Explanation

This risk was not identified in the FDD package. Rapid growth can strain a franchisor's ability to provide adequate support. While RMCF is not experiencing explosive unit growth, you should still evaluate if their current support infrastructure, especially given their financial condition, is sufficient for the existing system and any planned new outlets. Your accountant and business advisor can help assess the franchisor's capacity to support its network effectively.

Potential Mitigations

• A discussion with your business advisor about the franchisor's support staff and infrastructure relative to the number of franchisees is recommended.
• Speaking with a range of new and established franchisees can provide insight into the quality and timeliness of the support they currently receive.
• Your accountant should review the franchisor's financials in Item 21 to assess if they have the resources to properly support the system.

Explanation

This risk was not identified. RMCF has been operating since 1981 and franchising since 1982, indicating it is an established system, not a new or unproven one. An unproven system would present higher risks related to the viability of the business model and the adequacy of support systems. However, the company's recent financial performance, as noted in the "Disclosure of Franchisor's Financial Instability" risk, presents a separate and significant concern.

Potential Mitigations

• Even with a mature system, consulting a business advisor to review the company's recent performance and strategic direction is wise.
• An attorney should still review the entire FDD package for any terms that may be disadvantageous, regardless of the franchisor's age.
• An accountant's review of the financial statements remains critical to assess the current health of this established brand.

Explanation

The risk of the business being a short-term fad appears low. RMCF operates in the premium chocolate and confectionery market, a well-established retail sector. The company has been in business since 1981, suggesting sustained consumer demand over multiple decades rather than reliance on a fleeting trend. The primary risk is not the business concept itself, but the franchisor's current financial condition and the competitiveness of the specific market you enter.

Potential Mitigations

• A business advisor can help you analyze the long-term consumer demand for premium confectionery products in your specific local market.
• Assessing the direct competition in your proposed area is essential for developing a sound business plan.
• Consulting an accountant will help you create financial projections based on realistic local market conditions, not just brand history.

Explanation

This risk was not identified. Item 2 shows that the key officers and directors of RMCF generally possess extensive experience in the restaurant, retail, and financial industries. For example, the Interim CEO has been a director since 2021 and has other executive experience, and the VP of Franchise Support has been with the company since 2008. This suggests the management team has relevant background knowledge, although their ability to resolve current financial challenges remains a key question.

Potential Mitigations

• A business advisor can help you further research the specific accomplishments and track records of the key executives listed in Item 2.
• When speaking with current franchisees, it's useful to ask about their direct experiences with and confidence in the current management team.
• Your attorney can help you formulate questions for the franchisor regarding management's strategy for addressing the company's financial issues.

Explanation

This risk was not identified in the FDD. Item 1 does not indicate that the franchisor is owned by a private equity firm. Such ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system. The franchisor is a publicly-traded company, which presents a different set of considerations related to shareholder value and public reporting requirements.

Potential Mitigations

• Understanding the implications of being part of a publicly-traded franchise system should be discussed with your business advisor.
• An attorney can review the Franchise Agreement for clauses related to the sale or transfer of the franchise system as a whole.
• Your accountant can analyze public financial reports to understand the company's performance and strategic priorities.

Explanation

This risk was not identified. Item 1 discloses that Rocky Mountain Chocolate Factory, Inc. (a Delaware corporation) is the parent company and its financial statements are provided in Exhibit F. Furthermore, the parent provides a full Guarantee of Performance for the franchisor's obligations. This structure appears transparent, providing the necessary financial information about the entity that ultimately backstops the franchise relationship.

Potential Mitigations

• An attorney should review the Guarantee of Performance to ensure it is unconditional and provides meaningful protection.
• Your accountant should confirm that the parent company's provided financial statements comply with all disclosure rules.
• It is wise to verify the corporate structure and the relationship between the parent and the franchising entity with your legal counsel.

Explanation

This risk was not identified in the provided FDD package. Item 1 does not list any predecessors from whom RMCF acquired the business. The document states the franchisor corporation was formed in 1982 and has operated continuously since then. Therefore, there are no hidden historical issues from a predecessor to consider. The risks associated with this franchise stem from the company's current performance and the terms of the agreement.

Potential Mitigations

• An attorney can confirm the corporate history and verify the absence of any undisclosed predecessor entities.
• When performing due diligence, a business advisor can help focus on the company's own historical performance as disclosed in the FDD.
• Your accountant should analyze the multi-year financial and franchisee data provided to assess the company's own track record.

Explanation

This risk was not identified. Item 3 discloses only two litigation cases in the relevant period, one of which involved a former master developer in Canada that was settled and dismissed. This history does not show a pattern of franchisee-initiated lawsuits alleging fraud or misrepresentation. The lack of such litigation is a positive indicator, suggesting the franchisor does not have a history of significant disputes with its franchisees over core disclosure or relationship issues.

Potential Mitigations

• Your attorney should still review the details of any disclosed litigation to understand the nature of the disputes.
• It is beneficial to conduct a public records search with the help of your attorney for any other litigation not required to be disclosed in Item 3.
• Discussing the franchisor's dispute resolution history with current and former franchisees can provide valuable context.