Explanation

This risk was not identified. The franchisor's audited financial statements in Exhibit M show consistent profitability, positive and growing members' equity, and healthy operating cash flow. These factors suggest Buffalo Wings & Rings, LLC (Wings and Rings) has the financial resources to support the franchise system and meet its obligations. Your accountant should still perform an independent review of the financial statements.

Potential Mitigations

• A thorough review of the franchisor's audited financial statements, including footnotes, with your accountant is essential to confirm financial health.
• Analyzing revenue trends with a business advisor can help assess the long-term stability and sustainability of the franchisor’s business model.
• Your accountant can help you evaluate the franchisor’s balance sheet to understand its debt levels and overall financial structure.

Explanation

This risk was not identified. The FDD shows that the number of franchised outlets has slightly decreased over the last three years, from 56 at the start of 2022 to 52 at the end of 2024. This indicates the opposite of rapid growth, suggesting the franchisor is not over-extending its support systems. Stable or slow growth can be a positive indicator of a mature system.

Potential Mitigations

• Your business advisor can help you assess whether the franchisor's growth strategy aligns with your personal investment goals.
• Discussing the franchisor's future development plans can provide insight into their long-term vision for the brand.
• An accountant can review the franchisor's financials to confirm they have the resources to support their stated growth plans.

Explanation

This risk was not identified. The first Wings and Rings restaurant was established in 1984, and predecessors began franchising in the late 1980s. The current franchisor has been operating since 2005. The system has a long operational history and a substantial number of existing franchisees, indicating it is a well-established and proven concept rather than a new venture.

Potential Mitigations

• It is still prudent to have your business advisor research the brand's history and its competitive position in the casual dining market.
• Speaking with long-standing franchisees can provide valuable perspective on the system's evolution and stability over time.
• Your attorney should review the history of the franchisor and its predecessors as detailed in Item 1.

Explanation

This risk was not identified. The business is a 'club level sports restaurant,' a well-established segment of the casual dining industry. This concept is not dependent on a short-lived trend or novelty. Its long operating history since 1984 further suggests sustained consumer demand and long-term viability, reducing the risk that the business is a fad.

Potential Mitigations

• Your business advisor can help you research the long-term outlook for the sports restaurant industry to gauge its stability.
• Analyzing the franchisor's plans for menu innovation and brand development can offer insights into their strategy for staying relevant.
• Speaking with long-time franchisees about how the business has adapted to market changes can be very informative.

Explanation

This risk was not identified. The executive team described in Item 2 has significant and relevant experience in both the restaurant industry and franchising. For example, the CEO has been with the company since 2009, and the Chief Development and Chief Operations Officers have prior presidential and executive roles at other franchise systems. This level of experience suggests the leadership is well-equipped to manage the franchise system.

Potential Mitigations

• Engaging a business advisor to review the backgrounds of the key management team in Item 2 is a useful due diligence step.
• When speaking with current franchisees, it's wise to ask about their direct experiences and the quality of support they receive from the leadership team.
• Your attorney can help you investigate the public record of the executives for any undisclosed issues.

Explanation

This risk was not identified. Item 1 states there is no parent company, and the financial statements in Item 21 reflect a ownership structure based on 'Members' Equity.' This indicates the franchisor is not owned by a private equity firm, which can sometimes prioritize short-term investor returns over the long-term health of the franchise system.

Potential Mitigations

• Your attorney should confirm the ownership structure of the franchisor to ensure there are no undisclosed controlling entities.
• It's beneficial to ask the franchisor about their long-term goals and exit strategy during your due diligence process.
• A business advisor can help you understand the implications of different ownership structures on a franchise system.

Explanation

This risk was not identified. The FDD states in Item 1 that there is no parent company. The document does, however, properly disclose a Variable Interest Entity (VIE) for real estate holdings and includes its financial information on a consolidated basis in Item 21. This transparent disclosure practice reduces the risk of hidden financial weaknesses from related entities.

Potential Mitigations

• Having your accountant review the consolidated financial statements is important to understand the relationship and financial health of any disclosed affiliates.
• Your attorney can help you understand the structure and purpose of the Variable Interest Entity (VIE) and its implications for you.
• Asking the franchisor to explain the role of all affiliated companies is a key part of due diligence.

Explanation

This risk was not identified. The FDD discloses a predecessor history in Item 1. A review of Items 3 (Litigation) and 4 (Bankruptcy) does not reveal any adverse history for these predecessors that would suggest inherited systemic problems. The transition to the current franchisor appears to have been disclosed without indicating significant historical issues that would negatively impact you.

Potential Mitigations

• Your attorney should review the disclosed history of any predecessor entities to ensure you understand the system's lineage.
• If possible, speaking with very long-term franchisees who operated under a predecessor can provide valuable historical context.
• A business advisor can help you research the public record of any predecessor companies for a more complete picture.

Explanation

This risk was not identified. Item 3 discloses one concluded lawsuit, but it is described as an internal dispute between the owners of the franchisor entity, not a case brought by a franchisee alleging fraud or misrepresentation. The FDD does not show a pattern of franchisee-initiated litigation asserting such claims, which is a positive sign regarding the franchisor's sales and operational practices.

Potential Mitigations

• It is crucial for your attorney to review the details of any disclosed litigation, even if it is internal, to assess its potential impact on management stability.
• Asking the franchisor about the resolution of the disclosed internal dispute can provide insight into the company's governance.
• A business advisor can help you search public records for any other litigation that may not have been required to be disclosed in Item 3.