UFOC

Sample UFOC

RECEIVED

OCT 05 2006 THE COFFEE BEANERY LTI^. _t _t

Apartment of Corporations Los Angeles

INFORMATION FOR PROSPECTIVE FRANCHISEES REQUIRED BY FEDERAL TRADE COMMISSION

******

To protect you, we've required your franchisor to give you this information. We haven't checked it, and don't know if it's correct. It should help you make up your mind. Study it carefully. While it includes some information about your contract, don't rely on it alone to understand your contract. Read all of your contract carefully. Buying a franchise is a complicated investment. Take your time to decide. If possible, show your contract and this information to an advisor, like a lawyer or an accountant. If you find anything you think may be wrong or anything important that's been left out, you should let us know about it. It may be against the law.

You may have elected to receive an electronic version of your disclosure document. If so, you may wish to print or download the disclosure document for future reference. You have a right to receive a paper copy of the disclosure document up until the time of sale. To obtain a paper copy, contact Stacy Peterson at 3429 Pierson Place, Flushing, Michigan 48433, (810) 733-1020.

There also may be laws on franchising in your state. Ask your state agencies about them.

Federal Trade Commission Washington, D.C. 20580

CERTAIN STATES REQUIRE FRANCHISORS TO MAKE ADDITIONAL DISCLOSURES RELATED TO THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. IF APPLICABLE, THESE ADDITIONAL DISCLOSURES WILL BE FURNISHED TO YOU IN AN ADDENDUM TO THIS OFFERING CIRCULAR.

IN ACCORDANCE WITH THE REQUIREMENTS OF THE FEDERAL TRADE COMMISSION, THIS OFFERING CIRCULAR WAS ISSUED ON SEPTEMBER 30, 2006. STATE VARIATIONS OF THIS OFFERING CIRCULAR ARE EFFECTIVE ON THE DATE LISTED IN THE ADDENDUM FOR SUCH STATE.

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The Coffee Beanery, Ltd

Uniform Franchise Offering Circular (v.2006) 09/30/06

FRANCHISE OFFERING CIRCULAR

THE COFFEE BEANERY LTD.

World Headquarters

3429 Pierson Place

Flushing, Michigan 48433

(810)733-1020

Internet http://www.CoffeeBeanery.com

The Franchise offered is for the operation of a COFFEE BEANERY Traditional Coffee Store or Cafe offering for retail sale over various types of coffee, coffee beans, tea, spices, related products and food items, for on or off-site consumption.

The initial franchise fee varies depending upon the concept you select and whether you are currently operating a coffee shop or restaurant. For a Cafe and Traditional Store, the initial franchise fee is Twenty-Seven Thousand Five Hundred Dollars ($27,500.00). The initial franchise fee is Six Thousand Eight Hundred and Seventy Five Dollars ($6,875) ) if you are currently operating a coffee shop business that you convert to our brand. The initial franchise fee is Thirteen Thousand Seven Hundred Fifty Dollars ($13,750) if you wish to operate a Coffee Beanery store as part of a co-branded relationship. You are also required to purchase an opening inventory of specialty Coffee Beanery coffee which is between Five Thousand Dollars ($5,000) and Thirty Thousand Dollars ($30,000). You are also required to deposit the sum of between Two Thousand Five Hundred Dollars ($2,500) and Seven Thousand Five Hundred Dollars ($7,500) with us to cover grand opening advertising depending upon the location or type of Store you operate. The total of all fees to us ranges from Fourteen Thousand Three Hundred and Seventy Five Dollars ($14,375) and Sixty Two Thousand Five Hundred Dollars ($62,500) including the initial franchise fee, the deposit for grand opening advertising and opening inventory. The estimated total initial investment ranges from Sixty One Thousand Three Hundred and Seventy Five Dollars ($61,375.00) to Five Hundred Nineteen Thousand Dollars ($519,000.00).

Coffee Beanery may, in some instances, offer to franchisees the right to become an area franchisee, for which a fee is negotiated on a case-by-case basis as further described in Item 5, and which is likely to range from $100,000.00 to $250,000.00. In addition to this fee, the initial investment required for becoming an area franchisee ranges from $111,500 to $277,500 as described in Item 7.

Coffee Beanery also may, in some instances, offer development rights to developers which enable them to open a certain number of Stores within a specified area under individual franchise agreements. The development fee is $27,500.00 for the first Store to be established and $3,437.50 for each additional Store to be developed.

RISK FACTORS

1. THE FRANCHISE AGREEMENT, AREA FRANCHISE AGREEMENT AND AREA DEVELOPMENT AGREEMENT STATES THAT MICHIGAN LAW GOVERNS THE AGREEMENT UNLESS A PROVISION IS NOT ENFORCEABLE UNDER THE LAWS OF MICHIGAN AND YOUR STORE OR TERRITORY IS LOCATED IN A STATE WHERE THE PROVISION IS ENFORCEABLE. THE LAWS OF MICHIGAN MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.

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2. THE FRANCHISE AGREEMENT, AREA FRANCHISE AGREEMENT AND AREA DEVELOPMENT AGREEMENT PERMITS YOU TO MEDIATE, ARBITRATE, AND

SUE ONLY IN THE JUDICIAL DISTRICT IN WHICH WE HAVE OUR PRINCIPAL PLACE OF BUSINESS. CURRENTLY, THIS IS IN FLUSHING, MICHIGAN. OUT-OF-STATE MEDIATION, ARBITRATION, AND LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO MEDIATE, ARBITRATE, AND SUE US IN MICHIGAN THAN IN YOUR HOME STATE.

3. THE FRANCHISE AGREEMENT DOES NOT GRANT YOU AN EXCLUSIVE TERRITORY OR AREA. WE OR OUR AFFILIATES MAY ESTABLISH OTHER FRANCHISED OR COMPANY-OWNED LOCATIONS THAT MAY COMPETE WITH YOUR FRANCHISE AT LOCATIONS DETERMINED APPROPRIATE BY US.

4. THERE MAY BE OTHER RISKS CONCERNING THE FRANCHISE.

LOCAL LAW MAY SUPERSEDE THESE AGREEMENT PROVISIONS. CERTAIN STATES REQUIRE THE SUPERSEDING PROVISIONS TO APPEAR IN AN ADDENDUM TO THIS OFFERING CIRCULAR.

Information comparing franchises is available. Call the state administrators listed in Exhibit H or your public library for sources of information.

Registration of this franchise by a state does not mean that the state recommends it or has verified the information in this Offering Circular. If you learn anything in the offering circular is untrue, contact the Federal Trade Commission and applicable State authority listed in Exhibit H.

COVER PAGE FOR MARYLAND FRANCHISEES ONLY

FRANCHISE OFFERING CIRCULAR

THE COFFEE BEANERY LTD.

World Headquarters

3429 Pierson Place

Flushing, Michigan 48433

(810)733-1020

Erie COItee DeanerL| Internet http://www.CoffeeBeanery.com

The initial franchise fee varies depending upon the concept you select and whether you are currently operating a coffee shop or restaurant. For Cafe and Traditional Store the initial franchise fee is Twenty-Seven Thousand Five Hundred Dollars ($27,500.00). The initial franchise fee is Six Thousand Eight Hundred and Seventy Five Dollars ($6,875) if you are currently operating a coffee shop business that you convert to our brand. The initial franchise fee is Thirteen Thousand Seven Hundred and Fifty Dollars ($13,750) if you wish to operate a Coffee Beanery store as part of a co-branded relationship. You are also required to purchase an opening inventory of specialty Coffee Beanery coffee which is between Five Thousand Dollars ($5,000) and Thirty Thousand Dollars ($30,000). You are also required to deposit the sum of between Two Thousand Five Hundred Dollars ($2,500) and Seven Thousand Five Hundred Dollars ($7,500) with us to cover grand opening advertising depending upon the location or type of Store you operate. The total of all fees to us ranges from Fourteen Thousand Three Hundred Seventy Five Dollars ($14,375) and Sixty Two Thousand Five Hundred Dollars ($62,500). The estimated total initial investment ranges from Sixty One Thousand Three Hundred and Seventy Five Dollars ($61,375.00) and Five Hundred Nineteen Thousand Dollars ($519,000.00).

