised outlets more than tripled from the start of 2022 to the end of 2024, not including the recent acquisition of 44 more units in 2025. This rapid expansion, combined with the negative net worth shown in the financial statements, suggests that the franchisor's support infrastructure for training, site assistance, and operations may be stretched thin. This could compromise the quality and availability of support for new franchisees.

Potential Mitigations

• Engaging a business advisor to assess whether the franchisor's support staff and systems can sustain this growth is recommended.
• You should ask the franchisor for details about their plans to scale support infrastructure to match the rapid increase in unit count.
• Speaking with a wide range of franchisees, both new and established, can provide insight into the current quality of franchisor support.

Explanation

TourScale Franchising, LLC was formed in April 2020 and began franchising recently. While its affiliates have operated similar businesses since 2011, the franchising entity itself is relatively new. Investing in a newer franchise system carries inherent risks, including unproven long-term support systems, evolving operational standards, and limited brand recognition on a national scale compared to more established franchise systems. The recent acquisition of another large brand further complicates its track record.

Potential Mitigations

• A business advisor can help you conduct thorough due diligence on the management team's direct experience in managing a franchise system of this new, larger size.
• Contacting the earliest franchisees listed in Item 20 is essential to understand the evolution of the system and the quality of support over time.
• An accountant should carefully review the franchisor's financial viability, especially given its limited history as a franchisor.

Explanation

The business operates in the 'mobile entertainment tour industry,' offering experiences on pedal-powered vehicles and vessels. This is a niche market that could be susceptible to changes in tourism trends, local regulations, and consumer discretionary spending. There is a risk that the concept's popularity could be tied to current trends, potentially limiting its long-term viability if those trends change. Your business success may depend on sustained demand in this specific entertainment sector.

Potential Mitigations

• A business advisor should help you independently research the long-term market demand for this type of niche entertainment in your specific geographic area.
• You should evaluate the concept's adaptability and resilience to economic downturns or shifts in consumer preferences.
• Discuss the franchisor's plans for innovation and diversification with them to gauge their strategy for long-term relevance.

Explanation

The franchisor discloses a complex ownership structure involving a direct parent (Holdco) and a grandparent entity (TSE). However, the FDD does not include financial statements for these parent companies. Given that TourScale has a significant negative net worth, the financial health of the parent entities is a material fact for assessing the overall stability and backing of the franchise system. Without their financials, your ability to fully assess the risk is limited.

Potential Mitigations

• Your accountant should review the provided franchisor financials and note the absence of parent company data as a limitation on the analysis.
• It is important to ask the franchisor why parent company financials are not included, especially given the franchisor's negative net worth.
• Your attorney can advise on whether the parent's financials should have been required under franchise disclosure rules in this situation.

Explanation

Item 3 discloses two prior legal actions. One involved an investor alleging fraud, which was ultimately settled after an initial dismissal was reconsidered. The other was a suit initiated by a franchisor affiliate to collect on a promissory note from a purchaser of a franchise unit. While not an extensive pattern, the presence of fraud allegations that were settled and litigation against a franchisee purchaser warrants careful consideration of the franchisor's business practices and relationships.

Potential Mitigations

• A thorough review of the details of the disclosed litigation with your attorney is essential to understand the nature of the allegations and outcomes.
• It is prudent to ask the franchisor for their perspective on these past disputes.
• You should discuss these findings with current and former franchisees to gauge their view on the franchisor's litigation history.