Explanation

This risk was not identified in the disclosure document. High franchisee turnover, often seen in Item 20 tables as numerous terminations or closures, can be a major red flag indicating systemic problems. The data for Aroma Joe's shows zero terminations, non-renewals, or cessations of operations for other reasons over the last three years, which is a positive indicator of franchisee stability within the system.

Potential Mitigations

• It is still a valuable practice to contact a diverse group of current franchisees from the list in Exhibit K to discuss their satisfaction and profitability.
• Your business advisor can help you formulate questions for franchisees about the support they receive from the franchisor.
• Confirm with your accountant that the low turnover aligns with the overall financial health presented in the FDD.

Explanation

This risk was not identified. An unproven system typically has a very short operating history and few, if any, franchisees. Aroma Joe's has been franchising since 2013 and, as of the end of 2024, had 120 operating franchised outlets. The management team also has prior experience in the coffee and franchise industries. This indicates a relatively mature and established franchise system.

Potential Mitigations

• Speaking with franchisees who have been in the system for varying lengths of time can provide a broad perspective on its evolution and stability.
• Your business advisor can help you evaluate the system's track record and competitive position in the market.
• An attorney should still review all documents for terms that might be more common in newer, riskier systems.

Explanation

This risk was not identified in the disclosure document. A fad business is one based on a short-lived trend with questionable long-term consumer demand. The specialty coffee shop industry is a well-established and mature market segment with a long history of consumer demand, suggesting that the core business model is not a fad.

Potential Mitigations

• It is still beneficial to have a business advisor help you research the long-term prospects and competitive landscape of the coffee industry in your specific market.
• Discuss with current franchisees how they adapt to changing consumer tastes and local competition.
• Your financial advisor can help model the business's resilience to potential economic downturns or shifts in market trends.

Explanation

This risk was not identified. Item 2 indicates that the key executives and management personnel at Aroma Joe's have relevant prior experience in the coffee, food service, and franchise industries. For instance, executives have prior experience with franchise systems like Subway and Firehouse Subs, as well as with a predecessor coffee business. This suggests the management team is not new to the industry or the franchise model.

Potential Mitigations

• It is always a good practice to perform your own background research on key executives to confirm their stated experience.
• When speaking with current franchisees, asking about their perception of the management team's competence and strategic direction is useful.
• A business advisor can help you assess whether the management team's experience aligns with the company's growth strategy.

Explanation

This risk was not identified in the disclosure document. Item 1 of the FDD, which details the franchisor and any parent companies, does not indicate that Aroma Joe's is owned by a private equity firm. The franchisor appears to be privately held by its founders and key individuals, whose backgrounds are described in Item 2.

Potential Mitigations

• During due diligence, it is still prudent to ask the franchisor about any potential plans for a future sale of the company.
• Your attorney can help you understand the 'Assignment by Franchisor' clause in the Franchise Agreement to know your rights if the company is sold.
• Consulting a business advisor to understand the typical impacts of a private equity acquisition on a franchise system can provide valuable context.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose any predecessors from which Aroma Joe's acquired its assets. While Item 2 mentions that some management personnel previously worked for an entity named 'Caffeinated Cousins,' the FDD does not define this entity as a legal predecessor to the Aroma Joe's system itself. Therefore, there are no disclosed predecessor history issues.

Potential Mitigations

• Even without a formal predecessor, asking long-tenured franchisees about the early history of the system can provide useful context.
• Your attorney can confirm that the legal structure described in Item 1 does not omit any entities that should have been disclosed as predecessors.
• Independent online research into the history of the brand and its founders can sometimes reveal additional background information.

Explanation

This risk was not identified in the disclosure document. Item 3 explicitly states, 'No litigation is required to be disclosed in this Item.' This indicates that in the recent past, the franchisor has not been involved in any material litigation with franchisees, government agencies, or other parties that would require disclosure under federal franchise law. The absence of litigation is a positive indicator.

Potential Mitigations

• It is still prudent to conduct independent online searches for any news or discussions about disputes involving the franchisor.
• Asking current and former franchisees about their experiences with disputes, whether they resulted in litigation or not, can provide valuable insight.
• Your attorney can help you understand the types of disputes that might not meet the legal threshold for disclosure in Item 3.