Explanation

The franchisor's parent company, WOWorks, which guarantees performance, is in a precarious financial state. Audited financials in Item 21 show negative equity of over $924,000 and a growing net loss of over $3.1 million in 2024. The FDD itself flags "Financial Condition" as a special risk. This situation may affect the franchisor's ability to provide long-term support, invest in the brand, or remain solvent, posing a significant risk to your investment.

Potential Mitigations

• Your accountant must conduct a thorough review of the parent company's financial statements, including all footnotes, to assess its viability.
• Discussing the explicit "Financial Condition" risk factor with your attorney is critical to understanding its potential impact on your franchise.
• A business advisor can help you evaluate if the franchisor's financial state allows for adequate reinvestment into technology and brand support.

Explanation

Item 20 data reveals a high rate of franchisee churn. In fiscal year 2024, 11 franchisees left the system through termination, non-renewal, or other cessation, representing over 11% of the outlets that started the year. This level of turnover is a significant red flag that may indicate systemic issues with profitability, franchisee satisfaction, or franchisor support, and suggests a considerable risk to the long-term viability of your potential business.

Potential Mitigations

• It is essential to contact a significant number of former franchisees listed in Item 20 to understand why they left the system.
• Engaging an accountant to analyze the turnover rates over the past three years will provide a clearer picture of system stability.
• Your attorney can help you formulate questions for the franchisor regarding the specific reasons for the high number of terminations and non-renewals.

Explanation

The franchisor's system has been shrinking, not growing. Item 20 data shows a net decrease of 8 total outlets in fiscal year 2024, comprised of a net loss of 6 franchised and 2 company-owned stores. This decline, combined with the financial weaknesses shown in Item 21, could suggest a system facing significant challenges, potentially impacting brand value, support levels, and your own future growth prospects within the brand.

Potential Mitigations

• Discuss the system's contraction with your business advisor to assess the potential impact on brand recognition and market presence.
• Question the franchisor about their strategies to reverse this trend and support existing franchisees' performance.
• An accountant should analyze the shrinking unit count in conjunction with the franchisor's financials to evaluate the overall health of the system.

Explanation

The franchisor is owned by a parent company, Restaurant Co., LLC (dba WOWorks), which holds multiple food service brands. The parent company's audited financials in Item 21 show significant net losses and negative equity, which may influence decisions. This structure could create a focus on short-term financial metrics over the long-term health of the Saladworks brand and its franchisees. The Franchise Agreement also allows the franchisor to sell the system without your consent.

Potential Mitigations

• Researching the parent company's history and its management of other brands with your business advisor can provide valuable insight.
• Asking current franchisees about any changes in support or fees since the parent company's involvement is a key diligence step.
• Your attorney should explain the implications of the franchisor's right to assign the franchise agreement to a new owner.

Explanation

Item 1 and Item 4 clearly state that the current franchisor acquired the assets of a predecessor, Saladworks, LLC (DE), which filed for Chapter 11 bankruptcy in 2015. Furthermore, Item 3 discloses that the predecessor was involved in litigation with a former equity holder alleging fraud and breach of contract. This history of bankruptcy and contentious litigation with prior stakeholders presents a significant risk, suggesting potential past operational or financial mismanagement that could have lingering effects.

Potential Mitigations

• Your attorney must carefully review the details of the predecessor's bankruptcy and litigation to understand any potential inherited liabilities or risks.
• Discussing the system's history with long-term franchisees who operated under the predecessor can provide crucial context.
• An accountant should evaluate how the current franchisor's financial health has evolved since emerging from the predecessor's bankruptcy.