UFOC
Sample UFOC
858 Higuera St.
San Luis Obispo, Ca 93401
805.542.0255, fax 805.542.0257
email bread@houseofbread.com
FRANCHISE OFFERING CIRCULAR 2006
California Department of Corporations 1390 Market Street, Suite 810 San Francisco, Ca. 94102
The franchisee will operate a specialty bread bakery offering healthy, low-fat, and deliciously baked goods.
The initial franchise fee is $28,000 for one franchise. HOB does offer a Multi-Unit franchise agreement. The first franchise unit is $28,000, the second and third units are $14,000 each. The minimum franchise fee for a mulitple unit franchise agreement of two units is $42,000 and the maximum franchise fee for a mulitple unit franchise agreement of three units is $56,000.
The estimated initial investment ranges from $153,000 to $343,000 for one unit.
DATED: March 27, 2006
Risk Factors:
THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE TO ARBITRATE WITH OR TO SUE HOUSE OF BREAD ONLY IN CALIFORNIA OUT OF STATE ARBITRATION AND LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO ARBITRATE OR SUE HOUSE OF BREAD IN CALIFORNIA THAN IN YOUR HOME STATE.
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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THE FRANCHISE AGREEMENT STATES THAT CALIFORNIA LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.
THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators at (916) 445-7205 or write Franchise Division Department of Corporations 1515 "K" Street, Sacramento, CA 95814 and the California Consumer Law section at Attorney General's Office 1515 "K" St. Sacramento, CA 95815 (916)445-9555. Also your public library contains sources of information.
Registration of this franchise by a state does not constitue approval, recommendation or endorsement by the commissioner. If you learn that anything in this offering circular is untrue, contact the Federal Trade Commission, California Department of Corporations and the Attorney General's Office.
HOUSE OF BREAD FRANCHISING INC.
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Franchise Offering Circular
/
TABLE OF CONTENTS
ITEM______________________________________________PAGE
1 The Franchisor, its Predecessors and Affiliates 5
2 Business Experience 6
3 Litigation 6
4 Bankruptcy 6
5 Initial Franchise Fee 6
6 Other Fees 7
7 Initial Investment 8
8 Restrictions on Sources of Products and Services 10
9 Franchisee's Obligations 11
10 Financing 12
11 Franchisor's Obligations ■ 12
12 Territory 15
13 Trademarks 15
14 Patents, Copyrights and Proprietary Information 17
15 Obligation to Participate in the Actual Operation 18 of the Franchise Business
16 Restrictions on What the Franchisee May Sell 18
17 Renewal, Termination, Transfer and
Dispute Resolution 18
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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18 Public Figures 20
19 Earnings Claims 21
20 List of Outlets 21
21 Financial Statements 21
22 Contracts 22
23 Receipt 23
Exhibits
A. Financial Statements
B. Franchise Agreement with Personal Guarantee attached
C. Multi-Unit Franchise Agreement.
D. Confidentiality and Nondisclosure Agreement.
E. Franchise Disclosure Questionaire.
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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ITEM1
THE FRANCHISOR. ITS PREDECESSORS AND AFFILIATES
To simplify the language in this Franchise Offering Circular, HOB means House of Bread Franchising, Inc., the Franchisor. "You" means the person, corporation, partnership or other entity who buys the franchise, the Franchisee. If a corporation, partnership or other entity is the Franchisee, "You" includes the Franchisee's owners. HOB is a California corporation that was incorporated on February 26,1998. HOB does not do business under any other name. Our principal business address is 858 Higuera Street, San Luis Obispo, Ca. 93401.
HOB's agent for service of process is disclosed in the acknowledgment of receipt, Item 23 of this Franchise Offering Circular.
HOB is a franchising company which sells and grants franchises for the operation of Outlets known as House of Bread. Furthermore, HOB franchising offers House of Bread Juniors to existing franchise owners. By separate agreement, HOB may offer Multi-Unit Franchise Agreement.
HOB has a brother sister corporation called House of Bread, which operates a senior bread store, which is substantially similar to the franchise potentials being offered by HOB. However, House of Bread Franchising and House of Bread are two completely separate entities and House of Bread does not assume any legal obligations of House of Bread Franchising.
HOB is not engaged in any other type of business activity.
HOB franchises or authorizes you to use the trademarks of and to operate a House of Bread store. A House of Bread franchise Outlet provides specialty bread products through a uniform system consisting of high standards for service, use of quality ingredients, and under the business format created and developed by HOB. A House of Bread store caters not only to the health conscious consumer but also to people who are most concerned with flavorful bread. The House of Bread junior concept is a smaller location where only the cinnamon rolls are baked on the premises. The bread that is sold at the junior store is baked at the senior House of Bread location.
You will have to compete with other franchised operations, national chains and independently owned companies offering freshly baked bread.
HOB's brother sister corporation, House of Bread, has operated a bread store outlet which is similar to the franchised business being offered since November 11,1996. HOB has been offering House of Bread franchises since 1998.
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HOB does not sell franchises in any other lines of business.
House of Bread bakeries must comply with the local county health department regualations.
ITEM 2 BUSINESS EXPERIENCE
President of House of Bread franchising: Sheila McCann Sheila McCann Attorney at Law December 1990 to present. President Montana Corporation January 1994 to December 1997. President of House of Bread Inc. March 1995 to present. President of House of Bread Franchsising 1998 to present.
Franchise Consultant: Marc Chaisson
Marc Chaisson President of Chaisson Enterpriese, Inc. from October 1985 to present.
Consultant to House of Bread Franchsing May 2002 to present.
