FDD Talk 2013: Average Net Sales, Food and Labor Cost, and Rent Cost for Pita Pit Restaurants (2013 FDD)

Highlights of Pita Pit’s Item 19 Financial Performance Representations (2013 FDD)

Explanatory Notes for Section A – Franchised Restaurants Net Sales, Food and Labor Cost, and Rent Cost

• The following actual financial performance representations are derived from 45 Pita Pit Restaurants (“Franchised Restaurants”)  that voluntarily provided specific information to the franchisor in response to a survey.

• The average time in operation for these 45 restaurants was 69.5 months.

• The financial performance representations for these 45 Franchised Restaurants set out (i) the historical average annual Net Sales, (ii) the historical average annual food and labor cost percentages, and (iii) the historical average monthly rent.

• Pita Pit defines Net Sales as Gross Sales, minus sales tax, comps, and customer promotions.

• The average annual food cost percentage was determined by each individual Franchised Restaurant responding to the survey, by taking the sum of the food costs and beverage costs as a percentage of the Net Sales for the same period.

• The average annual labor cost percentage was calculated in each survey response, by each franchisee responding to the survey, by subtracting any amounts paid to the franchisee owner(s) as a salary or draw (including any payroll related taxes) from the labor costs provided in the survey. The cost of a third party manager was included in the labor costs. The percentages provided here are a mix of owner managed and third party managed Franchised Restaurants.

• Pita Pit defines rent to include base rent and Common Area Maintenance fees, where applicable.

Explanatory Notes for Section B – Corporate Restaurants Net Sales, Food and Labor Cost, and Rent Cost

• The following actual financial performance representations are derived from the original 3 corporately developed, owned, and operated Pita Pit restaurants (“Corporate Restaurants”), one of which is a national training center.

• The average time in operation for these 3 restaurants was 53.7 months.

• The financial performance representations for these 3 Corporate Restaurants set out (i) the historical average annual Net Sales, (ii) the historical average annual food and labor cost percentages, and (iii) the historical average monthly rent.

• Pita Pit defines Net Sales as Gross Sales, minus sales tax, comps, and customer promotions.

• The average annual food cost percentage was determined, by each individual Corporate Restaurant, by taking the sum of the food costs and beverage costs as a percentage of the Net Sales for the same period.

• The Coeur d’Alene, Idaho Corporate Restaurant disclosed in this financial performance representation is the Pita Pit National Training Center. Because this corporate location is used for the training of all new franchisees, the research and development of new and different food products, as well as various corporate promotions (including discounted pricing for corporate employees), it has a higher than average food cost of 42%.

• The 3 Corporate Restaurants each employ a store manager.

• Pita Pit defines rent to include base rent and Common Area Maintenance fees, where applicable.

How the Franchised and Corporate Restaurants for the Representations in Sections A and B were Selected

• On December 31, 2012, there were 198 Franchised and Corporate Restaurants in the United States. 154 of the Franchised Restaurants were owned by franchisees that had operated the Franchised Restaurant for the entire 2012 calendar year.

• The purpose of Sections A and B is to correlate Net Sales data directly with its associated food and labor cost data and rent cost data.

• Accordingly, Pita Pit’s Franchise Development Specialists requested either in person, by phone, or email that the franchisees for the 154 Franchised Restaurants that had operated for the entire 2012 calendar year voluntarily complete an online survey providing certain financial information relating to the 2012 calendar year.

• 45 of these 154 Franchised Restaurants completed the survey within the required time period, and were accordingly included in this portion of Pita Pit’s financial performance representation.

• The 3 Corporate Restaurants selected are the only restaurants originally developed, owned, and corporately operated from inception.

Section A – Franchised Restaurants Net Sales, Food and Labor Cost, and Rent Cost

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