UFOC
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Sample UFOC
iSold It®
FRANCHISE OFFERING CIRCULAR
ITEM 1. THE FRANCHISOR, ITS PREDECESSOR, AND AFFILIATES
The purpose of this offering circular is to familiarize you with important legal and business aspects of iSold It, LLC, a franchisor, and of the franchise we offer. To simplify the language, we will refer to ourselves as "ISI," "we" or "us." We will call the person or company to which we grant a franchise "you." The word "you" does not include your owners. We will call them "Related Parties."
We were organized as a limited liability company in California on October 2, 2003. We do business under the trade name "iSold It." We do not do business under any other name.
We have no predecessors or affiliates. Our principal business address is A155 South Highway 101, ASuite 7, Solana Beach, CA A92075. The name and address of our agent for service of process in this state is stated in Exhibit A-2 to this offering circular.
A The business you will operate under the franchise agreement is a retail Abusiness
("ABusiness") for accepting merchandise and other property on consignment and selling it over the Internet. AWe have been offering franchises to operate retail storefront outlets within the United States since March 2004. We have never offered any other franchises. With this disclosure document, we are introducing, on a test basis, the option to operate these franchises from mobile outlets or from light commercial locations that are less costly than traditional storefront locations. We also have master franchisees in Australia. Canada and Ireland. We owned and operated a storefront Business of the type being offered by this offering circular from November 2003 to March 2007, when we sold it to a franchisee. We have never operated a mobile Business. We have no other business.
The market served by the ABusiness includes the general public, local businesses and charities. Your competitors will be eBay Trading Assistants and eBay Power Sellers, small chains and sole proprietors operating individual online consignment shops and other franchised online consignment sellers.
If you meet our qualifications, you may enter into an area development agreement under which you will have the exclusive right and obligation to develop and operate multiple Astorefront Businesses under individual franchise agreements within a specified Development Area -_We_ a re JlgLofferi n g a_rea__d evelop m e nt aq ree m e nts for mob i I e Businesses at this time. When you sign an area development agreement, you must pay a nonrefundable development fee equal to the combined initial franchise fees for all businesses you are obligated to develop within the Development Area under your
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Offering Circular May 22, 2007
99
Development Schedule. The development fee may be incrementally applied against these initial franchise fees as you sign each franchise agreement.
You may be subject to stringent state and local licensing and reporting laws applicable to consignment sellers or secondhand dealers. In a few states, you may be required to comply with costly training, licensing and escrow provisions applicable to auctioneers. You must refrain from conduct that would violate state and local real estate or automobile sales laws. You should Aretain counsel to advise you on all these laws in your jurisdiction.
ITEM 2. BUSINESS EXPERIENCE
Kenneth Charles Sully. President. Chief Executive Officer and Director
Kenneth Charles Sully joined us as President, Chief Executive Officer and a Director in July 2004. Before joining the company, he was President and CEO of Postal Connections of America in San Diego, California, from July 2002 to July 2004. Before that, from February 2002 to June 2002, he served as Chief Operations Officer of Retired.com, Inc., in La Jolla, California. During 2001, he was self-employed as a consultant and investor based in Southern California. He was President of WEBcard Technologies, San Diego, from June 2000 to June 2001. From January 2000 to June 2000, he served as Senior Vice President - Business Development for OfficeTool.com in San Diego. Before that, from June 1996 to August 1999, he was President of Your Office International, San Diego. From May 1995 to February 1996, he was Vice President, Franchise Development, of Coverall North America, Inc., San Diego. ^Earlier, from January 1990 to May 1995, he was Vice President Worldwide Franchise Development of Mail Boxes, Etc., San Diego.
David J. Crocker. Senior Vice President of ^Marketing and Operations
David J. Crocker became our Senior Vice President of AMarketinq and Operations in May 2005. Before coming to us, from March 1999 to April 2005, he was Marketing Director of Bristol-Myers Squibb, Plainsboro, New Jersey. Before that, he was Senior Marketing Manager for Pepperidge Farms from October 1997 through February 1999, in Norwalk, Connecticut. Earlier, from July 1991 through October 1997, he was Marketing Manager for Nestle U.S.A., Glendale, California.
