Item 7: Estimated Initial Investment

General Comments:

We have based the estimates provided in the chart above upon our Affiliate’s experience in developing and operating restaurants in Utah, Idaho, and Canada. We do not guarantee that your costs will resemble the estimates given, and may be significantly higher than described above. You should review these figures carefully with a business adviser before making any decision to purchase the Franchise.

All payments you make to us or our Affiliates are non-refundable unless otherwise stated. Payments you make to parties other than us or our Affiliates may or may not be refundable at the option of the other party.

The estimates in the above chart do not include Royalty Fees or marketing fees payable to us during the operation of your Franchise since these fees are payable out of the Net Sales of your Restaurant. See the information in Item 6 for an explanation of the Royalty fees and marketing fees. The estimates also do not include real estate costs because land value or leasing cost vary widely depending on location and structure.

Explanatory Notes:

Note 1. $30,000 is the standard non-refundable initial franchise fee for a Costa Vida franchise.

Note 2. $15,000 is the development fee paid to us per Restaurant contracted under the ADA. This Fee will then be applied to the then current Franchise Fee upon the signing of a Franchise Agreement for each subsequent Restaurant developed under the ADA.

Note 3. You must pay for any incidental expenses that you and your manager and any other trainees incur while attending our initial training program, including car rental, gas, airline tickets, meals, hotel room, and salaries. You must also pay for any incidental expenses that Costa Vida trainers incur while assisting with your Restaurant Grand Opening as well as while assisting with restaurant site selection or site approval processes. These expenses may include car rental, gas, airline tickets, meals, hotel room, and salaries.

Note 4. These estimates include construction costs (labor and material) and construction management costs for typical tenant improvements and remodeling necessary to prepare a site for operation of a Costa Vida Restaurant. The total estimated initial investment does not include real estate. You must lease or purchase a location approved by Costa Vida Management (lease, purchase, and pre-opening occupancy costs are not included in the figures in Item 7) and construct, remodel, alter, and improve it to Costa Vida’s specifications. The cost of purchasing or leasing and developing a site for a Costa Vida Restaurant will vary considerably depending on such

2016 Costa Vida Franchise Disclosure Document

factors as location, size, design, configuration, condition of the premises, the condition and configuration of existing services and facilities, such as, air conditioning, electrical, and plumbing, the terms of your lease, duration of the building process (delays), union labor requirements, contractors’ fees, and availability of materials and labor and the local real estate market. You will need to purchase or lease a building of approximately 2,600 to 3,600 square feet, excluding patio area, and pay for the cost of site work and/or leasehold improvements. You must perform or have performed any construction, remodeling or additions necessary to cause the premises to conform to applicable Federal, State, County, and City laws, ordinances, codes, and rules and regulations governing food services businesses, and that meet Costa Vida’s requirements for the layout, design, construction, fixtures, equipment, installation, and trade dress appearance of a Costa Vida location. If you do not currently own adequate space, you must lease the space for your Restaurant. Costa Vida Restaurants are typically located in malls, strip centers, and free standing locations.

Typical locations are stand-alone sites and shopping center outparcels. The average Costa Vida Restaurant requires 2,600 to 3,600 square feet, depending upon projected volume. We suggest a corner or end-cap location, with at least thirty feet minimum frontage. Additionally, your Restaurant must have access to at least thirty dedicated parking spaces if it is not located in a high-pedestrian location. Outside seating is highly recommended. This is not an exhaustive list of site approval conditions and we may change our recommendations or approval conditions at any time. We cannot estimate the amount of your monthly rental payments, since rental amounts vary greatly from site to site and are affected by a number of factors, including location, size, visibility, accessibility, and competitive market conditions. In addition to rental payments, your lease may obligate you to make other payments to the landlord, such as payments for shopping center or building operating expenses, common area maintenance expenses, food court expenses, merchants’ association assessments, assessment for shopping center promotion and advertising, and the like. Your lease may also require you to spend a certain amount on advertising and promotion for your particular Restaurant. Again, because these payments vary widely from lease to lease and from location to location, we cannot estimate the amount that you may have to pay for these or other similar items. You will make rental payments to your landlord. Leases may also require percentage rent. If you, or one of your Owners, or one of your Affiliates at any time acquires the ownership of the premises for your Restaurant, you must immediately notify us and we may require that you or such Owner or Affiliate (1) enter into an agreement with us in recordable form granting us the right and option, in the event of a termination (for whatever reason) of the Franchise Agreement, to lease the premises at fair market rental rates for a term coterminous with the term of the Franchise Agreement for such premises; or (2) enter into a prime lease with us at fair market rental rates for a term coterminous with the term of the Franchise Agreement for such premises and a sublease with us on the same terms as the prime lease. The prime lease and sublease referenced in the preceding sentence shall be on the then-current lease and sublease forms used by us.

