Explanation

This risk was not identified. The audited financial statements provided in Exhibit D for Super Magnificent Coffee Company Ireland Limited (SMCC Ireland) show strong financial health, including significant profitability, positive net income, and a substantial positive net worth. The company appears to have the financial resources to support the franchise system.

Potential Mitigations

• An accountant should review the franchisor's financial statements for the past three years to confirm stability and identify any potential negative trends.
• It is wise to discuss the franchisor's financial health and their capitalization plans for supporting the system with your business advisor.
• Your attorney can help you understand any financial performance representations and their relationship to the franchisor's overall financial condition.

Explanation

This risk was not identified. The data in Item 20 does not indicate overly rapid or unsustainable growth. Instead, the number of franchised outlets has been relatively stable or has slightly decreased in the most recent year. The primary concern reflected in the data is related to franchisee turnover rather than an over-extension of the franchisor's support systems due to rapid expansion.

Potential Mitigations

• A business advisor can help you assess whether the franchisor's growth plans are sustainable and if their support infrastructure is adequate for the current system size.
• Discuss the franchisor's historical and projected growth with your accountant to evaluate the financial stability of their expansion model.
• Your attorney should review the franchisor's obligations for support in the Franchise Agreement to ensure they are clearly defined.

Explanation

This risk was not identified. While the current franchisor entity was formed in 2019, Item 1 shows the brand has a long operational history dating back to 1963 and is part of a large, publicly-traded corporate family (Jollibee Foods Corporation). The system is well-established and not considered new or unproven.

Potential Mitigations

• For any new franchise system, it is crucial to have an attorney scrutinize the business history and experience of its principals.
• A business advisor can help evaluate the viability and track record of an unproven concept.
• Your accountant should carefully review the financials of a new franchisor to assess its capitalization and long-term stability.

Explanation

This risk was not identified. The specialty coffee industry is a mature and well-established market. The business model is not based on a new or fleeting trend, and there is evidence of sustained consumer demand for these types of products and services.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term viability of the industry and specific business concept.
• Engage your accountant to create financial models that project performance beyond the initial trend cycle.
• It is wise to have your attorney review the franchise agreement for the term length and your obligations if the business's popularity wanes.

Explanation

This risk was not identified. FDD Item 2 details the business experience of the franchisor's key management personnel. The executives listed have extensive backgrounds with large, established companies in the food, beverage, and retail industries, including Jollibee Foods Corporation and Taco Bell, indicating significant relevant industry and management experience.

Potential Mitigations

• A business advisor can help you research the backgrounds and track records of the franchisor's key management team.
• Discussing the management team's experience and a franchisor's support capabilities with current franchisees is a vital due diligence step.
• Your attorney should verify that the experience described in Item 2 aligns with the support obligations promised in Item 11.

Explanation

This risk was not identified. FDD Item 1 indicates that the franchisor is part of a large, publicly-traded food service company (Jollibee Foods Corporation), which is a strategic, long-term operator in the industry. It is not owned by a typical private equity firm that might prioritize short-term returns over the long-term health of the franchise system.

Potential Mitigations

• It is important to have your attorney and business advisor research the ownership structure of any franchise system.
• If a franchisor is owned by a private equity firm, a business advisor can help you investigate the firm's history with other franchise brands.
• Speaking with franchisees who have been with the system through ownership changes can provide valuable insight.

Explanation

This risk was not identified. FDD Item 1 clearly discloses the parent companies and their relationship to the franchisor. Furthermore, FDD Item 21 and Exhibit D include the audited financial statements for the franchisor entity itself, providing direct insight into its financial condition.

Potential Mitigations

• Your attorney should confirm that the FDD properly discloses all parent companies and affiliates as required by franchise law.
• If a parent company guarantees the franchisor's obligations, an accountant should review the parent's financial statements.
• It is wise to understand the complete corporate structure and the role of any parent companies with the help of your business advisor.

Explanation

This risk was not identified. FDD Item 1 describes the franchisor's history and its relationship with predecessors like International Coffee & Tea, LLC. The FDD appears to properly disclose the history of these entities, including their litigation history in Item 3 and bankruptcy history (or lack thereof) in Item 4, providing a clear lineage of the brand.

Potential Mitigations

• A franchise attorney should carefully review the disclosed history of any predecessors for potential red flags.
• Your business advisor can help you conduct independent research on the business reputation of any predecessor companies.
• When possible, speaking with long-term franchisees who operated under a predecessor provides invaluable historical context.