RISK FACTORS

EXCEPT IN MARYLAND, THE FRANCHISE AGREEMENT, AREA FRANCHISE AGREEMENT AND AREA DEVELOPMENT AGREEMENT STATES THAT MICHIGAN LAW GOVERNS THE AGREEMENT UNLESS A PROVISION IS NOT ENFORCEABLE UNDER THE LAWS OF MICHIGAN AND YOUR STORE OR TERRITORY IS LOCATED IN A STATE WHERE THE PROVISION IS ENFORCEABLE. THE LAWS OF MICHIGAN MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.

2. THE FRANCHISE AGREEMENT, AREA FRANCHISE AGREEMENT AND AREA DEVELOPMENT AGREEMENT PERMITS YOU TO MEDIATE, ARBITRATE, AND SUE ONLY IN THE JUDICIAL DISTRICT IN WHICH WE HAVE OUR PRINCIPAL PLACE OF BUSINESS. CURRENTLY, THIS IS IN FLUSHING, MICHIGAN. OUT-OF-STATE MEDIATION, ARBITRATION, AND LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO MEDIATE, ARBITRATE, AND SUE US IN MICHIGAN THAN IN YOUR HOME STATE.

4. THERE MAY BE OTHER RISKS CONCERNING THE FRANCHISE.

LOCAL LAW MAY SUPERSEDE THESE AGREEMENT PROVISIONS. CERTAIN STATES REQUIRE THE SUPERSEDING PROVISIONS TO APPEAR IN AN ADDENDUM TO THIS OFFERING CIRCULAR.

Information comparing franchises is available. Call the state administrators listed in Exhibit H or your public library for sources of information.

Date effective in Maryland:

(ADDITIONAL COVER PAGE DISCLOSURES FOR MICHIGAN RESIDENTS ONLY)

THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE SOMETIMES IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE IN THESE FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE ENFORCED AGAINST YOU.

Each of the following provisions is void and unenforceable if contained in any documents relating to a franchise:

a. A prohibition on the right of a franchisee to join an association of franchisees.

b. A requirement that a franchisee assent to a release, assignment, novation, waiver, or estoppel which deprives a franchisee of rights and protection provided in this act. This shall not preclude a franchisee, after entering into a franchise agreement, from settling any and all claims.

c. A provision that permits a franchisor to terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful provision of the franchise agreement and to cure such failure after being given written notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure such failure.

d. A provision that permits a franchisor to refuse to renew a franchise without fairly compensating the franchisee by repurchase or other means for the fair market value at the time of expiration of the franchisee's inventory, supplies, equipment, fixtures, and furnishings. Personalized materials which have no value to the franchisor and inventory, supplies, equipment, fixtures, and furnishings not reasonably required in the conduct of the franchise business are not subject to compensation. This subsection applies only if: (i) The term of the franchise is less than 5 years and (ii) the franchisee is prohibited by the franchise or other agreement from continuing to conduct substantially the same business under another trademark, service mark, trade name, logotype, advertising, or other commercial symbol in the same area subsequent to the expiration of the franchise or the franchisee does not receive at least 6 months advance notice of franchisor's intent not to renew the franchise.

e. A provision that permits the franchisor to refuse to renew a franchise on terms generally available to other franchisees of the same class or type under similar circumstances. This section does not require a renewal provision.

f. A provision requiring that arbitration or litigation be conducted outside this state. This shall not preclude the franchisee from entering into an agreement, at the time of arbitration, to conduct arbitration at a location outside this state.

g. A provision which permits a franchisor to refuse to permit a transfer of ownership of a franchise, except for good cause. This subdivision does not prevent a franchisor from exercising a right of first refusal to purchase the franchise. Good cause shall include, but is not limited to:

(1) The failure of the proposed transferee to meet the franchisor's then current reasonable qualifications or standards.

(2) The fact that the proposed transferee is a competitor of the franchisor or subfranchisor.

(3) The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.

(4) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor or to cure any default in the franchise agreement existing at the time of the proposed transfer.

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h. A provision that requires the franchisee to resell to the franchisor items that are not

uniquely identified with the franchisor. This subdivision does not prohibit a provision that grants to a franchisor a right of first refusal to purchase the assets of a franchise on the same terms and conditions as a bona fide third party willing and able to purchase those assets, nor does this subdivision prohibit a provision that grants the franchisor the right to acquire the assets of a franchise for the market or appraised value of such assets if the franchisee has breached the lawful provisions of the franchise agreement and has failed to cure the breach in the manner provided in subdivision (c).

i. A provision which permits the franchisor to directly or indirectly convey, assign, or

otherwise transfer its obligations to fulfill contractual obligations to the franchisee unless provision has been made for providing the required contractual services.

If the franchisor's most recent financial statements are unaudited and show a net worth of less than $100,000.00, the franchisee may request the franchisor to arrange for the escrow of initial investment and other funds paid by the franchisee until the obligations, if any, of the franchisor to provide real estate, improvements, equipment, inventory, training or other items included in the franchise offering are fulfilled. At the option of the franchisor, a surety bond may be provided in place of escrow.

THE FACT THAT THERE IS A NOTICE OF THIS OFFERING ON FILE WITH THE ATTORNEY GENERAL DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION, OR ENFORCEMENT BY THE ATTORNEY GENERAL.

Any questions regarding this notice should be directed to:

State of Michigan

Department of Attorney General

6520 Mercantile Way

Lansing, Michigan 48913

Telephone Number: (517)373-3800

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THE COFFEE BEANERY LTD. FRANCHISE OFFERING CIRCULAR

TABLE OF CONTENTS ITEM Page

1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES.............................1

The Franchisor.......................................................................................................1

Predecessors and Affiliates.................................................................................1

The Franchise Offered...........................................................................................1

Competition.............................................................................................................2

Industry-Specific Laws and Regulations.............................................................3

2 BUSINESS EXPERIENCE...............................................................................................3

3 LITIGATION.....................................................................................................................5

4 BANKRUPTCY.................................................................................................................8

5 INITIAL FRANCHISE FEE............................................................................................8

6 OTHER FEES..................................................................................................................11

7 INITIAL INVESTMENT____________________________________________14

8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES......................18

Standards and Specifications.............................................................................18

Purchases from Approved Suppliers...................................................................18

Approval of New Suppliers..................................................................................19

9 FRANCHISEE'S OBLIGATIONS................................................................................21

10 FINANCING ARRANGEMENTS.................................................................................23

11 FRANCHISOR'S OBLIGATIONS................................................................................23

Pre-Opening Obligations to Franchisees...........................................................23

Training for Franchisees.....................................................................................25

Site Selection and Maintenance.........................................................................27

Brand Building for Franchisees.........................................................................28

The Brand Building Fund.....................................................................................28

Local Advertising................................................................................................29

Computer System..................................................................................................30

12 TERRITORY...................................................................................................................33

13 TRADEMARKS...............................................................................................................35

14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION.....................37

Confidential Operating Manual........................................................................37

Confidential Information...................................................................................38

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ITEM

TABLE OF CONTENTS (cont'd)

Page

15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF

THE STORE.....................................................................................................................38

Franchisees...........................................................................................................38

16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL..............................38

17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION........39

18 PUBLIC FIGURES..........................................................................................................46

19 EARNINGS CLAIMS.....................................................................................................46

20 LIST OF OUTLETS........................................................................................................47

21 FINANCIAL STATEMENTS.........................................................................................56

22 CONTRACTS..................................................................................................................56

23 RECEIPT..........................................................................................................................56

EXHIBITS

A. FRANCHISE AGREEMENT AND ATTACHMENTS

B. AREA FRANCHISE AGREEMENT AND ATTACHMENTS

C. AREA DEVELOPMENT AGREEMENT AND ATTACHMENTS

D. LISTS OF FRANCHISEES AND CORPORATE STORES E. FINANCIAL STATEMENTS

F. TABLE OF CONTENTS TO MANUAL

G. CONFIDENTIALITY AND NON-COMPETITION COVENANTS H. LIST OF STATE ADMINISTRATORS

I. AGENTS FOR SERVICE OF PROCESS

J. COMPLIANCE CERTIFICATION

K. STATE ADDENDA AND AGREEMENT RIDERS

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THE COFFEE BEANERY LTD. FRANCHISE OFFERING CIRCULAR

ITEM1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES

The Franchisor

The Coffee Beanery Ltd. ("we", "us" "our" or "CBL") is the franchisor of the franchise program described in this Offering Circular. We were incorporated in Michigan on March 22, 1976. We began offering franchises on May 18, 1985 for specialty retail coffee stores or businesses in a variety of forms and locations, including kiosks, counters, malls and neighborhood cafe locations commencing on different dates over our history. Our principal business address is 3429 Pierson Place, Flushing, Michigan 48433. We do not conduct business under any other name. . Our agents for service of process in various states, including those requiring franchise registration are listed in Exhibit I to this Offering Circular.

