Explanation

Item 20 data indicates a relatively stable system, with a small number of terminations and transfers in the last three fiscal years. The calculated annual turnover rate appears to be low. However, Item 19 notes three restaurants ceased operations in fiscal year 2025 that are not explicitly categorized as such in the Item 20 tables, creating a minor ambiguity. Overall, the disclosed turnover does not suggest significant systemic franchisee distress.

Potential Mitigations

• Asking current and former franchisees about their experiences and reasons for leaving the system can provide valuable context beyond the numbers.
• Your accountant should analyze the turnover data across all categories (terminations, transfers, non-renewals) over the three-year period to identify any subtle trends.
• A business advisor can help you compare these turnover rates to available industry benchmarks for full-service restaurants.

Explanation

The risk of excessively rapid growth straining franchisor resources was not identified. Item 20 data shows the system has been shrinking slightly over the past three years, not growing rapidly. The total number of franchised outlets has decreased from 92 to 85. This suggests the primary risk is not related to managing rapid expansion but rather to maintaining the existing system and potentially reversing the trend of net outlet decline.

Potential Mitigations

• Discuss the franchisor's strategic plans for future growth and franchisee support with your business advisor.
• Asking existing franchisees about their perception of the current level of franchisor support is a crucial due diligence step.
• Your accountant can review the franchisor's financials to assess its capacity to invest in system revitalization and support.

Explanation

This risk was not identified. The Melting Pot Restaurants, Inc. (TMPRI) is a well-established brand, having offered franchises since 1984. Item 1 and Item 2 show that the franchisor and its key personnel have extensive, long-term experience in the restaurant industry and in franchising this specific concept. The system is mature and has a long operational history, which mitigates the risks associated with an unproven business model.

Potential Mitigations

• Speaking with long-term franchisees about the system's evolution and historical support can provide valuable insight.
• A business advisor can help you evaluate the brand's current market position and long-term viability despite its maturity.
• Your attorney should still review all documents for terms that may be unfavorable, regardless of the franchisor's experience.

Explanation

This specific risk appears to be low. The Melting Pot concept, centered on fondue dining, has been in operation for several decades, demonstrating long-term consumer demand rather than being a short-lived fad. Item 1 details a history dating back to 1984. The franchisor has also shown some adaptation by exploring retail product lines and evolving the restaurant concept, suggesting an awareness of the need for continued relevance.

Potential Mitigations

• Your business advisor can help you research the current and projected consumer trends in experiential and communal dining.
• Discussing the brand's continued relevance and plans for innovation with both the franchisor and current franchisees is recommended.
• An accountant can help you model the financial performance based on the specific demographics and competition in your target market.

Explanation

This risk was not identified. Item 2 of the FDD details the business experience of the franchisor's directors and principal officers. The executive team appears to have extensive and long-standing experience within both the restaurant industry and with The Melting Pot brand specifically, with many executives having served in various roles within the company for over a decade. This level of experience generally reduces risks associated with inexperienced management.

Potential Mitigations

• It is still prudent to conduct due diligence by speaking with current franchisees about their perception of the management team's competence and support.
• A business advisor can help you research the recent performance and strategic direction of the company under the current leadership.
• Your attorney should review the backgrounds of any new or recently appointed executives to ensure continuity of experience.

Explanation

This risk was not identified. Item 1 does not disclose ownership by a private equity firm. The company, The Melting Pot Restaurants, Inc., appears to be a privately held corporation with a history of consistent management, rather than being subject to the specific pressures and timelines often associated with private equity ownership. Therefore, the risks of short-term-focused decision-making are not prominent.

Potential Mitigations

• It is always a good practice to ask your attorney to verify the corporate structure and ownership of the franchisor.
• A business advisor can help research the company's history and any past ownership changes to understand its governance philosophy.
• Asking current franchisees about any recent changes in company strategy or fee structures can provide valuable insight.

Explanation

This risk was not identified in the FDD. Item 1 clearly identifies the franchisor, The Melting Pot Restaurants, Inc., and its affiliates. There is no indication of a parent company whose financials would be material to your investment decision and have not been disclosed. The provided financial statements in Exhibit A appear to be for the consolidated entity, which includes the franchisor and its subsidiaries, providing a comprehensive financial picture.

Potential Mitigations

• Your accountant should confirm that the provided consolidated financial statements give a complete and accurate picture of the franchising entity's health.
• It is wise to have your attorney verify the corporate structure to ensure there are no undisclosed parent entities with significant control.
• Always ask the franchisor to clarify the relationship between all affiliated entities mentioned in the FDD.

Explanation

This risk was not identified in the FDD. Item 1 states that the franchisor has no predecessors. The company, The Melting Pot Restaurants, Inc., was incorporated in 1984 and has been offering franchises since that time under its own name. Therefore, there are no predecessor entities whose historical performance, litigation, or bankruptcy history would be relevant to your investment decision.

Potential Mitigations

• Even without predecessors, your attorney should review the full history of the franchisor as detailed in Items 1, 3, and 4.
• Engaging a business advisor to research the company's long-term brand reputation can provide additional context.
• Speaking with long-tenured franchisees can offer insights into the company's historical stability and practices.

Explanation

This risk appears low. Item 3 discloses a single prior action initiated by the Washington Attorney General regarding no-poaching provisions, which was resolved through an Assurance of Discontinuance without admission of wrongdoing. The FDD does not disclose a pattern of franchisee-initiated litigation alleging fraud, misrepresentation, or other systemic issues, which is a positive indicator of the franchisor-franchisee relationship.

Potential Mitigations

• A franchise attorney should review the details of the disclosed litigation to ensure a full understanding of its nature and resolution.
• It's advisable to conduct independent searches for any other litigation involving the franchisor that may not have been required for disclosure.
• Asking current and former franchisees about their experiences with disputes can provide valuable qualitative information.