Richard L. Forrv. Chief Financial Officer
Richard L. Forry became our Chief Financial Officer in December 2004. Before coming to us, he was Director of Business Services, Fix Auto, Anaheim Hills, California, from October 2003 to November 2004. From January 2000 to October 2003, he was the owner of Carma Enterprises in Tustin, California. Earlier, he served as the Director of Finance for SCA Consulting, Los Angeles, California, from July 1990 to January 2000.
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Marshall Keith Golden. Chief Technology Officer
Marshall Keith Golden joined us as Director of Project Management in December 2005 and became our Chief Technology Officer in July 2006. Previously, he was a Partner in Sandpiper KPE, LLC, Irvine, California, from July 2004 to December 2005. Before that, he was Vice President and Chief Technology Officer of Versura, Inc., Washington, D.C., from October 1999 to June 2004.
AMichael Pooling. ADirectorA
Michael Dooling became a member of our Board of Directors in November 2005A. He has been the general partner of Jacaranda Partners, Pasadena, California, since 1987. From April, 1999, to April, 2001, he served on the Board of Directors of Rubio's Restaurants, San Diego, California. He was a member of the Board of Directors of U.S. Office Products, Washington, D.C., from November 1997 to May 1998. Before that, he was a member of the Board of Directors of Mail Boxes Etc. USA, in San Diego from August 1987 to November 1997, serving as Vice Chairman from August 1988 to May 1990 and as Chairman from May 1990 to November 1997.
William L. Phelps. Director
William L. Phelps has been a member of our Board of Directors since we were formed. He has also been a founder, chairman and a managing partner of Wetzel's Pretzels, LLC, Pasadena, California, since August 1995.
Jeffrey Otto Plank. Director
Jeffrey Plank has been a member of our Board of Directors since September 2004. He has also been a partner in SeaView Capital, Providence, Rhode Island, since January 2003. In addition, he has been Managing Partner of WGI Holdings, LLC, Weston, Massachusetts, since June 1997. Before that, from June 1997 until December 2002, he was President of Refinity Corporation, Lynn Massachusetts.
Don Wells. Director
Don Wells joined us at formation as a Director. He has also been Chief Financial Officer of Wetzel's Pretzels, LLC, since July 1997.
ITEM 3. LITIGATION
On October 6, 2006, in South Corona Center, LP. v. iSold It, LLC, American Arbitration Association Case No. 72 114 Y 01137 06 BEAH, South Corona Center, L.P. ("South Corona"), an iSold It developer whose area development agreement was terminated by iSold It for non-performance in September 2006, filed a petition alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, violation of state and federal franchise laws and regulations, violation of California Business and Professions Code Sections 17200 and 17500, and declaratory relief. Basis of the claim
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is the developer's contention that the "City of Valencia" included in the agreement's description of the development area really meant "City of Santa Clarita." iSold It maintains that South Corona's management knew that Santa Clarita was not available when it entered into the area development agreement and that the area development agreement's written territorial description is dispositive. The matter is set for hearing in September 2007. iSold It intends toA defend this proceeding vigorously.
Other than this dispute, there is no litigation to disclose in this offering circular.
ITEM 4. BANKRUPTCY
As a result of the failure of several dotcom ventures in which he had invested heavily, our President, Ken Sully, filed a petition for relief under Chapter 7 of the U.S. Bankruptcy Code on September 4, 2001. (U.S.D.C. S.D. #0109196). His petition was granted and his debts discharged on December 12, 2001. Otherwise, no person identified in Items 1 or 2 of this offering circular has been involved as a debtor in a bankruptcy proceeding.
ITEM 5. INITIAL FRANCHISE FEES
Franchise Agreement
When you sign the Franchise Agreement, you will pay us an initial franchise fee in immediately accessible funds. The initial franchise fee is $22,000 if this is your first franchise and $15,000 if this is an additional franchise. The initial franchise fee is not refundable. It is uniform for all franchises currently being granted.
Area Development Agreement
AH you Aenter into an Area Development Agreement, you must pay us a Development Fee consisting of the total initial franchise fees for the businesses required to be opened during the Term under the Development Schedule ("Development Fee"). The Development Fee is not refundable, but will be credited against your initial franchise fee for each ABusiness you open under a Franchise Agreement until the full amount of the Development Fee has been credited against your initial franchise fees.
