Explanation

The audited financial statements for MPC Franchise, LLC (MPC) show a financially healthy and profitable company. For fiscal year 2024, MPC reported strong net income and a solid cash position with growing members' equity. The company's primary revenue source is royalties, not initial franchise fees, which suggests a sustainable business model. The financials do not indicate any signs of instability that would jeopardize MPC's ability to support you.

Potential Mitigations

• A franchise accountant should review the franchisor's financial statements, including the footnotes and the auditor's report, to provide an independent assessment.
• Discussing the large 'Due from Affiliate' receivable and 'Deferred Advertising' liability with your accountant can provide clarity on inter-company cash management.
• It is wise to ask your business advisor to assess if the franchisor's financial resources are adequate for system growth and support.

Explanation

Item 20 data shows a very stable system with no franchisee terminations, non-renewals, or cessations of business over the past three years. While this lack of turnover is a positive indicator, the system is small, with only five franchised and two company-owned outlets. The stability could reflect franchisee satisfaction, but the small data set and potentially restrictive transfer conditions mean this stability should be viewed with some caution.

Potential Mitigations

• Speaking with a representative number of the current franchisees listed in Item 20 is essential for understanding their satisfaction and profitability.
• Your attorney can help you formulate questions for current franchisees regarding their experience and the operational environment.
• A business advisor can help you assess the risks and benefits of joining a smaller, though stable, franchise system.

Explanation

This risk was not identified in the FDD package. Item 20 data indicates the system size has been completely static for the past three years, with no new units opened. This suggests that MPC is not currently undergoing rapid growth that might strain its support resources. The financial statements in Item 21 appear to show sufficient resources to support the current system size.

Potential Mitigations

• Engaging a business advisor can help you evaluate the franchisor's capacity for providing support if future growth accelerates.
• It is prudent to ask current franchisees about the quality and responsiveness of the support they currently receive from MPC.
• Your accountant should review the financial statements to confirm the franchisor has the resources to handle any planned expansion.

Explanation

This risk was not identified. MPC was formed in 2009 and began franchising in 2011. Key personnel listed in Item 2 have over a decade of experience with the franchisor and extensive experience in the restaurant industry. The system, while small, is established and financially stable according to Item 21. It does not present the typical risks associated with a new or unproven franchise concept.

Potential Mitigations

• A business advisor can help you analyze the risks and benefits associated with a mature but small franchise system.
• It is still valuable to speak with the longest-operating franchisees to understand the system's evolution and historical support.
• Legal counsel should review the entire agreement to ensure protections are adequate, regardless of the franchisor's age.

Explanation

This risk was not identified. The Pudgie's concept is centered on pizza, pasta, and subs, a segment of the restaurant industry with a long history and sustained consumer demand. While highly competitive, the business model is not based on a new or fleeting trend, which reduces the risk that it might be a short-lived fad. The brand itself has roots dating back to 1963, suggesting long-term market presence.

Potential Mitigations

• Engaging a business advisor to research local competition and long-term market demand for this type of restaurant is a valuable step.
• You should develop a comprehensive business plan with your accountant to assess the long-term viability in your specific market.
• Speaking with long-standing franchisees about the brand's resilience through different economic cycles can provide important insights.

Explanation

This risk was not identified in the FDD package. Item 2 discloses that the key personnel of MPC have significant experience in both the restaurant industry (ranging from 26 to 33 years) and with this specific franchise system (13 years for all listed managers). This level of direct, long-term experience with the brand and in the industry is a positive factor, suggesting a knowledgeable and stable management team.

Potential Mitigations

• It is still beneficial to speak with current franchisees to get their perspective on management's effectiveness and the quality of support provided.
• A business advisor can help you assess how management's experience translates into effective support systems and strategic direction.
• Your attorney should still review all contractual obligations to ensure they are clear, regardless of management's experience level.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that MPC Franchise, LLC is an affiliate of M.P. Cleary, Inc., and the principals appear to be family members. There is no disclosure of ownership by a private equity firm or other institutional investor whose goals might prioritize short-term returns over the long-term health of the franchise system.

Potential Mitigations

• Your attorney should still review the assignment clauses in the Franchise Agreement to understand your rights if the system is sold in the future.
• Asking the franchisor about any long-term plans for the ownership of the company can provide additional context.
• A business advisor can help you research the ownership structure and reputation of the franchisor and its affiliates.

Explanation

This risk was not identified in the FDD package. Item 1 clearly identifies MPC's affiliate, M.P. Cleary, Inc., and Item 21 includes the audited financial statements for the franchisor, MPC Franchise, LLC. As MPC is not a subsidiary and appears to have substantial assets and operations itself, the non-disclosure of parent financials does not appear to be a risk here.

Potential Mitigations

• Your accountant should review the related-party transactions disclosed in the financial statement footnotes to understand the financial relationship between MPC and its affiliates.
• It is wise for your attorney to verify the corporate structure and the nature of any guarantees between affiliated companies.
• Engaging a business advisor can help assess if the affiliate relationships pose any operational or financial risks.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any legal predecessors for MPC. The disclosure mentions the principals' family formerly owned a different entity, Pudgie's Pizza Franchise Corporation (PPFC), which dissolved in 1993, long before MPC was formed in 2009. This history is disclosed but does not present as a predecessor in the legal sense with inherited liabilities, litigation, or bankruptcy.

Potential Mitigations

• Your attorney should review the disclosures regarding the principals' prior business history for any potential concerns.
• Discussing the brand's history with long-term operators could provide valuable context about its evolution.
• A business advisor can help you research the public records of any prior entities associated with the principals.

Explanation

This risk was not identified. Item 3 discloses one litigation matter where MPC and its affiliate were the plaintiffs in a trademark infringement case, which they won. There is no disclosed pattern of litigation brought by franchisees against the franchisor alleging fraud, misrepresentation, or breach of contract. The disclosed litigation reflects a willingness to defend the brand's intellectual property, which can be viewed as a positive for the system.

Potential Mitigations

• An attorney should still review the details of any disclosed litigation to understand its implications fully.
• It is good practice to perform independent searches for litigation involving the franchisor or its principals, as not all disputes may meet the threshold for disclosure.
• You can ask current franchisees if they are aware of any significant disputes within the system.