Marc Chaisson has been retained as an independent contractor status to provide franchise consulting services. Since October 1985, he has been the President and sole officer and director of Chaisson Enterprises, Inc., a California corporation which is engaged in the business of providing food service consulting services. Since May of 2002, Chaisson Enterprises has provided contractual services to HOB related to informational systems to assist the bakery owners in understanding their operational ratios and advice on management of the bakery in order to obtain their operating ratio goals. We compile the weekly operating ratios consisting of cost of goods, sales and labor into an Excell spread sheet that is sent to Marc Chaisson. He then averages the operating ratios of cost of goods, sales, and labor into House of Bread averages in order for the franchisees to have a comparison of their operating ratio numbers with the average of all the bakeries operating ratio numbers. We do have the average sales figures of all the bakeries that we distrubute to the franchisees in order to give them more information to set their own sales goals. We consider sales, cost of goods and cost of labor operating ratios. We provide information on the average of the sales, cost of goods, and cost of labor for all the bakeries in order to assist the franchisee is setting and obtaining their own operating ratio goals.
Bakery Consultant: Julia Ackerson
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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Ms. Ackerson was originally the head baker and then manager of House of Bread from 1998-2003. Currently, Ms. Ackerson has a contractual arrangement with House of Bread Franchising for product development, franchisee training and support. Ms. Ackerson has a degree from California Polytechnical in nutrition and food science.
Publicist: Hilary Kay and Associates
Since March of 2004, there is a month to month contractual arrangement with Hillary Kay and Associates to perform publicity for House of Bread Franchising and assist the franchisees in with their publicity releases.
There can be no assurance that these people will remain affiliated with HOB indefinitely or for any period of time, or that the scope of their involvement will not change.
ITEM 3
LITIGATION
No litigation is required to be disclosed in this Franchise Offering Circular. No person listed above is subject to any currently effective order of any national securities association or national securities exhange, as defined in the Securities Exchange Act of 1934, 15 U.S.C. A. 78a et seq.
ITEM 4
BANKRUPTCY
No person previously identified in Items 1 or 2 of this Franchise Offering Circular has been involved as a debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in this Item.
ITEM 5
INITIAL FRANCHISE FEE
If you are purchasing one franchise then you pay a 50% portion of your franchise fee, $14,000, when you sign the franchise agreement. After completion of the three day training porgram, the remaining 50% of the franchise fee is due. The franchisee fee for the House of Bread Junior is $10,000 paid in advance. If HOB terminates you for reasonable cause as a franchisee during training, then $22,000 of the Initial Franchise Fee will be refunded to you within 30 days of your notifiction of termination. There are no refunds under other circumstances.
HOUSE OF BREAD FRANCHISING INC.
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Franchise Offering Circular
The initial franchise fee of $28,000 includes all fees and payments to the Franchisor for services or goods received FROM the franchisor BEFORE the franchisee's business opens. "Initial fee" includes all fees and payments whether in lump sum or installments.
ITEM 6 OTHER FEES
Name of Fee |
Amount |
Due Date Remarks |
|
Royalty |
6% of gross revenue |
Payable weekly for the first year and then on a monthly basis. |
Gross revenues are all revenue from the senior, junior and any other distribution points. |
Individual Local Advertising |
2% of gross revenue |
Monthly reports sent to franchisor of the franchisee's advertising costs. |
Stops when cooperative advertising is available |
Cooperative Advertising |
2% of gross revenue |
Established by franchisee organization |
Formed when 3 or more franchisees in a local market |
Professional fees to include, but not limited to, attorneys, accountants, architects, and space planners |
Unknown |
Upon franchisor and franchisee judgment |
|
Grand Opening Marketing |
$15,000 |
Report mailed to franchisor with advertising costs. |
The $15,000 is the minimum amount estimated cost |
Transfer |
$5,000 |
Prior to acceptance of transfer |
Payable before you sell your franchise. |
Audit |
Cost of audit plus 10% interest on understatement |
30 days after billing |
Payable only if audit shows an understatement of at least 2% of gross revenue for any month |
Site relocation fee |
$2,000 |
Prior to relocation |
Payable before you Relocate |
Fees for lost manuals |
Recopy costs and |
Upon delivery |
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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labor |
|||
Interest/late charges |
12% |
30 days after billing |
|
Franchise renewal fees |
$5,000 |
30 days upon renewal signing |
All fees are imposed by and are payable to HOB except the advertising fees, which are paid directly to the advertising medias. House of Bread Franchising is mailed a copy of all reciepts for advertising. The fees and costs in this ITEM 6 are uniform as to all persons currently being offered a franchise. All fees are non-refiindable.
The House of Bread Junior's gross sales would be added to the House of Bread Senior's gross sales in determining the royalty and advertising fees.
ITEM 7
INITIAL INVESTMENT
YOUR ESTIMATED INITIAL INVESTMENT FOR A HOUSE OF BREAD SENIOR BAKERY
Expense |
Amount |
Method of Payment |
When Due |
To Whom Payment is Made |
Initial Franchise Fee |
$ 28,000 (note 1) |
Two $14,000 payments |
At franchise signing & after two day training |
House of Bread Franchising, Inc. |
Travel and living expense while training |
$1,000-$5,000 |
As incurred |
As incurred |
Airlines, hotel, restaurants |
Equipment |
$20,000-$100,000 (note 3) |
As determined by vendors |
Prior to opening or as arranged with vendors |
Vendor |
Buildout And Lease |
$49,000-$168,000 (note 2) |
As determined by contractors and Lessors |
Prior to opening or as arranged with contractors or lessors |
Construction contractor |
Pre-opening advertising |
$15,000 |
As incurred |
as necessary during first |
Media supplier |
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three months |
||||
Marketing Materials |
$5,000 |
As incurred |
Prior to opening |
House of Bread or supplier |
Miscellaneous opening expense |
$5,000-$8,000 (note 4) |
As incurred |
Varied times |
Supplier, vendor |
Informational System |
$11,000 (note 5) |
As determined by vendors |
Prior to opening |
Supplier, vendor |
Legal, accounting, professional fees |
$1,000-3,000 |
As incurred |
Varied terms |
Supplier |
Food Supplies |
$9,000 |
As incurred |
Prior to opening or as arranged with suppliers |
Supplier |
TOTAL |
S153K -343,K note 6 |
High Investment TOTAL $343,000 to Low Investment TOTAL$153,000.
