Kona Ice Franchise Costs: Estimated Initial Investment (Item 7, 2021 FDD)

• These estimated initial expenses are Kona Ice’s best estimate of the costs you may incur in establishing and operating your Kona Ice Franchise.

• You may be able to finance the purchase of your Kona Entertainment Vehicle (KEV).

• All expenditures paid to Kona Ice or its affiliates are uniform and nonrefundable under any circumstances once paid. All expenses payable to third parties are nonrefundable, except as you may arrange for utility deposits and other payments.

1.  Initial Franchise Fee:  $15,000

2.  KEV and Installed Equipment:  $124,500

• Only the KEV may be used in the operation of your Kona Ice Business. No other truck or vehicle may be used in the operation of your Kona Ice Business. These items must be purchased from Kona Ice or its affiliate.

3.  Training Expenses:  $850 to $950

• Kona Ice will pay for hotel and airfare for one attendee for its initial training program in Elkhart, Indiana.

• If you are in a state with a Fee Deferral, Kona Ice will reimburse you for hotel and airfare for one attendee after your Kona Ice Business is open.

• The low estimate is for an attendee’s miscellaneous travel expenses. The high estimate is for one attendee’s airfare, hotel (which will be reimbursed if you are in a state that required a fee deferral), and miscellaneous travel expenses.

4.  KEV Delivery:  $500 to $3,000

• You are responsible for picking up your KEV from the manufacturer located in Florence, Kentucky after initial training, or you may choose to have your KEV delivered. KEVs are delivered from Florence, Kentucky. If you choose delivery, you will pay the delivery fee directly to the transportation company based on the then-current delivery rate.

5.  KEV Compliance Fee:  $0 to $5,000

6.  KEV Insurance for 3 Months:  $600 to $1,500

• You must obtain and maintain, at your own expense, the insurance coverage Kona Ice requires, and satisfy other insurance-related obligations. Please note that if you have had prior issues or claims from previous operations unrelated to the operation of a Kona Ice Business, your rates may be significantly higher than those estimated above.

• You may, but are not required to, purchase this insurance through the captive insurance program offered through Kona Ice’s affiliate.

7.  Tax, Title, and Licensing of KEV:  $2,000 to $6,000

• You are required to pay all federal and state tax, title, licenses, and other costs of titling the KEV.

• The estimates above include a sales (or usage) tax of an estimated 6% of the purchase price of the KEV. The actual amount may be more depending on the tax rate in the jurisdiction where you title your KEV. You should check with your local county clerk’s office or other governmental titling office for your state’s tax rate and the exact cost to title and license your KEV.

8.  Initial Inventory:  $5,500

• You must purchase an initial inventory of ice, sugar, cups and flavorings, a graphics package, and a Kona Ice welcome box that includes branded t-shirt uniforms to begin operation of your Kona Ice Business.

• These items must be purchased from Kona Ice or its affiliate, and you are not permitted to purchase any of these items, with the exception of ice and sugar, from alternate sources.

9.  Optional Inventory:  $0 to $500

• You may choose to purchase pre-packaged ice cream products from any vendor of your choosing, but you are not required to do so. You may also purchase Kona Ice branded merchandise such as stuffed penguins, beach balls, shirts, and hats from Kona Ice; however you are not required to do so.

10.  Permits and Licenses:  $250 to $1,500

• You are required to pay for local permits and licenses, usually required in each city, county, and state where you operate. You should check with your local taxing authorities and with your tax advisor for the amount of such governmental charges.

10.  Real Estate or KEV Storage:  $0 to $1,200

11.  Computer System and Software:  $200 to $1,000

• Because most of Kona Ice’s franchisees will operate their Kona Ice Business out of their residences, this chart does not include estimates for items such as real property, real estate deposits, leases, leasehold improvements, furniture, fixtures, fixed assets, remodeling, construction, decorating costs, utility deposits, or security deposits, which will likely not apply unless you choose to acquire a business premises.

• In addition, Kona Ice assumes that you will not need to obtain desks, chairs, and other standard office supplies and equipment and does not include estimates for these items. You may be required to rent a storage area for your KEV.

• The low end assumes that you can store your KEV at your residence. The high estimate provides for three months of storage at an outdoor vehicle storage area.

12.  Additional Funds for 3 Months:  $1,000 to $8,500

• These amounts represent Kona Ice’s estimate of the amount needed to cover your expenses for the initial three-month start-up phase of your Kona Ice Business. Expenses could include office/warehouse space (if required), utilities, special event fees, uniforms, as well as additional operating capital for other variable costs such as fuel, vehicle maintenance, Internet service, and mobile phones/telephone.

• In the event you intend to hire employees to operate your KEV, you should add their expected salary to this figure.

• These figures include $3,000 in royalty fees and $500 in Brand Fund contributions, which may be due within your initial three-month start-up phase. Kona Ice has elected to include certain fees as line items above, including the KEV insurance payments. These fees could also be included in Kona Ice’s Additional Funds amounts.

• For purposes of this disclosure, Kona Ice estimated the start-up phase to be three months from the date your Kona Ice Business opens for business. Kona Ice has relied on its operation of similar businesses since 2007 and its franchising experience since 2008 to arrive at these estimates.

• You must bear any deviation or escalation in costs from the estimates that Kona Ice has given. Your costs will depend on factors such as: how well you follow Kona Ice’s methods and procedures; your management skills, experience, and business acumen; local economic conditions; the local market for your products and services; the prevailing wage rate; competition; and the sales level reached during the start-up period.

• Additional funds for the operation of your Kona Ice Franchise will be required after the first three months of operation if sales produced by the Kona Ice Franchise are not sufficient to produce positive cash flow.

13.  Total Estimated Initial Investment:  $150,400 to $174,150