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ITEM 6. OTHER FEES
|
NAME OF FEE1 |
AMOUNT OR FORMULA |
WHEN DUE |
TO WHOM PAYABLE |
|
Royalties |
As to each transaction, 10% |
As earned |
Us, by electronic transfer |
|
of Adjusted Gross ^Revenue |
|||
|
or 1% of Gross Revenue. whichever is more3 |
|||
|
Advertising Fund |
As to each transaction, 3% of Adjusted Gross ARevenue or 0.3% of Gross Revenue. |
As earned |
Us, by electronic transfer |
|
whichever is more |
|||
|
Check Processing Expenses3 |
Reimbursement for our out-of-pocket costs for postage, paper and bank clearing fees for processing sellers' checks |
Weekly or Monthly |
Us, by electronic transfer, Afor payment to check processing company |
|
Internet Selling Site Fees and Commissions |
See Note 4 |
At time of each transaction |
Internet Selling Sites |
|
Credit Card and Payment Service Processing Charges |
See Note 5 |
At time of each transaction |
Banks, Paypal, other services |
|
Infopia Auction Management Software License Fees |
See Note 6 |
Monthly |
Software manufacturer |
|
Local Advertising Obligation |
2% of your gross sales |
Quarterly |
Advertising Agencies, Media and/or Local Advertising Cooperative |
|
Audit Cost7 |
Our out-of-pocket cost |
Upon invoice |
Us |
|
Additional Initial Training |
$7508for each trainee over three and replacement managers |
Before training begins |
Us |
|
Ongoing Training and Annual Convention Costs |
Your costs for transportation, lodging, meals, other incidentals |
As incurred |
Various |
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|
NAME OF FEE1 |
AMOUNT OR FORMULA |
WHEN DUE |
TO WHOM PAYABLE |
|
Annual Convention |
$7508 per attendee |
AAt least 3 weeks |
Us |
|
Registration and Ongoing |
before ^Annual |
||
|
Training Program Fees |
Meeting and before attending other proqrams |
||
|
Relocation Fee |
$5,000 |
Before moving |
Us |
|
Transfer9 Fee |
$5,000 |
With notice of intent to transfer |
Us |
|
Renewal Fee |
50% of then-current initial |
On signing |
Us |
|
fee |
Agreement |
||
|
Proprietary Software Fee |
Reasonable fee, comparable |
Payable only if |
Us |
|
to that charged for similar |
and when (a) we |
||
|
software by others |
license software to you and (b) assess a fee |
||
|
Interest on Late Payments |
Lower of 18% per year or |
Accrues as of |
Us |
|
highest rate allowed by law |
date payment due, payable upon invoice |
Under the Franchise Agreement, failure to pay sellers, service providers and other trade debts in a timely manner is a material breach that may lead to termination of the Franchise Agreement. All revenue is electronically deposited in|c; your seller proceeds bank account {"Proceeds Bank Account") from which we take Authorized Amounts electronically. You may not commingle seller proceeds in the same bank account with your general funds. Our designated vendor will write seller checks to be drawn on your Proceeds Bank Account and mail them to sellers on your behalf. You must maintain a $10,000 bond to protect your seller checks. Payments to us are not refundable. Some fees imposed by Internet selling sites are refundable while others are not. Whether payments to others are refundable depends on the arrangements you make with them.
"Adjusted Gross ARevenue" means "all money, compensation, commissions, or other consideration you and your Related Parties receive for all goods sold and services rendered by your ABusiness or in association with our Trade Name or Marks, AlessA Sellers' Proceeds, Cost of Goods Sold, sales tax, shipping and handling." "^Sellers' Proceeds" means "Money you are obligated by contract to pay to sellers who entrust goods to you for sale." "Cost of Goods Sold" means "the cost to you of shipping, insurance and payment for goods you purchase for resale online.""Gross Revenue" means "all money, compensation, commissions, or other consideration you and your Related Parties receive for all goods sold and services rendered by your Business or in association with our Trade Name or Marks, less sales tax, shipping and handling."
Payable during periods when we are collecting payment for our vendor from your Proceeds Bank Account to cover the cost of printing and mailing checks. Check processing fee is currently 160 per check plus postage^. which Ais currently 411 for first class. At this time, no more than ten items may be listed on a check to the same customer.
