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Business Description

We were incorporated in Delaware on December 4, 1986. Our principal business address is currently located at 143 Union Boulevard, Suite 650, Lakewood, Colorado 80228. Our agents for service of process are disclosed in Exhibit E. We operate under our corporate name, AlphaGraphics, Inc., and the trade and service mark “AlphaGraphics®” and no other name. (See Item 13.) Our predecessor, AlphaGraphics, Inc. of Tucson (“AGIT”), was incorporated in Arizona on December 14, 1970. Its principal business address was 845 East Broadway, Tucson, Arizona 85719. In July 1980, AGIT changed its name to AlphaGraphics, Inc. On December 17, 1986, AGIT merged into us. AGIT operated AlphaGraphics® Print shops beginning in 1970 and first offered franchises in November 1979. Our subsidiary, AlphaGraphics Franchising, Inc. (the “Franchising Subsidiary”), offered franchises for AlphaGraphics® Business Centers from 1980 to January 1992, but never operated any itself. We began offering franchises for AlphaGraphics® Business Centers in January 1992 and we are the only entity now doing so in the United States. We began operating one or more corporate owned AlphaGraphics® Business Centers in December 1986, but ceased corporate owned operations in 2001. We currently do not operate any corporate owned AlphaGraphics® Business Centers. Although we are presently not operating any corporate owned AlphaGraphics® Business Centers, we may do so in the future. As of December 31, 2018, there were 250 franchised centers in the United States and 23 in other countries. We are a wholly owned subsidiary of our parent, U.S. Business Holdings, Inc., a Delaware corporation (“USBH”) formed on March 24, 2017. USBH acquired all of our issued and outstanding ownership interests on October 3, 2017 from our former parent BC Alpha LLC, a Delaware limited liability company. USBH also owns and operates PostNet® centers, as further discussed below. USBH's principal business address is 143 Union Boulevard, Suite 660, Lakewood, Colorado 80228. USBH is a wholly owned subsidiary of its parent, MBE Worldwide S.p.A. (“MBE Worldwide S.p.A.”), with a principal business address of Viale Lunigiana 35/37, Milan Italy 20125. On April 25, 2017, USBH acquired all of the issued and outstanding ownership interests of PostNet International Franchise Corporation (“PIFC”). PIFC is a Nevada corporation formed on October 27, 1992. PIFC's principal business address is 143 Union Boulevard, Suite 600, Lakewood, Colorado 80228. PIFC is the franchisor of businesses that provide a broad array of printing and document services, graphic design, marketing services, shipping, packaging and mailing services, and other related business services under the trade name and service mark “PostNet®.” PIFC began offering franchises for PostNet® centers in July 1993. As of December 31, 2018, there were 208 franchised centers (no company-owned centers) operating under the PostNet® brand (with the exception of 3 franchises in Nevada that operate under the trademark “PostNet Express” and 2 franchises that operate under the trademark “ShipNet”) in 38 states across the United States and 461 franchised centers operating in other countries and territories. PIFC does not offer franchises in any other line of business. In April 2009, MBE Worldwide S.p.A. acquired the Mail Boxes Etc. brand, know-how and related business outside of the United States and Canada from United Parcel Service of America, Inc. and Mail Boxes Etc., Inc., both Delaware corporations. MBE Worldwide S.p.A. offers Master License rights and agreements for the Mail Boxes Etc. system outside of the United States and Canada, for packing, shipping, printing and logistics services (the “MBE Business”). Although the MBE Business may be substantially similar to the AlphaGraphics® Business Center franchised to you, MBE Worldwide S.p.A. and its affiliates do not offer such services, through franchises or otherwise, in the United States or Canada, except through the ownership of PIFC and under the PostNet® brand and through the ownership of AlphaGraphics, Inc. and under the AlphaGraphics® brand. MBE Worldwide S.p.A. is not affiliated with, and does not do business as Mail Boxes Etc. in the United States and Canada. As December 31, 2018, MBE Worldwide S.p.A. has 28 master franchisees and 2 trademark licensees outside of the United States and Canada for the performance of the MBE Business. Otherwise, MBE Worldwide S.p.A. does not offer franchises in any line of business. USBH does not offer franchises in any line of business. Sistema Italia 93 S.r.l. is an affiliate with a principal business address of Viale Lunigiana 35/37, Milan Italy 20125 (“Sistema Italia”). Sistema Italia franchises the Mail Boxes Etc. system in Italy for the MBE Business under a Master License Agreement, and has done so since June 1992. As of December 31, 2018, Sistema Italia has 538 franchises in Italy. Sistema Italia has been operating its own Mail Boxes