Explanation

This risk was not identified. The audited financial statements for Huey Magoo's Restaurants, LLC (Huey Magoo's) show strong revenue growth, consistent profitability over the last three fiscal years, and positive and growing member's equity for the two most recent years. There are no signs of financial instability, such as a going concern note from the auditor. This suggests the company is financially stable and capable of supporting the franchise system.

Potential Mitigations

• Even with positive financials, having your accountant review the statements for any subtle trends or dependencies is a wise step.
• Discuss the franchisor's financial strategy and plans for future investment in the system with your business advisor.
• It is prudent to verify with your attorney that the franchisor is in compliance with any state-specific financial assurance requirements, such as bonds or escrow.

Explanation

This risk was not identified. The data in Item 20, Tables 1 through 3, shows a rapidly growing system with zero franchisee terminations, non-renewals, or cessations of operation for any reason over the last three full fiscal years. A lack of such events is a positive indicator of franchisee satisfaction and system health.

Potential Mitigations

• Contacting a random sample of current franchisees from the list in Exhibit I to discuss their experience is still a crucial part of due diligence.
• Your attorney can help you formulate questions for current franchisees regarding their relationship with the franchisor.
• A business advisor can help you understand if the rapid growth indicated in Item 20 presents any potential challenges for the support system.

Explanation

This risk was not identified. The franchisor began offering franchises in 2016 and its predecessor started in 2009. With nearly 70 franchised units operating at the end of the last fiscal year, the system is established and not a startup. This operational history suggests a proven business model and developed support systems.

Potential Mitigations

• Engaging a business advisor to review the system's history and growth trajectory can provide additional context on its maturity.
• Speaking with franchisees who have been in the system for several years can offer insights into its evolution and stability.
• Your attorney can review the history of the predecessor entity disclosed in Item 1 for any potential concerns.

Explanation

This risk was not identified. The business specializes in chicken tender meals, sandwiches, and salads. This is a well-established and highly competitive segment of the fast-casual restaurant industry, not a temporary fad. The concept is based on a food category with sustained, long-term consumer demand.

Potential Mitigations

• A business advisor can help you analyze the local market to assess the long-term demand for this type of restaurant concept against local competition.
• Reviewing the franchisor's plans for menu innovation and development in Item 11 can provide insight into their strategy for long-term relevance.
• Discuss the brand's staying power and competitive advantages with current franchisees.

Explanation

This risk was not identified. The executive team described in Item 2 appears to have significant and relevant experience. Several key executives have long tenures with the company, and others have prior experience with other well-known restaurant franchise systems like Bonchon, The Melting Pot, and Fazoli's. This level of experience is a positive indicator for management capability.

Potential Mitigations

• A thorough review of the backgrounds of the key personnel listed in Item 2 with your business advisor is always a prudent step.
• When speaking with current franchisees, you can inquire about their direct experiences with the management team's competence and support.
• Your attorney can help you investigate the public record of any other franchise systems the management team has been involved with.

Explanation

This risk was not identified. Item 1 states that the franchisor has no parent companies, and the financial statements do not indicate ownership by a private equity firm. The ownership structure appears to be a standard LLC, suggesting that decisions are likely made with a focus on the long-term health of the brand rather than short-term investor returns.

Potential Mitigations

• Having your attorney confirm the ownership structure of the LLC can provide complete clarity.
• During discussions with the franchisor, you can inquire about their long-term vision and capital structure.
• A business advisor can help you understand the pros and cons of different franchisor ownership structures.

Explanation

This risk was not identified. The FDD clearly states in Item 1 that Huey Magoo's has no parent companies. The franchisor entity, Huey Magoo's Restaurants, LLC, appears to be the top-level entity in the organizational structure, and its financial statements are provided. There is no indication of a hidden or undisclosed parent entity.

Potential Mitigations

• Your attorney can perform a corporate records search to verify the franchisor's corporate structure and confirm the absence of a parent company.
• An accountant should review the provided financial statements to ensure they are for the correct legal entity offering the franchise.
• Clarifying the complete ownership and affiliate structure with the franchisor is a good due diligence practice.

Explanation

This risk was not identified. The FDD discloses a predecessor entity in Item 1 and provides a clear timeline of when the current franchisor acquired the assets. Furthermore, Items 3 and 4 state there is no litigation or bankruptcy history for the predecessor, which is a positive sign. The disclosure appears to be complete and transparent.

Potential Mitigations

• Your attorney should still review the information regarding the predecessor to ensure the transition of rights and assets was handled properly.
• Discussing the transition from the predecessor with long-term franchisees can provide valuable historical context.
• Your business advisor can help you assess if any operational legacy from the predecessor might impact the current system.

Explanation

This risk was not identified. Item 3 states, 'No litigation is required to be disclosed in this Item.' This indicates that the franchisor has not been involved in any recent, material legal disputes with franchisees or other parties that would require disclosure. A clean litigation record is a significant positive factor.

Potential Mitigations

• While the FDD is clean, asking current franchisees about any informal disputes or disagreements can provide a fuller picture of the relationship.
• Your attorney can still conduct an independent search of public court records as a final check.
• Inquire with a business advisor about what level of litigation is considered normal within the franchise industry for comparison.