Notes:
(1) See Item 5 for the conditions when this fee is partly refundable. House of Bread does not finance any fee.
(2) If you do not own adequate space, you must lease the space for your business. Generally this will include first and last months rent plus a security deposit. Typical locations are in shopping centers anchored by an upscale supermarket or high trafficked commercial streets. The typical space contains 1,300 to 1,800 square feet. Rent is estimated to be between $30,000 to $60,000 per year depending on factors such as size, conditions and location of the leased premises. We limit the amount of rent to 60k for the first year of a lease. The House of Bread Juniors are 200-800 square feet and rent is estimated to be between $10,000 to $30,000 a year.
(3) This payment varies depending upon whether you lease the equipment or purchase new and/or used equipment.
(4) Includes other deposits, utility costs, incorporation fee.
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(5) This payment is for Aloha point of sale information system to include touch screen, receipt printer, cash drawer credit card swip, back office computer hardware, printer, battery back up, auto shut down, software for touch screen, credit card software, backroom inventory, quickbooks Pro interface, set up and installation.
(6) This estimates your initial start up expenses for an initial one month period. These expenses do not include payroll costs. These figures are estimates and HOB cannot guarantee that you will not have additional expenses starting your business.
YOUR ESTIMATED INITIAL INVESTMENT FOR A HOUSE OF BREAD JUNIOR
Expense |
Amount |
Method of Payment |
When Due |
To Whom Payment is Made |
Initial Franchise Fee |
$ 10,000 |
Payment in full |
At franchise signing |
House of Bread Franchising, Inc. |
Travel and living expense while training |
$1,000-$3,000 |
As incurred |
As incurred |
Airlines, hotel, restaurants |
Equipment |
$2,000-$6,000 |
As determined by vendors |
Prior to opening or as arranged with vendors |
Vendor |
Buildout And Lease |
$7,000-$38,000 |
As determined by contractors and Lessors |
Prior to opening or as arranged with contractors or lessors |
Construction contractor |
Pre-opening advertising |
$5,000 |
As incurred |
as necessary during first three months |
Media supplier |
Marketing Materials |
$5,000 |
As incurred |
Prior to opening |
House of Bread or supplier |
Miscellaneous opening expense |
$1,000-$3,000 (note 1) |
As incurred |
Varied times |
Supplier, vendor |
Information System |
$17,000 (note 2) |
As determined by vendors |
Prior to opening |
Supplier, vendor |
Food Supplies |
$3,000 (note 3) |
As incurred |
Prior to opening or as arranged with suppliers |
Supplier |
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TOTAL |
$51K-90K note 4 |
High Investment TOTAL $51,000 to Low Investment TOTAL$90,000.
Notes:
(1) Includes deposits, and utility costs.
(2) The Junior bakery only bakes the cinnamon rolls on the premises. Therefore, the majority of your supply costs are incurred at the Senior bakery.
(3) This payment is for Aloha, point of sale information system to include touch screen, receipt printer, cash drawer, credit card swip, back office computer hardware, printer, battery back up, auto shut down, software for touch screen , credit card software, quickbooks Pro interface, set up and installation.
(4) This estimates your initial start up expenses for an initial one month period. These expenses do not include payroll costs. These figures are estimates and HOB cannot guarantee that you will not have additional expenses starting your business.
HOB relied on its experience to compile these estimates. You should review these figures carefully with a business advisor before making any decision to purchase the franchise.
Neither HOB nor any of its affiliates provide financing arrangements for you. If you obtain financing from others to pay for some of the expenditures necessary to establish and operate the franchise, the cost of financing will depend on many factors such as creditworthiness, collateral, lending policies, financial condition of the lender, regulatory environment, etc.
ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
You are required to use two types of organic whole wheat berries for milling in your HOB bakery. You are also required to use only 100% organic flours, oats and grains. HOB is a premium bread bakery with a deli concept on the side. Your outlet will open with the use of Boar's Head high quality all natural meats and cheese or an equivalent supplier for the lunch
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concept. In the alternative, you may roast your own high quality all natural meats on site. The soup shall be scratch made with only natural ingredients as with all products offered to sell at the bakery. Furthermore, HOB requires that you purchase an information system called Aloha Systems, which has been designed specifically for HOB. Howerver, you are not required to purchase Aloha systems from any particular supplier.
You are required to use the ingredients listed in the House of Bread recipes. Any proposed substitutions must be approved. We encourage franchisees to experiement with the products in order to meet their market needs. However, we require all potential new products to be approved by corporate on a new product request form contained within the standard operating procedures manual. This form needs to be submitted prior to the sale of any new items. Failure of House of Bread Franchising to respond to the request form within 48 hours, then approval is implied. There is an opening bread schedule, which has ten required breads to be baked and room for two more at the franchisees discretion. There are certain products that are difficult to make and thus, are only allowed after the first 90 days in business.
We do have a system for wholesale procurement, production and delivery. However, we do not allow any delivery of wholsale products during the first 90 days.
At this time no other supplies, inventory, equipment or furnishings are required to be purchased from certain vendors. However, HOB does have formal procedures for determining standards and they must be strictly adhered to. These standards or specifications and the names and addresses of recommended vendors, who are not affiliated with HOB, from whom you may purchase will be provided to you in the Confidential Operating Manual, which contains all of the operating procedures of House of Bread. HOB reserves the right to require additional items to be purchased from designated suppliers in the future.
HOB currently does negotiate purchase arrangements with suppliers or vendors to obtain price terms or any other benefits of a buying cooperative for its franchisees. HOB derives revenue from some of your purchases to cover administrative and implementation costs. However, the franchisee will realize a reduced price from the cooperative purchasing.
