Explanation

The franchisee turnover rate appears low based on the data provided in Item 20 for the last three years. The tables show a small number of outlets ceasing operations for reasons other than transfer or non-renewal. While this data seems positive, one franchisee that ceased operations in 2023 was explicitly excluded from the Item 19 financial performance data, which warrants further inquiry. Overall system size is growing.

Potential Mitigations

• Asking the franchisor for a detailed explanation about the single franchisee who ceased operations in 2023 and was excluded from the Item 19 data is a prudent step.
• Contacting former franchisees listed in the FDD can provide direct insight into their reasons for leaving the system; your attorney can help prepare questions.
• A business advisor can help you analyze the growth trends in Item 20 to understand the system's trajectory.

Explanation

The system is experiencing steady growth in the number of franchised units, as shown in Item 20. While growth is often positive, it is important to verify that the franchisor’s support infrastructure, detailed in Item 11, is scaling adequately to service the expanding network. The financials in Item 21 appear solid, suggesting they have resources to support growth, but this should be monitored.

Potential Mitigations

• Inquiring with a range of franchisees, from new to established, about the current quality and responsiveness of franchisor support would be beneficial.
• Your business advisor can help you question the franchisor about their specific plans for scaling support staff and systems to match unit growth.
• An accountant should review the franchisor's investments in support infrastructure as reflected in their financial statements.

Explanation

This risk was not identified. Atomium, Inc. (Atomium) was formed in 2012 and has been franchising since that year. Its affiliates have been operating similar businesses since 1998, indicating significant operational experience in the industry. The FDD provides over a decade of franchising history and audited financial statements, suggesting this is a mature and established system rather than an unproven one.

Potential Mitigations

• It is still wise to have your attorney review the corporate history in Item 1 to understand the relationship between Atomium and its affiliates.
• A thorough due diligence process, including speaking with long-standing franchisees, can confirm the system's stability and track record.
• Your business advisor can help you assess the experience of the management team detailed in Item 2.

Explanation

The business model, focused on Belgian waffles and beverages, has been in operation through affiliates since 1998, primarily at seasonal ski resorts. This long history suggests it is not a short-term fad. However, a significant portion of the business is seasonal, which creates its own challenges. You should evaluate if the demand in your potential non-resort market is sustainable year-round.

Potential Mitigations

• Working with a business advisor to research the long-term, year-round market demand for this specific product in your target area is crucial.
• It's beneficial to analyze the franchisor's plans for product innovation and adaptation to non-seasonal markets as described in Item 11.
• Talking to franchisees who operate in non-ski-resort locations can provide valuable insight into managing seasonality.

Explanation

This risk was not identified. The key executives listed in Item 2 have extensive, long-term experience with the Waffle Cabin brand and in the food and beverage industry, spanning over a decade. This level of direct, relevant experience suggests the management team is well-equipped to manage the franchise system and provide knowledgeable support.

Potential Mitigations

• Speaking with current franchisees can help confirm the quality of management's support and strategic direction.
• Your business advisor can help you formulate questions for the franchisor about their future plans and leadership strategy.
• Reviewing the training program details in Item 11 with your attorney can provide further insight into the expertise being transferred to you.

Explanation

This risk was not identified in the FDD. Item 1 does not indicate that Atomium is owned by a private equity firm. The ownership appears to be private and stable. However, a future sale is always a possibility in any business, which could change the franchisor's priorities.

Potential Mitigations

• Your attorney should review the 'Assignment' clause in the Franchise Agreement to understand your rights if the franchisor sells the company.
• It is good practice to ask the franchisor about any long-term plans for the company's ownership structure.
• A business advisor can help you research the background of the current owners to better understand their business philosophy.

Explanation

This risk was not identified. The FDD discloses an affiliate, Leo's Inc., which owns the trademarks and acts as a supplier. However, the FDD does not indicate this is a thinly capitalized subsidiary of a larger parent whose financials are being withheld. Atomium provides its own audited financial statements, which appear to stand on their own. The relationship with the affiliate is a related-party risk, but not one of non-disclosure.

Potential Mitigations

• Your attorney should review the affiliate relationship described in Item 1 and the related party transactions in the financial statement footnotes.
• An accountant can help you analyze the financial interplay between Atomium and its affiliate.
• Clarifying the specific roles and obligations of the affiliate versus the franchisor with your attorney is recommended.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. The company was formed in 2012 and has operated under the same name since. This avoids the complexities and potential hidden issues that can arise from a system being acquired from a previous, potentially troubled, entity.

Potential Mitigations

• Your attorney can help you verify the corporate history through public records if there are any concerns.
• It is always a good practice to ask early franchisees about the history of the company.
• A business advisor can help you research the company's background to confirm its history is as stated.

Explanation

This risk was not identified. Item 3 states that no litigation is required to be disclosed. This indicates the absence of recent, material legal disputes with franchisees, regulators, or other parties that would allege fraud, misrepresentation, or franchise law violations. The lack of disclosed litigation is a positive indicator for the health of the franchise system's relationships.

Potential Mitigations

• Although no litigation is disclosed, your attorney can conduct an independent search of public court records as an extra layer of due diligence.
• You should ask current and former franchisees about any past disputes, whether they resulted in formal litigation or not.
• Understanding the dispute resolution process in the Franchise Agreement is always a wise step, which your attorney can explain.