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Insertion fees, listing upgrade fees and final value fees are imposed by eBay and other Internet Selling Sites. You will customarily pass these along to your sellers. These fees vary by type of item, listing and auction. They may be changed without notice and are outside our control. You should investigate the current listing and closing fees imposed by eBay and any other selling sites that we are currently authorizing you to use. Current eBay fees are described at http://pages.ebay.eom/help/sellerguide/selling-fees.html#BIN.
PayPal is currently charging merchants 30# plus 2.2% to 2.9%, depending on volume, of the amount processed in each transaction. Fees imposed by banks for credit card processing vary. We will attempt to negotiate group rates to lower these fees when possible, but they are largely outside our control.
You must license this software from a designated provider. Currently, the base fee is $250 per month plus a per transaction charge of 750 per completed transaction. Our agreement provides that the transaction charge may be reduced to as low as 500 per completed transaction based on the volume of completed transactions of all our businesses worldwide. The software licensor may increase its overall fees, but must always grant you terms at least as favorable as those granted to any other similarly situated licensee.
This is payable only if the audit discloses that you are conducting transactions outside our system or if we perform the audit because you did not provide required financial statements at the times and in the format specified in the Manual.
We may increase these fees in the future to meet increases in our costs.
Under the franchise agreement, a "Transfer" (to which the fee applies) includes any sale, gift, or other change in ownership of all or any part of the rights and obligations: (1) of the franchise agreement, (2) of the ABusjness, including the lease for the Approved Location, or (3) of an ownership interest in you." There is no transfer fee for an assignment to: (a) any Trustee, Guardian, Executor, or Conservator for the account and benefit of a spouse, ancestor, or descendent, (b) any of your employees under any employee stock option plan or stock buy plan, if any share certificate distributed in connection with a plan of this type is marked with a legend describing the restrictions and conditions of Transfer required by the Franchise Agreement, (c) any business entity if the beneficial ownership of the franchisee immediately following the assignment is the same and in the same proportions as the beneficial ownership immediately before the assignment. Also, we will waive the transfer fee if we approve a transfer to your heirs or successors.
ITEM 7. INITIAL INVESTMENT* STOREFRONT BUSINESS
|
EXPENSE1 |
LOW |
HIGH |
METHOD OF PAYMENT |
WHEN DUE |
TO WHOM PAID |
|
Initial Franchise Fee2 |
322,000 |
$22,000 |
Alump sum |
at signing of franchise agreement |
us |
|
AjJlDiMSj_Hixtures ar,d Lqiiipment arid Installation-' |
$6,600 |
SI 6,900 |
as arranqed |
as incurred |
|
|
Store Layout and Support |
$A3,*000 |
$A3.*500 |
lump sum |
^before opening |
yji |
|
Fee" |
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|
EXPENSE' |
LOW |
HIGH |
METHOD OF PAYMENT |
WHEN DUE |
TO WHOM PAID |
|
Lease, Internet Access and Utility Deposits'- |
$3,000 |
$8,000 |
lump sum |
before opening |
landlord, utilities, insurers |
|
Rent for three months^ |
$10,500 |
$20,000 |
in monthly increments |
in monthly increments |
landlord |
|
Computer Equipment |
$8,800 |
$10,200 |
as arranged |
as incurred |
vendor |
|
Com_puter Setup Fee7 |
$1,000 |
$1,500 |
lump sum |
before openinq |
us |
|
Office, PhotoqraphYi |
$2,800 |
$5-850 |
lump sum |
at siqninq of lease |
designated vendor |
|
Packing and Shippinq Supplies |
|||||
|
Permits and Licenses |
$500 |
$1,000 |
as arranged |
before opening |
government agencies |
|
Additional Attendee at Initial Training |
$0 |
$750 pet-additional |
lump sum |
before training |
us |
|
attendee over one |
|||||
|
Training Expenses |
$500 |
$2,000 |
varies |
as incurred |
airlines, hotels, restaurants |
|
Installation of Phone and Data Lines |
$1,000 |
$1,500 |
lump sum |
at lease signing |
vendor |
|
Professional Fees*= |
$1,000 |
$3,000 |
as arranged |
as arranged |
attorney, accountant |
|
Additional FundsM |
$40,000 |
$^100,000 |
varies |
varies |
employees, landlord, advertising agencies and media, etc. |
|
TOTAL |
$1*00*700 |
$196*200 |
ALL FIGURES ARE ESTIMATES ONLY
1: This Item 7 shows estimated expenses from the pre-opening period through the first 90 days of
operation. Although the "high" estimate for the "additional funds" category shows the funds required for a somewhat longj^rjjejjgjLyjMrnav need_even more money to operate the Business fojjhefirst one to two years. None of these expenses are refundableA except for insurance, which may be partially refundable, and deposits.