HOB requires that you maintain a minimum two million liability insurance coverage and name House of Bread Franchising as a additional insured. However, House of Bread reserves the right to increase the minimum liability coverage if you elect to operate your bakery as a sole-proprietorship or partnership arrangement.
ITEM 9
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION
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ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
Obligation |
Section in Franchise Agreement |
Item in Offering Circular |
Site selection and acquisition/lease if any |
Sections 8 & 9 |
Item 11 |
Pre-opening purchases/leases |
Section 8 |
Item 11 |
Site development and other preopening requirements |
Section 8 |
Item 11 |
Initial and ongoing training |
Sections 8 & 12 |
Item 11 |
Opening |
Section 8 |
None |
Fees |
Sections 3 & 4 |
Item 5 & 6 |
Compliance with standards and policies/operating manual |
Section 11, 12e, 12.5 and 13.2 |
Item 11 |
Trademarks and proprietary information |
Sections 1.3 & 15 |
Item 13 & 14 |
Restrictions on products/services offered |
Section 1.2, 12c, 12d & 13 |
Item 8 & 16 |
Warranty and customer service requirements |
By manufacturers |
|
Territorial development and sales quotas |
Section 1 and Exhibit A of the Franchise Agreement |
Item 11 & 12 |
Ongoing product/service purchases |
Section 12 |
Item 16 |
Maintenance, appearance and remodeling requirements |
Section 2D, 10, 12F, 12G, 12H&12M |
None |
Insurance |
Section 14 |
Item 8 |
Advertising |
Section 5 & 12K |
Item 11 |
Indemnification |
Section 14.4 |
None |
Owner's participation/management staffing |
Sections 12A, 12B&12.7 |
Item 15 |
Records/reports |
Section 7 |
|
Inspection/audits |
Section 7 & 12.4 |
|
Transfer |
Section 19 |
Item 17 |
Renewal |
Section 2 |
Item 17 |
Post-termination obligations |
Section 9, 15 & 18 |
Item 17 |
Non-competition covenants |
Section 17 |
Item 17 |
Dispute resolution |
Section 22.8 |
Item 17 |
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Personal Guarantee |
Section 22.11 |
Item 22 |
ITEM 10 FINANCING
HOB does not offer direct or indirect financing. HOB does not guarantee your note, lease or obligation. However, HOB does offer assistance in obtaining SBA approved lenders, loan packaging, equipment sources and financing.
ITEM 11
FRANCHISOR'S OBLIGATIONS
Except as listed below, HOB need not provide any assistance to you. Before you begin your business, HOB will:
1. Designate your location and exclusive Territory (Franchise Agreement - Section 1 and subsections 8.3 A and 9.1.) The zip code area for a Senior is between 50,000 and 100,000 people and for a Junior area is determined by the mutual decision House of Bread Franchising and the franchisee.
2. Assist you in selecting a business site. Your site must be at least 1,000 square feet in area and cost no more than $60,000 to lease the first year. Site selection is your responsibility but HOB assists in the location selection by providing you with a comprehensive real estate guide, which considers population density, traffic patterns and proximity of the proposed site to other bread bakery locations. HOB reserves the absolute right of approval. However, HOB must approve or disapprove your site within 20 days after we receive notice of the location from you (Franchise Agreement - Subsection 9.3). Furthermore, HOB has the first right of refusal to purchase adjacent territories but must utilize the right within 48 hours after reciept of franchisee written request.
3. After signing your Franchise Agreement, HOB will assist you in negotiating the lease or purchase of a location for your business (Franchise Agreement - Subsection 9.7). HOB recommends that you seek your own attorney to review the proposed lease. Your location will be leased or purchased by you from independent third parties.
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4. Upon signing the Franchise Agreement, HOB will schedule the first phase of your training period. During phase 1 of the training, HOB will provide the operation's manual, real estate guide, finance guide, written specifications and instructions for the required permits such as health, sanitation, building, utility and sign for your premises. You pay for construction or remodeling and all other cost of compliance and permits. (Franchise Agreement - Subsection 9.4).
5. After signing the Franchise Agreement, provide written specifications for all required and replacement equipment, signs, fixtures, inventory and supplies (Franchise Agreement - Subsection 13.2). HOB does not supply, deliver or install these items directly but will provide you with the names of recommended suppliers. See Item 8 of this Offering Circular.
6. HOB will train you and 1 other person as follows:
Phase 1 is the "Initial Indoctrination Training". The first two day formal training program covers most of the information needed to become familiar with the basics of the business. An itinerary of the training follows. Two days will be spent in an actual store environment observing and "hands-on" involvement in fundamental systems regarding: baked goods production, customer service, financial management (owner), opening and establishing operations, and other elements necessary to become familiar with the business. The third day will be spent baking in order for franchisee to understand the production cycle, and how the bakery is designed to produce an efficient work space. The Franchisee will gain first-hand experience of successful store operations. Not only does the Franchisee become familiar with store operations but he/she also learns how an operation is established and WHY specific tasks are important.
PHASE ONE: INTRODUCTION & TRAINING; 3 days; Franchisee and/or manager: First Day: 9:00 A.M. -10:00 A.M.
"Welcome and Indoctrination" 10:00 A.M.- 12:00 P.M.
"Overview of Opening guide and critical time path" 12:00 P.M.- 1:30 P.M. "Lunch on House of Bread" 1:30 P.M.-3:00 P.M.
"Management tools, weekly flash reports and the operating norms" 3:00 P.M.-4:00 P.M. "Overview of Finance" 4:00 P.M- 5:00 P.M.
"Review of House of Bread SLO profit and loss statement" "Explanation of cash flow projections for bank financing"
Second Day: 7:30 A.M. - 8:30 A.M.
"Explanation of the type of Equipment needed'
8.30 A.M.-9:30 A.M.
"The basics of space planning"
9:30 A. M-10:30 A.M.
