Explanation

The provided consolidated financial statements for TMC Franchise Corporation (TMC) have been audited by a major accounting firm and show positive net worth and profitable operations for the past three fiscal years. No signs of financial instability, such as a going concern note or negative equity, were identified. Financial health appears to be a low-risk area based on these statements.

Potential Mitigations

• An experienced franchise accountant should still review the complete financial statements, including all footnotes, to confirm this assessment of stability.
• Discuss with your accountant the franchisor's revenue sources to understand their reliance on ongoing royalties versus one-time franchise fees.
• Ask your business advisor to assess if the company's financial resources are sufficient to support its existing system and any planned growth.

Explanation

This risk was not identified in the FDD package. The data in Item 20 does not suggest that the franchisor is growing at a pace that outstrips its support capabilities. In fact, the total number of franchised outlets has seen a small net decrease in the most recent year. Rapid, unsupported growth can strain a franchisor's ability to provide adequate training and assistance to its franchisees.

Potential Mitigations

• Your business advisor can help you evaluate the franchisor's current support infrastructure relative to the number of operating stores.
• Speaking with a mix of new and established franchisees can provide insight into the quality and consistency of the support they receive.
• Having your accountant review the franchisor's financial statements can help assess whether they have allocated sufficient resources to franchisee support services.

Explanation

This risk was not identified in the FDD package. TMC and its parent companies, Circle K and Alimentation Couche-Tard, are well-established entities with a long history in the convenience store industry. They have extensive experience operating and franchising thousands of stores. The Kangaroo Express system itself has been operating for many years and has over 100 franchised outlets. This is a mature, not an unproven, franchise system.

Potential Mitigations

• It is still wise to conduct due diligence on the brand's recent performance and strategic direction with your business advisor.
• Interviewing existing franchisees remains a crucial step to validate the health and support of even a mature system.
• A review of the franchisor's recent financial performance with your accountant can confirm continued stability.

Explanation

This risk does not appear to be present. The convenience store industry is a long-established and stable sector of the retail market, not a temporary fad. Kangaroo Express operates within this mature industry, offering staple goods and services with consistent consumer demand. The business model is not reliant on a new or fleeting trend, suggesting long-term market relevance is a low-risk concern.

Potential Mitigations

• Even in a stable industry, it is beneficial to have a business advisor help you assess the specific competitive landscape in your local market.
• Discuss the franchisor's strategies for innovation and staying competitive within the convenience store sector.
• Your financial advisor can help model the business's resilience to local economic changes.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the directors and officers of TMC Franchise Corporation have extensive, long-term experience within the convenience store industry and, for many, within the franchisor's parent company, Circle K Stores, Inc. This indicates a management team with deep operational and franchising knowledge, which is a positive factor for franchisee support and system stability.

Potential Mitigations

• Speaking with current franchisees can help confirm that the management team's experience translates into effective support and leadership.
• It is still valuable to research the recent performance and reputation of the management team with your business advisor.
• Reviewing the professional backgrounds of the key executives listed in Item 2 can provide additional confidence in their capabilities.

Explanation

The ultimate parent company, Alimentation Couche-Tard Inc. (“ACT”), is a publicly traded Canadian corporation, not a private equity firm. While public companies are accountable to shareholders, their operational incentives can differ from the shorter-term focus sometimes associated with private equity ownership. ACT has a long history of operating, not just acquiring and selling, convenience store brands, which may suggest a focus on long-term brand health.

Potential Mitigations

• A business advisor can help you research the parent company's history and its management approach with its various franchise brands.
• It is still important for your attorney to review the franchisor's rights to sell or assign the franchise system.
• Speaking with franchisees about their experience under the current ownership structure can provide valuable insight.

Explanation

This risk was not identified. Item 1 clearly discloses the entire corporate structure, from the franchisor (TMC Franchise Corporation) up to the ultimate parent (Alimentation Couche-Tard Inc.). Furthermore, the audited consolidated financial statements for the franchisor entity itself are provided in Exhibit B, as required. There does not appear to be any attempt to obscure the parent company or its financial standing.

Potential Mitigations

• Your accountant should review the provided financial statements and the corporate structure described in Item 1.
• It is good practice for your attorney to confirm that all required financial disclosures for parent companies, if any were necessary, have been made.
• Always ensure you understand the relationships between the franchisor, its parent, and any affiliates, and how they might impact you.

Explanation

This risk does not appear to be present. Item 1 discloses that the Kangaroo Express system was acquired from The Pantry, Inc. in 2015. However, there is no indication of any negative history, such as litigation or bankruptcy, associated with this predecessor that would be a cause for concern. The system has been operated by the current ownership for a significant period since the acquisition.

Potential Mitigations

• It is still prudent to ask long-term franchisees about their experience during the transition from the previous owner.
• Your attorney can review the predecessor information for any potential red flags.
• A business advisor can help research the historical reputation of the brand under its previous ownership.