Etc. location in Milan, Italy since April 1993. MBE Deutschland Gmbh is an affiliate with a principal business address of Bundesallee 39-40a 10717 Berlin, Germany (“MBE Deutschland”). MBE Deutschland franchises the Mail Boxes Etc. system in Germany for the MBE Business under a Master License Agreement, and has done so since November 2002. As of December 31, 2018, MBE Deutschland has 166 franchises in Germany. MBE Deutschland has been operating its own Mail Boxes Etc. location in Berlin, Germany since 2003. MBE France SARL is an affiliate with a principal business address of 37 Bis rue du Général Leclerc - 92130 Issy Les Moulineaux, France (“MBE France”). MBE France franchises the Mail Boxes Etc. system in France for the MBE Business under a Master License Agreement, and has done so since January 2014. As of December 31, 2018, MBE France has 54 franchises in France. MBE France has been operating its own Mail Boxes Etc. location in Paris, France since 2014. MBE Spain 2000 S.L. is an affiliate with a principal business address of Gran Via de led Corts Catalanes, 129-131, Pl. 12, 08014, Barcelona, Spain (“MBE Spain”). MBE Spain franchises the Mail Boxes Etc. system in Spain and Portugal for the MBE Business. MBE Spain offers franchises in Spain under a Master License Agreement, and has done so since October 1999. MBE Spain offers franchises in Portugal under a Master License Agreement, and has done so since May 2015. As of December 31, 2018, MBE Spain has 230 franchises in Spain and 4 franchises in Portugal. MBE Poland Sp.z.o.o. Is an affiliate with a principal business address of ul.Domaniewska 39A - 02-672 Warsaw, Poland (“MBE Poland”). MBE Poland franchises the Mail Boxes Etc. system in Poland for the MBE Business under a Master License Agreement, and has done so since January 2014. As of December 31, 2018, MBE Poland has 28 franchises in Poland. Except as described above, we, our predecessors and our affiliates do not offer franchises in any other line of business, and we do not engage in any other business. Types of AlphaGraphics® Business Center Franchises. We offer franchises for AlphaGraphics® Business Centers, which are providers of customized print and marketing communication products and services to businesses. The products and services produced by an AlphaGraphics® Business Center may include: graphic design, offset and digital printing, bindery, mailing and fulfillment, multi-channel marketing campaigns, e-commerce, large format graphics, traditional signage and point of purchase, vehicle wraps, promotional products, direct mail, packaging, business identity and brand awareness solutions, and other visual communications services. Upon determining that you are eligible for an AlphaGraphics® Business Center, we will send you a Franchise Award Letter (the “Franchise Award Letter”) (Exhibit B–1), when approved after attending our Discovery Day Program. If you wish to become a franchisee, you must sign the Franchise Award Letter and pay us a deposit of $5,000 within 3 business days after you receive the Franchise Award Letter. After you sign the Franchise Award Letter and pay us a deposit of $5,000, we will begin working with you to prepare for you to become an AlphaGraphics® franchisee. (See Items 5 and 12 and Exhibit B-1.) You will operate your Franchised Business Center under our current franchise agreement (the “Franchise Agreement”) (Exhibit B). You will operate your Franchised Business Center at a designated location that we approve (the “Authorized Location”) within the territory the Franchise Agreement specifies (the “Protected Area”) and use our distinctive business formats, systems, methods, procedures, designs, layouts, standards and specifications (the “System”) and a number of our proprietary trademarks, trade names, commercial symbols, logos and slogans (the “Marks”).

Prior Experience

Our predecessor, AlphaGraphics, Inc. of Tucson (“AGIT”), was incorporated in Arizona on December 14, 1970. Its principal business address was 845 East Broadway, Tucson, Arizona 85719. In July 1980, AGIT changed its name to AlphaGraphics, Inc. On December 17, 1986, AGIT merged into us. AGIT operated AlphaGraphics® Printshops beginning in 1970 and first offered franchises in November 1979. Our subsidiary, AlphaGraphics Franchising, Inc. (the “Franchising Subsidiary”), offered franchises for AlphaGraphics® Business Centers from 1980 to January 1992, but never operated any itself. We began offering franchises for AlphaGraphics® Business Centers in January 1992 and we are the only entity now doing so in the United States. We began operating one or more corporate owned AlphaGraphics® Business Centers in December 1986, but ceased corporate owned operations in 2001. We currently do not operate any corporate owned AlphaGraphics® Business Centers. Although we are presently not operating any corporate owned AlphaGraphics® Business Centers, we may do so in the future. As of December 31, 2018, there were 250 franchised centers in the United States and 23 in other countries.