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"Overview of the information system as use as a cash register,
10:30 A.M.-11:00 A.M. "How to find a general contractor and to avoid costly delays" 11:00 A.M.-12:00 P.M. "Marketing strategies and tactics" 12:00 P.M.-1:00 P.M.
"A review of the next steps and a question and answer session" Third Day:
4:00 A.M- 10:00 A.M.
"Experience the bakery production to understand the roles of each of the employees and how everyone works together as a team" 10:00 A.M-12:00 P.M. "Retail training and customer service"
PHASE TWO: FIELD WORK IN FRANCHISEE'S COMMUNITY : 2 - 6 months:
Preliminary Planning ■ Finance Real Estate Permits & Licenses - Image Development Facility Design * Pre-Buildout Coordination ■ Market Investigation ■ Opening A House of Bread Operation.
PHASE THREE: WORKING IN A COMPANY OWNED OPERATION ; 6+days: Franchisee and/or manager and/or key employees
Six Days: "Working in the store" To include the following:
One Day: "Informational system, Inventory; Purveyors and Product Standards; Financial Management, Personnel Management"
One Day: "Customer Service Standards, Store Maintenance, Operational Standards, Hiring and Training Employees" One Day: "Marketing, Public Relations, Merchandising, Selling" Five Days: "Baking Procedures"
PHASE FOUR: COMPLETION OF THE FACILITY BUILDOUT ; 1-3 months.
Completion of Facility Construction Installation of Equipment
Test Marketing Pre-Opening Procedures
PHASE FIVE: FRANCHISEE TRAINING OF KEY EMPLOYEE; 5 days:
Franchisee and a key employee will bake for the first day in the franchisor's bakery with the assistance of the franchisor's staff. The next three days the franchisee will train on gathering and understanding financial operational ratios. The key employee will be baking in the early morning with the franchisee's staff. The franchisee will close with the crew on one day and participate in the opening of the bakery on another day.
PHASE SIX: SUPPORT IN FRANCHISEE'S OPERATION - 6 days:
"Six Days of Additional Support and Trouble Shooting In Franchisee's Operation"
PHASE SEVEN: GRAND OPENING -1 day after 1-3 months of planning:
After the first month of business and prior to the end of the third month of business, the Franchisor will assist the Franchisee in Grand Opening programs and procedures. Programs must be implemented in conjunction with Franchisee's Neighborhood Marketing Program.
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HOB does not charge for this training or service, but you must pay the travel and living expenses for you and your employees). All training, except the one week on-site training is at House of Bread San Luis Obispo, California headquarters.
Subject |
Classroom Hours |
On the job training Hours |
Trainer |
|
HOB Welcome and Indoctrination |
1 hour |
Sheila McCann and bakery staff on duty |
||
Overview of Historical financial reports |
1 hour |
Sheila McCann |
||
Explanation of cash flow projections for bank financing |
2 hours |
Sheila McCann |
||
How to open a House of Bread operation, with a review of the opening guide of the sopm and critical time path chart |
1 hour |
Sheila McCann |
||
Review real estate guide |
1 hour |
12 hours |
Sheila McCann |
|
Review space plans |
1 hour |
2 hours |
Julia Ackerson |
|
Business plan review |
3 hours |
Sheila McCann |
||
Marketing plan discussion |
9 hours |
24 hours |
Sheila McCann and Julia Ackerson |
|
Bread mixing and scheduling |
4 hours |
64 hours |
Julia Ackerson, Lindsey Gott |
|
Employee job descriptions and hiring |
2 hours |
Julia Ackerson |
||
Customer service, and product quality |
8 hours |
24 hours |
Sheila McCann, Julia Ackerson and Lindsey Gott |
|
Entering in the daily, weekly and monthly financial accounting information |
6 hours |
64 hours |
Marc Chaisson, Julia Ackerson, and Lindsey Gott |
|
Overview of the information system as a cash register, management tool, tracking device and generating reports |
16 hours |
24 hours |
Sheila McCann, Marc Chaisson, Julia Ackerson, and Lindsey Gott |
|
Overview of the equipment list and maintenance |
1 hour |
4 hours |
Julia Ackerson |
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
Page 18
The trainers include the founder, Sheila McCann. Ms. McCann as the founder of House of Bread developed the standard operating procedures manual based upon the experience in opening and running her own bakeries, and the additional franchised bakeries.
Julia Ackerson, graduated from Cal Poly State University in Nutrition and Food Science in 1998. As part of her education, Julia had completed classes in restaurant design, construction and space planning. Julia started as a baker in 1998 with House of Bread San Luis Obispo and was promoted to management in 1999. Ms. Ackerson has experienced all phases of opening and running a House of Bread.
Lindsey Gott, graduated from Cal Poly University in Microbiology in 1999. Ms. Gott has been employed as the head baker since 1999 and is also in charge of the inventory, accounting and financial reporting of House of Bread San Luis Obispo.
Marc Chaisson, graduated from Chico State University in Economics in 1982. Mr. Chaisson opened and operated his own restaurant in 1983 through 1985, when the operation was sold. In 1989, Marc Chaisson developed a fresh mexican concept and began franchising the concept in 1989 and eventually sold the conept. Mr. Chaisson began a consulting company called Chaisson Enterprises, which focuses on the development and operations of food service businesses. Mr. Chaisson has been consulting with House of Bread Franchising since May of 2002 and developed a weekly accounting system to produce operational results.
The franchisee is specified to possess the Aloha point of sale information system to include touch screen, receipt printer, cash drawer credit card swip, back office computer hardware, printer, battery back up, auto shut down, software for touch screen , credit card software, backroom inventory, quickbooks Pro interface, and Avery Label program. The franchisee must have a fax machine and email capabilities.
During the operation of the franchised business, HOB will:
1. Develop new products, services and methods and provide you with information about developments. (Franchise Agreement - Subsection 8.3G).
