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ITEM 7

 

INITIAL INVESTMENT

 

EOF estimates that you should expect to make an initial investment as summarized in the following table in connection with the lease or purchase and development or conversion of a location into an EDUCATIONAL OUTFITTERS Store. Your investment and expenditures may vary considerably from the projections below, depending on many factors, including, without limitation, geographical area, the amount of space you lease or purchase, the extent of construction and/or remodeling necessary, and the capabilities of any particular management and service team.

 

Your costs will also depend on other factors such as: how well you follow our methods and procedures; your management skills; your business experience and capabilities; local economic conditions; the local market for our products and services; the prevailing wage rates; competition; and sales levels reached during your initial phase of business operations. Because EOF does not recommend that you enter into the purchase and construction of a new facility due to the high cost and long lead times associated with that type of development and due to fluctuations in the acquisition cost of land as a result of location and availability of property and of financing, no estimate on land or construction cost of a new building is given. The figures and footnotes listed below in this Item 7 of the Offering Circular are estimates, and we cannot guarantee that you will not have additional expenses in starting your EDUCATIONAL OUTFITTERS Store. These same cost estimates are applicable to the opening of a Satellite Store with the exception that no Franchise Fee is payable in connection with same.

 

We relied on our experience in the school uniform industry in compiling these estimates. You should review these figures carefully with a business advisor before making any decision to purchase this franchise opportunity.

 

All fees payable to EOF are non-refundable. Fees paid to any third party may be refundable, depending upon the contracts, if any, between that third party and you.

 

Nature of Investment	Estimate of Costs		Method of Payment		When Due		To Whom Made
Initial Franchise Fee (and Subsequent Franchise Fee) (Note 1)	$29,500		Lump Sum		Upon signing of Franchise Agreement		EOF
Initial Rent & Deposit (Note 2)	$4,800-515,000		Periodic		As Arranged		Lessor
Initial Inventory (Note 3)	$ 25,000 - $75,000		As Arranged		As Arranged		Vendors
Leasehold Improvements (Note 4)	$500-510,000		As Arranged		As Arranged		Vendors
Signage (Note 5)	$2,000 - $5,000		As Arranged		As Arranged		Vendors
Furniture & Fixtures (Note 6)	$4,000 -$7,000		As Incurred		As Incurred		Vendors
Equipment (Note 7)	$1,200-52,000		As Incurred		As Incurred		Vendors
Grand Opening Marketing (Note 8)	$500 - $2,000		As Incurred		As Incurred		Vendors
Pre-Opening Salaries	$0 -$1,000		As Incurred		As Incurred		Employees
Nature of Investment		Estimate of Costs		Method of Payment		When Due		To Whom Made
(Note 9)
Travel for Initial Training (Note 10)		$750 - $2,500		As Incurred		As Incurred		Vendors
Start-Up Supplies (Note 11)		$400-$1,000		As Incurred		As Incurred		Vendors
Initial Insurance Deposit (Note 12)		$225 - $500		Lump Sum		Before Opening		Insurance Companies
Permits, Licenses & Fees (Note 13)		$25 - $500		As Incurred		Before Opening		Government Agencies
Utility Deposits (Note H)		$0 - $500		As Incurred		Before Opening		Utility Companies
Legal & Accounting Fees (Note 15)		$500 - $2,000		As Incurred		As Incurred		Attorney & Accountant
Computer Hardware & Software (Note 16)		$7,500-$10,000		As Incurred		Before Opening		Vendors
Heat Transfers & Monogramm in g; Embroidery Machine Lease initial payment and supplies (Note 17)		$4,000 - $6,000		As Incurred Initial Lease Payment and Supplies		Before Opening		Vendors
Freight (Note 18)		$500-$1,500		As Incurred		Before Opening		Vendors
Telephone System (Note 19)		$100-$500		As Incurred		Before Opening		Vendors
Petty Cash (Note 20)		$200 - $250		As Incurred		As Incurred		Franchisee
Decor Items (Note 21)		$1000-$5,000		As Incurred		As Incurred		Vendors
Uniforms (Note 22)		$0 -$200		As Incurred		As Incurred		Franchisor
Additional Funds - 3 months (Note 23)		$10,000-$20,000		As Incurred		As Arranged		Vendors

 

Total Initial Investment $92,700 to $196,950.

FOOTNOTES TO INITIAL INVESTMENT OF FRANCHISEE
Note 1�������������������� Initial franchise fee and subsequent franchise fee

The initial franchise fee for the first Store is $29,500 and is payable upon execution of the Franchise Agreement. No franchise fee is payable for a Satellite Store developed. You must open the Franchised Business within 150 days after securing the EOF''s acceptance and consent to development of the site and providing EOF with documentation of the site''s lease agreement or purchase agreement, or EOF can terminate the Franchise Agreement and keep the entire initial franchise fee as liquidated damages, not as a penalty. If you enter a Development Agreement, the franchise fee for Stores developed under it is $12,500 per additional Store payable upon the execution of the Franchise Agreement. The franchise fees are fully earned and non-refundable in consideration of administrative and other expenses incurred by us in entering into the Franchise Agreements and for our lost or deferred opportunity to enter into the Franchise Agreements with others. There is no financing available from us for the payment of the franchise fees. The franchise fees are uniform to all franchisees.