Business Offered

We offer franchises for AlphaGraphics® Business Centers, which are providers of customized print and marketing communication products and services to businesses. The products and services produced by an AlphaGraphics® Business Center may include: graphic design, offset and digital printing, bindery mailing and fulfillment, multi-channel marketing campaigns, e-commerce, large format graphics, traditional signage and point of purchase, vehicle wraps, promotional products, direct mail, packaging, business identity and brand awareness solutions, and other visual communications services. Upon determining that you are eligible for an AlphaGraphics® Business Center, we will send you a Franchise Award Letter (the “Franchise Award Letter”) (Exhibit B–1), when approved after attending our Discovery Day Program. If you wish to become a franchisee, you must sign the Franchise Award Letter and pay us a deposit of $5,000 within 3 business days after you receive the Franchise Award Letter. After you sign the Franchise Award Letter and pay us a deposit of $5,000, we will begin working with you to prepare for you to become an AlphaGraphics® franchisee. (See Items 5 and 12 and Exhibit B-1.) You will operate your Franchised Business Center under our current franchise agreement (the “Franchise Agreement”) (Exhibit B). You will operate your Franchised Business Center at a designated location that we approve (the “Authorized Location”) within the territory the Franchise Agreement specifies (the “Protected Area”) and use our distinctive business formats, systems, methods, procedures, designs, layouts, standards and specifications (the “System”) and a number of our proprietary trademarks, trade names, commercial symbols, logos and slogans (the “Marks”). Currently, you may develop your Franchised Business Center through one of the 4 following pathways: 1. Develop a new Business Center (“New Business Center Pathway”). You will develop and open a new Business Center at a location we approve. You will sign the Franchise Agreement (Exhibit B). 2. Acquire an existing graphics related business and convert it to a Franchised Business Center (“Acquire and Convert Pathway”). You may purchase an existing independent graphics related business and convert it to a Franchised Business Center. Any franchisee participating in the Acquire and Convert Pathway will sign the Franchise Agreement and the Acquire and Convert Rider (Exhibit I). 3. Purchase an existing Franchised Business Center (“Transfer Purchase Pathway”). You may acquire an existing Franchised Business Center from an existing franchisee if you and the selling franchisee meet the conditions described in the franchisee's franchise agreement. Any franchisee participating in the Transfer Purchase Pathway will sign the Franchise Agreement and the Transfer Rider (Exhibit J), which will modify the Franchise Agreement to reflect that you pay a transfer fee instead of an initial fee. 4. Convert your existing graphics related business to a Franchised Business Center (“Conversion Pathway”). If you already own an existing independent graphics related business, you may convert that graphics related business to a Franchised Business Center if you meet the following qualifications: (1) you must have owned the business to be converted for at least 1 year prior to conversion; (2) you must have at least 5 years' experience in the printing or graphics industry; and (3) the graphics related business to be converted must have minimum annual gross sales of at least $300,000 for the calendar year immediately preceding the conversion. Under the Conversion Pathway, the Authorized Location of your AlphaGraphics® Business Center may be the location of your existing business. You will also likely have an established customer base and experienced employees. You will sign the Franchise Agreement and the Conversion Rider (Exhibit I). You will have a period of 6 months after signing your Franchise Agreement to complete the conversion process and meet our then-current system standards. If you are a current Franchisee who wishes to obtain multi-unit development rights, you may choose to sign our Area Development Agreement for 1 or 2 additional territories prior to signing a Franchise Agreement. The Area Development Agreement will state the number of Franchised Business Centers to be developed, the geographic area, and the timeframe. You must enter into a separate Franchise Agreement for each Franchised Business Center you ultimately develop. For each Franchised Business Center developed under the Area Development Agreement, you must sign our then-current Franchise Agreement, which may be materially different than our current Franchise Agreement, by the deadline to execute the Franchise Agreement set forth in the Development Schedule (as defined in Item 11). Our current Franchise Agreement is in the form of Exhibit B. Except as expressly stated otherwise in this Disclosure Document, the disclosures made in this Disclosure Document regarding AlphaGraphics® franchises apply to all 4 pathways to becoming an AlphaGraphics® franchisee. We and you may determine which pathway is best for you to develop your Franchised Business Center after you sign the Franchise Agreement, and you will have up to six months after you sign the Franchise Agreement to open the Franchised Business Center at an Authorized Location. A “graphics related business” refers to a business that offers and sells products and services related to the graphics industry, such as offset printing, digital printing, general commercial printers, providers of multichannel marketing communication solutions, large format printers, sign companies, advertising specialties related companies, vehicle wrap companies, thermographs, bindery operations, reprographic companies, graphic design companies, ad agencies, marketing firms, print related brokers, public relations firms, and similar companies.