2. Loan you one copy of HOB's Confidential Operating Manual containing mandatory and suggested specifications, standards, operating procedures and rules prescribed from time to time by HOB as further stipulated in section 11 of the franchise agreement. The Manual is confidential and remains our property. HOB will modify the Manual from time to time, but the modification will not alter your status and rights under the Franchise Agreement. (Franchise Agreement -Subsection 11.1)
You have the right to view HOB's operating manual in our headquarters' office before you purchase the franchise.
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HOB will contact you on a regualr basis either by telephone, fax or electronic mail to discuss any operational situations (see sub-section 8.3 D of the Franchise Agreement).
HOB will hold annual meetings to discuss sales techniques, personnel training, bookkeeping, accounting, inventory control, performance standards, advertising programs and merchandising procedures. There is no conference fee, but you must pay all your travel and living expenses.
HOB provides examples of advertising materials to you. Materials provided to all franchisees include, print advertising materials, coupon examples, posters, banners and miscellaneous point-of-sale items. HOB will maintain an intranet site only accessible by password, which will contain the latest marketing templates for the franchisees. If you want additional copies you must pay duplication costs. (See section 5.2 of the Franchise Agreement.)
You may develop advertising materials, at your own cost and send an example to HOB prior to usage. HOB has the right of disapproval of the proposed advertising materials within 48 hours.
At the present time, advertising placement is done on a local basis.
At a point in time when there are 3 or more HOB franchises in a "Local Media Area," a Local Advertising Cooperative will be established. HOB reserves the right to form, change, dissolve or merge the Local Advertising Cooperative. A Local Media Area is an area covered by primary advertising media (television, radio and print) as designated by HOB. You must participate in a Local Advertising Cooperative if it is established in the Local Media Area where your business is located. The amount of your contribution to the local advertising cooperative is described in Item 6 under the heading "Advertising Fees and Expenses."
Each Local Advertising Cooperative must adopt written governing documents. A copy of the governing documents of the cooperative (if one has been established) for your Local Media Area is available upon request. Each cooperative may determine its own voting procedures; however, each Company-owned HOB Outlet will be entitled to one vote in any Local Advertising Cooperative. Each company - owned HOB Outlet will contribute to the Local Advertising Cooperative in the same manner as you contribute. The members and their elected officers are responsible for administration of the cooperative. Advertising cooperatives must prepare quarterly and annual financial statements. The annual financial statement must be compiled and be made available (see Section 5.2 of the Franchise Agreement) to all franchisees in that advertising cooperative.
As stated earlier, you select your business site within your exclusive area subject to HOB's approval. HOB assists in site selection by telling you the population density, traffic patterns and proximity of the proposed site to other HOB locations (see section 9.1 of the Franchise Agreement).
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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HOB gives the franchisees up to three years to open their bakery. Franchisees typically open their businesses within six to twelve months after they sign a franchise agreement. The factors that affect this time are the ability to obtain a lease, financing or building permits, zoning and local ordinances, weather conditions, shortages, and delayed installation of equipment, fixtures and signs.
ITEM 12
TERRITORY
You will receive an exclusive Territory with a population range of 50,000-100,000 people. The exclusive Territory will be delineated by zip codes. You will operate from your one location approved by HOB and must receive HOB's permission before relocating. HOB will not operate Outlets or grant franchises for a similar or competitive business within your exclusive Territory. Except when advertising cooperatively with appropriate franchisees, neither HOB nor you can advertise or solicit orders within another franchisee's territory. However, HOB does have the exclusive right to market through the internet in any territory but all orders originating from within a protected territory will be referred to the franchisee's bakery for servicing.
HOB gives the franchisee first right of refusal for the adjacent territories. The franchisee must respond within seven days in writing indicating the desire to purchase the adjacent territory. The franchise fee for the adjacent territory is the current franchise fee amount.
HOB will not unreasonably deny a request for additional franchises or House of Bread Juniors within your area. The location of the House of Bread Junior will be determined by you and HOB.
There is no minimum sales quota. You maintain rights to your area even though the population increases.
HOB requires that the franchisee conduct an extensive pre-marketing program within their exclusive territory prior to opening their bakery.
ITEM 13
TRADEMARKS
HOB grants you the right to operate a business under the name House of Bread, trademark serial No. 75/330,613. By trademark HOB means trade names, trademarks, service marks and logos used to identify your business.
The following trade names, trademarks, service marks, logotypes and other commercial symbols are registered with the United States Patent and Trademark Office:
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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Mark |
International Classification |
Registration Date |
Registration Number |
House of Bread and design |
30 |
May 15,1998 |
75/330,613 |
The United States Department of Commerce has issued House of Bread Inc,. a serial no. for the trademark application 75/330,613 for the mark: House of Bread and design. The registration date is May 15,1998 and the publication date is June 16,1998.
You must follow our rules when you use these marks. You can not use a name or mark as part of a corporate name or with modifying words, designs or symbols except for those which HOB licenses to you. You may not use HOB's registered name in connection with the sale of an unauthorized product of service or in a manner not authorized in writing by HOB.
No currently effective litigation affects HOB's use or ownership rights in a trademark. No currently effective agreements limit HOB's right to use or license the use of HOB's trademarks.
You must notify HOB immediately when you learn about an infringement of or challenge to your use of our trademark. HOB will take the action necessary to protect the unauthorized use of HOB's trademark.
You must modify or discontinue the use of a trademark if HOB modifies or discontinues it. If this happens, HOB will reimburse you for your tangible cost of compliance (for example, changing signs). You must not directly or indirectly contest our right to our trademarks, trade secrets or business techniques that are part of our business.
HOB does not know of any infringing uses that could materially affect your use of HOB's trademark.
ITEM 14 PATENTS. COPYRIGHTS AND PROPRIETARY INFORMATION
No patents or copyrights are material to the franchise.
