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Business Description

The Franchisor is Flip Flop Shops, LLC, referred to in this disclosure document as "we," "us" or "our." We refer to the person interested in buying a franchise as "you" or "your." If you are a corporation, partnership, Limited Liability Company or other entity, certain provisions of the Franchise Agreement will apply to your owners. These will be addressed in this disclosure document where appropriate. We were organized as a California Limited Liability Company as of May 22, 2018. Our principal business address is 7524 Old Auburn Road, Citrus Heights, California 95610. Our parent is Bearpaw Holdings, LLC, and ("Bearpaw"). Bearpaw is a California limited liability company that was formed on July 25, 2016, and it shares our principal business address. We do business under our corporate name and under the name the "Flip Flop Shops." Our agents for service of process in the states which require franchise registration are listed in Attachment B. We sell franchises for retail stores that specialize in the sale of flip flops and sandals and related footwear and accessories (the "Flip Flop Shops Stores" or "Stores"). Flip Flop Shops Stores do business under the name "Flip Flop Shops" and other trademarks identified in Item 13 (the "Marks"). Neither we nor our affiliates operate any Flip Flop Shops Stores. Our predecessor, Flip Flop Shops Franchise Company, began to offer franchises on October 9, 2007. Franchisor acquired certain assets of Flip Flop Shops Franchise Company in a transaction which closed on June 4, 2018, and thereby succeeded to certain existing master franchise arrangements with qualified applicants for the development of Flip Flop Shops Stores in various jurisdictions outside the continental United States, including South Africa, Canada, various Caribbean jurisdictions (including Puerto Rico and the U.S. Virgin Islands) Spain and India. Other than the above, we are not engaged in any other businesses and have never offered franchises in any other lines of business. Bearpaw Holdings, LLC and its affiliates sell apparel products, including footwear, through various distribution channels, but neither Bearpaw nor its affiliates have offered franchises in any line of business. Except as described above, we have no predecessors or affiliates that have offered franchises for this business or any other lines of business.

Prior Experience

Our predecessor, Flip Flop Shops Franchise Company, began to offer franchises on October 9, 2007. Franchisor acquired certain assets of Flip Flop Shops Franchise Company in a transaction which closed on June 4, 2018, and thereby succeeded to certain existing master franchise arrangements with qualified applicants for the development of Flip Flop Shops Stores in various jurisdictions outside the continental United States, including South Africa, Canada, various Caribbean jurisdictions (including Puerto Rico and the U.S. Virgin Islands) Spain and India. Other than the above, we are not engaged in any other businesses and have never offered franchises in any other lines of business. Bearpaw Holdings, LLC and its affiliates sell apparel products, including footwear, through various distribution channels, but neither Bearpaw nor its affiliates have offered franchises in any line of business. Except as described above, we have no predecessors or affiliates that have offered franchises for this business or any other lines of business.

Business Offered

We offer qualified applicants franchises for Flip Flop Shops Stores that operate under the Flip Flop Shops System (the "System"). The System includes distinctive exterior and interior design, decor, and color scheme; furnishings; uniform standards, specifications, policies and procedures for operations; quality and uniformity of the products and services offered; procedures for inventory, management and financial control; training and assistance; record keeping and reporting; and advertising and promotional programs, all of which may be changed, improved, and further developed by us periodically. You must operate your Flip Flop Shops Store under the Marks and use other trade names, service marks, trademarks, logos, and other symbols we designate (or may later designate) in writing for use in the System. Additionally, in certain circumstances, we offer qualified franchise applicants the right to operate a Common Area Shops ("Common Area Shops"), which measures between 150 to 500 square feet and is built in the shape of a flip flop, in retail shopping centers and other suitable locations. Unless otherwise indicated, references to Flip Flop Shops Stores or Stores including Common Area Shops. The Franchise Agreement (Exhibit B to this disclosure document) gives you the right to establish and operate I Store at a specified location. The location of the Store will be in the non-exclusive Designated Area described in the Franchise Agreement. The size of the Designated Area will vary depending on local market conditions and other factors. The Designated Area will be determined before you sign the Franchise Agreement. We may require your current and future Principals (as defined in the Franchise Agreement) to sign a Guaranty and Assumption Agreement ("Guaranty"), guaranteeing your performance and binding themselves individually to certain provisions of the Franchise Agreement, including the covenants against competition and disclosure of confidential information, restrictions on transfer and dispute resolution procedures. Those of your Principals who are not required to sign the Guaranty will each sign a Confidentiality Agreement and Ancillary Covenants Not to Compete, with Principal's undertakings, in the form attached to the Franchise Agreement. You must designate an "Operating Principal" under the Franchise Agreement. Your Operating Principal is the main individual responsible for your business. If you are an individual, you will be the Operating Principal. If you are not an individual, you must designate someone who meets our requirements and whom we approve to be your Operating Principal. Your Operating Principal must have and maintain at least 10% ownership interest in you. Your Operating Principal will sign the Guaranty. The person or entity signing the Franchise Agreement is the "Franchisee." In this disclosure document, the terms "Principals" and "Operating Principal" and "you" and "your" include the Franchisee under the Franchise Agreement unless we have noted otherwise.

Initial Fees

When you sign the Franchise Agreement, you must pay us an initial franchise fee of $35,000 ($30,000 if the Franchise Agreement is the second or subsequent Flip Flop Shops Franchise Agreement to be signed at the same time as at least I other Flip Flop Shops Franchise Agreement). The initial franchise fee is not refundable and is imposed uniformly on all franchisees. We may reduce or waive the initial franchise fee under certain circumstances in our sole discretion. On-Site Evaluations If we provide more than 2 on-site evaluations for your first Store or any on-site evaluations for your second and subsequent Stores, we may require you to reimburse us for our costs and expenses and charge a reasonable fee for those on-site evaluations.

Financing

Neither we nor any agent or affiliate of ours offers direct or indirect financing to you, guarantees any note, lease or obligation of yours.

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 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 performance at a particular location or under particular circumstances. AVERAGE GROSS SALES AND AVERAGE WEEKLY GROSS SALES This portion of the financial performance representation includes information relating to the Gross Sales and average weekly Gross Sales for the period from January 1, 2018 to December 31, 2018 (the "Reporting Period") for the 47 franchised Flip Flop Shops Stores in the United States (including Stores in U.S. territories) and Canada" that operated during the entire Reporting Period and were open and operating as of February 3, 2018 (the "Sample Stores"). The Sample Stores do not include 8 franchised Flip Flop Shops Stores that closed during the Reporting Period, 3 seasonal stores, or 4 stores that opened during the reporting period. These 47 Sample Stores represent 86.5% of the 54 total Flip Flop Shops Stores in the United States (include Stores in U.S. territories) and Canada open as of the end of the Reporting Period. Information for Stores outside of the 50 United States and Canada is not included in this Item 19. The Gross Sales realized will vary from Store to Store and will be directly affected by many factors, such as the Store's size, geographic location, competition in the marketplace; the presence of other Flip Flop Shops Stores; and the quality of management and service at the Store. This financial performance representation reflects only revenue of the Sample Stores and does not reflect any costs of sales, operating expenses, and other costs or expenses that you will incur in operating the Store, including the royalty fees and advertising contribution that you must pay under the terms of the Franchise Agreement. This financial performance representation also does not include debt service or equipment lease costs that may be incurred in the operation of a Flip Flop Shops Store. In addition, this financial performance representation does not include any information about the federal income taxes payable on any net income derived from the operation of the Store or state or local net income or gross profits taxes that may be applicable in the jurisdiction in which your Store is located.