Initial Fees

Franchise Award Letter Deposit If we send you a Franchise Award Letter (see Exhibit B-1) after you attend our Discovery Day Program and are approved (described below), you may choose to continue the process by accepting and returning the letter with a $5,000 deposit within 3 business days after you receive the Franchise Award Letter. You or we can terminate the Franchise Award Letter at any time prior to our signing the Franchise Agreement and other documents we require. If either you or we terminate the Franchise Award Letter, then we will return the deposit to you (without interest), less any costs incurred by us in assisting you in opening a Franchised Business Center. Such costs would include a $1,500 reduction to the deposit if during the process you authorize that a Franchise Agreement be prepared but you do not sign it. If we and you sign a Franchise Agreement, then the $5,000 deposit amount paid will be applied toward your initial fees. We will not accept a deposit from you unless we have complied with the FTC's Amended Rule, which requires this Disclosure Document to be delivered 14 days before any money can be taken by us. Our typical discovery day consists of your attendance at our principal business offices or at a location we designate for 1½ days, during which you will learn more about owning and operating an AlphaGraphics® Business Center. New Business Center Pathway If you are developing a new Franchised Business Center, you will pay us the following fees before you begin operating your Franchised Business Center: Explanatory Notes: 1. all fees are non-refundable. 2. We are a member of the International Franchise Association (“IFA”) and participate in the IFA's Vet Fran program and Diversity Fran Initiative. We offer a $5,000 discount and a $10,000 discount on the Initial Franchise Fee if you are acquiring a Franchised Business Center through the New Business Center Pathway under the Diversity Fran and Vet Fran programs, respectively. If you wish to receive the discount, you must submit a written request for the applicable discount at the same time you submit other information needed to prepare your Franchise Agreement. These one-time incentives can be used as part of a first-time purchase by a new franchisee. 3. If you are an existing AlphaGraphics® franchisee who meets our qualifications and chooses to subsequently purchase another Franchised Business Center, you must satisfy our current Certification For Expansion (“CFE”) requirements and qualifications prior to us granting approval to open subsequent locations. Our CFE includes but is not limited to business experience, net worth, and liquidity requirements, the existing Franchised Business Center's performance meeting or exceeding metrics targets, compliance with your existing franchise agreement, System Standards, and a satisfactory, detailed multi-unit business plan. Under those circumstances, your Initial Franchise Fee is reduced by 50%. In addition, your Franchised Business Center must be operated by a Managing Owner or Certified Manager who has completed training which is equivalent to our then-current initial training program. 4. Under certain circumstances, we may determine that your territory, which was subject to a Franchise Agreement with another franchisee in the twenty-four (24) months preceding you're signing of a Franchise Agreement, qualifies for additional financial and operational support (“Support Program”). In making that determination, we may take into account: prior ownership, prior operational compliance, prior sales or lack thereof, financial management of the territory, current client base, and prior staffing levels, tenure and training. If that determination is made, you may not be required to pay the Opening/Reopening Performance Package, you may at your option pay the Initial Franchise Fee in 12 monthly installments with the first installment due upon signing of the Franchise Agreement, and you will receive additional discounts on some recurring fees as described below in Item 6. 5. Employees of any franchised or corporate AlphaGraphics Business Center or location who are becoming first-time franchisees will pay an Initial Franchise Fee equal to the Initial Franchise Fee discounted by 70%. Acquire and Convert Pathway If you are acquiring an existing graphics related business and converting it to Franchised Business Center, you will pay us the following fees before you begin operating your Franchised Business Center:

Financing