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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You can use the proprietary information in HOB's Manual. The Manual is described in Item 11. Although HOB has not filed an application for a copyright registration for the Manual, it claims a copyright and the information is proprietary. Item 11 describes limitations on the use of the Manual by you and your employees. You must also promptly tell us when you learn about unauthorized use of this proprietary information. HOB is not obligated to take any action but will respond to this information as we think appropriate.
ITEM 15
OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS
If you, the franchisee, are an individual, you must supervise the franchised business on its premises. If you, the franchisee, is comprised of more than one individual, then the supervision must be done by a someone who has a financial interest in the bakery. This financial interest may be in the form of an option holder, profit sharer and/or actual possesser of an ownership percentage.
For a franchisee who operates more than one bakery location there is no obligation to participate in the actual supervision of both bakeries.
Each individual who owns a 10% or greater interest in the franchisee entity must sign a guarantee agreement (Exhibit A to the Franchise Agreement) assuming and agreeing to discharge all obligations of the "Franchisee" under the Franchise Agreement.
ITEM 16
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
HOB requires you to offer and sell only those goods and services that HOB has approved (see Item 9). Prior to opening the bakery, we do have an opening check list which must be completed.
You must offer all goods and services that HOB designates as required for all franchisees. Furthermore, you must display in a highly visible location the customer survey cards, franchise available cards and the most recent newsletter.
Supplies and equipment used in your House of Bread business must be approved by HOB (see Item 8).
ITEM 17
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Page 23
RENEWAL. TERMINATION. TRANSFER AND DISPUTE RESOLUTION
This table lists important provisions of the franchise and related agreements. You should read these provisions in the agreements attached to this offering circular. Exhibit A are the financial statements. Exhbit B is the franchise agreement with personal guarantee attached. Exhibit C is the multi-unit franchise agreement and Exhibit F is the confidentiality and nondisclosure agreement.
Provision |
Section in Franchise Agreement |
Summary |
Term of Franchise |
Section 2 |
10 years |
Renewal or extension of term |
Section 2 |
If you are in good standing you can add additional term(s) of 10 years each |
Requirements for you to renew or extend |
Section 2 |
Sign new agreement, be current in payments, sign release and pay $5,000 |
Termination by you |
Section 18.1 |
Default by HOB |
Termination by Franchisor with cause |
Section 18 |
Can terminate upon violation of the franchise agreement |
Termination by HOB without cause |
Section 18.2 |
HOB can terminate you without cause if the franchisee tee is returned and the bakery is de-identified as a House of Bread bakery. |
"Cause "defined - defaults which can be cured |
Section 18 |
You have 30 days to cure: nonpayment of fees, non-submission of reports and any other default not listed in sec. 2IA |
"Cause" defined - defaults which cannot be cured |
Section 18 |
Non-curable defaults: repeated defaults even if cured, abandonment, trademark misuses and unapproved transfers |
Your obligations on termination/nonrenewal |
Sections 9.7, 9.8, 15.7, 18.4-18.7 |
Obligations include complete de-indentification and payment of amounts due. |
Assignment of contract by HOB |
Section 19.1-19.7 |
No restriction on HOB right to assign |
"Transfer" by you -definition |
Section 19 |
Includes transfer of contract or assets or ownership chanee |
HOB approval of transfer |
Section 19 |
HOB has the right to approve |
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
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by franchisee |
all transfers but will not unreasonably withhold approval |
|
Conditions of approval of transfer |
Section 19.2 |
New franchisee qualifies, transfer fee paid, purchase agreement approved, training arranged, release signed by you and current agreement signed by new franchisee |
HOB right of first refusal to acquire your business. |
Section 20 |
HOB can match any offer for the franchisee's business. |
HOB option to purchase your business |
Section 20 |
HOB may, but is not required to, purchase your inventory and equipment at fair market value if franchise is terminated for any reason. |
Your death or disability |
Section 19.4 |
Franchise must be assigned by estate to approved buyer in 6 months |
Non-competition covenants during the term of franchise |
Section 17 |
No involvement in competing business anywhere in US |
Non-competition covenants after the franchise is terminated or expires |
Section 17, 18 |
No competing business for 2 years within 50 miles of another HOB franchise (including after assignment) |
Modification of agreement |
Section 22.5 |
No modifications generally but operating manual subject to change |
Integration/merger clause |
Section 22.5 |
Only the terms of the franchise agreement are binding (subject to state law). Any other promises may not be enforceable. |
Dispute resolution by mediation and arbitration if mediation unsuccessful |
Section 22.8 |
Exempt for certain claims, all disputes must be mediated first and then arbitrated |
Choice of forum |
Section 22.7 |
Litigation must be in California | |
'jif |
Section 22.7 |
California law applies |
ana Francmsee, wnere tne parties snau meet tace to tace to resoivc me Gispuic, aucn mcctuig
i « 1 iii' r- i ,"\i -,i ■ -».-, 1 *.i *- i ■ i- j * ;
written notice of the dispute. Second, after the face to face meeting and before any lawsuit or
HOUSE OF BREAD FRANCHISING INC Franchise Offe-nnn circular
Page 25
arbitration by any party, the parties shall participate in a non-binding mediation in accordance with the commercial arbitration rules of the American Arbitration Association. Third, if mediation is unsuccessful at resolving the dispute, then the parties shall go to a neutral arbitration.
The nearest American Arbitration Association office to HOB headquarters is 3055 Wilshire, LA, CA. 90010. The House of Bread headquarters is located at 858 Higuera St. San Luis Obispo City and County in California.