Unless otherwise noted, we will refer to a prospective franchisee, area franchisee or developer as "you," whether you are an individual, a partnership, a corporation or other entity, including the owner or owners of those entities.

Predecessors and Affiliates

We are affiliated with two (2) other companies. We are wholly owned by a company called The Shaw Coffee Company which is a Michigan corporation. The Shaw Coffee Company is a holding company and does not conduct daily business activities. We have a sister company called Shaw Services, Inc. which is also a Michigan corporation and is also wholly owned by The Shaw Coffee Company. Shaw Services, Inc. provides wholesale coffee, tea and associated product and does not offer franchises although it may enter into product distribution agreements, including possible multilevel product distribution agreements, under which the distributors will offer product using the Coffee Beanery Proprietary Marks to non-profit organizations or other businesses or organizations.

The Franchise Offered

We are in the business of operating and franchising specialty coffee retail stores and cafes. For ease of reference, all of these will be referred to in this Offering Circular as "Stores" unless otherwise noted. Our Stores sell espresso based and other specialty beverages, fresh-brewed coffee, coffee beans, bakery items, tea, related products such as mugs and coffee makers. Cafe Stores also sell toasted sandwiches, soups and fresh salads. Generally, the business of granting franchises involves development and implementation of a marketing system which creates a certain product image in the minds of customers, a business strategy for getting and keeping customers, and a distribution method for products and services. We have developed all of these as part of the operating system ("System") which you are granted a franchise to use.

We identify businesses by means of certain trade names, service marks, trademarks, logos, emblems, and indicia of origin owned by us, including the trade name "The Coffee Beanery, Ltd." (collectively, "Proprietary Marks").

We have operated Stores of the type being franchised. Coffee Beanery Stores are located in strip centers, airports, regional shopping malls and office buildings. Some of our Stores offer products only for

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off-premises consumption. Many of our Stores offer products for either on-premises or off-premises consumption.

The market for our products is well-established as fresh-brewed coffee, coffee beans and related items may be found most anywhere. Our business is seasonal, but the degree of seasonality depends upon the location of the Store. For example, Stores located in regional shopping malls generally experience higher sales during November and December simply because there is higher pedestrian traffic in the mall during these months. We do not offer franchises in any other lines of business. None of our affiliates offer franchises, although Shaw Services may enter into product distribution agreements for the sale of products carrying Coffee Beanery Proprietary Marks in the future.

The franchise agreement ("Franchise Agreement") (a copy of which is attached to this Offering Circular as Exhibit A) gives you the right to establish and operate a Store. Most Stores will be located in high traffic areas that provide ample parking, significant foot traffic, and exposure to a public thoroughfare. We also offer to existing independent businesses who provide coffee and coffee related services to the public, the opportunity to convert their businesses to Coffee Beanery stores. To be eligible to convert, you must have operated your coffee store or shop for at least six (6) months at the time of conversion ("Conversion Owners")- Conversion Owners will sign, in addition to a Franchise Agreement, an Addendum for Conversion Owners, which is Attachment D to the Franchise Agreement. Conversion Owners must conform their business premises to our prototype plans and specifications, use our Proprietary Marks, and complete our training as described in Item 11 below.

We may, on occasion, offer to certain franchisees the right to become an Area Franchisee under an area franchise agreement ("Area Agreement"). Area Franchisees will have the right to service and monitor certain Stores operated by franchisees in an exclusive territory ("Territory") defined in the Area Franchise Agreement. Area Franchisees will also have the obligation to promote franchisees in accordance with a schedule set forth in the Area Franchise Agreement. Our Area Franchise Agreement is attached to the offering circular as Exhibit B.

We may also, on occasion, offer you the right to become a Developer under a area development agreement ("Development Agreement") which grants the right to establish and operate a certain number of Stores in a specified area ("Development Area"). A Developer will sign a separate Franchise Agreement for each Store in accordance with the Development Schedule set forth in the Development Agreement. Each Store must be established and operated by the Developer or by an entity controlling, controlled by, or under common control with, the Developer. Our Development Agreement is attached to this offering circular as Exhibit C.

We also offer qualified businesses the right to operate a Coffee Beanery store in conjunction with other approved products or services pursuant to a "Co-Branded Addendum." The Co-Branded Addendum allows a franchisee to sell our products along with other products or service subject to our approval, but is otherwise identical to our routine franchising program.

Finally, we may periodically enter into license or similar agreements with the operators of unique venues such as airport concessions or sports and entertainment venues. Wherever possible, these agreements will be similar to those offered by our general franchising program, but the unique character of the venues may result in certain differences between these agreements and our routine franchise agreement.

Competition

There is a significant amount of competition in the retail specialty coffee business. Examples of the competition you may face include national and regional coffee businesses, mail order, restaurants, grocery

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stores, bulk food stores and department stores. All of these businesses to varying degrees, sell coffee and it will be important for you to market your products and services and provide outstanding service to your customers in order to compete.

Alternative distribution of Coffee Beanery products

We have entered into a distributorship agreement with The Consolidation Group, Inc. This agreement provides the Consolidation Group with the right to purchase from us and distribute all packaged brands of flavored and unflavored styles of Coffee Beanery whole bean and ground coffee and all "ready to drink" prepackaged Coffee Beanery products throughout the United States except for sales within Michigan. Depending upon the methods of distribution and the locations for sale chosen by The Consolidation Group, it is possible that you may have to compete with The Consolidation Group, Inc. for those products that they market.

We have also entered into agreements that provide for the distribution of Coffee Beanery brewed coffee and flavored Coffee Beanery syrups through KMart K Cafes. In addition, we are currently testing on-demand brewed and specialty Coffee Beanery coffees in sixty (60) K Cafes and Sears Grand Cafes. Depending upon the location of the KMart and Sears stores, you may also have to compete with these locations for the Coffee Beanery products that they market.

From time to time, we also act as a representative for various food manufacturers and food and related businesses and we intend to do so in the future. We receive a commission arising from the sale of these coffee and other food products by the manufacturer to the customer. This representation does not involve the sale of products to the Coffee Beanery system or our franchisees.

Industry-Specific Laws and Regulations

There are no regulations specific to the operation of a retail specialty coffee store, although you will be required to comply with all local, state and federal health and sanitation laws in the operation of your Store. There may be other laws applicable to your business and we urge you to make further inquiries about these laws.

ITEM 2

BUSINESS EXPERIENCE

President and Director; JoAnne Shaw. Chairman of the Board: Julius L. Shaw.

From 1976 to the present, JoAnne Shaw and Julius L. Shaw have jointly operated and managed The Coffee Beanery, Ltd. ("CBL") and its predecessors. Their joint responsibilities include the operation and general management of CBL Stores currently owned by us. Further, they have been and continue to be responsible for new Store planning, personnel training, franchising and development and financial planning for us. JoAnne Shaw has served as an officer and Director of CBL since 1976, and as President since 1979. JoAnne Shaw has served as President of the Specialty Coffee Association of America during 1997, as Chairman of the International Franchise Association during 2000 and as a member of the board of directors of Dale Carnegie. Julius L. Shaw has served as an officer and Director of CBL since 1976, and as Secretary-Treasurer from 1979 to 1996. In 1996, Julius L. Shaw was appointed Chairman of the Board. Julius Shaw has also acted as Chairman of the National Coffee Service Association during 1994.

Since 1968, JoAnne Shaw and Julius L. Shaw have been responsible for the operation and general management of an on-premises customer coffee service called Ye Olde Coffee Service of Flint,

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Michigan. In addition, from 1978 to 1994, JoAnne Shaw and Julius L. Shaw owned and operated S & S Snacks, Flint, Michigan, an on-premises customer snack service. Ye Olde Coffee Service is currently operated by Shaw Services, Inc., a Michigan corporation, which is solely owned by the holding company named The Shaw Coffee Company. S & S Snacks was sold in 1994.

