FDD Talk: Revenue and Certain Expenses for Sweet Arleen’s Cupcakes and Bread Pudding Store and Mobile Suite (2013 FDD)

Highlights of Sweet Arleen’s Item 19 Financial Performance Representations (2013 FDD)

• This Item 19 contains two sections which describe the actual results of operations at (1) the single Sweet Arleen’s Store operated by the franchisor’s affiliate, Arleen’s Incorporated, at 960 S. Westlake Blvd., Suite 4, Westlake, California, 91361, and (2) the single Mobile Suite operated by the franchisor’s affiliate.

• The affiliate first opened its Sweet Arleen’s unit in November 2009. Results for full calendar years 2011 and 2012 are presented. The affiliate first began using a Mobile Suite in 2012. Results for that year are presented.

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  The Sweet Arleen’s brand started in Ventura, California, and the company has invested significant sums in marketing and branding its name there and in adjacent Southern California markets. If you open a Sweet Arleen’s Store outside the Southern California market, your store may not enjoy the same initial level of name recognition as the Sweet Arleen’s Store operated by the affiliate in Southern California or adjacent markets, and this may adversely affect your sales.

• A new franchisee’s individual financial results are likely to differ from the results stated in this Item 19.

Explanatory Notes for Table 1 – Revenue and Certain Expenses for Sweet Arleen’s Store

• The numbers presented do not reflect a royalty, which you would pay to the franchisor.

• The numbers presented represent the actual revenues achieved and costs incurred in the operation of the affiliate’s Sweet Arleen’s Store.

• One-time or unusual expenses that the affiliate incurred in developing the concept (such as the affiliate’s costs for appearing on The Food Network show, Cupcake Wars, and related promotions) are not included in the costs below, and should not be incurred by you.

• These numbers do not reflect all expenses that you might incur, such as start-up costs, on-going training of new employees, insurance, overhead, or other expenses.

• Revenue is the cash and credit card charges collected, less refunds, returns, coupons, and discounts, except that intercompany charges and income derived from sales to the Mobile Suite have been eliminated.

• The Cost of Goods Sold includes ingredients, food, and paper products.

• The Cost of Labor includes management labor, salaries, hourly wages, taxes, benefits, overtime, and insurance, including workers’ compensation insurance. It does not include training or start-up costs which you will incur. It does not include salary that you might pay yourself.

• Occupancy includes rent, common area charges, and utilities.

Explanatory Notes for Table 2 – Revenue and Certain Expenses for Sweet Arleen’s Mobile Suite

• The numbers below represent Gross Revenue achieved and certain costs incurred in the operation of a Mobile Suite during 2012. During 2012, the Mobile Suite did not operate at full capacity. In the first two months of 2013, the Mobile Suite was operating 7 days per week, and averaging 1-2 events per day.

• The affiliate’s Sweet Arleen’s Store acts as a commissary to the Mobile Suite, which is operated as a separate legal entity. Because the Mobile Suite is a separate legal entity, the Store provides both finished products and labor to the Mobile Suite at a mark-up. The franchisor does not recommend that you operate your Mobile Store as a separate legal entity.

• Since typical operation would involve a franchised store acting as commissary to a Mobile Suite operated by that franchised store, the franchisor has eliminated the intercompany mark-ups and charges when presenting the numbers as those would not normally be incurred.

• The numbers presented do not reflect a royalty, which you would pay to the franchisor.

• The numbers presented reflect returns, coupons, and discounts, and represent the actual receipts collected by the Mobile Suite.

• Cost of Goods Sold is the cost charged by the Bakery/Store that sells products to the Mobile Suite, but without the intercompany mark-up. The cost charged by the Bakery/Store is its cost for ingredients and paper goods, and the labor cost to create the finished products.

• The Cost of Labor includes hourly wages, taxes, overtime, and workers’ compensation insurance related to employees for operation of the Mobile Suite. Does not include management wages.

Table 1 – Revenue and Certain Expenses for Sweet Arleen’s Store

2011

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