We do not offer direct or indirect financing, nor do we guarantee your note, lease or any other obligation. Most new franchisees obtain financing from third-parties or self-fund. We may provide assistance in helping you understand funding choices and requirements. We will review the personal financial statement that you provide and make appropriate suggestions as to the most appropriate funding pathway(s) and source(s). Most funding for new Franchised Business Centers comes from SBA guaranteed loans or from other conventional lending sources. Funding may also come from any combination of savings, home equity, securities, retirement savings, other assets, outside investors and cash gifts from family and friends. We may be able to suggest some financing sources for funding that understand the financing needs for a Franchised Business Center and that have multiple sources and strategies to finance your business. After you have signed a Franchise Award Letter (see Exhibit B-1) and have submitted a deposit to us or paid initial fees, we will supply you with blank templates to assist in developing a pre-funding business plan and worksheets such as a budget, cash flow, and other business planning tools which might be helpful in providing a lender with the information necessary to acquire financing. We will not review, comment on, or approve, however, the completed form you provide to your lender. Our franchise is listed on the SBA Franchise Registry (www.franchiseregistry.com) that is hosted by FRANdata.com. This listing may provide our franchisees with faster SBA loan processing. This listing, however, does not in any way guarantee that a loan will be approved. We do not have any written arrangements with, and receive no benefit from, any financial institutions or third-party lenders or other sources of funding relating to their providing financing to our franchisees, or coordinate financing for our franchisees. You should base your choice of how to fund your investment upon your own analysis and guidance from an accountant, financial planner, attorney, or other competent professional advisor. If you are purchasing a Franchised Business Center as a Transfer Purchase from one of our existing franchisees, then you should note that some or all of the existing franchisee's equipment may be leased. We can provide some assistance to help you transfer these leases, but the terms of any lease or equipment transfer are part of your separate agreement with the selling franchisee and subject to the vendor's consent. Some vendors may not permit a transfer of the equipment lease, requiring instead that the lease be paid in full or that the selling owner remain on the lease as a guarantor.

Franchisee Revenue and Profit

The FTC's Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the Disclosure Document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances. Background This Item 19 provides certain historical data as provided by our franchisees. Written substantiation of the data used in preparing this information will be made available upon reasonable request. For purposes of this Item 19, “Gross Sales” has the same meaning as defined in the Franchise Agreement and means the aggregate amount of all sales of products and services, whether for cash, by check, credit card or trade or otherwise, made or provided at or in connection with the Franchised Business Center or franchised business, and including any sales made at a Facility or pursuant to a Facilities Management Agreement (whether or not the Marks are used in the operation of the Facility). “Gross Sales” further includes monies derived at or away from the Franchised Business Center by a franchisee including the sale of products or services in connection with the placement or servicing by the franchisee of self-service digital operating equipment. The term “Gross Sales” does not include: (1) any federal, state, municipal or other sales, excise, service, or value added taxes that a franchisee pays or accrues; and (2) discounts allowed to customers on sales. Table 1: Total Gross Sales for Our Three Most Recent Calendar Years for All U.S. Business Centers The table below shows the combined Gross Sales for all of our U.S. Business Centers during our last three calendar years. Notes to Total Gross Sales for 3 Most Recent Calendar Years for All U.S. Business Centers Table: 1. On December 31, 2016, we had 256 Business Centers in the U.S. 2. On December 31, 2017, we had 256 Business Centers in the U.S. 3. On December 31, 2018, we had 250 Business Centers in the U.S. 4. Total Gross Sales have been rounded to the nearest thousand. Annual Gross Sales for Calendar Year 2018 Tables 2 and 3 below lists the annual Gross Sales information for Single-Unit Business Centers and for Multi-Unit Business Centers. Table 2: Single-Unit Business Centers Open and Operating in 2018 for 1 Year or More1 The Single-Unit Business Centers table below lists the annual Gross Sales information reported by our Single-Unit Business Centers for calendar year 2018. This table provides information for the 138 U.S. Single-Unit Business Centers that have been in operation for 1 year or more as of December 31, 2018. The table excludes Gross Sales data from: (i) 10 Single-Unit Business Centers that were terminated/closed during calendar year 2018 and (ii) 3 Single-Unit Business Centers that opened in 2018 and were thus not in operation for all of the 2018 calendar year. Table 2: Notes to Single-Unit Business Centers Annual Gross Sales Table for Calendar Year 2018: 1. A “Single-Unit Business Center” is a U.S. Business Center owned by a franchisee that owns and operates 1 Business Center. As of December 31, 2018, there were a total of 138 Single-Unit Business Centers that have been in operation for 1 year or more. 2. Of the 138 Single-Unit Business Centers included in the 2018 data, 45 (33%) met or exceeded the average annual Gross Sales of the Single-Unit Business Centers for calendar year 2018. The range of annual Gross Sales for all Single-Unit Business Centers was $157,634 to $6,281,413. 