Explanation

This risk was not identified in the FDD package. Item 20, which tracks franchisee turnover, does not show any terminations, non-renewals, or other cessations because the system is new with only one franchised outlet opened as of the end of 2024. While there is no negative data, the lack of a meaningful operating history means the long-term satisfaction and success rate of franchisees is completely unknown. High turnover is a major red flag in established systems.

Potential Mitigations

• Engaging a business advisor to monitor future Item 20 disclosures for signs of increasing turnover will be crucial if you proceed.
• Your attorney can help you understand your rights and the franchisor's obligations if the system begins to show signs of distress in the future.
• An accountant can help you model the financial impact of potential system-wide issues that high turnover might signal.

Explanation

This risk was not identified in the FDD package. Item 20 data shows very slow growth, with only one franchise and two company-owned units opened in the first few years of operation. Therefore, there is no indication that the franchisor's support systems are currently strained by overly rapid expansion. The risk is the opposite: that the system is unproven and not yet demonstrating significant growth.

Potential Mitigations

• It is still wise to have your business advisor evaluate the franchisor's business plan for future growth and the scalability of their support infrastructure.
• Your attorney should review the franchisor's contractual obligations for support to ensure they are clearly defined, regardless of system size.
• An accountant can analyze if the franchisor's financial model supports sustainable growth without over-reliance on franchise fees.

Explanation

This risk was not identified in the FDD package. Item 1 identifies the parent company as Oak Capital Group, LLC, which appears to be a holding company associated with one of the founders, Ricardo Dunin. There is no indication that the franchisor is owned or controlled by a traditional private equity firm with a focus on short-term returns and a quick exit strategy. The risks typically associated with PE ownership do not appear to be present here.

Potential Mitigations

• It is still prudent to have your attorney confirm the ownership structure and identify all controlling parties of the franchisor.
• A business advisor can help research the background of the parent company and its principals to understand their business philosophy.
• Your attorney can review the assignment clause in the Franchise Agreement to understand how a future sale of the company might impact you.

Explanation

This risk was not identified in the FDD package. Item 1 discloses the existence of a parent company, Oak Capital Group, LLC. The FDD includes audited financial statements for the franchisor, Larks, LLC, as required. There is no indication that the parent company's financials are required for disclosure under franchise law (e.g., through a financial guarantee of the franchisor's obligations) or are being improperly withheld. The provided financials appear to be for the correct entity.

Potential Mitigations

• Your attorney can confirm whether the provided financials are sufficient under franchise regulations given the parent-subsidiary structure.
• An accountant should review the affiliate and related party transactions disclosed in the financial statements' footnotes for any red flags.
• A business advisor can help you understand the relationship and flow of funds between the franchisor and its parent.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no legal predecessors. This is a common arrangement for new franchise systems. However, a prospective franchisee should be aware that the management team's experience, as detailed in Item 2 and the litigation history in Item 3, comes from a separate, prior franchise system. Understanding this history is crucial, even if it is not a formal predecessor.

Potential Mitigations

• Your attorney should carefully review Items 2 and 3 for information about management's prior business dealings and any associated litigation.
• A business advisor can help you research the history and reputation of any prior companies managed by the franchisor's current leadership team.
• You should directly ask management about lessons learned from their prior franchise experiences.