ITEM 7 INITIAL INVESTMENT
1 The amount shown for the
initial franchise fee is actual; all other amounts represent estimates, based
on experiences our franchisees have reported. The summary does not include real
estate acquisition costs (either purchase or lease). These costs vary significantly
from locale to locale, and your initial cash outlay will depend on whether you
choose to purchase or lease the site for your Store and whether you choose to
locate the Store in a strip shopping center or a mall.
2 See Item 5 for the schedule of initial franchise
fees.
3 Stores are typically located
in strip shopping centers or shopping malls and range in size from 650 to 1,400
square feet. Any location you lease will have to be built out to our
specifications. The amounts presented in the table for leasehold improvements
contemplate a landlord finish-out allowance of $12,000 to $30,000. The
allowance, if any, that you negotiate with your landlord may be higher or
lower. Mall locations are typically more expensive to build-out than strip
center locations, so leasehold improvement expenses in an enclosed mall
location may be higher.
4 Municipal code and lease
restrictions on signage may increase the cost of your signs. This amount
includes the costs of signs and decor you are required to purchase from us or
approved suppliers.
5 Assumes a lease deposit equal
to one month''s rent. Utility deposits vary from locale to locale. Customarily,
these deposits are refundable at the end of the term of the relationship if all
other obligations have been performed.
6 Except as disclosed in note
5, none of the expenditures described above is refundable after payment.
7 These figures assume you will
need the indicated amounts for rent, utilities, wages, inventory, gift cards,
employee training, insurance premiums, debt service, legal and accounting fees
and other expenses during the initial phase of your Store''s operation, which we
estimate to be three months. Includes salary, travel, lodging, meal and
incidental expenses for one person to attend our required training program, and
the pre-opening wages of hourly employees. You may incur additional expenses in
starting up your Store. Your actual costs will depend on a number of factors,
including local economic conditions, the time of year in which you open,
prevailing wage rates, your own business skill and experience, and the level of
your sales during the initial phase of your Store''s operation.
8 We have relied on our 21
years'' of experience in developing ice cream stores in arriving at our cost
estimates. The estimates are, however, only estimates that, by their nature,
may change and may vary from location to location. You should carefully review
these figures and compare them with information you obtain from local sources,
and then discuss your findings with a business or legal advisor before you make
a decision to purchase a Marble Slab Creamery franchise.
You must purchase some of your
interior Store signs, some promotional materials and a grand opening package
from us. (Before
the end of 2006, we also required that our franchisees offer Marble Slab
Creamery Gift Certificates and that they purchase gift certificates from us. We
derived income from the sale of Gift Certificates, interior signs, promotional
materials and grand opening packages to franchisees last year. For the fiscal
year ended December 31, 2006, we recognized income of $228,362 from the sale of
these items to franchisees, which represented approximately 3.5% of our total
revenues for the year of $6,446,320,| None of our affiliates derive revenue based upon your
required purchases or leases. None of our affiliates are currently approved
suppliers from whom you are required to make purchases or leases.
We have licensed several
regional dairies to manufacture the base mix from which Marble Slab Creamery�
brand ice cream is made. These dairies have pledged to use the grade and
quality of milk and other ingredients that we specify, thereby ensuring the
premium grade quality of our ice cream. You must buy your base mix from a licensed
dairy, most likely the one nearest your Store. We also designate by brand name
certain of the flavorings and other ingredients you must use in preparing your
ice cream and bakery products. Also, there is only one supplier from whom you
may purchase your POS system, your menu board and various miscellaneous
supplies. See "Computer Hardware and Software" in Item 11 for
information about the POS system. In December 2006 we introduced a gift card
program to replace our gift certificate program. We selected a single supplier
to produce the gift cards and to administer the program. You must participate
in the gift card program and deal with that supplier.
We do not receive any license
fees, rebates, other compensation or concessions from any dairy or other
supplier. We estimate that the cost of required purchases will account for
approximately 3.5% to 6.0% of the cost to establish your Store and
approximately 22% of your ongoing operating expenses.
You are not required to
purchase any other goods or services from us or a source we designate. You
must, however, purchase your equipment, fixtures, signs, inventory and supplies
from suppliers that we have approved. We impose this requirement both to ensure
that our franchisees purchase and use products that satisfy our quality and
durability standards and to enhance our bargaining position with suppliers who
want to deal with Store operators. We have no ownership affiliation with any
approved supplier, and we do not receive any revenue or other material
consideration on account of your purchases from any approved supplier.
We developed the standards and
specifications for the goods and services that Stores must use through years of
experience in operating Company-owned stores and through research and testing
in both Company-owned and franchised Stores. We communicate our standards and
specifications directly to suppliers who wish to seek our approval of their
products or services. At present, we only communicate to franchisees the brand
names of approved products and services and the names of approved suppliers. We
communicate this information through our Operations Manual (including periodic
bulletins) and during Store inspections by our field representatives.
All approved suppliers must
meet our standards and specifications and must, in our estimation, have a
reputation for fair pricing and reliable customer service. When a franchisee
proposes a new supplier, or a new supplier approaches us, we conduct our own
investigation of the supplier and our own evaluation of its product or service.
We usually complete our investigation and either approve or reject the supplier
in writing within 30 days. We do not impose a fee for evaluating or approving
suppliers, and we reserve the right to revoke any previously granted approval
at any time. Revocation would mean that franchisees could no longer purchase
from a supplier we have disapproved.
Whenever reasonably possible,
we negotiate pricing arrangements on behalf of our franchisees with our
suppliers. In many cases this practice enables our franchisees to benefit from
volume discounts, although volume discounts may not be available to Stores
located in outlying markets that a particular supplier does not serve in significant
volume. For example, we have established a purchasing arrangement with the
UniPro Multi-Unit Group, from which franchisee may purchase dry, frozen and
refrigerated food, paper supplies, proprietary printed items, syrups and
flavorings, janitorial supplies and the brand of frozen yogurt our stores
serve. We do not receive any rebates or revenues for purchases made by our
franchisees under this purchasing arrangement.
We
have no plans to offer you any material benefits when you buy from a designated
or approved supplier. We have no purchasing or distribution cooperatives
serving our franchise system.