2: The initial franchise fee is $22,000 for the first franchise and $15,000 for each subsequently
purchased franchise. If you sign an Area Development Agreement, you will pay us a nonrefundable Development Fee equal to the sum of all initial franchise fees for the ^Businesses you are obligated to open in the Development Area. We will credit your Development Fee against the initial franchise fee of each store you develop in the Area until the entire Development Fee has been credited.
3: AThese expenses range from $6,600 to $14,800 for our experimental light industrial model and
$12,400 to $16.900 for our traditional storefront model. The jowfigure asjumes^ha^youjnstall floor coverings and fixtures yourself, with our telephonic support.
4: You wilt pay us, before opening, from $3.000 to 3,500 for store layout drawings, depending on
complexity and number of changes, and telephonic support in fixturizing your premises.
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5: This category includes* lease deposit, insurance, bond to protect seller checks, sales tax deposit
or bonds, construction permit and utility deposits.
*§: ^Businesses will probably be located in As retail/industrial park, strip centers and retail corridors
anchored by supermarkets or drugstores, with national brands as co-tenants. Your ^Business will probably Aneed from A900 to 1A200 square feet Aof_space. Landlords typically require you to pay a security down payment and first month's rent upon lease signing, which are incorporated into the high column figure.
A7. You will pay us, before opening, for our telephonic support in setting up accounts and configuring
your computer to operate your business. The amount will vary depending on the number of computers voubuy.
8: This figure may include any attorney review of the franchise agreement, organization of your
business or negotiation of the lease for the franchised ABusiness.
A9: This category includes estimated employee wages for two to three employees who train in the
ABusiness for two days, advertising expenses, including at least $2,500 for a grand opening promotion, insurance premiums, sales tax in some states, and other miscellaneous expenses incurred before opening and during the first three months of operations. AAlthouqh the high estimate shows the funds needed [prjyjeriqd^sojTjewJTat longer than 90 days, even more money may be needed to operate your Business for the first one to two years. This category does not include unforseen construction expenses* such as landlord chargebacks or construction extras made necessary by features of your ABusiness premises. We relied on our experience and the experience of our franchisees in developing ^-Businesses in arriving at these figures. You should review these figures carefully in light of local conditions and the economy, consulting a business advisor if necessary.
We do not offer financing for any of these expenses.
MOBILE BUSINESS
|
EXPENSE1 |
LOW |
HIGH |
METHOD OF |
WHEN DUE |
TO WHOM PAID |
|
PAYMENT |
|||||
|
Initial Franchise? Fee? |
$22,000 |
$22,000 |
iunip sum |
at siqninq ot franchise aqreement |
us |
|
Furniture. Fixtures arid Equipment and Installation0 |
SI .200 |
$1,500 |
as arranqed |
as incurred |
vendors |
|
Warehouse Layout and Support Fee- |
$1,000 |
$1.500 |
lump sum |
before openinq |
us |
|
Internet Access. Phone Installation and Utility |
$500 |
$1,000 |
lump sum |
before opening |
landlord, utilities. insurers |
|
Work Vehicle11 |
S 1.500 |
$25,000 |
as arranoed |
as arranqed |
vendor or lessor |
|
Automobile Insurance |
$500 |
52,000 |
as arranqed |
monthly |
insurer or aqent |
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|
EXPENSE' |
LOW |
HIGH |
METHOD OF |
WHEN DUE |
TO WHOM PAID |
|
PAYMENT |
|||||
|
Warehouse/ Packinq SMLg_n_Space.id.PP_PM and 3 months rent}' |
S2.000 |
54,000 |
lump sum and monthly |
at lease siqninq |
landlord |
|
and monthly |
|||||
|
Office, Photography. Packing and Shipping Supplies |
$1,450 |
$5,350 |
lump sum |
at siqninq of lease |
designated vendor |
|
Permits and Licenses1' |
§500 |
$1,500 |
as arranged |
before opening |
government agencies |
|
Additional Attendee at Initial lraininq |
so |
S750 per additional attendee over |
lump sum |
before training |
us |
|
one |
|||||
|
Training Expenses |
$500 |
$2,000 |
varies |
as incurred |
airlines, hotels. |
|
restaurants |
|||||
|
Professional Fees* |
S1.000 |
$3,000 |
as arranged |
as arranqed |
attorney. accountant |
|
Additional Funds'' |
$5,000 |
$15,000 |
varies |
varies |
employees, landlord, advertisinq agencies and media, etc. |
|
TOTAL |
$37,150 |
$84,600 |
ALL FIGURES ARE ESTIMATES ONLY
1: This Item 7 shows estimated expenses from the pre-opening period through the first 90 days of
operation. Althoughthe "high" estimatefor the "additional funds"category shows the funds reguired for a somewhat longer period, you may need even more money to operate the Business for the first one to two years. None of these expenses are refundable except for insurance, which may be partially refundable, and deposits.
