Detailed Estimates of ZO Skin Centre Franchise Costs Based on Item 7 (Estimated Initial Investment) of ZO Skin Centre’s 2016 Franchise Disclosure Document

1.  Reduced Initial Franchise Fee:  $35,000 to $50,000

• The current Initial Franchise Fee is $50,000 for the first ZO Skin Centre you open and $35,000 for the second and subsequent ZO Skin Centre you open under an Area Development Agreement.

2.  Area Development Fee:  $10,000

• You must pay an Area Development Fee of $10,000 for each ZO Skin Centre you intend to develop under the terms of the Area Development Agreement.

• The entire Area Development Fee is fully earned once paid, and no portion of the Area Development Fee is credited toward each Franchise required to be opened under the Area Development Agreement.

3.  Facility Location Fee:  $5,000

• The franchisor requires that you engage one of its designated suppliers to assist you in identifying the site and negotiating the business terms of the lease for your ZO Skin Centre.

• You are required to pay the Facility Location Fee upon execution of your Franchise Agreement, and the fee is non-refundable for any reason once paid.

4.  Obagi Training Fee:  $4,000

• The medical professional providing services at your Franchised Facility must attend product and service training provided by Dr. Zein Obagi prior to commencing the training program.

5.  Travel and Living Expenses While Training:  $5,000 to $8,000

• The franchisor provides a Comprehensive Training Program at its corporate office located in Orange County, California or at another location designated by it.

• You must pay for airfare, meals, transportation costs, salaries, benefits, lodging, and incidental expenses for all initial training program attendees.

6.  Real Estate Leasing:  $12,500 to $30,000

• You must lease space from which to operate your ZO Skin Centre. Generally, this will require that you pay the first and the last month’s rent, plus a security deposit at the time you sign the lease.

• Franchised Facilities are generally located in more visible high traffic locations or professional districts. Although the typical size of a Franchised Facility ranged between 800 and 1,500 square feet, the franchisor of ZO Skin Centre recommends that you lease a space of approximately 1,000 square feet for your Franchised Facility.

7.  Security Deposits:  $8,000 to $25,000

• You will likely be required to pay a security deposit to your landlord and may be required to pay security deposits to utility companies and other suppliers or vendors based on your business and personal credit rating.

8.  Architectural Fees:  $15,000 to $25,000

• The franchisor will provide you with a basic set of design drawings for a Franchised Facility. The franchisor or its designated supplier will also work with you to develop a basic design for your Franchised Facility.

• You will need to hire the franchisor’s designated architect to prepare plans for your particular Franchised Facility and to create construction drawings which will be used by your local contractor to serve construction permits and to build your location.

9.  Leasehold Improvements and Construction Costs and Fees:  $180,000 to $310,000

• These amounts are the franchisor’s best estimate of the range of costs of leasehold improvements based on the opinions of its professional architect, and will likely vary substantially based on the condition of the proposed Franchised Facility, including the availability and prices of labor and materials.

• These amounts assume you will receive a tenant improvement allowance from the landlord of approximately $100,000.

• You must use the construction company designated by the franchisor to provide the construction services necessary to build your ZO Skin Centre.

10.  Furniture, Fixtures, Equipment, and Decor:  $32,000 to $100,000

• This estimate includes the cost to purchase the necessary items to complete and furnish the ZO Skin Centre.

11.  Exterior Sign and Branding Package:  $10,000 to $20,000

• You must purchase the franchisor’s approved exterior sign for the front of your ZO Skin Centre. The average cost for an exterior sign and branding package ranges between $5,000 and $15,000, depending on the size of the sign and the requirements of the landlord.

12.  Treatment Equipment:  $30,000 to $60,000

• You must purchase or lease the required treatment equipment to be operated by the ZO Skin Centre.

13.  Video and Interactive Systems Equipment:  $5,500 to $40,000

14.  Opening Inventory:  $45,000 to $65,000

15.  Computer Hardware and Software:  $8,000 to $12,500

• The estimated initial investment includes costs related to the purchase of specified computer hardware and software for the franchisor’s client intelligent management system. You must also provide the franchisor with electronic access to certain daily information.

• Your costs may be higher if you purchase additional computers or components.

16.  Pre-Opening Advertising and Promotion Expenses:  $15,000

• The franchisor recommends that you spend at least $15,000 on advertising, promotions, and public relations efforts starting 30 days before you open your ZO Skin Centre and continuing through the first 30 days your ZO Skin Centre is open.

17.  Business Licenses:  $500 to $2,000

18.  Legal and Accounting Fees:  $2,500 to $5,000

19.  Insurance:  $3,000 to $5,000

20.  Pre-Opening Costs and Expenses:  $10,000 to $25,000

• These amounts represent the franchisor’s estimate of the range of costs involved in the “pre-opening category.” They reflect the expenses, before opening, of payroll and benefit costs, travel, moving, hiring, housing, uniforms, and training materials for your hourly and salaried employees, supplies, various printed media materials, and miscellaneous set-up costs for cable and telephone.

21.  Additional Funds and Working Capital for First Three Months:  $60,000 to $100,000

• This is for budgeting purposes only to account for unanticipated expenses. It includes Marketing and Promotion Fees, software licensing fees, advertising, payroll costs, deposits, business entity organization expenses, other prepaid expenses, real estate leasing costs that may be payable during the first three months of operation, and other operational expenses.

• These figures do not include any taxes or permitting or licensing fees that you may pay.

22.  Total:  $496,500 to $916,500

• The franchisor has used the combined 16 years of experience that its President and Director, and its Chief Medical Education Director have in the business to compile these estimates.