Note 5. Building and design permit and professional fees may vary depending on the consultants used and the fees charged by the municipalities. The design and permit fees do not include any impact fees which may be imposed by the municipality. The permits and licenses include, for example, business licenses and beer licenses. Building permits are included in the total construction costs. Beer or liquor license costs may be significant. You are not required to sell beer in your stores. However, you must gain approval from Costa Vida before seeking a liquor license.

You may find it necessary, and we encourage you, to retain an attorney to review the real estate lease, the franchise documents, or to assist in forming a corporation, partnership, or limited liability company. You may also retain an accountant for advice in establishing and operating your franchise business and filing necessary tax forms and returns. If you develop a new Restaurant, you must also employ and pay an architect or engineer to prepare a site plan and other construction documents and specifications to comply with city, state and local building codes and to the specific site chosen for your Restaurant.

Note 6. This estimate includes kitchen-typical furniture, fixtures and equipment, computer, POS Systems and related software, including a digital menu system, big screen televisions or projection system including

content/programming, restaurant equipment, prep, service and display counters, warmers, stoves, ovens, disposal systems, refrigerators, beverage dispensers, any other needed equipment, including costs of installation, etc. You must purchase the Costa Vida design package elements which may include but are not limited to custom woodwork, custom drink station, tables, chairs, water wall, wall bench, artwork and wall accessories as specified by us. These costs vary widely. See Item 11 of this Disclosure Document for more information on the POS Systems and related software and hardware that meets our System Standards as of the effective date of this Disclosure Document.

You must prepare and sell all of the menu items as designated by Costa Vida as part of its standard menu and provide all standard services designated by Costa Vida. If any special or additional equipment, fixtures, or furniture are required to provide those services or menu items, you must acquire the specified equipment or fixtures, the cost of which may be significant to you.

You must have high-speed Internet access as well as a business subscription to Muzak or a similar system approved by us, and these estimates include typical installation fees and service fees for three months. See Item 8 and 11 of this Disclosure Document for more information on our right to require you to purchase, install and use computer hardware and software in the operation of your Restaurant.

Note 7. This estimate includes a supply of initial food and beverage products for use and sale at the Restaurant, including spices, flavorings, produce, meats, dry goods, small kitchenwares, cleaning supplies, paper and packaging supplies, beverage cups, report forms, marketing and point of sale materials.

Proprietary ingredients must be purchased from our Designated Suppliers (See Item 8). Other items must be purchased from Approved Suppliers or other suppliers that we approve (See Item 8). All items purchased must meet our quality standards (See Item 8).

Note 8. As explained in more detail in Item 5 of this Disclosure Document, you must spend at least $10,000 on a grand opening advertising and promotional program approved by Costa Vida Management, and we suggest that you spend significantly more to facilitate a successful grand opening. At least a portion of this amount must be paid to us or our Affiliates to cover the cost of the materials that we develop and provide to you for the grand opening programs. You may also incur expenses from us or other vendors and suppliers in conducting your grand opening promotion. (Costs involving the training of personnel in your grand opening, or food that is served during the grand opening, do not count against this $10,000 spending requirement.)

Note 9. You might need to pay deposits for utilities and your property. Deposits for utility services and your property are typically required at the time the service is applied for, and may or may not be refundable. The amount for deposits can vary significantly in different areas, and you should verify specific amounts with local utility companies and the landlord.

Note 10. As explained in more detail in the Franchise Agreement, you must obtain and keep in force the appropriate insurance coverages as described in Item 8 of this Disclosure Document, with us named as an additional insured or loss payee on each policy, as applicable.

You must also maintain and keep in force all workers’ compensation insurance on your employees that is required under the applicable workers’ compensation laws of the state in which your Restaurant is located. Your real estate lease may also impose requirements for insurance coverage in addition to the requirements that we impose. The chart contains the estimated cost of required insurance coverage for a three-month start-up period; however, the cost of insurance varies, depending upon the insurance company you select, lease requirements, variances in the cost of insurance from city to city and state to state, and other factors.

Note 11. This estimate includes working capital for the first three months and includes general operating expenses, such as lease payments, inventory, payroll expenses, facility expenses, insurance, pest control, security, repairs, and maintenance and complimentary sales, store-level employee wages and benefits, point-of-purchase collateral, other marketing costs, maintenance, linens, cleaning and office supplies, leased equipment, occupancy expenses, credit card processing fees, and other costs. This estimate does not include salaries and expenses during training of your Operating Partner (described in Item 15) whose training is required by the Franchise Agreement and/or the Area Development Agreement. Because you and/or your Operating Partner and your other personnel for your Restaurant, as well as personnel in management positions and personnel that will work in more than one Restaurant, are required to complete our training program before opening your first Restaurant (See Item 11), these expenses are included for your first Restaurant. Consequently, the additional funds necessary for your first Restaurant tend to be on the high end of the estimated range, while the additional funds required for subsequent Restaurants that you open may fall on the lower end of the estimated range. Your costs may depend upon factors such as how well you follow Costa Vida’s methods and procedures; the amount spent and effectiveness of your grand opening marketing activities; your management skill, experience, and business acumen; local economic conditions; the time of the year your Restaurant is opened; the demand for the Restaurant’s food and services in your area; the prevailing wage rates; competition; and the sales level reached during the initial period. These estimates also do not take into account the finance charges, interest and related costs you may incur if any portion of your investment is debt financed. These figures are estimates and we cannot assure you that you will not have additional expenses in starting your Costa Vida Restaurant.