Vice President of Real Estate: Kevin Shaw.

Kevin Shaw, who has been employed by CBL since 1985, began his career with us as Store Manager at THE COFFEE BEANERY, LTD. - RENAISSANCE, a position he held until 1986, when he became Warehouse Manager. He served in various franchise development roles between 1987 and 1994. He became a Director of CBL in November 1991. He became Vice President of Real Estate in 2002 and continues to serve in this role.

Vice President of Franchise Sales and Development: Kurt Shaw.

Kurt Shaw became a Director in November 1991. He has been employed as a manager with S &

5 Snack Service (a snack vending company) from August 1984 until 1994 when it was sold. In 1989, CBL's parent, Shaw Coffee Company, combined Ye Olde Coffee Service (an office coffee service) with S

6 S Snack and changed the name of the two divisions to Shaw Services, of which he became General Manager. Presently, he is President of Shaw Services which holds only Ye Olde Coffee Service. As Vice President of Franchise Sales for CBL, Kurt is responsible for marketing and selling franchised opportunities. In February, 2006 he also assume responsibility for new store development. He holds a degree from Michigan State University in Management with an emphasis in Purchasing.

Executive Vice President and Chief Financial Officer: Ken Coxen.

Kenneth Coxen joined CBL in August of 1994 as General Manager of Production and Distribution. Prior to that, Ken had a twenty-year career as part owner of a specialty chemical manufacturing and distribution company, was a franchisee with the Little Caesar's organization, and founded a consulting business specializing in manufacturing management. He became Executive Vice-President in January 2001 and Chief Financial Officer in June 2003.

Vice President of New Business Development: Owen Stern.

Owen Stern came aboard in May 2001. He was in charge of International and Domestic Operations. Mr. Stern is the founder of My Favorite Muffin and has been a team member of companies such as Big Apple Bagel and Brewster's Cafe. He has extensive knowledge of franchise systems. Mr. Stem has been involved in acquiring International Development Agreements for CBL in various countries. He was appointed to the position of Vice President of New Business Development in May, 2005.

Walter Pilon: Vice President of Brand Building and System Support.

Walter Pilon joined The Coffee Beanery, Ltd. in January, 1997 as Corporate Training Manager in the southeastern Michigan area. He was promoted to Director of Merchandising in June, 1999 and later promoted to Vice President of Brand Building during October 2001 continuing to work at our corporate headquarters in southeast Michigan. In January, 2006 he also assumed responsibility for system support. He has a BBS in Business Administration from Central Michigan University.

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Dale Link: Director of Training.

Dale Link was hired as our Director of Training in February 2002. Prior to his employment by The Coffee Beanery, Ltd., he served as Director of Personnel and Training for Sybra, Inc., an area developer for Arby's and served as Director of Training for Sbarro for 2 years.

Marvin Leeck: Franchise Sales Representative

Marvin Leeck was hired to work in our warehousing operations in December 1991. Between April 1992 and September 2003, he served as a route sales representative for our affiliate, Shaw Services. In September 2003, he was promoted to Vice President of Shaw Services. In July, 2005, he became our Franchise Sales and New Business Development Representative. Mr. Leek is a graduate of Hill Mcloy High School in Monroe, Michigan and attended Baker College in Flint, Michigan studying marketing. During his employment with us and our affiliates, he has resided in Flint, Davison and Millington, Michigan.

Broker Representative

Our franchise broker representatives include:

The Business Alliance, Inc., a Georgia business corporation, located at 100 Hartsfield Centre, Suite 500, Atlanta, Georgia 30354 [(404) 763-2244] From April 1999 to the present, Daniel Prechtel has served as president of The Business Alliance, Inc. at the address noted above. From 1992 to 1999, Mr. Prechtel was a sole proprietor, doing business as Business Alliance located in Duluth, Georgia.

NeoColumbus Consulting Group is a New York based franchise marketing and consulting group. Mathew Kim is the President and Principal of NeoColumbus which is located at the Empire State Building, 350 South 5th Avenue, Suite 5715, New York, New York 10118. Mr. Kim was a director for FI Consulting from 1999-2002, a Senior Consultant for Franchise Consulting Network from 2002-2005 and with NeoColumbus after 2005, all in the metropolitan New York City area.

ITEM 3 LITIGATION

Administrative Proceeding before the Securities Commissioner of Maryland v. The Coffee Beanery, Ltd. And Kevin Shaw. Order to Show Cause. Case No. 2005-0244.

On or about January 19, 2006, the Securities Commissioner for the state of Maryland filed an Order to Show Cause arising from an investigation of the Coffee Beanery's sale of a franchise to Richard Welshans, as described below. The Order to Show Cause stated that the Securities Commissioner found grounds to allege that Coffee Beanery and Kevin Shaw have violated the disclosure and antifraud provisions of the Maryland Franchise Registration and Disclosure Law. The Coffee Beanery, Ltd. and Kevin Shaw filed an answer to the Order to Show Cause denying its material allegations and asked for an Administrative Hearing on the allegations of the Order to Show Cause. On September 12, 2006, we entered into a Consent Order with the Securities Commissioner under which we agreed to cease offering franchises in Maryland in violation of Maryland law and to offer rescission to Richard Welshans and one other Maryland Coffee Beanery franchisee on the terms described in the Consent Order.

WWLLC v. The Coffee Beanery. Ltd.. Case No. 54 114 E 00124 05. pending before the American Arbitration Association and WWLLC. Williams & Welshans v. Coffee Beanery Ltd. United States

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District Court for the District of Maryland (Case no. 05-cv-03360). Coffee Beanery, Ltd. et al v. WWLLC. et al. United Stated District Court. E.D. Michigan (Case no. 06-10408).

In January, 2005, WWLLC filed a demand for mediation and arbitration seeking declaratory relief, damages, rescission and attorneys fees in an amount not exceeding $75,000. This demand alleged fraud, negligent and fraudulent misrepresentation, negligent and fraudulent nondisclosure, breach of contract and a covenant of good faith and fair dealing, violations of the Maryland Franchise Registration and Disclosure Law and the Michigan Franchise Investment and Consumer Protection Acts. The arbitrator has been selected and the proceeding is in pre-hearing procedures. The owners of WWLLC also filed a complaint with the Securities Division of the Office of the Attorney General for the state of Maryland making similar allegations that is described immediately above. On December 15, 2005, WWLLC, Deborah Williams and Richard Welshans also filed a lawsuit in the United States District Court in Maryland alleging violations of the Maryland Franchise Act, Detrimental Reliance and Intentional and Negligent Misrepresentation against The Coffee Beanery and its officers individually seeking $1,000,000 in damages. CBL filed a motion to stay the Maryland litigation. The court in Maryland granted CBL's motion to stay and administratively closed the case on March 23, 2006. The Coffee Beanery also filed a motion to compel the arbitration filed by the Welshans in the United States District Court for the Eastern District of Michigan and WWLLC filed a motion to stay the arbitration in the same matter. On July 18, 2006, the court granted CBL's motion to compel arbitration and denied WWLLC motion to stay arbitration. The arbitration remains pending and is scheduled for hearing in early 2007. The Coffee Beanery denies the allegations made by WWLLC in the arbitration.

The Coffee Beanerv. Ltd. v William Albert. Michael Yurick and Hartland Coffee Beanery. LLC. Case No. 02-1899-CK. in the 44^th Circuit Court for Livingston County. Michigan.

