5120 West Goldleaf Circle, Suite 400 Los Angeles, CA (877)

Transcription

1 512 West Goldleaf Circle, Suite 4 Los Angeles, CA 956 (877) Franchised Units: 786 In Business Since: 22 Royalty: 1% Company-Owned Units: 11 Average Franchise Fee: $49K IFA Member: Yes Total Operating Units: 797 Total Investment Range: $ K Term of Initial Contract: 5 Years

2 COMPANY S DESCRIPTION HERE (MAX. 6 WORDS & 2 IMAGES)

3 Franchise Recognition Program 219 Tutoring Industry A B C D Company Name (DBA) Legal Name Final Score Mathnasium Center Licensing, LLC 659, LLC 577 Club Z!, Inc. 437 Kumon North America, Inc. 426 Key Unit Investment Variables 3% 1,6 1,4 1,2 1, Total Units U.S. Footprint Total Units is a valuable measure if recent growth was accompanied by proper support. Meteoric growth, however, with the help of third parties, frequently means franchisees are left to fend for themselves while management focuses on growth for its own sake. The greater the Footprint/Geographical Coverage, the better all franchisees are served. Only U.S. states are included. For the purpose of the Franchise Matrix analysis, the Average Total Investment is used in all cases. $14 K $12 K $1 K The Franchise Fee should not significantly exceed the franchise fee of its primary competitors. $8 K $6 K $4 K $2 K Average Total Investment $5 K $4 K $3 K $2 K $1 K Franchise Fee

4 Weighting for Primary FDD Variables (3 Points) Year-End Total Franchised Units Year-End Total Company-Owned Units Year-End Total Units % of Franchised Units % of Company-Owned Units U.S. Footprint (# of U.S. States) Total Low Investment Total High Investment Average Total Investment Per Unit Low Unit Size Estimate (Square Feet) High Unit Size Estimate (Square Feet) Average Unit Size (Square Feet) Average Total Investment Per Square Feet Average Franchise Fee (Single Unit) Average Annual Royalty Fee (On-Going After Trial Period) Term of Initial Contract (Years) Term of First Contract Renewal (Years) Average Transfer Fee (Single Unit) Year Incorporated Franchising Since Issuance Date of FDD (Issue Date) , , % 97.4% 1.% 98.3% 1.4% 5 2.6% 5.% 1.7% $112,75 $7,98 $33,8 $69,583 $149,11 $159,885 $58,5 $148,965 $13,93 $115,433 $46,15 $19,274 1,2 1,5 No Data 1, 1,6 2,4 No Data 1, 1,4 1,95 N/A 1, $93 $59 N/A $19 $49, 12 $26,8 33 $31, $1, % 2 16.% 2 7.% 6 $34 * Number of full-paying students enrolled; and $17 * Number of partially exempt and/or prorated tuition students for each Subject- Franchise Automatically $7, 9 $4,5 1 $2, 1 Varies /1/218 3/3/218 4/3/218 3/29/218

5 Real Unit Growth - Item 2 Performance Analytics 25% Unit Growth Year Compound Annual Unit Growth measures the unit growth from base year to end of 217. Assuming proper support on the part of the franchisor, higher growth is rewarded. Steady and controlled Unit Growth are preferred over meteoric growth. Negative unit growth raises red flags. % of New Units Over Base Year Units is the Total End of 217 Units divided by Base Year Beginning Units. 3 Year Average Continuity Rate is an important and commonly used metric within the franchising industry that measures the success of a franchise system over its most recent past. Continuity rate is determined for each year by dividing end of year total units by beginning of year total units and dividing the 3 annual rates by 3 to arrive at an average. If there are a high number of closures or non renewals within a a franchise, the continuity rate will generally result in a rate of less than 1%, as will a system that cannot support its growth and, accordingly, its franchisees are failing. A high continuity rate is evidence of strong support systems. Continuity rates of over 1% were rewarded and ones with less than 1% were penalized. Weighting for Primary FDD Variables (25 Points) Base-Year Beginning Franchised Units New Franchised Units Over Following 3 Years Total Franchised Units at the End of Year 3 % of New Units Over Base Year Units 3-Year Compound Annual Unit Growth 3-Year Average Continuity Rate 7% 6% 5% 4% 3% 2% 1% % % of New Units Over Base Year Units 14% 12% 1% 8% 6% 4% 2% % 3 Year Average Continuity , , % % % % % % -2.6% 1.% % % % % 15 14