Except as otherwise noted, none of these payments are refundable. These payments are only estimates and your costs may be higher, depending on your particular circumstances. In geographical areas where we have no Costa Vida Restaurants or have no significant experience regarding openings of company-owned, company- affiliated, or franchised Restaurants, the foregoing estimated initial investment may be less reliable and you may have to make a greater investment, depending on the circumstances. You should review these figures carefully with a business advisor, accountant, or attorney before making any decision to purchase a franchise. We do not offer any financing for your initial investment or any other items. The availability and terms of financing with third- party lenders will depend on factors such as the availability of the financing generally, your credit-worthiness and policies of lending institutions concerning the type of business to be operated.

If you purchase an existing company-owned Costa Vida Restaurant, you may have to make a greater or smaller investment, depending on the circumstances, than the estimated initial investment shown above. The price and terms of payment for such Costa Vida Restaurant will be established by mutual agreement. We do not have sufficient experience with non-traditional locations to be able to estimate the initial investment for those locations.

Item 19. Financial Performance Representations

  1. (1)  All percentages given are a percentage of the AUV.
  2. (2)  Variation in AUVVariations in the sales levels of restaurants may occur due to the foot/vehicular traffic where the restaurants are located, the populations and income of the immediate market area, the retail maturity in the area, the amount of competition in the area and numerous other factors.
  3. (3)  AUV
    AUV is the average annual restaurant sales for the applicable stores in each category. AUV include sales of all food, beverages, promotional items, net of sales taxes, discounts and coupons.
  4. (4)  COGS
    COGS include all food, paper and distribution costs less supplier rebates.
  5. (5)  Labor
    Labor includes wages paid to all hourly and management employees working in the restaurant. Your labor costs could vary depending on the prevailing wage rates in the area of the country in which a restaurant is located and the specific labor laws.
  6. (6)  Advertising
    Advertising costs include the cost of developing and executing various marketing programs for the restaurants. This includes development and placement of electronic media, print and outdoor advertising. Advertising also includes the cost of in-restaurant point of purchase materials and local restaurant marketing. Required advertising expenses may vary by DMA. Please refer to Items 6 and 11 of this disclosure document for a description of a franchisee’s advertising spending obligations.
  7. (7)  Repair & Maintenance
    Repair & Maintenance costs include the cost of repair and maintenance of your facility and equipment.
  8. (8)  Supplies/Uniforms
    Supplies/Uniforms costs include costs for operational supplies, uniforms.
  9. (9)  Utilities
    Utilities includes costs for telephone, water, gas and electricity for the restaurant.
  10. (10) Restaurant EBITDAR
    Restaurant EBITDAR equals restaurant level earnings before interest, income taxes, depreciation, amortization, and rent.
  11. (11) Legal Expenses and Other Administrative Expenses and Taxes
    No amounts have been included for expenses a franchisee will likely incur for owners’ salaries, interest and debt service, legal fees and income taxes. You will likely have such expenses, and to the extent a franchisee expects to incur such expenses, the franchisee’s overall expenses will be higher than those reflected in the table.


There is no assurance regarding the financial performance of your restaurant. If you rely upon our figures, you must accept the risk of not doing as well. Actual results vary from restaurant to restaurant, and we cannot estimate the result of a particular restaurant. Revenues and expenses may vary depending on whether the restaurant is operated by an Affiliate of the franchisor or operated by a third party franchisee and whether located in a metropolitan market or a non-metropolitan market. In particular, the revenues and expenses of your restaurant will be directly affected by many factors, such as: (a) geographic location; (b) competition from other similar restaurants in the market; (c) advertising effectiveness based on market saturation; (d) whether you assume the position as or hire a manager; (e) your pricing; (f) vendor prices on materials, supplies and inventory; (g) salaries and benefits to employees and other personnel; (h) business personnel benefits (life and health insurance, etc.); (i) weather conditions; and (j) employment conditions in the market. Expenses and costs, as well as the actual accounting and operational methods employed by a franchisee, may significantly impact profits realized in any particular operation.

Importantly, you should not consider the revenues or expenses presented above to be the actual potential revenues or expenses that you will realize. We do not represent that you can or will attain these revenues or expenses, or any particular level of revenues or percentage of expenses. We do not represent that you will generate income, which exceeds the initial payment of, or investment in, the franchise.

Therefore, we recommend that you make your own independent investigation to determine whether or not the franchise may be profitable to you. You should use the above information only as a reference in conducting your analysis and preparing your own projected income statements and cash flow statements. We suggest strongly that you consult your financial advisor or personal accountant concerning financial projections and federal, state and local income taxes and any other applicable taxes that you may incur in operating a Restaurant.

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