Explanation

The provided audited financial statements for EOS Worldwide Franchising, LLC (EOSW) show it is profitable with positive net worth for the years 2023 and 2024. The auditor's report does not contain a 'going concern' qualification. Based on these documents, the franchisor appears to be financially stable, and this specific risk was not identified.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financial statements, including all footnotes and year-over-year trends.
• It is advisable to have your accountant assess the franchisor's reliance on initial franchise fees versus ongoing royalties for its revenue.
• Your attorney can help you understand any financial performance covenants or guarantees that may be relevant.

Explanation

This risk was not identified. FDD Item 20 data from 2022 to 2024 shows consistent and substantial growth in the number of franchised outlets, from 389 at the start of 2022 to 732 at the end of 2024. This trend does not suggest that the system is stagnant or shrinking.

Potential Mitigations

• Your business advisor should help you evaluate whether the system's growth is sustainable and supported by adequate franchisor infrastructure.
• Discuss the system's growth trajectory and market saturation with current franchisees.
• An accountant can analyze if the franchisor's financial health supports its expansion rate.

Explanation

This risk was not identified. The executive team described in Item 2 appears to have relevant experience. For example, the CEO/Visionary was a Certified EOS Implementer for several years before joining the corporate team, and other leaders have experience in their respective fields like finance, legal, and community management. The FDD does not indicate a lack of relevant management experience.

Potential Mitigations

• It is still advisable to conduct your own due diligence on the backgrounds of the key management team with a business advisor.
• Discussing the quality and responsiveness of management support with current franchisees can provide valuable insight.
• Your attorney can help you understand the roles and responsibilities of the leadership team as outlined in the FDD.

Explanation

This risk was not identified. The FDD's Item 1 clearly discloses the parent company, EOS HoldCo, LLC, and other affiliates. The franchisor, EOS Worldwide Franchising, LLC, is a subsidiary, but it provides its own audited financial statements in Item 21, which appear robust. There is no indication of a hidden or undisclosed parent company that would be material to your decision.

Potential Mitigations

• An attorney can help verify the corporate structure and identify all relevant parent and affiliate companies.
• If a parent company guarantees the franchisor's obligations, your accountant should review the parent's financial statements if provided.
• Understanding the relationships and dependencies between the franchisor and its affiliates is a key part of due diligence a business advisor can help with.

Explanation

This risk was not identified. The FDD's Item 1 discloses that the current franchisor was formed in 2021 and that the business model transitioned from a membership-based system. However, it does not identify any legal predecessors in a way that would trigger disclosure of negative history such as bankruptcy or litigation under those prior entities. The document appears transparent about the system's evolution.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and cross-reference with Items 3 and 4.
• It can be beneficial to ask long-tenured franchisees about their experiences with the system's previous ownership or structure.
• A business advisor can help you research the history of the brand and its founders for a more complete picture.

Explanation

This risk was not identified in the disclosure document. Item 3 explicitly states, 'No litigation information is required to be disclosed in this Item.' This indicates the franchisor does not have a recent history of material litigation with franchisees or regulatory bodies that would require disclosure under federal franchise law.

Potential Mitigations

• An attorney can still conduct independent public records searches to verify the absence of significant litigation.
• It is always prudent to ask current and former franchisees about any disputes they may have had with the franchisor, even if not formal lawsuits.
• Your attorney should confirm that the 'no litigation' statement meets all state-specific disclosure requirements.