Explanation

This risk was not identified. The audited financial statements for Noodle J-1, Inc. (Noodle J-1) appear strong, showing significant and growing net income and a healthy balance sheet. For the year ending 2024, net income was over $1.1 million, and total equity exceeded $3.1 million. The company seems financially stable and capable of supporting the franchise system, relying on royalties rather than just initial fees for its revenue.

Potential Mitigations

• An experienced franchise accountant should still review the financial statements, including all footnotes and the auditor's report, to confirm financial health.
• Ask your accountant to assess the financial stability of the parent company, The Born Korea Co., Ltd., if that information can be obtained.
• During due diligence calls, ask existing franchisees about their perception of the franchisor's financial ability to support the system.

Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates a stable and growing system. Over the past three years, there has only been one franchisee termination and zero non-renewals or franchisor reacquisitions. During the same period, the number of franchised outlets has grown from 15 to 28. This low turnover rate suggests a potentially healthy relationship between the franchisor and its franchisees.

Potential Mitigations

• Speaking with current and former franchisees from the lists in Item 20 is still the best way to verify the reasons for any departures.
• A business advisor can help you analyze the growth trends in Item 20 to understand if the expansion pace is sustainable.
• Your attorney should confirm if there are any undisclosed reasons for the single termination noted in the FDD.

Explanation

This risk appears to be low. Noodle J-1 began franchising in 2014 and has grown to nearly 30 operating units. This indicates a decade of experience in managing the franchise system. Furthermore, its parent company, The Born Korea Co., Ltd., has been in business since 1994, suggesting a deep history in the restaurant industry. The system is established and appears to have a proven operational track record.

Potential Mitigations

• A thorough review of the management team's experience in Item 2 with your business advisor is still a valuable step.
• It is prudent to discuss the maturity and effectiveness of the business systems with a range of existing franchisees.
• Your attorney can help you investigate the history and reputation of the parent company in its home market.

Explanation

The Paik's Noodle concept, specializing in Korean-style Chinese food, operates in a competitive and trend-driven industry. While this food category has shown popularity, there is a risk that its specific appeal could diminish over time if it is tied to a passing trend. However, the brand's association with a parent company operating since 1994 and its own 10-year history in the U.S. market suggest a degree of staying power beyond a short-term fad.

Potential Mitigations

• Conducting independent market research with a business advisor can help you assess the long-term consumer demand for this specific restaurant niche in your area.
• It is wise to ask the franchisor about its strategies for menu innovation and concept evolution to stay relevant.
• Discuss the concept's resilience to economic shifts and changing tastes with current franchisees.

Explanation

This risk was not identified. Item 2 discloses that the General Manager has experience with both the franchisor and its parent company. Furthermore, the franchisor, Noodle J-1, is a subsidiary of The Born Korea Co., Ltd., a company with a long history in the restaurant industry since 1994. This suggests that the management team has access to significant industry and operational experience, mitigating the risks associated with an inexperienced leadership team.

Potential Mitigations

• It is still beneficial to discuss the management team's accessibility and quality of support with current franchisees.
• A business advisor can help you research the public reputation and track record of the parent company and its leadership.
• When meeting the management team, asking targeted questions prepared with your attorney can provide insight into their philosophy and competence.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a wholly owned subsidiary of The Born Korea Co., Ltd., a Korean corporation. There is no mention of ownership by a private equity firm. Therefore, the specific risks associated with a private equity firm's investment strategy, such as a focus on short-term returns over long-term brand health, do not appear to be present.

Potential Mitigations

• Engaging a business advisor to confirm the corporate structure and ownership can provide additional assurance.
• Even without private equity, understanding the parent company's long-term goals is important, and your attorney can help formulate questions.
• Ask your attorney to review the assignment clause in the Franchise Agreement to understand your rights if the company is sold in the future.

Explanation

This risk appears to be low. The FDD clearly discloses in Item 1 that Noodle J-1 is a wholly owned subsidiary of The Born Korea Co., Ltd. While the parent company's financials are not provided, the franchisor's own audited financial statements in Item 21 are strong and demonstrate profitability and stability without a parent guarantee. The franchisor appears to be sufficiently capitalized on its own, reducing the need for reliance on the parent's financials.

Potential Mitigations

• Your accountant should confirm that the franchisor's standalone financials are robust enough to support the system's obligations.
• It may be prudent to ask the franchisor why a parent guarantee is not provided, and your attorney can evaluate their response.
• A business advisor can research the parent company's reputation and stability for additional context.

Explanation

This risk was not identified. Item 1 of the FDD states, "We have no predecessors." This indicates that the current franchisor, Noodle J-1, Inc., is the original entity that developed and began franchising the system in the United States. Therefore, there are no inherited issues or undisclosed negative histories from a prior owner or entity to be concerned about.

Potential Mitigations

• A review of the company's formation documents and history by your attorney can confirm the absence of any predecessors.
• Asking early franchisees about the company's history can provide additional confirmation and insight.
• A business advisor can perform public records searches to verify the information presented in Item 1.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates that in the last fiscal year, there has been no material litigation against the franchisor involving claims of fraud, violation of franchise law, or other similar issues. The absence of such disclosed legal disputes is a positive indicator of the franchisor's relationship with its franchisees and its business practices.

Potential Mitigations

• An attorney can still conduct independent searches of court records to verify the absence of significant litigation.
• It is always a good practice to ask current and former franchisees about any disputes they may have had, even those not rising to the level of disclosure.
• Your business advisor can search for news articles or online discussions that might mention past or pending legal issues.