Explanation

This risk was not identified in the FDD package. The data in Item 20 shows that the franchise system is growing slowly and has maintained a stable number of three franchised units for the past two years. Rapid growth can strain a franchisor's ability to provide adequate support to its franchisees, so slow, controlled growth can be a positive sign. You should still monitor growth rates in future FDDs.

Potential Mitigations

• Engaging a business advisor to evaluate the franchisor's capacity for providing support in relation to its growth plans is a sound strategy.
• Discussing the quality and timeliness of franchisor support with existing franchisees can provide valuable insight.
• Your attorney can help you understand the support obligations detailed in the Franchise Agreement.

Explanation

This risk was not identified in the FDD. The business model is centered on ramen, a well-established and popular food category with a long history of consumer demand. While restaurant popularity can fluctuate, ramen is not typically considered a short-term fad. This suggests a basis for long-term market relevance. However, you should still independently assess the specific market and competitive landscape for this type of restaurant in your area.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term demand for this specific restaurant concept in your target area.
• Talking to existing franchisees about customer loyalty and repeat business can offer clues about the brand's staying power.
• Your accountant can help you model different revenue scenarios to understand the financial impact if demand were to decline.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives have extensive and relevant experience. The CEO has been a restaurant company CEO since 2003, and the Executive Vice President of Franchise Operations has over 30 years of experience in both restaurant operations and training. This level of experience can be a significant asset in providing effective support and guidance to franchisees.

Potential Mitigations

• You should still ask existing franchisees about their direct experiences with the management team's accessibility and quality of support.
• A discussion with your business advisor can help you assess how the management team's experience translates into tangible benefits for franchisees.
• Your attorney should review the franchisor's contractual obligations to provide support, regardless of management experience.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is owned by a corporation, EK Food Services, Inc., and there is no disclosure of any private equity firm involvement. Therefore, the specific risks associated with a private equity firm's short-term financial objectives do not appear to be present. However, any change in ownership could introduce new risks in the future.

Potential Mitigations

• It is still wise to ask your attorney to review the assignment clause in the Franchise Agreement to understand your rights if the franchisor is sold.
• A conversation with your business advisor about the current ownership structure and its potential long-term stability is recommended.
• You can research the parent company, EK Food Services, Inc., to better understand its history and business philosophy.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the parent company, EK Food Services, Inc. While the parent company's financial statements are not included, the franchisor entity itself does not appear to be thinly capitalized and there is no parent guarantee mentioned that would trigger a disclosure requirement. The disclosure of the parent entity appears to meet legal requirements.

Potential Mitigations

• An accountant can review the franchisor's financials to confirm it is adequately capitalized on its own.
• Your attorney should confirm whether, under the specific circumstances, parent company financials might have been required by state or federal rules.
• In discussions with the franchisor, you can inquire about the parent company's commitment to supporting the franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD explicitly states that the franchisor has no predecessors. This means the company was not formed from the assets of a prior entity that operated the same business, simplifying the due diligence process as there is no hidden history of prior litigation, bankruptcy, or franchisee failures to investigate under a different company name.

Potential Mitigations

• It is still important for your attorney to review Item 1 carefully to confirm the statement about no predecessors.
• Discussions with the longest-operating franchisees can help verify the history of the system as you understand it.
• Your accountant's review of the financial statements can help confirm the operational history of the current entity.

Explanation

This risk was not identified in the FDD. Item 3 explicitly states that there is no litigation that requires disclosure. This is a positive sign, as it indicates a lack of significant legal disputes with franchisees, suppliers, or regulatory agencies. However, this only reflects the history up to the FDD issuance date, and the small size of the system means there has been less opportunity for disputes to arise.

Potential Mitigations

• A business advisor might recommend conducting independent online searches for any informal complaints or news related to the franchisor.
• Your attorney can advise on the types of litigation that are required to be disclosed to understand what might be omitted.
• Ask current and former franchisees if they are aware of any significant disputes, even if they did not result in formal litigation.