Explanation

The franchisor's audited financial statements show a significant and worsening members' deficit (negative net worth), reaching ($222,946) in 2024, and a net loss of ($105,279). Liabilities far exceed assets. State addenda for Illinois, Maryland, and Virginia explicitly require the deferral of your initial franchise fee due to this poor financial condition. This calls into question the franchisor's ability to support you and sustain operations, posing a significant risk to your investment.

Potential Mitigations

• Your accountant must conduct a thorough analysis of the franchisor's financial statements, including all footnotes and trends over the past three years.
• Discuss the implications of the negative net worth and state-mandated fee deferrals with your franchise attorney.
• A business advisor can help you assess if the franchisor has sufficient capital to fulfill its support obligations without relying on new franchise sales.

Explanation

The data in Item 20 indicates a very high rate of franchisee churn. The system began 2024 with two franchised outlets and ended with one, as one was reacquired by the franchisor. This represents a 50% turnover rate in a single year for the small franchisee base, which is an extremely concerning indicator of potential systemic problems, franchisee dissatisfaction, or lack of profitability. This suggests a significant risk to the long-term viability of a franchise.

Potential Mitigations

• It is critical to contact the former franchisee listed in Item 20 to understand their reasons for leaving the system; your attorney can help frame appropriate questions.
• Discuss the high turnover rate directly with the franchisor and evaluate the reasonableness of their explanation with a business advisor.
• Your accountant should factor this high churn rate into financial models as a significant risk indicator for the business's stability.

Explanation

The system is growing very slowly, with only one operating franchisee at the end of 2024. While slow growth can sometimes be a sign of caution, in this case, it is coupled with high turnover (a 50% reacquisition rate in 2024) and poor financial health. This pattern suggests potential difficulties in attracting and retaining franchisees, which could indicate fundamental issues with the business model's appeal or viability.

Potential Mitigations

• A business advisor can help you analyze the implications of slow growth combined with high franchisee churn on the brand's future market presence.
• Discuss the reasons for slow growth and franchisee departures with the franchisor, and validate their answers by speaking with the current and former franchisees listed in Item 20.
• Your attorney should review whether the lack of system growth could impact your potential for success within the brand.

Explanation

The franchisor, Status Solutions Network, LLC (SSN), is a new system, formed in 2020 and beginning to franchise the same year. Item 20 shows a very small number of operating units (only one at the end of 2024) and a high rate of turnover. Investing in a new, unproven system carries higher risks, including the potential for an untested business model, underdeveloped support systems, and minimal brand recognition, all of which are compounded by the company's disclosed financial weakness.

Potential Mitigations

• Thoroughly investigate the business and franchising experience of the management team listed in Item 2 with the help of a business advisor.
• Given the high risk of a new system, your attorney should attempt to negotiate more franchisee-favorable terms, such as lower fees or enhanced support commitments.
• Your accountant should carefully assess the franchisor's capitalization and business plan to determine if it is sustainable.

Explanation

The franchisor is a distinct entity from its affiliate, Status Solutions, LLC. Note 4 of the financial statements reveals significant related-party transactions, including a large accounts payable balance ($311,838 in 2024) to this affiliate for services. While the affiliate relationship is disclosed, the franchisor entity itself has very weak financials, suggesting a heavy reliance on its affiliate. The FDD does not include financial statements for this critical affiliate, potentially obscuring the full financial picture and associated risks.

Potential Mitigations

• Your accountant should carefully analyze the nature and extent of the related-party transactions and the franchisor's dependence on its affiliate.
• An attorney can help you question the franchisor about the financial health of the affiliate company and why its financials are not provided.
• A business advisor can help assess the operational risks if the affiliate company were to reduce or cease its support.