Explanation

WNW Franchising, LLC (WNW), its parent, and its affiliates filed for Chapter 11 bankruptcy in November 2024. The audited financial statements in Exhibit E include a “going concern” notice from the auditor, expressing substantial doubt about the company's ability to continue operating. This is the most significant financial risk possible, as it directly questions WNW’s ability to provide support, meet obligations, or even survive, placing your entire investment at extreme risk.

Potential Mitigations

• Your franchise attorney must explain the severe implications of investing in a company currently in Chapter 11 bankruptcy.
• An accountant must analyze the debtor-in-possession financing and restructuring plan to assess the potential for survival and future support.
• Given the bankruptcy, a business advisor should help you evaluate if the potential rewards of this franchise could possibly outweigh the extraordinary risks.

Explanation

Item 20 data reveals significant franchisee turnover and failure to open. In 2022, two units in Arizona ceased operations, representing a 100% failure rate for the brand in that state at the time. Additionally, a franchisee who signed on for four stores (USRH-WNW, LLC) never opened any of them. These events, combined with the franchisor's bankruptcy, suggest potential systemic problems with profitability or support, posing a high risk to your potential for success.

Potential Mitigations

• It is crucial to contact former franchisees, especially those who ceased operations, to understand the reasons for their departure; your attorney can help structure these inquiries.
• A business advisor should help you analyze the specific market conditions that may have led to failures in certain states.
• Discuss the high failure rate and the unopened stores with the franchisor and evaluate the credibility of their explanations with your attorney.

Explanation

WNW was formed in January 2022 and began franchising the same year. The FDD explicitly highlights its “Short Operating History” as a special risk. Investing in a new franchisor is inherently riskier due to unproven support systems, limited brand recognition, and a lack of a long-term track record of franchisee success. The subsequent bankruptcy filing has validated this as a high-risk factor, as the system has not demonstrated long-term stability.

Potential Mitigations

• A franchise attorney should help you scrutinize the entire business model and contract for additional protections given the high risk.
• Engaging a business advisor is critical to evaluate the viability of a young franchise system currently in bankruptcy.
• You should speak with the earliest franchisees to understand the evolution of the system and the quality of support from the beginning.

Explanation

WNW's ultimate parent company, Franchise Group, Inc. (FRG), was acquired by Freedom VCM, Inc. in 2023, which appears to be a private equity or investment firm-led transaction. Shortly thereafter, in 2024, FRG and its subsidiaries, including WNW, filed for Chapter 11 bankruptcy. This represents an extreme manifestation of the risks associated with private equity ownership, where high leverage or strategic shifts can lead to instability and financial distress for the entire system.

Potential Mitigations

• The direct implications of the bankruptcy filing must be thoroughly reviewed with your franchise attorney.
• Understanding the goals of the current ownership and the proposed bankruptcy restructuring plan is critical; this requires analysis by your accountant.
• Speaking with a business advisor is essential to assess the long-term strategy of the ownership group and its commitment to franchisee success.

Explanation

While WNW itself has no disclosed litigation, its affiliate brand under the same parent company, Buddy's, has significant legal actions. These include a franchisee lawsuit alleging failure to renew, a franchisor-initiated lawsuit against a franchisee, and a notable FTC enforcement action regarding anti-competitive practices. This pattern within the parent organization's portfolio suggests a potentially litigious or aggressive corporate culture that could carry risks for WNW franchisees.

Potential Mitigations

• A franchise attorney should review the details of the affiliate litigation in Item 3 to understand the nature of the disputes.
• Discussing the parent company's litigation history and dispute resolution philosophy with the franchisor is a necessary step.
• Treating litigation patterns within affiliate brands as a potential indicator of the parent company's overall approach is a prudent measure for your business advisor.