FLIP FLOP SHOPS - FDD UFOC ITEM 7 Detail

ITEM 7

ESTIMATED INITIAL INVESTMENT

YOUR ESTIMATED INITIAL INVESTMENT

Notes:

(1)           The development fee is equal to (he total of 100% of the initial franchise fee for each Store to be developed. The portion of the development fee allocable to each Store will be credited against the initial franchise fee due for that Store. See Item 5.

(2)           Flip Flop Shops Stores arc typically located in commercially zoned shopping centers. Due to the cost of land acquisition and new construction, the premises for Flip Flop Shops Stores are normally leased. These amounts assume that you will lease the premises for the Store and do not include costs of land acquisition and construction of a building. The leasehold improvements estimate is based on the cost of adapting our prototypical architectural and design plans (including professional fees for the design professional that we designate (see Item 8)) to a facility containing approximately 500 to 1,000 square feet. The leasehold improvement ranges will be affected by various factors like the location of the Store and local market conditions. The estimates assume that the landlord will provide connections to adequate electrical, gas, water and sewage service. Your actual costs may or may not include site preparation and finish-out costs, depending on the arrangements you negotiate with your landlord.�� If your landlord

DALLD0CS\247I97.<1 365S60-5 contributes to the cost of finish-out, total leasehold improvement costs could be reduced. These costs are our best estimate based on commercial leasing and rcmodcIing/firush-out rates that flip Flop Shops, Inc. has experienced with its Flip Flop Shops Stores. These estimates may vary substantially based on your ability to negotiate with your landlord and your financial strength, as well as on local commercial leasing and labor rates and other local conditions.

(3)           These amounts include the-cost of the furniture, fixtures, equipment, decor items, and exterior signage required for your Flip Flop Shops Store, including the interior decor system/modules which you must purchase and have installed in your Flip Flop Shops Store. (See Item 8)

(4)           We provide initial training to your initial Operating Principal and Lead Manager (if applicable) at no additional charge. You must pay all expenses you or your employees incur in the initial training program, like travel, lodging, meals and wages. Your costs will vary depending upon the number of employees trained and your selection of salary levels, lodging and dining facilities, and the mode and distance of transportation. Your cost for wages will vary substantially depending on whether your Operating Principal receives wages and whether your Operating Principal serves as a Lead Manager or you hire separate individuals to fill those positions. (See Item I 1)

(5)           This amount includes the cost of point of sale and computer hardware and software that you must use in the operation of your Flip Flop Shops Store. (See Item I 1)

(6)           We estimate that this range will cover the cost of your initial inventory of flip (lops and sandals and other inventory. Your costs will vary depending on various factors, including the size of your Store, the time of the year in which your Store opens, your initial sales projections, and the population density in the area of your Store.

(7)           This estimate is for the cost to establish an entity to hold the franchise and review the franchise documentation and for professional services related to acquiring and reviewing a lease for the Store premises. Some real estate brokers may require you to pay a fee for assistance in locating a site for the Store in lieu of, or in addition to, the standard commission the real estate brokers receive. The high end of the estimate also includes the estimated fee to engage a real estate broker assist you in locating a site for the Store. Flic cost of professional services can vary widely.

(8)           You must carry out a grand opening promotion for the Store in compliance with our written specifications. We must approve all advertising items, methods and media.

(9)           This amount represents an estimate of the down payment on your annual insurance premiums. You must obtain the insurance coverage described in the Franchise Agreement. We must be named as an additional insured on these policies. Your cost of insurance may vary depending on the insurer, the location of your Store, your claims history, and other factors.

(10)         You will need additional funds during the start-up phase of your business to pay employees, purchase supplies and pay other expenses. We estimate the start-up phase to be 3 months from the date you open for business. These amounts do not include any estimates for debt service. You must also pay the royally and other related fees described in Item 6 of this disclosure document. These figures are estimates, and we cannot assure you that you will not have additional expenses. Your actual costs will depend on factors like your management skills, experience and business acumen. You should base your estimated start-up expenses on the anticipated costs in your market and consider whether you will need

additional cash reserves. We relied on the experience of Flip Flop Shops, Inc.''s Flip Flop Shops Stores to compile these estimates. You should review these figures carefully with your business advisor.

Unless otherwise stated above, these estimates are subject to increases based on changes in market conditions, our cost of providing services and future policy changes. At the present time, we have no plans to increase payments we control.

We do not offer any financing for your initial franchise fee or any portion of your initial investment. Unless otherwise stated, the amounts described above are not refundable.