On January 18, 2002, The Coffee Beanery, Ltd. brought a lawsuit against its franchisees, Michael Yurick and William Albert, as well as a business entity operating the franchisees' business (Hartland Coffee Beanery, LLC), asserting causes of action seeking payment for the delivery of equipment delivered to the defendants and a court declaration relating to the validity of the franchise agreement. On March 8, 2002, the defendants answered the complaint via written answer denying that the sums were owed. On April 8, 2002, the defendants additionally filed a counter complaint against the Coffee Beanery, Ltd. alleging fraud, intentional and negligent misrepresentation, breach of contract, a demand for an accounting and violations of the Michigan Franchise Investment Law. In the counter complaint, the defendants sought to rescind the franchise agreement, and actual and exemplary damages in amounts between $25,000 and $1,200,000. Coffee Beanery answered the counter complaint denying the allegations of the defendant's counter complaint. Michael Yurick and Mr. Albert also filed complaints with the Michigan Attorney General making similar allegations. On June 30, 2004, the trial court granted Coffee Beanery's motion for summary judgment and denied all of the Defendant's motions for summary judgment. On October 20, 2004, the Court entered judgment in favor of The Coffee Beanery, Ltd. for $82,518.89 and denied all claims of Yurick, Albert and the Hartland Beanery LLC against The Coffee Beanery. On November 8, 2004, Yurick, Albert and the Hartland Beanery LLC appealed the decision of the trial court to the Michigan Court of Appeals. The Michigan Court of Appeals affirmed the trial court's decision on May 16, 2006 and denied a motion for reconsideration on June 29, 2006. Mr. Yurick and Mr. Albert asked the Michigan Supreme Court for leave to appeal on August 10, 2006. No decision has been made on their motion.

Stephen and Renee Klarberg and Buddy's Cappuccino. Inc.. v. The Coffee Beanery. Ltd. Case No. 95-02131.

In 1995, our former franchisees, Stephen and Renee Klarberg, and their corporation, Buddy's Cappuccino, Inc., filed a lawsuit against us alleging that we had wrongfully give them false sales figures relating to other retain stores in Miami Lakes - Main Street, the mall in which they were considering operating one of our franchises. The Klarbergs and Buddy's Cappuccino, Inc., sought unspecified

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damages and rescission of their Franchise and License Agreement with us. We responded by denying any knowledge that the sales figures were false and further denying that the plaintiffs had suffered any damages. We agreed to resolve the matter by re-purchasing the Store located in Miami Lakes - Main Street in Miami, Florida for the sum of $225,000.00. We simultaneously resold the Store to another franchisee. The lawsuit has been dismissed with prejudice.

The Coffee Beanery. Ltd. v. William Andrew Powell, et ah. and William Andrew Powell v. The Coffee Beanery. Ltd.. United States District Court, Eastern District of Michigan. Southern Division. Civil Action Nos. 96-40087. 96-40202.

On March 1, 1996, The Coffee Beanery, Ltd. brought an action against William Powell and John Powell in the United States District Court, Eastern District of Michigan, Southern Division, alleging various causes of action, including breach of contract, trademark infringement, and tortious interference, seeking injunctive relief and damages in excess of $800,000.00. William Powell instituted an action against The Coffee Beanery, Ltd. on February 21, 1996, in the Superior Court of the State of California, for the County of Los Angeles, alleging negligent misrepresentation and violation of California franchise law, and sought damages in excess of $150,000 and rescission of the franchise agreements entered into between The Coffee Beanery, Ltd. and William Powell. On March 12, 1996, William Powell's action was removed to the United States District Court for the Central District of California, and then transferred to the United States District Court for the Eastern District of Michigan. During discovery, management of The Coffee Beanery, Ltd. determined that the cost of continuing litigation exceeded probable recovery. In June, 1998, The Coffee Beanery, Ltd. paid the sum of $5,000.00 to William Powell's Michigan attorneys. All parties then signed mutual releases and both lawsuits were dismissed with prejudice.

The Coffee Beanery. Ltd. v Southwest Coffee. Ltd. and James Knapp. Superior Court of the State of California. County of Los Angeles. Case No. YC 031510. Filed February 5. 1998.

The Coffee Beanery, Ltd. has filed suit against Southwest Coffee, Ltd. and Jim Knapp alleging breach of an agreement with the Company to manage its corporate location at Media City Center in Burbank, CA. Knapp is a principal of Southwest and also is a franchisee at the Del Amo Mall location in the Los Angeles area. Under the management agreement, Southwest agreed to pay all of the operating expenses of the store, but has failed to do so. In response to the suit, Knapp and Southwest threatened to file a cross-claim against The Coffee Beanery, Ltd. and some of its principals, JoAnne Shaw, David Gausden and Kevin Shaw, alleging various violations of California franchise law, but d not been granted permission by the Court to file the cross claim. The Coffee Beanery, Ltd. sought damages in its filed complaint in excess of $25,000. In November 1998, the parties settled the case by exchanging mutual releases and by making nominal payments for product and out-of-pocket expenses.

The Coffee Beanery. Ltd. v Bandringa. United States District Court. Eastern District of Michigan. Case No. 98-70556. Filed April 30. 1998.

The Coffee Beanery, Ltd. filed suit against Gary Bandringa, its franchisee at two locations, Dadeland Mall and Main Street - Miami Lakes, both in Miami, FL. The suit alleged numerous breaches of the relevant Franchise and License Agreements, and in the case of the Dadeland location, the Franchise and License Agreement expired but Bandringa continued to hold himself out as a franchisee of The Coffee Beanery, Ltd. The suit sought injunctive relief for violation of the Company's trademarks. On July 8, 1998 the Court entered a default judgment in favor of The Coffee Beanery, Ltd. in the amount of $59,031.97.

The Coffee Beanery. Ltd. v Richard and Janet Beidleman/Richard and Janet Beidleman v The Coffee Beanery. Ltd.. Case No. 98-72040 United States District Court for the Eastern District of Michigan. Filed May 18. 1998.

The Coffee Beanery, Ltd. filed suit against its former franchisees in Philadelphia, Richard and Janet Beidleman. The suit arose from Beidlemans' failure to pay royalties under their Franchise and License

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Agreement and their failure to pay rent under their sublease for the franchised location where The Coffee Beanery, Ltd. was the primary tenant. The Beidlemans filed a counterclaim alleging various breaches of the Franchise and License Agreement. Each party sought payment of money damages. In April 2000, Beidleman paid The Coffee Beanery, Ltd. Nineteen Thousand Three Hundred Dollars ($19,300.00) and the parties exchanged mutual releases in settlement of the matter.

The Coffee Beanery. Ltd. v John Andler/John Andler v The Coffee Beanery. Ltd. Case No. 98-004793-CK. Circuit Court for the County of Oakland. Filed March 20. 1998

The Coffee Beanery, Ltd. filed suit against its former franchisee in Southfield, Michigan, John Andler. The suit arises from Andler's failure to pay for royalties and product pursuant to the relevant Franchise and License Agreement and his failure to pay for equipment on a lease which The Coffee Beanery, Ltd. guaranteed. Andler has filed a counterclaim alleging various violations of the Franchise and License Agreement. Each party sought payment of money damages. In April 1999, Andler paid The Coffee Beanery, Ltd. Twenty Thousand Dollars ($20,000.00) and the parties exchanged mutual releases in settlement of the matter.

The Coffee Beanery, Ltd. v Anthony Esposito. Case No. 99-60630. in the United States District Court for the Eastern District of Michigan; The Coffee Beanery. Ltd. v. Anthony Esposito. Case No. 00-23833-BKC-PGH. in the United States Bankruptcy Court for the Southern District of Florida.

On October 18, 1999, The Coffee Beanery, Ltd. brought an action against its franchisee, Anthony Esposito, alleging various causes of action including breach of contract, failure to pay royalties, advertising fond and product purchases, trademark infringement, unfair competition, and seeking damages and injunctive relief. Esposito had operated Coffee Beanery franchises at Magnolia Shoppes in Coral Springs, Florida and at Las Olas Boulevard in Ft. Lauderdale, Florida. On February 4, 2000, the United States District Court for the Eastern District of Michigan entered a Default Judgment in favor of The Coffee Beanery, Ltd. and against Esposito in the sum of $57,287.41, plus interest. On June 5, 2000, the same court entered an Order for injunctive relief, which among other things, prohibited Esposito from violating The Coffee Beanery, Ltd.'s trademark rights, prohibited him from unfairly competing with The Coffee Beanery, Ltd., and directed that he assign the leases for and surrender the Stores to The Coffee Beanery, Ltd. In an effort to avoid the District Court's Judgment and its Order, Esposito filed for bankruptcy protection on June 16, 2000. The Coffee Beanery, Ltd. filed pleadings requesting the Bankruptcy Court to lift its automatic stay and thus allow enforcement of the Order for injunctive relief issued by the District Court in Michigan. The Bankruptcy Court proceeding is administratively closed.

