Explanation

This risk was not identified. The audited financial statements in Exhibit C show that MDSA, LLC (Mighty) has been profitable in recent years with a positive net worth. Financial stability is important as it suggests the franchisor has the resources to support its franchisees, invest in the brand, and fulfill its contractual obligations. An unstable franchisor could jeopardize your investment.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financial statements for the past three years to assess trends in revenue, profitability, and cash flow.
• Understanding the franchisor’s financial health is critical, so discussing the balance sheet and income statements with your financial advisor is recommended.
• Your attorney can help you understand any financial guarantees or support obligations outlined in the Franchise Agreement.

Explanation

This risk was not identified, as Item 20 data indicates the system size has been relatively stable or slightly decreasing, not growing rapidly. Rapid growth can sometimes strain a franchisor's ability to provide adequate support. Because the system is mature and not expanding at a high rate, the risk of support infrastructure being overwhelmed appears low at this time. This stability can be a positive indicator for new franchisees.

Potential Mitigations

• A business advisor can help evaluate the franchisor's support staff levels relative to the number of franchisees to ensure they are adequate.
• During your calls with existing franchisees, asking about the quality and responsiveness of franchisor support is a crucial step.
• Have your accountant review the franchisor's financials in Item 21 to assess if they are investing in support infrastructure.

Explanation

This risk was not identified. The FDD indicates in Item 1 that the Mighty franchise system is well-established, with a history dating back several decades. An unproven system carries higher risks related to brand recognition, operational procedures, and franchisor stability. Mighty’s long history suggests a mature business model and experienced management, which can be a significant advantage for a new franchisee joining the system.

Potential Mitigations

• Even with a mature system, consulting a business advisor to understand the company's recent history and strategic direction is wise.
• Your attorney should review the corporate history detailed in Item 1 to ensure a clear understanding of the franchisor's structure.
• Discussing the system's evolution with long-tenured franchisees can provide valuable insight into its stability and adaptability.

Explanation

This risk was not identified. The franchise operates in the automotive aftermarket industry, which is a mature and established market based on the need for vehicle maintenance and repair. A fad-based business can face a sharp decline in demand as trends change. The long-term, consistent demand for automotive parts suggests this business model is not based on a short-lived trend, providing a more stable foundation for your investment.

Potential Mitigations

• Engage a business advisor to research the long-term outlook and competitive landscape of the automotive aftermarket industry in your local area.
• An analysis of local demographic and vehicle ownership trends with your accountant can help project future demand.
• Discuss the franchisor's strategies for adapting to industry changes, such as the rise of electric vehicles, with their management team.

Explanation

This risk was not identified. The executive team biographies in Item 2 demonstrate extensive experience within both the franchising and automotive aftermarket industries. Inexperienced management can lead to poor strategic decisions and inadequate support. The considerable industry and company-specific experience of the Mighty leadership team suggests they are well-equipped to manage the franchise system and support franchisees effectively.

Potential Mitigations

• A business advisor can help you review the backgrounds of the key management personnel listed in Item 2 of the FDD.
• During calls with franchisees, it is useful to ask about their direct experiences and impressions of the leadership team's competence.
• Asking the franchisor about their management philosophy and long-term vision can provide additional comfort.

Explanation

This risk was not identified. Item 1 indicates MDSA, LLC is a subsidiary of Gonher North America, Inc., which appears to be a strategic industry owner rather than a private equity fund. Private equity ownership can sometimes introduce risks related to short-term profit motives over long-term system health. The current ownership structure does not suggest this specific type of risk is present.

Potential Mitigations

• Researching the parent company, Gonher North America, Inc., with a business advisor can provide insight into its operational focus and history.
• Your attorney should review the franchisor's right to assign the franchise agreement, as this is relevant regardless of ownership structure.
• Asking existing franchisees about any changes in the system since the acquisition by the parent company can be informative.

Explanation

The FDD discloses that MDSA, LLC (Mighty) is a wholly-owned subsidiary of Gonher North America, Inc., but does not provide the parent company's financial statements. While the franchisor itself is profitable, the financial health of a parent company can be relevant to the long-term stability and resources of the system. Without the parent's financials, a complete picture of the overall corporate financial health is not available.

Potential Mitigations

• An accountant can help you assess whether the franchisor's own financial strength, as shown in Item 21, is sufficient on its own.
• Your attorney may inquire with the franchisor about the parent company's financials, although they may not be required to provide them.
• A business advisor can help research the parent company's reputation and stability through public sources.

Explanation

This risk was not identified. Item 1 provides a detailed corporate history, including predecessor entities. While the system has undergone several ownership changes over its long history, the FDD does not disclose any problematic predecessor history, such as bankruptcy or significant litigation, that would suggest inherited systemic issues. A clean predecessor history can be a positive sign of stability.

Potential Mitigations

• It is always a good practice to have your attorney review the predecessor history outlined in Item 1.
• Speaking with long-term franchisees who may have operated under previous ownership can provide valuable historical context.
• A business advisor can help you understand the timeline of ownership changes and what they might imply for the system's evolution.

Explanation

This risk was not identified. Item 3 of the FDD reports no pending or recently concluded litigation involving the franchisor and its franchisees that would allege fraud, misrepresentation, or similar claims. A pattern of such litigation can be a significant red flag indicating systemic problems or a contentious relationship between the franchisor and its franchisees. The absence of such litigation is a positive indicator.

Potential Mitigations

• It is prudent to have your attorney confirm the litigation history by performing a public records search.
• Asking current and former franchisees about their experiences and any informal disputes is an important part of due diligence.
• Always carefully review Item 3, as it provides a direct window into the legal health of the franchise system.