The rent for the leased premises will vary per location. The initial start-up expenses are estimated to be the first month rent (based on monthly rental ranging from $1,200 to $4,500) and a security deposit equal to another month''s rent, with the first month''s rent and security deposit both paid in advance. The approximate square footage of space needed for the Franchised Business is estimated to be approximately 1400 to 3200 square feet. Because the business is operated as a destination retailer it is not critical and not recommended that the Franchised Location be in a high rent location. It is important that it be in a safe and well-known area, with plenty of parking and easy access. We estimate the rental cost will be from $10 to $18 per square foot, depending upon the proposed Franchised Location. EOF will provide guidance to you for site selection. Because of many variables involved, EOF makes no representation as to the success or result which you will experience at a given site, and you assume all risk of business success or failure at such site.

 

Note 3�������������������� Initial Inventory

 

Credit terms have been established with EOF''s primary vendors, Royal-Park Uniforms, Inc. and School Apparel, Inc. Credit terms with Royal-Park and School Apparel will vary by each franchisee depending on each franchisee''s credit history, net worth, etc. Credit terms with secondary providers or vendors have not been established and will be left up to you to set up your own account/credit with approved secondary providers or vendors. We will provide help to you with this process. We will also make the initial contact to these vendors for you. Generally speaking, these accounts require a $5,000 initial order to open the account.

 

In preparation for the Store''s opening (which is timed to coincide with the beginning of a school term), you can expect to spend between $25,000 to $75,000 in the first 3 months on up-front inventory, which is 25% of your entire initial inventory purchase, and to establish accounts and open credit terms with vendors. Depending on the size of each of your Exclusive Territories and account bases and your decision on the amount of initial inventory, the entire initial inventory purchase will range from $100,000 to $300,000. However, based on payment terms negotiated by EOF with approved suppliers, you are only required to pay for 25%� of the initial inventory purchase and are not liable for the balance (with no financing charge) until your Store has been in operation for a full 3 months. This usually works out to approximately 4 months from the date of initial inventory purchase.

 

Note 4�������������������� Leasehold Improvements

 

We estimate that the leasehold improvements will cost between $500 and $10,000 in order to convert an existing location into an EDUCATIONAL OUTFITTERS Store. Such leasehold improvements may include such items as floor coverings and interior and exterior cosmetics, including painting, window tinting, electrical, etc. The cost of such improvements will vary from location to location. If the lessor makes all necessary leasehold improvements, it is possible that such costs will be included in or added to the monthly rent and in that case, minimal front-end out-of-pocket expenses would need to be paid by you.

 

Note 5 Signage

 

Signage may include outdoor signs and signs on the plate glass windows. All signs must be pre-approved by us before your purchasing them for your Store. Signage will vary from location to location depending on the requirements of the lessor. The cost is estimated to be $2,000 to $5,000.

 

Note 6�������������������� Furniture & Fixtures

You must purchase fixtures, a service counter, and clothing cubes as described in the Manual. These costs are estimated between $4,000 to $7,000 and can be purchased from various vendors as long as they meet certain specifications described in the Manual. You may be allowed to purchase good used fixtures rather than purchase new fixtures, but all such used fixtures must be pre-approved by EOF. The type and amount of fixtures will vary from store to store depending on square footage and Store design.

 

Note 7�������������������� Store Equipment

 

You must purchase a heat press machine and credit card machine. Each machine costs approximately $700. The credit card machine can be leased through your merchant company. A facsimile machine will also be needed and will cost around $79.00.

 

Note 8�������������������� Grand Opening Marketing

 

We have estimated Grand Opening marketing expenses to be between $500 and $2,000. Such monies should be spent by you during the first 30 days of opening. Such monies must be spent by you in accordance to the Manual by EOF, and will include newspaper ads, movable signs, flyers to the students through the school, etc. This expenditure is not credited to your local advertising obligation.

 

Note 9�������������������� Pre-Opening Salaries

 

Pre-Opening salaries will depend on how much work you do yourself. Since most Stores will open in the late spring or early summer, we suggest that employee training occur after the Store''s opening. However, if you choose to train new employees before the Store''s opening each new employee will need about 20 hours of training at a pay scale of about $7 to $8 per hour.

 

Note 10������������������ Travel for Initial Training

 

We estimate that your travel expenses for initial training at EOF''s designated location for you and up to one other person will be between $500 and $2,500. While EOF does not charge for initial training, you are required to pay for transportation to and from our training site and pay for living arrangements and food during the time of training for you and up to one other person. In practice, most franchisees have elected to send only one person to such training (themselves).