Other than these eight actions, no litigation is required to be disclosed in this Offering Circular.

ITEM 4

BANKRUPTCY

No person identified in Item 1 or officer identified in Item 2 has been involved as a debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in this Item 4.

ITEM 5

INITIAL FRANCHISE FEE

All franchisees pay a lump sum franchise fee in one or two installments depending upon the type of Store. Your franchise fee is $27,500 paid in two (2) installments: $17,500.00 when you sign the Franchise Agreement plus $10,000.00 when we grant approval of your site unless you are a Conversion Owner or wish to operate a Co-Branded Store. If you are a Conversion Owner, your initial franchisee fee is Six Thousand Eight Hundred and Seventy Five Dollars ($6,875) which is payable in full when you sign the Franchise Agreement and is non-refundable. If you are a Co Branded Owner, your initial franchisee

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fee is Thirteen Thousand Seven Hundred and Fifty Dollars ($13,750) which is payable in full when you sign the Franchise Agreement and is non-refundable. The initial franchise fee for the second and each subsequent Store operated by a Franchisee is twenty five percent (25%) of the then current initial franchise fee.

(a) The second installment of the initial franchise fee, $10,000.00, is due when we grant approval of your site and is non-refundable. The initial franchise fee for the second and each subsequent Store operated by a Franchisee is twenty five percent (25%) of the then current initial franchise fee.

(b) The initial franchise fee (or portion thereof) you have paid will be not be refunded to you even if you are not able to find an approved location.

Coffee Beanery is a member of the International Franchise Association (IFA) and participates in the IFA's VetFran Program, which provides a fifteen (15%) percent discount on initial franchise fees to veterans of U. S. Armed Forces who otherwise meet the requirements of the VetFran Program and have been honorably discharged.

We have occasionally abated or returned all or a portion of the initial franchise fee as an economic incentive for a franchisee to open a location, with the determination made on a case by case review of all relevant economic factors.

Prior to opening a Store, you are required to purchase your opening coffee inventory from us and you may purchase other goods or services from us. The range of costs for the required and optional purchases are described in Items 6, 7 and 8 of this Offering Circular. In addition, we require you to deposit the sum of between $2,500 and $7,500 (depending upon the type of Store) with us for grand opening advertising and will expend these funds for local grand opening advertising when you open your Store. If you never open your Store, we will refund this deposit. These costs are also described in Items 6, 7 and 8 of this Offering Circular.

Area Franchise Agreement

If you sign an Area Franchise Agreement, you must pay us a non-refundable fee when you sign it. This fee will vary among Area Franchisees and will be based on factors such as the size of the Territory (as described in Item 12), the market for customers of Stores, the number of Stores potentially to be franchised in the Territory, income levels, availability of locations, competition from businesses similar to Stores, and related factors. We estimate that Area Franchise Fees are likely to range from $100,000 to $250,000.

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Development Agreement

If you sign a Development Agreement, you must pay a development fee of $27,500.00 for the first store to be developed and $3,437.50 for each additional Store. The development fee is payable in full when the Development Agreement is signed, and is not refundable; however, we will credit $3,437.50 towards the initial franchise fee to be paid at the time you sign a Franchise Agreement for each additional Store to be opened under the Development Agreement. The number of Stores to be developed will be set forth in the Development Schedule which is a part of the Development Agreement.

Initial Training Expenses

Prior to the opening of your Store, Franchisees and Area Franchisees must attend and complete our Initial Training Program, as described in detail in Item 11, which will take place at our offices in Flushing, Michigan and at your Store. For training at your Store, you must reimburse us for all of the expenses of our trainers in providing this training, including travel, lodging and meal costs incurred during training. For training at our location, you must pay all travel, lodging and meal costs incurred during training. We estimate that these costs will range from $3,000 to $5,000. We provide additional training for area franchisees and we estimate that the costs for this additional training will range from $1,000 to $2,000. We do not provide a training program for Developers.

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ITEM 6

OTHER FEES

				(If.mYkk.s ; sH^H^^^^^^I
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ROYALTY	6% of the gross sales * of the Store.	Payable via electronic funds transfer by Wednesday of the week following on gross sales for the preceding week.³		Submit with documents we request.
BRAND BUILDING FUND	2% of gross sales.	Same time and manner as royalty.		See Item 11 for a detailed discussion of the Brand Building Fund.
GRAND OPENING	$2,500 to $7,500	We require you to deposit between $2,500 and $7,500 (depending on the type of Store) with us when you pay the second installment of your initial franchise fee.		We will expend this deposit for local advertising sources as incurred during the 2 months before and 6 months after Store opening. We refund any unused deposit for grand opening advertising to you. See Item 11.
COOPERATIVE ADVERTISING	Amount to be established by local cooperative but CBL may require up to two percent (2%) to be paid to local cooperative without vote.	Established by vote of Stores in cooperative not to exceed eight percent (8%).		Franchisees and the company will form an advertising cooperative and establish local advertising fees if required by Coffee Beanery. Company owned Stores may vote in these cooperatives on the same basis as franchise Stores.
WAREHOUSE PURCHASES	Will vary under circumstances.	Payable via electronic funds transfer within fifteen (15) days of billing.		Standard warehouse terms as set forth in Warehouse Agreement, Attachment C to the Franchise Agreement apply.
TRAINING	Reasonable charge.	When billed.		We provide initial training at no charge beyond your initial franchise fee. We may charge for additional persons or additional training.
NATIONAL CONVENTION FEE (APPLIES TO FRANCHISEES, AREA FRANCHISEES AND DEVELOPERS)	$200	Annually in advance of national convention		Paid each year to defray our costs associated with conducting the convention.

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TRANSFER TO EXISTING FRANCHISEE

Reasonable expenses not to exceed 25% of the then current initial franchise fee but not less than $2,500.

Payable when you apply for transfer of the Franchise Agreement, the franchise, the

store or its assets.

The transfer fee is non-refundable.

TRANSFER TO NEW FRANCHISEE

Reasonable expenses not to exceed 25% of the then current initial franchise fee but not less than $2,500.

Payable when you apply for transfer of the Franchise Agreement, the franchise, the store or its assets.

The transfer fee is non-refundable.

RENEWAL

$1,500, subject to the right of CBL to increase the fee on a uniform basis in the future.

Payable when we approve renewal of your franchise.

The renewal fee is non-refundable.

MARKETING FEE (SALE OF FRANCHISE)

2.5% of gross sales price, less inventory.

Prior to the transfer.

Payable if you request us to find a purchaser for your store and we do so.

MINIMUM INVENTORY

Will vary under circumstances.

When billed.

If you don't maintain sufficient inventory for your Store, we can provide it and charge you for it.

MAINTENANCE OF STORE AND INSURANCE

Reasonable charge.

When billed.

Payable if you do not maintain the condition and appearance of the Store or refurbish in accordance with standards or purchase the required insurance and we do so on your behalf.

REINSTATEMENT FEE

$2,500

After approval by us and prior to reinstatement

If we terminate your Franchise Agreement due to your default, you cure the default, request to be reinstated and we agree (in our sole discretion) to reinstate your Franchise Agreement, you must pay us the $2,500 reinstatement fee.

COSTS AND ATTORNEYS FEES

Will vary under circumstances.

As incurred.

Payable if we prevail in a judicial or arbitration proceeding or if we are required to engage a lawyer in connection with your failure to comply with the Franchise Agreement.

AUDIT

Cost of audit, understatement plus interest.

Payable immediately upon receipt of audit report.

Costs of audit payable only if understatement greater than 5%.

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MH0

INTEREST

Lesser of 1.5% per month or highest contract rate of interest allowed by law.

When billed.

Payable on all overdue accounts.

AREA FRANCHISE RENEWAL FEE (APPLIES TO AREA FRANCHISEES ONLY)

Fifteen percent of the initial area franchise fee, or a negotiated fee based upon the development schedule, whichever is greater.______________

Upon execution of renewal agreement

Payable if you execute a renewal Area Franchise Agreement

INDEMNIFICATION (APPLIES TO FRANCHISEES, AREA FRANCHISEES AND DEVELOPERS)

Will vary under circumstances.

As incurred.

