FDD Talk: Average Sales of Proprietary Products and Cost of Goods Sold for Rita’s Italian Ice

Highlights of the Item 19 Financial Performance Representations of Rita’s Italian Ice (2011 FDD)

2010 Average Sales of Proprietary Products at Rita’s Italian Ice Franchised Shops

• The information provided below is based on shops that have been open for at least 1 full season. A full season is defined as 1 entire selling season for which Rita’s requires operation, and the shop must be opened at least 5 days before spring.  Florida franchised shops may have been open for as many as 10 to 12 months.  Where a shop was open for a period longer than the selling season, all sales for such shop were included in Rita’s determination of average sales.

• Rita’s royalty fees and advertising fees on proprietary products are based on estimated sales. Each franchisee must pay to Rita’s a royalty fee in the amount of 6 1/2% of the projected sales to be made by a franchisee based on a franchisee’s purchase of Rita’s proprietary Rita’s Mixes.

• In calculating the royalty fee, Rita’s estimates the projected sales that can be expected to be made from a franchisee’s purchase of Rita’s Mixes, based on the amount of Rita’s Mixes required for use in Rita’s recipes for each product.

• In calculating the average sales, Rita’s estimates franchisees’ average sales based on the amount of Rita’s Mixes purchased, franchisees’ prices, and the percentage of each type of proprietary product sold by franchisees relative to all proprietary products sold (“the product percentages”).

• The sales estimates described below represent only the sales by franchisees of proprietary products containing the proprietary Rita’s Mixes. These proprietary products are Italian ice, gelati, frozen custard, Misto shakes, and Blendini. Not included in the sales calculations described below are any other products sold by franchisees, such as pretzels and promotional items.