3. “Median” is the numerical value separating the higher half of the sample from the lower half of the sample. As a result, in all cases when a median number is stated, approximately 50% of the Business Centers met or exceeded the stated median. 4. The average annual Gross Sales for the Top 25% Single-Unit Business Centers was $2,435,302. Of the 34 Single-Unit Business Centers included in the Top 25%, 12 (35%) met or exceeded the average annual Gross Sales of the Top 25% Single-Unit Business Centers for calendar year 2018. The range of annual Gross Sales for the Top 25% Single-Unit Business Centers was $1,316,417 to $6,281,413. 5. The average annual Gross Sales for the Lowest 25% Single-Unit Business Centers was $403,916. Of the 35 Single-Unit Business Centers included in the Lowest 25%, 19 (54%) met or exceeded the average annual Gross Sales of the Lowest 25% Single-Unit Business Centers for calendar year 2018. The range of annual Gross Sales for the Lowest 25% Single-Unit Business Centers was $157,634 to $539,069. The figures outlined in the Single-Unit Business Centers' annual Gross Sales for the Calendar Year 2018 Table above do not reflect the cost of sales, operating expenses, or other costs or expenses that must be deducted from the gross sales figures to obtain your net income or profit. You should conduct an independent investigation of the costs and expenses you will incur in operating your Business Center. Franchisees, or former franchisees, listed in this Disclosure Document, may be one source of this information. Table 3: Multi-Unit Business Centers Open and Operating for 1 Year or More1 The Multi-Unit Business Centers table below lists the annual Gross Sales information reported by our Multi-Unit Business Centers for calendar year 2018. This table provides information for U.S. Multi-Unit Business Centers that each have at least 2 Business Centers in its Multi-Unit grouping that have been in operation for 1 year or more as of December 31, 2018. See Note 1 of the table. The table excludes Gross Sales data from 2 Multi-Unit Business Centers that were terminated/closed during calendar year 2018. Table 3: Notes to Multi-Unit Business Centers Annual Gross Sales Table for Calendar Year 2018: 1. A “Multi-Unit Business Center” is 2 or more U.S. Business Centers owned by a single franchisee and counted as 1 Business Center for the purposes of the chart above. As of December 31, 2018, there were a total of 42 Multi-Unit Business Centers that have been in operation for 1 year or more as of December 31, 2018. These 42 Multi-Unit Business Centers operated a total of 105 Business Centers during the year ended December 31, 2018. This total does not include 2 Business Centers that were terminated/closed during 2018. As previously stated, the Gross Sales data from these 2 Business Centers has been excluded from the Gross Sales data presented in the Multi-Unit Business Centers table above. 2. Of the 42 Multi-Unit Business Centers included in the 2018 data above, 10 (24%) met or exceeded the average annual Gross Sales for calendar year 2018. The range of annual Gross Sales for all Multi-Unit Business Centers was $387,175 to $17,609,575. 3. “Median” is the numerical value separating the higher half of the sample from the lower half of the sample. As a result, in all cases when a median number is stated, approximately 50% of the Business Centers met or exceeded the stated median. 4. The average annual Gross Sales for the Top 25% Multi-Unit Business Centers was $6,225,176. Of the 10 Multi-Unit Business Centers included in the Top 25%, 3 (30%) met or exceeded the average annual Gross Sales of the Top 25% for calendar year 2018. The range of annual Gross Sales for the Top 25% Multi-Unit Business Centers was $2,811,311 to $17,609,575. 