You have to reimburse us if we are held liable for claims, damages or obligations arising from unauthorized agreements or representations, your operation of the Store and your business and certain taxes.

ADVERTISING &

PROMOTIONAL

MATERIALS

Reasonable costs.

When billed.

For system-wide marketing programs, you are required to pay for and use these materials. We may offer other materials, the cost of which is payable if you elect to purchase these from us and we elect to charge for them.

LEASEHOLDS AND RENTAL³

As provided by the sublease.

As provided by sublease.

Payable under the terms of the sublease.

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'All fees, except grand opening advertising, which are paid to third parties, are imposed by and payable to us. All fees are non-refundable.

²We require weekly payment of royalties and to the Brand Building fund via electronic fund transfer ("EFT").

³We do not routinely sublease Stores and do not guarantee or financially assist you in with your Store rental. For some Stores where we were originally the tenant, you may sublease from us during the current term. We will not renew the lease and you will be responsible to renegotiate the lease after the lease term ends.

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ITEM 7 INITIAL INVESTMENT

■EH			JKgon>^:rtin(^^ KBOkEEHmHgBa		Mr IIUHMMr-	p§l B*8KfS0BS?IB ■
INITIAL FRANCHISE FEE (Note 1)	$27,500	$2730	$6,875	$13,750	Cashier's Check Money Order	Upon signing Franchise Agreement	Us
OPENING INVENTORY AND SUPPLIES	$12,000- $15,000	$5,000 - $30,000	$5,000 - $25,000	$5,000 - $25,000	As arranged between you, us and outside suppliers prior to opening		Us or outside suppliers
EQUIPMENT FIXTURES, SIGNAGE & LEASEHOLD IMPROVEMENTS (Note 2)	$250,000-$375,000	$200,000 - $325,000	$20,000 -$160,000	$20,000 -$160,000	As arranged between you, us and outside suppliers prior to opening		Us or outside suppliers
GRAND OPENING ADVERTISING (Note 3)	$7,500	$2,500-$7,500	$2,500	$2,500	As arranged between you, us and outside suppliers prior to opening		Us or outside suppliers
FIRST MONTH'S RENT & SECURITY DEPOSIT (Note 4)	$4,000 - $10,000	$3,000 - $15,000	$3,000-$10,000	$3,000 - $10,000	As specified in lease or sublease		Landlord or us if we are landlord
TRAINING EXPENSES	$3,000 - $5,000	$3,000 - $5,000	$1,000-$2,000	$1,000-$2,000	Cash - Lump Sum	As incurred	Outside suppliers
BRAND BUILDING FEE	2% of Gross Sales				Cash - Lump Sum	By Wednesday on sales during the previous week	Us
ROYALTY FEE	6% of Gross Sales				Cash - Lump Sum	By Wednesday on sales during the previous week	Us
MISCELLANEOUS OPENING COSTS (Note 5)	$4,000	$3,000 - $4,000	$3,000	$3,000	Cash - Lump Sum	As incurred	Third Parties
ADDITIONAL FUNDS -WORKING CAPITAL (Note 6)	50,000-75,000	25,000-50,000	20,000-40,000	25,000-50,000	Cash - Lump Sum	As incurred	Third Parties
TOTAL ESTIMATED INITIAL INVESTMENT (Note 7)'(Note 8)	$355,500 -$519,000	$269,000 - $464,000	$61,375-$249,375	$73,250-$266,250

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NOTES:

(1) Your franchise fee of $27,500.00 is paid in two (2) installments: $17,500.00 when you sign the Franchise Agreement plus $10,000.00 when we approve your site for Cafe or Traditional Store locations. The franchise fee for a Co-Branded Store Stores ($13,750) is paid in full when you sign the Franchise Agreement. The franchise fee for a Conversion Store ($6,875) is paid in full when you sign the Franchise Agreement. The initial franchise fee is refundable only under the circumstances set forth in Item 5. If you qualify for the IFA's VetFran Program, your initial franchise fee will be discounted by fifteen percent (15%). We do periodically reduce or refund a portion of the initial franchise fee on a case by case basis as an economic incentive for certain operators to open a Coffee Beanery location. See Item 5 of this Offering Circular. We also require you to deposit between $2,500 and $7,500 with us when you pay the second installment of your franchise fee to be expended for grand opening and first year Brand Building. See Items 6 and 11 of this Offering Circular.

(2) This item includes typical equipment, fixtures, signage, and leasehold improvements for each concept. The range of cost for these items is attributable to such factors as size, configuration, and location of the Store, as well as price differences between suppliers.

(3) This item covers expenses you will pay to the third parties to advertise and promote your new business during the two (2) months before and the six (6) months after opening.

(4) The amount of the first month's rent and security deposit will depend on the size, condition and locations of the premises, and the demand for the premises among prospective lessees. The lease may impose other charges for percentage rent, real estate taxes, utilities, maintenance, advertising and promotion or other expenses. If we sublease to you, The Coffee Beanery Ltd. may impose a security deposit even if it was not required to pay one under the master lease.

(5) This item covers miscellaneous opening costs and expenses such as installation of telephones, deposits for and temporary utilities, business licenses, legal and accounting expenses, insurance premiums, register cash, initial bank deposits for checking account.

(6) This estimates your initial start up expenses. These expenses include payroll costs. These figures are estimates and we cannot guarantee that you will not have additional expenses starting the business. Your costs will depend on factors such as: how much you follow our methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for our product; the prevailing wage rate; competition; and the sales level reached during the initial period. Like any new business, it should be expected that your business will not generate positive cash flow for a significant period after your opening. You should be prepared, therefore, to invest additional sums to support operations during this initial start up phase.

(7) We relied on our over twenty (20) years of experience in the coffee business to compile these estimates but they are not exact. Conversion Owners will incur lower costs since they will have already made the investment associated with commencing business. In addition, Co-Branded Store operators may incur additional costs relating to the other products or services sold which we are unable to estimate. You should carefully review these figures with a business advisor to determine if they are reasonable before making any decision to purchase the franchise.

(8) We do not offer direct or indirect financing to franchisees for any items. The expenses disclosed in Item 7 do not include debt service since we do not know whether and to what extent you will obtain financing for any part of your investment.

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ITEM 7: INITIAL INVESTMENT, CONTINUED

AREA FRANCHISE AGREEMENT

yjfi-

Area Franchise Fee¹

IWheniDue- ■ ^'lⁱr

$100,000 to $250,000

Upon signing the Area Franchise Agreement

Travel and Living Expenses for Initial Area Franchisee Training²

$ 1,500 to $ 2,500

As Arranged

Vendors

Compliance with laws and registration expenses for franchise registration states³_____________

$1,000 to $25,000

As incurred

Professionals and

regulators

TOTAL:

$111,500 to $277,500

NOTES:

Except as described below, all fees are non-refundable.

1. This fee varies among Area Franchisees, depending on a variety of factors, as described in Item 5. Neither we nor any affiliate provides financing for the Area Franchise Fee.

2. The cost range varies greatly depending upon the distance traveled, the mode of transportation, the cost of meals and accommodations selected, and the duration of the training course. This estimate is for one person. Area Franchisee training is described in Item 11.

3. You will be required to comply with federal and state laws and regulations relating to the sales of franchises, including creation of appropriate disclosure documents, UFOCs and similar documents and, if applicable, state laws requiring registration prior to any offer or sale of a franchise. The estimates provided are based upon the necessity to retain qualified accounting and legal counsel to complete these documents.

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ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

Standards and Specifications

To insure that the highest degree of quality and service is maintained, you must operate the Store in strict conformity with the methods, standards, and specifications that we set forth in the Operating Manual ("Manual") or otherwise in writing. You must not (i) deviate from these standards, specifications, and procedures without our prior written consent, or (ii) otherwise operate in any manner which reflects adversely on our Proprietary Marks or the System.

You must purchase and install at your expense, maintain in sufficient supply, and use at all times, only fixtures, furnishings, equipment, signs, and supplies that conform to the standards and specifications described in the Manual or otherwise in writing; you must not use nonconforming items. In addition, you must sell or offer for sale only products and services that we have expressly approved for sale in the Manual or otherwise in writing and discontinue selling any products or services that we, in our discretion, determine may adversely affect the System. You must not offer any unapproved products or services.

