The USA Mobile Drug Testing franchise program was under fire in 2012. Allegations included fraudulent and deceptive earnings claims in the company’s 2010-2012 franchise disclosure documents, alleged misrepresentations made by USAMDT sales brokers, and claims the company was misrepresenting the size and success of its franchise chain.
To top it off, there was a mass defection of franchisees who went independent, claiming that the franchise program provided no value and was actually a hindrance to their success.
In 2013, USAMDT issued optimistic press releases implying that all is right in the world of USAMDT, the sun is shining, franchisees are prospering…
USA Mobile Drug Testing finally registered the 2013 Franchise Disclosure Document in Illinois and “the pack of ex-franchisee rebels” couldn’t wait to get their hands on it.
So here is the USA Mobile Drug Testing 2013 Franchise Disclosure Document, and the reaction we received from the former USAMDT franchisees.
USAMDT 2013 Franchise Disclosure Document
USAMDT 2013 FDD Item 1 – 16 page 1 – 39* (Email UnhappyFranchisee[at]gmail.com for a copy)
USAMDT 2013 FDD Item 19 (Financial Performance Representation)
USAMDT 2013 FDD Item 20 – 23 and Exhibit F-1_F-2
* Too large to upload. Email UnhappyFranchisee[at]gmail.com for a zipped copy
Ex-Franchisee Reaction to the USAMDT 2013 FDD
USA Mobile Drug Testing finally registered the 2013 Franchise Disclosure Document in Illinois and the pack of ex-franchisee rebels couldn’t wait to get our hands on it for the dissection. So for you current franchisees, pay attention, there are lots of questions that, if I were you, should be asked of Joe Strom and the rest of the gang. For those of you looking to buy into the franchise, you don’t want to be misled or uninformed while making the decision to give them your money.
As expected, Strom and USA Mobile Drug Testing (USAMDT) made fairly significant revisions to this year’s FDD. No doubt due to many of the flaws we have been talking about over the past 3 years’ FDDs, but we’ve got the low down on the changes and the differences:
Let’s start with the Franchise fees in Item 5 (page 9). Territories for purchase are as follows: 1 territory for $34,900; 2 contiguous territories for a fee of $59,900; and 3 contiguous territories for a fee of $79,900. I bought 2 territories in 2011 for $79,000. That’s a $20,000 reduction in the fees. Do the existing franchisees realize they lost $20,000? That’s a 25% loss in the value of their business. And while this can occur from outside sources, it’s happening by their own franchisor! How do they feel about this? Or has it been addressed? We’ll make sure it gets addressed. Notice the statement “contiguous territory”. That means the geography of the territories must be adjacent in proximity. Why, then, are the franchisees in Long Island, NY, listed as owning a franchise in TX? That’s not contiguous. Oh, that’s right, special side deals for special franchisees willing to drink the Kool Aid.
I see the initial training fees tripled too. Wow! Your training must have really improved in a year’s time.
Royalties have been reduced from 9% to 6.75%. Do the existing franchisees know this? Are they paying the reduced royalty fee? Even better, while Item 6 lists the royalties at 6.75%, the Item 19 tables have the royalties at 6.5%. Which is it? Who proofed this document?
The IT fee: Why does Item 6 list the email address at $84 per year? Then one skips ahead to page 30, and it states the email fee is $72 per user, per year. Again, which is it? $84? Or $72?
There’s also been a change with the cross territorial policy. Pay very close attention when I say this, this business is very much a referral based business! Your happy clients tell their friends who call you and the might be in another territory or you might spend a great deal of time and energy selling a company that has locations outside of your territory, you get to “give” all of that revenue to your neighbor franchisee that didn’t work for it. Wouldn’t you want some compensation for your efforts? Ridiculous!
This is hilarious: Under Item 17, page 43, would have you, new buyer signing a non-compete clause and non-disclosure clause, as well as the immediate members of your family and anyone living in your household. “Honey! You’re gonna be late for the school bus! Wait! Before you go, you need to sign this non-compete and non-disclosure agreement and under no circumstance are you allowed to breath a word of USA Mobile Drug Testing today at Show And Tell!” Another ridiculous clause.
Let’s discuss Item 19, the most misunderstood and most important section of the FDD. In 2010, 2011, and 2012 FDDs, Strom and company have listed the financial statement of Aron Galinovsky of A & B Employer Solutions. Even though he wasn’t a franchisee, but then he was, then he wasn’t, depending on what sections of the FDD you were reading. His “like” business, which wasn’t at all similar to USAMDT model, illustrated that one could earn a net income of $145K in year 1! Fascinating! Now we are on the 4th iteration of USAMDT’s FDD, they don’t list financials for a “typical” franchisee in the network. They list hypothetical tables. And the hypothetical year 1 has one netting $8K. That’s it? What happened to $145K? They name a franchisee-affiliate in Las Vegas that has been up and running for at least 3 years. Why aren’t they using those financial numbers? There are plenty of other franchisees that have been in business for at least 2 years and longer…why aren’t they being used? If the hypothetical tables were derived from actual success, a new buyer should want to see real financials…and talk to those successful franchisees. Just 2 accounts per month and you will realize $57K in revenues in year 1. Where the heck did they pull those numbers from? Not one single franchisee has seen that kind of income in year one when I was in the network and I’ve only been out for 7 months. The profit margins are outrageous too; 43%! Ask questions about this!
Finally, this is my 2nd favorite next to the immediate family member all signing NDAs and NCAs: the balance sheet. Be sure to show this to your CPA or your banker. Watch the banker’s eyes bug out. When examining the balance sheet, USAMDT has about $.10 of assets for every $1 worth of liability. Would a banker loan money looking at a balance sheet like this? How on earth does this company pay its bills? They’re insolvent. And it doesn’t show any member contributions, which means neither Joe nor Kevin have contributed money. Most business owners would have already done this to elevate the balance sheet if nothing else, to get a loan.
Oh, and on the following pages, they list revenues of $1.809M, expenses of $1.807M, which is a net profit of $2,450. But the financial statement says net loss $2,450. Simple math would conclude this to be a net income. Ha Ha! This is simple math and they’re having a tough time making money, so at the very least, show the net income for something positive in the company. And make sure your CPA isn’t sleeping at the wheel.
And why aren’t USAMDT’s current financial statements being used in this FDD?
Bottom line, I believe any FDD should be absolutely perfect before registering it and making it public. Investing $60,000-80,000 should motivate a buyer to want a perfect FDD that is consistent throughout and includes real financials from real franchisees. Finally, for prospective buyers, take a look at all 4 FDD’s posted on this site. Make sure you know what you’re signing! Don’t lose a bunch of money the way we did.
USA Mobile Drug Testing Issues & Warnings:
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Tags: drug testing franchise, Joe Strom, Joseph Strom, mobile drug testing, USA Mobile Drug Testing, USA Mobile Drug Testing complaints, USA Mobile Drug Testing franchise, USAMDT Franchise Disclosure Document, USAMDT FDD, Franchise Disclosure Document (FDD)