Explanation

While the franchisor's parent company, TSC Intermediate, Inc. (TSC Intermediate), shows a significant accumulated deficit in its 2023 predecessor financials, its balance sheet appears substantially improved following a 2024 acquisition. The new franchising entity, formed in 2024, is profitable in its short history. The predecessor's history of losses could suggest past challenges, but the recent recapitalization seems to have significantly strengthened the overall financial position. Your accountant should review these successive financials carefully.

Potential Mitigations

• Engage a franchise accountant to meticulously analyze the successive financial statements in Item 21, focusing on the impact of the recent acquisition and securitization.
• It is important to discuss the predecessor's historical losses and the parent company's current financial health with your financial advisor.
• Your attorney should confirm if any financial performance guarantees are in place from the ultimate parent company.

Explanation

This risk was not identified in the FDD package. Item 20 data for 2024 shows a very low turnover rate, with only 18 franchises ceasing operations, being terminated, or not renewed out of a base of 1,371. This is a positive indicator of system stability. High turnover can signal franchisee dissatisfaction or lack of profitability.

Potential Mitigations

• Your business advisor should still recommend contacting a random sample of current and former franchisees from the list in Item 20 to discuss their experiences.
• An accountant can help you analyze the Item 20 tables for multiple years to spot any developing trends, even if current rates are low.
• When reviewing any franchise, asking your attorney about the typical reasons for franchisee exits can provide valuable context.

Explanation

This risk was not identified in the FDD package. Tropical Smoothie Cafe is a large, established brand that has been franchising for many years, with over 1,500 outlets operating at the end of 2024. The management team listed in Item 2 also appears to have significant experience in the restaurant and franchise industries. An unproven system would present higher risks related to brand recognition, operational support, and overall viability.

Potential Mitigations

• When evaluating any franchise opportunity, a business advisor can help you research the franchisor's history and the experience of its key executives.
• It's wise to have an accountant review the financial track record of a franchisor for at least three years to assess stability.
• Contacting some of the earliest franchisees in a system, with help from your attorney, can provide insight into its long-term viability.

Explanation

This risk was not identified in the FDD package. The smoothie and fast-casual restaurant market is a well-established and competitive industry, not a temporary fad. The brand has demonstrated long-term consumer demand and has been in operation since 1997. A business based on a fad carries a higher risk of failure once consumer interest wanes, even if your contractual obligations continue.

Potential Mitigations

• For any franchise concept, working with a business advisor to research the long-term market demand for its products or services is a crucial step.
• Your financial advisor can help you assess a business model’s resilience to economic shifts and changing consumer tastes.
• Asking a franchisor about their research and development plans can provide insight into their strategy for long-term relevance.

Explanation

This risk was not identified in the FDD package. The executive team described in Item 2 has extensive experience in the restaurant and franchise industries, with many officers having served in senior roles at other major brands like Papa John's, Baskin-Robbins, and Domino's Pizza. Inexperienced management can pose a significant risk to a franchise system, potentially leading to inadequate support and poor strategic decisions.

Potential Mitigations

• With any franchise, it is a good practice to have your business advisor help you research the backgrounds of the key management personnel listed in Item 2.
• You should discuss the quality of management and support with current franchisees to gauge their real-world experience.
• An attorney can help you understand how the franchise agreement protects you if the franchisor fails to provide adequate support.

Explanation

The FDD discloses a complex parent and affiliate structure, including the franchisor, an issuer, a guarantor, and a manager entity, all under the ultimate ownership of Blackstone affiliates. The FDD includes the financial statements for the parent, TSC Intermediate, Inc., and notes that it provides a performance guaranty for the manager, not the franchisor. While the structure seems fully disclosed, its complexity warrants careful review.

Potential Mitigations

• Have your franchise attorney and accountant carefully review the entire corporate structure and the relationships between the parent, franchisor, and manager.
• It is important to understand which entity guarantees performance and what that guarantee covers by consulting with your attorney.
• Your accountant can assess the financial health of both the franchisor and the parent entities to get a complete picture.

Explanation

Item 1 identifies the predecessor franchisor as Tropical Smoothie Cafe, LLC, a Georgia LLC. The FDD appears to provide the required information regarding this predecessor, including its litigation history in Item 3 and lack of bankruptcy in Item 4. The franchise transfer and closing data in Item 20 also appear to be presented for the predecessor where applicable. No significant issues were noted with the predecessor disclosures.

Potential Mitigations

• A franchise attorney should always review the predecessor information in Items 1, 3, 4, and 20 to ensure a complete history of the system is provided.
• It can be beneficial to ask long-tenured franchisees about their experience under any previous ownership or predecessor entity.
• Your business advisor can help you research public information about a predecessor entity for additional context.

Explanation

Item 3 discloses one prior lawsuit initiated by a former franchisee against the predecessor franchisor, alleging breach of contract and fraudulent misrepresentation. The case was settled with a payment by the franchisor and no admission of liability. While a single, settled case from 2016 does not constitute a significant pattern of litigation, the nature of the claims (fraud) is a point of concern that warrants attention.

Potential Mitigations

• A franchise attorney should carefully review the details of any litigation disclosed in Item 3, including the allegations and outcomes.
• You should discuss any past litigation involving claims of fraud or misrepresentation with the franchisor to understand their perspective on the matter.
• When speaking with former franchisees, your business advisor can help you inquire if they are aware of similar unresolved issues within the system.