Purchases from Approved Suppliers

You are required to purchase all coffee, coffee related and certain products carrying our Proprietary Marks exclusively from us. You are not required to purchase or lease from us or our designees, any goods, services, supplies, fixtures, equipment, inventory, or real estate for the establishment or operation of the Store. You must, however, purchase all products, equipment, supplies, and materials used or sold by the Store, solely from suppliers (including manufacturers, wholesalers, and distributors) (i) who demonstrate, to our continuing reasonable satisfaction, the ability to meet our reasonable standards and specifications for these items; (ii) who possess adequate quality controls and capacity to supply your needs promptly and reliably; (iii) whose approval would enable the System, in our opinion, to take advantage of marketplace efficiencies; and (iv) who have been approved by us in the Manual or otherwise in writing and not later disapproved. The items you are required to purchase or lease from approved suppliers include equipment such as various restaurant and coffee brewing equipment, computers and software; coffee and other retail product inventory and fixed assets such as counters, cabinets and signs.

We are an approved supplier of goods and services to you. According to our audited financial statements for the 2006 fiscal year, we had total revenues of $13,990,965 of which amount $ 7,446,469 approximately fifty three percent (53%) consisted of revenues from the sale of products to our franchisees. We estimate that approximately forty percent (40%) of your initial investment will be from the sale of products by us and approximately twenty-five percent (25%) of annual operating expenses will be purchases from us.

Approved suppliers do not make payments to us on account of transactions with you or other franchisees, except as disclosed below. We do attempt to obtain volume discounts from approved suppliers based upon the combined buying power of our franchise system. These discounts, when obtained, may result in lower prices for the items being purchased. We have negotiated purchase arrangements with suppliers under which our franchisees obtain discounts of five percent (5%) to seventy percent (70%) from standard prices for items such as shipping costs, inventory, equipment, insurance and credit card processing. We have not negotiated any contracts with suppliers which gives us a better price than the price the supplier charges to franchisees.

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One of our approved suppliers, Pepsi Cola Company, the exclusive approved supplier for soft drinks, provides soft drinks to our stores and paid us an amount that ranges from $0.45 to $0.70 per gallon of Store purchases of Pepsi Cola products. An advance payment of part of this amount was previously deposited in our Marketing Fund, part was used to offset expenses associated with our National Convention and part was used to offset expenses related to placing Pepsi Cola products in our franchised and corporate stores.

We have negotiated purchase arrangements with two of our approved suppliers that provide that rebates or incentives shall be paid to the Coffee Beanery by such suppliers for purchases made by us and our franchisees. These rebates or incentives have been paid by the Coffee Beanery to the Brand Building Fund described in Item 11 below. No portion of these rebates are retained by us. The amount of these rebates / incentives in the past fiscal year is $434.

We have also entered into a representation agreement with Ronin LLC under which we will market Ronin products. We anticipate that some of the Ronin products will be sold to our franchisees, although our representation of these products is not limited to the Coffee Beanery franchise system. The Coffee Beanery will receive a 1% commission on all Ronin products sold, including those products sold to our franchisees. We will retain this commission as compensation for our services in the sale of Ronin products.

Approval of New Suppliers

Periodically, we will update the list of approved suppliers in the Manual and provide you with the updated list. If you desire to use a supplier that has not been approved by us, that supplier may become an approved supplier if that supplier's products meet our specifications and requirements. To secure approval, you must submit a written request to us to approve the supplier, together with evidence of conformity with our specifications as we may reasonably require. We may charge a fee for the evaluation of the proposed supplier. We generally respond to a request for an additional approved supplier within seven (7) days. Our written approval must be received before you use products that were not purchased from an approved supplier. We may revoke our approval at any time if we determine, in our discretion, that the supplier no longer meets our standards. When you receive written notice of a revocation, you must stop selling any disapproved products, and stop purchasing from any disapproved supplier.

We consider a variety of factors when determining whether to renew or grant additional franchises. Among the factors we consider is compliance with the requirements described above. We do not provide any material benefits to any franchisees (for example, additional franchise rights or renewal rights) based on their use of designated or approved suppliers.

Programs, promotions and site amenities.

We retain the discretion to require you to participate in certain system wide promotions and programs. These programs may include your mandatory participation in gift card programs, in participation in national utilities, such as satellite TV or radio, and similar national identity programs. We currently require franchisees to participate in a national Gift Card Program offered by Gift Card Solutions at your expense. The approximate cost of the equipment to participate in the Gift Card Program is $500 and is included in the basic computer equipment package and we anticipate that the annual cost of participating in the Gift Card Program is $100 plus transaction fees. In addition, we currently require certain locations to provide background music via a programming service of some type. Your reception of radio programming will require you to pay an installation and a monthly service fee that we anticipate to cost approximately $750 and $28 respectively. We retain the right to require you to use a particular music provider or to implement additional promotional activities.

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Uniform Franchise Offering Circular (v.2006) 09/30/06

ITEM 9

FRANCHISEE'S OBLIGATIONS

THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE, AREA FRANCHISE AND DEVELOPMENT AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN ITEMS OF THIS OFFERING CIRCULAR.

Note: If an Agreement section is not listed for the obligation, then the Agreement does not contain a specific provision related to the obligation.

^^^^^^HvHffipaunn^^^^HH	^^^^Kt?TimiTn4'yreeNienl^^^^H	Pitomiiiiiwttermeiy>ircularJ\|
a. Site selection and acquisition/lease	Franchise Agreement §§ 1,5; Development Agreement §1 and Attachment B	Items 7 and 11
b. Pre-opening purchase/lease	Franchise Agreement § 5	Items 5, 7, and 8
c. Site development and other pre-opening requirements	Franchise Agreement § 6	Items 6, 7, and 11
d. Initial and ongoing training	Franchise Agreement § 5; Area Franchise Agreement §5.1	Item 11
e. Opening	Franchise Agreement §§ 4, 5 6, and 9; Area Development Agreement §3 and Attachment A	Item 11
f. Fees	Franchise Agreement §§ 2, 3; Area Franchise Agreement §4; Area Development Agreement §2 and Attachment A	Items 5 and 6
g. Compliance with standards and policies/Operations Manual	Franchise Agreement §§ 5, 6, 7, and 8; Area Franchise Agreement §5	Items 11 and 14
h. Trademarks and proprietary information	Franchise Agreement §§ 7, 8; Area Franchise Agreement §6; Area Development Agreement § 1	Items 13 and 14
i. Restrictions on products/services offered	Franchise Agreement §§ 5, 8	Item 16
j. Ongoing product/services purchases	Franchise Agreement §§ 5, 7	Item 8
k. Maintenance, appearance and remodeling requirements	Franchise Agreement §§ 5, 11	Item 11
1. Insurance	Franchise Agreement §§ 5, 6, 10; Area Franchise Agreement §9	Item 7
m. Advertising	Franchise Agreement §§ 3, 5, and 9; Area Franchise Agreement §9	Items 6 and 11

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^^^^^^HOhiiPntmn^^^^^^H	^^^■Sw?tionTmW???ement^^^H
n. Indemnification	Franchise Agreement § 18; Area Franchise Agreement §13; Area Development Agreement §9	Item 6
o. Owner's participation/ management/staffing	Franchise Agreement § 5 and Attachments A and B	Items 11 and 15
p. Records/reports	Franchise Agreement §11; Area Franchise Agreement §5	Item 6
q. Inspections/audits	Franchise Agreement §§ 5, 11	Items 6 and 11
r. Transfer	Franchise Agreement § 12; Area Franchise Agreement §10; Area Development Agreement §6	Items 6 and 17
s. Renewal	Franchise Agreement § 2; Area Franchise Agreement §2	Item 17
t. Post-termination obligations	Franchise Agreement §§ 13, 14; Area Franchise Agreement §12; Area Development Agreement §8	Item 17
u. Non-competition covenants	Franchise Agreement § 15 and Attachment A; Area Development Agreement §5; Confidentiality and Noncompetition Covenant (Exhibit G)	Item 17
v. Dispute resolution	Franchise Agreement § 23; Area Franchise Agreement §18; Area Development Agreement §14	Item 17
w. Promotion of Coffee Beanery Franchises	Franchise Agreement § 5; Area Franchise Agreement §5	Item 11
x. Warranty and customer service Requirements	Area Franchi

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