These states have statutes which may supersede the franchise agreement in your relationship with HOB including the areas of termination and renewal of your franchise: ARKANSAS (Stat. Section 70-807), CALIFORNIA (Bus. & Prof Code Sections 20000-20043), CONNECTICUT (Gen. Stat. Section42-133eet seq.), DELAWARE (Code, tit), HAWAII (Rev. Stat. Section 482E-1), ILLINOIS (Rev. Stat. Chapter 121 i/2 par 1719-1720), INDIANA (Stat. Scetiuu 23-2-2.7), IOWA (Code Sections 523H.1-523H.17), MICHIGAN [Stat. Section 19.854(27)], MINNESOTA (Stat. Section S0C.14), MISSISSIPPI (Code Section 75-24-51), MISSOURI (Stat. Section 407.400), NEBRASKA (Rev. Stat.Section 87-401), NEW JERSEY (Sl^. F.^iW,r. 56:10-1), SOUTH DAKOTA (Codified Laws Section 37-5A-51), VIRGINIA (Code 13.1-557-574-13 1-564), WASHINGTON (Code Section 19.100. ISO), WISCONSIN (Stat. Section 115 03) RHODE ISLAND (Cadet Section nnlrnwn) Thaw and nther states mav have, court
* , * . " ("I i.l.-> I* .- % . ' I * ". 1 TT.-.T. ' i i-
ULCiSiUiiis vViiicn iiiuy supwi^cuij live n iHidiio'c cL^iCwiiiiJiii in youi iCiiiLiuriyrnp vVini nUu in-wiuiiin^ the areas of ienviirmuofi and renewal oi your franchise.
iTEM 18 PUBLIC FIGURES
HOB does not use any public figure to promote its franchise.
ITEM 19
EARNINGS CLAIMS
REPRESENTATIONS REGARDING EARNINGS CAPABILITY
HOB does not furnish or authorize its sales persons to furnish any oral or written information concerning the actual or potential sales, costs, income or profits of a House of Bread franchise. Actual results vary from unit to unit and HOB cannot estimate the results of any particular franchise.
ITEM 20
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
Page 26
LIST OF OUTLETS
As of March of 2005, House of Bread Franchising's brother sister corporation, House of Bread, has a company owned store in operation, located at its headquarters in San Luis Obispo. House of Bread Franchising has eight franchises open in Roseville, Fremont, Albany California; Reno, Nevada; Salt Lake City, Utah; Flagstaff, Arizona; Seattle, Washington and New Orleans, Louisiana.
House of Bread Franchising projects to sell franchises to six more franchisees this next year. However, House of Bread Franchising is more concerned with the quality of the potential franchisees. Thus, the projection of six more franchisees being sold franchises is based upon the assumption that there will be six qualified applicants seeking House of Bread franchises.
STATUS OF HOUSE OF BREAD'S COMPANY OWNED STORES FOR YEARS /2003/2004/2005
State California |
Stores Closed During year 1/0/0 |
Stores Opened During Year 1/1/1 |
Total Stores Operating at end of year 2/2/3 |
TOTALS |
One |
Three |
One/Two/Three |
STATUS OF HOUSE OF BREAD'S
FRANCHISE OWNED STORES
FOR YEARS 2003/2004/2005
STATE |
TRANSFER |
CANCELLED OR TERRM1NATED |
NOT RENEWED |
REACQUIRED BY FRANCHISOR |
LEFT THE SYSTEM OTHER |
TOTAL FROM LEFT COLUMNS |
FRANCH1S OPERATIN AT YEAR END |
California |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/2/1 |
0/2/1 |
4/3/3 |
Nevada |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
1/1/1 |
Washingto n |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/1/1 |
Utah |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
1/1/1 |
HOUSE OF BREAD FRANCHISING INC.
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Franchise Offering Circular
Lousiana |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/1 |
Ohio |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/1 |
0/0/0 |
0/0/0 |
Arizona |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/1/1 |
TOTAL |
0/0/0 |
0/0/0 |
0/0/0 |
0/0/0 |
0/2/2 |
0/2/1 |
6/7/8 |
Franchisees in operation.
1. 1185 California Ave.Reno, Nevada Eric Breeze 775.322.0773
2. 2005 East 2700 S. Salt Lake City, Utah Lynne Aoyoma 801.466.1758
3. 1090 Pleasant Grove Blvd. Suzanne Crachy 916.712.0500
4. 39149 Fremont Hub, Fremont, Ca Dan Clark 510.745.8815
5. 9643 Jefferson Highway, Suite A, River Ridge, LA 504.232.0595
6. 15224 Main Street, Suite 105, Mill Creek, WA Wayne Warren 425.385.8553
7. 1237 S. Plaza Way, Flagstaff, AZ 86001 Robin Gehfroh 928.774.5254
8. 841 San Pablo Avenue Albany, CA 94706 Kirby Ung Wayland Gee 510.524.5126
FRANCHISEE(s) who had had an outlet, terminated, cancelled, not renewed or otherwise voluntarily or invluntarily ceased to do business under the franchise agreement during the most recent completed fiscal year.
1. 6654 Louann Drive,North Olmsted,OH Thomas Vojtek 440.235.9394
2. 5744 Telegraph Road, Ventura,CA Nathan Santos 3.
STATUS OF HOUSE OF BREAD'S PROJECTED OPENINGS AS OF DECEMBER 31, 2005
State Arizona |
Franchise agreement signed but store not open |
Projected franchisee! new stores in the next fiscal year |
Projected company owned openings in next fiscal year |
] |
0 |
0 |
|
California |
9 |
i . |
A |
Louisiana |
0 |
0 |
0 |
HOUSE OF BREAD FRANCHISING INC. Franchise Offering Circular
Page 28
Nevada |
1 |
1 |
0 |
Utah |
0 |
0 |
0 |
Washington |
1 |
1 |
0 |
TOTALS |
12 |
4 |
0 |
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Page 29
ITEM 21
FINANCIAL STATEMENTS
House of Bread franchising's financial statements from the year 2005 are attached to this offering circular as Exhibit A. There is risk associated with this franchise company having a negative working capital situation.
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ITEM 22
CONTRACTS
A copy of the Franchise Agreement (with Guaranty) is attached as Exhibit B. HOB does have a Multi-Unit Franchise Agreement in Exhibit C. Form Nondisclosure and Confidentiality Agreement is exhibit D.
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