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B59/100FDD 2025

Challenge Island — Litigation & Risk

Other · FDD Items 3, 4 & 5

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Moderate — Review

2 cases disclosed in FDD Items 3 and 4.

Source: FDD Items 3–5

FDD Items 3 & 4

Litigation Metrics

Cases disclosed
2
Total from FDD Items 3 and 4
Bankruptcy (Item 4)
—
Franchisor or officer bankruptcy
Overall risk score
59 / 100
FranchiseVerdict composite
Rating
MODERATE
STRONG / MODERATE / CAUTION / AVOID

7(a) FOIA data · FY2020–present

SBA Loan Performance

Aggregated from public SBA 7(a) loan disclosures. Default rate is the share of loans that were charged off or settled for less than the full balance.

Total 7(a) loans
5
Government-backed loans issued
Default rate
25.0%
vs <3% typical · system-wide
5-yr default rate
100.0%
Defaults
1 loans
Loans charged off or defaulted
Total loan volume
$455K
Avg loan size
$91K
Participating lenders
2

FDD Items 5, 6 & 17 — what you give up

Contract Risk Indicators

Mandatory arbitration
Not required
You retain the right to sue in court
Jury trial waiver
Waived
You give up the right to a jury trial
Non-compete
2 yrs
Post-termination restriction on similar businesses
Franchisor can compete
Yes
Franchisor can open competing locations in or near your territory
Right of first refusal
Yes
Franchisor can match any purchase offer when you try to sell
Governing law
Georgia
State whose law governs disputes — relevant if you're not based there

What drove the 59/100 rating

Risk Score Breakdown

  1. 01MINORNo average revenue or net income disclosure (Item 19) — impossible to assess actual franchisee profitability
  2. 02HIGHTwo litigation settlements totaling $205,000 (2016 Virginia unregistered franchise sales; 2019 California fraud/misrepresentation) indicate regulatory and legal compliance issues
  3. 03MINORModest unit growth of 9.8% YoY with only 197 locations suggests slower-than-typical franchise expansion; no growth acceleration visible
  4. 04MINORHigh franchise fee ($49,900) combined with 7% royalty minimum creates significant fixed cost burden without transparent revenue benchmarks
  5. 05HIGHGoing Concern flagged as 'False' — unclear if this means concerns exist or notation is missing; requires clarification on franchisor financial health

Severity inferred from FDD text — not a regulatory or legal classification

Litigation data from FDD Items 3, 4, and 5. SBA data from public 7(a) FOIA records (FY2020–present). Not legal advice — consult a franchise attorney before signing any franchise agreement.