 

Note 11������������������ Start-Up Supplies

Start-up supplies are estimated to be between $400 and $1,000. These supplies may include such items as samples, office supplies, bags, shopping baskets, a cash drawer, etc.

 

Note 12 Insurance

 

We estimate that your initial insurance deposit will be approximately $225 to $500 and will cover personal property, general liability, medical, theft and computer hardware. Total yearly costs are approximately $1,100 to $2,500 depending on location and coverage.

 

Note 13������������������ Permits, Licenses & Fees

 

You are required to obtain business licenses on a yearly basis from the local government agency requiring such licenses. We have estimated these costs to be between $25 and $500 depending upon the jurisdiction.

We have estimated your utility company deposits will range from $0 to $500. These include monies required to be deposited with the local electric, gas, and telephone companies.

 

Note 15������������������ Legal & Accounting Fees

 

You will pay legal fees, if appropriate, to retain an attorney to help incorporate the Franchised Business and review lease or purchase agreements. You will also need to retain an accounting service to assist in the set up and preparation of an accounting system. Such costs are estimated to be between $500 and $2,000.

 

Note 16������������������ Computer Hardware & Software

 

The computers serve as our point of sale systems. Our system consists of two work stations for your check-out counters and one server used in your office as a work station. Other items include two Dymo label printers, two laser printers and two scanners, the software utilized in Quick Books Pro and the P.O.S. system in Mel USA Multi Easy Link. We have negotiated national pricing with vendors and your turn-key cost is estimated to be approximately $8,000. If you choose to add one laptop, your turn-key cost is estimated to be approximately $10,000. We have also arranged with vendors for these machines to be leased with a small down payment. You will also need an Internet Service Provider to have e-mail access, a scanner and label printer at $400 each, and Mel USA Software and IT Management Plan designed for EOF at a cost of $ 1,500. (See also the computer disclosure in Item 11 .K).

 

Note 17������������������ Heat Transfers/Embroidery

 

It will be necessary to purchase heat transfers for logos for your schools and companies/customers for which you are the provider. The logo cost averages between .50 and $1.25 depending on logo size and colors. The number of logos you will need will vary depending on schools that use it and on the number of students at each school. Our best estimate is around 2000 logos are needed to start your Franchised Business for an approximate cost of $2,000.

 

Some schools and companies/customers will require embroidery. You will need to pay a digitizing fee to have each logo set up before opening. The cost ranges from $10 to $20 per 1,000 stitches for digitizing. The average logo is about 6,000 stitches, so each school''s digitizing fee will be around $120.

 

You may choose to lease or purchase an embroidery machine which costs approximately $30,000. Most stores lease and we recommend a lease of an embroidery machine which will cost approximately $800 a month. We have negotiated a national discount on purchases and also leasing options from a supplier of these. You may also choose to purchase the heat presses, embroidery machine and embroidery software which costs approximately $38,000.

 

Note 18������������������ Freight Charges

 

Your Store''s initial stock will come in one time via common carrier. The freight cost will vary depending on the size of your order. You can expect this cost to be between $500 to $1,500.

Note 19������������������ Telephone System

 

Two telephone lines are required with a basic phone. We require you to have a voice mail system with your local phone company. The phone cost will range from $100 to $500, and the cost of business lines average at $50 a month. You must be listed in your local principal regular (i.e., white pages) and principal classified (i.e., yellow pages).

 

Note 20������������������ Petty Cash

 

Each cash drawer will require $100 of cash broken down in $1, $5, $10, $20 and change. EOF estimates you will need approximately $200 to $250 for petty cash.

 

Note 21������������������ Decor Items

 

You will be required to decorate your Store with a back-to-school look. This will include signs, posters, borders, etc. You will also be required to hang Store policies and clothing prices. Most of these items can be purchased at a school supply store and/or made from your computer. We estimate the costs to be between $1000 and $5,000. We have a decor package available at a cost of $4,000. You are required to purchase our uniform decor package at a cost of $3,500.

 

Note 22 Uniforms

 

Uniforms are not required but since we are a uniform Store we do suggest getting polo shirts with the EDUCATIONAL OUTFITTERS logo to wear in your day-to-day operations. The cost is $10 per shirt.

 

Note 23������������������ Additional Funds

 

The estimate of additional funds required by you before operations begin and during the first 3 months of operation is based on an owner-operated business and does not include any allowance for an owner''s draw. The estimate of $10,000 to $20,000 is for a period of 3 months. The factors we considered or relied upon in formulating the estimated range are mainly derived from our actual experience working with our franchisees, in addition to our knowledge of our affiliate''s actual experience. EOF estimates that, in general, you may expect to put additional cash into the business during at least the first 3 months (and sometimes longer), but EOF cannot estimate or represent when or whether you will achieve a positive cash flow or profitability. Our experience has been that most franchisees have put additional funds into the business during the initial 3 months period within the estimated ranges specified. However, there can be no assurance that the estimate of additional funds will fit your actual business operations due to the variability of factors affecting your business, including your particular location, your managerial ability, your payroll and loan payments, all factors beyond our control.