Detailed Estimates of Hot Head Burritos Franchise Costs Based on Item 7 (Estimated Initial Investment) of Hot Head Burritos’ 2018 Franchise Disclosure Document

• The typical size of a Hot Head Burritos Restaurant ranges from 1,750 to 2,400 square feet. For several items discussed below, your costs will increase as the number of square feet increases.

• The size of your Restaurant is principally determined by requirements or restrictions that your landlord and appropriate municipality or zoning boards may impose, and availability and cost of leasable space.

• This table reflects your estimated initial investment for a single Restaurant operated under a Franchise Agreement. This information assumes that you will lease the premises for your Restaurant in-line plaza. If you lease the premises in a free-standing building, your costs will be higher.

• Except where otherwise noted, all fees that you pay to Hot Head Burritos are non-refundable. Third party lessors, contractors, and suppliers will decide if payments to them are refundable.

1.  Initial Franchise Fee:  $16,500 to $26,000

• The Initial Franchise Fee for a Restaurant franchise is $26,000. If you already operate a Restaurant and are purchasing an additional Restaurant, you will pay Hot Head Burritos a reduced Initial Franchise Fee of $16,500.

2.  Lease Deposit, Utility Deposit, and Rent – 3 Months:  $9,000 to $27,000

3.  Leasehold Improvements:  $96,000 to $300,000

• Typical locations for your Restaurant are smaller free-standing, multiple use, and strip mall locations.

• Assuming that you will lease the premises for your Restaurant, you will need to make certain leasehold improvements to the leased premises to comply with Hot Head Burritos’ approved plans and specifications. Leasehold improvements include lighting, flooring, and partition walls.

• Hot Head Burritos anticipates that you will negotiate the cost of leasehold improvements as part of your rental expense.

• The exact cost or impact on your rental expense will depend on several factors including the condition of the premises, whether you elect to do more than the minimum required renovations, the landlord’s agreement to reimburse you for certain improvements, the size and location of the premises for your Restaurant, and other economic factors.

• Hot Head Burritos does not recommend that you purchase the land and building for your Restaurant, and it is likely that you will incur significantly greater costs in developing your Restaurant if you choose to do so.

• Hot Head Burritos estimates that you may pay from $15 to $40 per square foot in rental expense (including common area maintenance (CAM) and taxes) for your Restaurant premises.

• You will incur greater start-up costs if you cannot negotiate the cost of leasehold improvements as part of your rental expense.

4.  Equipment, Signs, Fixtures, and Furniture:  $49,750 to $200,000

• This amount includes estimated expenses for interior and exterior Restaurant signs and menu boards, surveillance camera and security system, waste container, smallwares, cabinetry, phone system, initial package of marketing materials, office supplies, and other miscellaneous items.

• The cost of purchasing equipment, signs, and other items may vary as a result of the characteristics of the Restaurant site, price differences between suppliers, and shipping distances from suppliers.

• Hot Head Burritos may require you to purchase certain equipment and other items from it. You may purchase or lease approved brands and models of other equipment, fixtures, furniture, and signs from any approved supplier.

5.  Initial Inventory:  $4,000 to $6,500

• You will need to purchase an opening inventory of supplies that complies with Hot Head Burritos’ specifications and is purchased from Hot Head Burritos or approved suppliers. Hot Head Burritos may be an approved supplier for certain items.

• This amount does not reflect amounts needed to replenish inventory during the initial stage of operation.

6.  POS System:  $6,650 to $10,950

• Hot Head Burritos requires you to purchase the designated POS System from its designated supplier, currently Business Machine Company.

7.  Miscellaneous Pre-Opening Expenses:  $6,750 to $50,000

• Miscellaneous expenses include uniforms, local permit and license fees, legal and accounting fees, and insurance premiums.

8.  Training Expenses:  $7,000 to $15,000

• Training expenses include lodging, meals, and travel expenses for 3 people to attend the initial training program.

9.  Opening Advertising and Promotion:  $3,500 to $7,500

• You must spend a minimum of $3,500 for Restaurant opening campaign expenses prior to the Restaurant opening; and $3,500 in the first 90 days after opening.

• In certain metropolitan areas, you may need to spend a greater minimum amount on the Restaurant opening campaign.

• You must use Hot Head Burritos’ designated media vendor if it designates one and implement Hot Head Burritos’ recommended media plan for conducting the Restaurant opening campaign.

• Hot Head Burritos reserves the right to require you to deposit with it this amount, which it will spend on your behalf.

10.  Liquor License:  $1,000 to $5,000

• Hot Head Burritos may require that you obtain a liquor license to offer beer and wine at the Restaurant.

• The low end of the estimate assumes you do not offer beer and wine at the Restaurant. The high end of the estimate assumes you purchase a liquor license for beer and wine sales directly from a government agency and not from an existing holder.

• The cost of a liquor license can be significantly higher in a few states and municipalities where the number of licenses is severely restricted or available only from an existing holder.

• You should retain legal counsel specialized in obtaining and maintaining liquor licenses.

11.  Additional Funds – 3 Months:  $12,000 to $30,000

• This amount estimates the expenses you will incur during the first 3 months of Restaurant operations, including initial wages and fringe benefits, insurance premiums, rent, taxes, Restaurant supplies, and interest payments on any business loans.

• It does not include inventory costs beyond the opening inventory costs identified in the table, and does not include your compensation during this 3-month period.

• These amounts are estimates, and Hot Head Burritos cannot guarantee that you will not incur additional expenses in starting the business.

12.  Total:  $212,150 to $677,950

• This total is an estimate of your pre-opening initial investment and the expenses you will incur during the first 3 months of Restaurant operations.

• This total is based on Hot Head Burritos’ estimate of regional (Midwest) average costs and prevailing market conditions, its affiliates’ over 5 years of experience operating Restaurants, and its affiliates’ 16 plus years of operating quick-service franchised restaurants.