5. The average annual Gross Sales for the Lowest 25% Multi-Unit Business Centers was $1,005,552. Of the 11 Multi-Unit Business Centers included in the Lowest 25%, 5 (45%) met or exceeded the average Gross Sales of the Lowest 25% for calendar year 2018. The range of annual Gross Sales for the Lowest 25% Multi-Unit Business Centers was $387,175 to $1,450,523. The figures outlined in the Multi-Unit Business Centers annual Gross Sales for the Calendar Year 2018 Table above do not reflect the cost of sales, operating expenses, or other costs or expenses that must be deducted from the gross sales figures to obtain your net income or profit. You should conduct an independent investigation of the costs and expenses you will incur in operating your Business Center. Franchisees, or former franchisees, listed in this Disclosure Document, may be one source of this information. Table 4: Certain Information for Single-Unit Business Centers for Calendar Year 2018 The tables below describe certain cost and expense information as a percentage of Gross Sales or Gross Margin, and certain product information, for franchisees operating a U.S. Business Center at a single location during 2018. There are a total of 128 Single-Unit Business Centers included in the tables below for Calendar Year 2018. This table excludes data from: (i) 10 Single-Unit Business Centers that were terminated/closed during calendar year 2018; (ii) 3 Single-Unit Business Centers that were opened in 2018 and were thus not in operation for all of the 2018 calendar year; and (iii) 10 Single-Unit Business Centers that did not provide any/complete expense data. Notes to Tables 4 and 5: Certain Information for Calendar Year 2018 Table: 1. The average annual Gross Sales for all 128 Single-Unit Business Centers was $1,119,593. Of the 128 Single-Unit Business Centers, 42 (33%) met or exceeded the average annual Gross Sales for calendar year 2018. The range of annual Gross Sales for the Single-Unit Business Centers was $164,933 to $6,292,778. 2. The average annual Gross Sales for the Top 25% Single-Unit Business Centers by EBITDA was $1,201,179. Of the 31 Single-Unit Business Centers included in the Top 25%, 8 (26%) met or exceeded the average annual Gross Sales of the Top 25% Single-Unit Business Centers for calendar year 2018. The range of annual Gross Sales for the Top 25% Single-Unit Business Centers was $266,003 to $6,292,778. 3. The average annual Gross Sales for the Lowest 25% Single-Unit Business Centers by EBITDA was $779,128. Of the 33 Single-Unit Business Centers included in the Bottom 25%, 10 (30%) met or exceeded the average annual Gross Sales of the Bottom 25% Single-Unit Business Centers for calendar year 2018. The range of annual Gross Sales for the Bottom 25% SingleUnit Business Centers was $164,933 to $5,465,179. 4. Gross Margin is defined as Gross Sales less cost of goods sold. Cost of goods sold includes material costs, equipment costs, and vendor services (out-sourced tasks) but does not include Labor or Rent. In the table, Gross Margin is expressed as a percentage of Gross Sales. 5. The average annual Gross Margin for all 128 Single-Unit Business Centers was 71.44%. Of the 128 Single-Unit Business Centers, 59 (46%) met or exceeded the average annual Gross Margin for calendar year 2018. 6. The average annual Gross Margin for the Top 25% Single-Unit Business Centers by EBITDA was 74.22%. Of the 31 Single-Unit Business Centers included in the Top 25%, 14 (45%) met or exceeded the average annual Gross Margin of the Top 25% Single-Unit Business Centers for calendar year 2018. 7. The average annual Gross Margin for the Lowest 25% Single-Unit Business Centers by EBITDA was 71.23%. Of the 33 Single-Unit Business Centers included in the Bottom 25%, 15 (45%) met or exceeded the average annual Gross Margin of the Bottom 25% Single-Unit Business Centers for calendar year 2018. 8. Payroll is defined as the total of direct labor (labor directly employed in the production of product, including benefits) and indirect labor (labor not employed in the production of product, such as administrative or sales personnel), including payroll taxes and group medical, for the U.S. Business Center. In the table, Payroll is expressed as a percentage of Gross Sales. In many cases, it may also include owner's salary. 9. Advertising and Marketing is defined as the total advertising, promotion, AIM fees, and all other advertising and marketing expenses. In the table, Advertising and Marketing is expressed as a percentage of Gross Sales. 10. Building Rent is defined as the rent paid to the landlord of the premises where the U.S. Business Center is located and any property taxes paid on the building. In the table, Building Rent is expressed as a percentage of Gross Sales. 11. Royalties is defined as the gross royalties paid to AlphaGraphics, Inc. and does not take into account Universal Service Credits that some franchisees currently receive (taken into account in other overhead expenses) which can be used as a credit against Royalties owed. In the table, Royalties is expressed as a percentage of Gross Sales. 12. Property and liability insurance is defined as the total property and liability insurance. In the table, property and liability insurance is expressed as a percentage of Gross Sales. 13. Utilities is defined as the total telephone, internet, gas, and electric expense. In the table, Utilities is expressed as a percentage of Gross Sales. 14. All Other Overhead is defined as the miscellaneous costs and income that includes Managed Service Fees, Universal Services Credits, freight income and freight expenses, other income and other expenses, and other administrative expenses (includes bad debt, banking fees, charitable contributions, credit card fees, dues & subscriptions, shipping, property taxes, licenses and fees, etc.). 