6 Real Unit Performance - Item 19 Unit Financial Analytic 35% 4% 3% 2% 1% % Adj. Unit Gross Sales Return on Avg. Total Invest. Adjusted Unit Gross Sales by itself is not as important as Adjusted Unit Gross Sales as percentage of the Average Total Investment. Sales and profits must be evaluated as a function of the total investment. Whereas a modest difference in year 1 sales as a function of the average investment might be considered of minor importance, a 1 year time horizon puts these differences into perspective. Similarly, while a modest difference in year 1 royalty rates between franchisors might be considered of minor importance, cumulative Royalty payments over a 1 year time frame as a percentage of Average Total Investment put these differences into perspective. Weighting for Primary FDD Variables (35 Points) Company-Wide Average Gross Sales or Revenue Period Operated Calculation Based on # of Units Evaluated Calculation Based on Franchised or Company-Owned Units % Adjustment* Adjusted Average Gross Sales or Revenue Adjusted Unit Gross Sales Return on Avg. Total Investment Cum.1-Year Gross Sales (Compouned at 5% Growth / Year) 1-Year Sales / Average Total Investment 1-Year Total Royalty Payments 1-Year Royalties / Average Total Investment Detailed Income Statement (EBITDA All Units Optimal) Year Sales / Avg. Total Invest. $238,152 $347,621 Insufficient Data No Data Over 1 Year Over 1 Year Over 1 Year N/A 675 of of of 368 N/A Franchised Franchised Franchised No Data 115% 115% 115% N/A $273,875 $399,764 N/A N/A 7% 6% 5% 4% 3% 2% 1% % 1 Year Royalties / Avg. Total Invest. 29.2% % 175 N/A N/A 175 $3,145,221 $4,59,957 N/A N/A N/A N/A 75 $314,522 $734,553 N/A N/A 24.2% % N/A N/A 5 % % % % 5 * To adjust stated Average Gross Sales to a "standard" of greater than 2 years, the following adjustments were applied: Over 1 Year = 115%; Over 2 Years =1%; Over 3 Years = 95%; Over 4 Years = 9%; Over 5 Years = 85%.

7 Real Financial Strength - Key Balance Sheet Ratios 1% 45% 4% 35% 3% 25% 2% 15% 1% 5% % Current Ratio The Current Ratio (or Working Capital Ratio) is a liquidity ratio that reflects the franchisor's ability to pay back its short term liabilities. A ratio of less than 1 raises a red flag as to whether a franchisor can pay its short term obligations when due. Intangibles, including Goodwill, are long term assets represented by non physical assets. Franchisors whose brands are household names may justify a higher value for intangibles than a relatively new brand with limited experience in the marketplace. Total Liabilities as percentage of Total Assets Ratio reflects the long term strength of the franchisor's balance sheet. Over time, one would expect the percentage to decrease. A lower percentage is preferred over a higher percentage. Long term Liabilities as percentage of Shareholder Equity reflects the franchisor's long term capital structure. Over time, one would expect the percentage to decrease. A lower percentage is preferred over a higher percentage. Balance Sheet Items ($) Weighting for Primary FDD Variables (1 Points) Ending Date for Financials (Closing Date on Balance Sheet) Current Assets Intangibles & Goodwill Other Assets Total Assets Current Liabilities Long-Team Liabilities Total Liabilities Shareholders' Equity Total Liabilities & Shareholders' Equity 6% 5% 4% 3% 2% 1% % Intangibles as % of Total Assets 1% 8% 6% 4% 2% % Total Liabilities as % of Total Assets Ratio 12/31/217 12/31/217 12/31/217 12/31/217 4% 35% 3% 25% 2% 15% 1% $8,527 $1,146 $2,559 $84,33 $ $3,382 $ $ $1,846 $16,442 $136 $16,194 $1,373 $56,97 $2,695 $1,524 $5,131 $6,835 $6 $21,869 $ $39,995 $ $1,852 $5,131 $46,83 $6 $32,721 $5,242 $1,14 $2,69 $67,83 $1,373 $56,97 $2,696 $1,524 5% % Long Term Liabilities as % of Shareholder Equity

8 Key Financial Ratio (%)s Weighting for Primary FDD Variables (1 Points) Current Ratio (or Working Capital Ratio) Intangibles & Goodwill as % of Total Assets Total Liabilities as % of Total Assets Ratio Long-Term Liabilities as % of Shareholders' Equity Ratio 166.2% % % % % % 4.% 2.% % % 1.2% % % %.% 2 16.% 19 2 Total Score /1

9 and the World Franchising Network have been in the franchising business for over 3 years. During that period, we have gained some meaningful insights into what separates great franchise systems from mediocre ones. The Franchise Recognition Program is the result of those decades of experience. The underlying analysis relies upon a unique template called Franchise Matrix. The Franchise Matrix allows a prospective investor, analyst or lender to prioritize which objective factors in each franchisor s FDD are most important in analyzing competing systems and to compare systems side-by-side. Keep in mind that the methodology and results of the Franchise Recognition Program are solely the opinions of and are based solely on what we consider to be the key factors taken from each franchisor s 218 FDD. If you want to modify the weighting of the variables or change the variables themselves, please click here for a customizable worksheet that can accommodate your personal priorities. also provides custom side-by-side analyses for clients. You can choose from over 2,1 218 FDDs and over 2,3 217 FDDs listed on If you have an interest in a custom analysis, please give us a call at (888) The minimum charge for 4 companies is $6 and each additional company is $15. Source: All information in the Franchise Recognition Program, the Franchise Matrix and related charts and graphs was compiled from publicly available Franchise Disclosure Documents (FDDs). permits no reproduction, electronic transmission or other distribution of the Franchise Recognition Program or Franchise Matrix, in whole or in part, except as authorized by separate signed Agreement. and Franchise Matrix are marks of FranCompare, Inc. All analyses are copyrighted with the US Copyright Office. Any unauthorized use or infringement of the above will be pursued. Feel free to contact us at: 1814 Franklin Street, Suite 8 Oakland, CA (888) Copyright 219 FranCompare, Inc. All rights reserved.