15. EBITDA is defined as the earnings before interest, taxes, depreciation, and amortization. In many cases it does not include owner's salary. EBITDA is expressed as a percentage of Gross Sales. 16. The average annual EBITDA for all 128 Single-Unit Business Centers was 11.30%. Of the 128 Single-Unit Business Centers, 70 (55%) met or exceeded the average annual EBITDA for calendar year 2018. 17. The average annual EBITDA for the Top 25% Single-Unit Business Centers was 26.85%. Of the 31 Single-Unit Business Centers included in the Top 25%, 7 (23%) met or exceeded the average annual EBITDA of the Top 25% Single-Unit Business Centers for calendar year 2018. 18. The average annual EBITDA for the Lowest 25% Single-Unit Business Centers was negative 6.84%. Of the 33 Single-Unit Business Centers included in the Bottom 25%, 24 (73%) met or exceeded the average annual EBITDA of the Bottom 25% Single-Unit Business Centers for calendar year 2018. 19. This section includes the median percentage of Gross Sales attributed to certain specific services provided at Single-Unit Business Centers. The information presented in this item is based on sales and cost information reported to us by our franchisees. We have not independently investigated the amounts reported. Prospective franchisees are advised that no Certified Public Accountant has audited these figures or expressed an opinion with regard to their content or form. Assumptions: 1. Your expenses will vary depending upon the location of your U.S. Business Center. This analysis does not contain complete information concerning operating costs. Operating costs may vary substantially from U.S. Business Center to U.S. Business Center. When you prepare your own business plan, consult with business and legal advisors and consider the following operating costs: costs of goods sold, accounting, legal, vehicle, depreciation, property and liability insurance, office supplies, building rent, repair and maintenances, taxes, payroll, benefits, telephone, internet and utilities. 2. The above figures exclude finance charges and depreciation. Interest expense, interest income, depreciation, amortization and other income or expenses will vary substantially from U.S. Business Center to U.S. Business Center, depending on the amount and kind of financing you obtain to establish the Business Center. You should consult with your tax advisor regarding depreciation and amortization schedules and the period over which the assets of the U.S. Business Center may be amortized or depreciated, as well as the effect, if any, of recent or proposed tax legislation. 3. 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. For example, many owners will pay for the following types of expenses through the Business Center: owner's salary, vehicle(s), owner's health, dental and life insurance, personal office supplies, travel, entertainment, legal fees, estate planning, membership dues, interest on personal loans and other personal expenses. As a result, the EBITDA may vary greatly. Sales and expenses may vary depending on whether the business located in a metropolitan market or a non-metropolitan market and on other factors. In particular, the sales and expenses of your U.S. Business Center will be directly affected by factors, such as: (a) geographic location; (b) competition from other firms in the market; (c) advertising effectiveness based on market saturation; (d) whether you assume the sales position as or hire a sales manager; (e) your product and service pricing; (f) vendor prices on materials, supplies and inventory; (g) salaries and benefits to non-business personnel; (h) business personnel benefits (life and health insurance, etc.); (i) weather conditions; (j) employment conditions in the market; and (k) general market conditions. The financial performance figures included in this Item 19 do not reflect all the costs or expenses that must be deducted from the gross sales figures to obtain your net income or profit. You should conduct an independent investigation of the costs and expenses you will incur in operating your U.S. Business Center. Franchisees or former franchisees, listed in the Disclosure Document, may be one source of information. Therefore, we recommend that you make your own independent investigation to determine whether or not the franchise may be profitable to you. 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 U.S. Business Center. Some of our franchisees have earned this amount. Your individual results may differ. There is no assurance you'll earn as much. Other than the preceding financial performance representation, AlphaGraphics does not make any financial performance representations. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor's management by contacting Kathleen Panek, General Counsel of AlphaGraphics, Inc., 143 Union Boulevard, Suite 650, Lakewood, Colorado 80228, (800) 955-6246, the FTC, and the appropriate state regulatory agencies.