2l The initial franchise fee is $22.000 for the first franchise and $15,000 for each subseguently
purchased franchise.
3^ The eguipment you need includes graphics to apply to your work vehicle, storage shelving, mobile
photo station, digital camera and accessories, office suppligsjaackiQgjnaterials, shipping suppjies and computer hardware and software.
4^ You will pay us. before opening for layout drawingj_arjdjejephonic support in fixturizingj^our
warehouse space. The amount will vary depending on complexity and number of changes, for layout drawings and telephonic support in fixturizing your warehouse space.
Although you may operate this business from your home, you must have a minimum of 500 square feet of secure commercial warehouse space within which to store sellers' goods pending sale and shipment. You may wish to allow space at the same location for packing goodsjor shipment
§L This category includes insurance, bond to protect seller checks, sales tax deposit or bonds and
utility deposits.
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gl This is a white commercial grade cargo van, extended van or mini-van to which you will apply
logotypes bearing ourjVjarks. The low amount assumes you are financing this purchjae^a I lowing for a down payment and three months' payments, while the high end assumes you are paying cash.
2l In addition to a local business license, applicable State law may require you to obtain auctioneer
or secondhand dealers licens_es,
JL This figure may include any attorney review of the franchise agreement, organization of your
business or negotiation of the lease for the franchised Business.
EL This category includes $2,500 for a grand ogeninsuororpotion. local advertising, liability and casualty
insurance premiums, sales tax in some states, and other miscellaneous expenses incurred before opening and during the first three months of operations. Although the "high" estimate for the "additional funds" category shows the funds reouired for a somewhat longer period, you may need even more money to operate the Business for the first one to two years. We relied on our research, our experience in operating storefront Businesses and the experience of other franchise systems in developing these figures. You should review these figures carefully in light of local conditions and the economy, consulting a business advisor if necessary.
We do not offer financing for any of these expenses.
ITEM 8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
Alf you decide to operate a storefront Business, vou will pay us a store layout and support fee for our telephonic assistance to you in setting up_your Business. Whether you decide to set up a mobile business or a storefront Business, you must pay us a computer setup fee for our telephonic assistance in establishing online accounts and configuring your or^puteT^j^tejjj^therwis^we are not currently a supplier of any goods or services to you that are not paid for by your initial franchise fee or royalties^
Whether vou are developing a storefront Business or a mobile Business, you must buy equipment and supplies that meet written specifications we will provide to you.
You must use and buy any items that bear our Marks, such as marketing materials, packing materials, letterhead and business cards, according to our specifications and, at our option, from approved or designated suppliers.
You must license auction management software from our designated supplier* A sample copy of the ^current customer agreement that you will signj^rnpuj^jej^ated supplier is attached as Exhibit C-4. If at any time we advise you that you must license Proprietary Software from us, the iSold It Software License Agreement attached to Athe franchise agreement will become effective. "Proprietary Software" means "any software that we license to you for use in your ABusiness while Athe franchise agreement is in effect." You must license any Proprietary Software from us if so instructed and pay a reasonable fee for its use.
Currently, you do not have to buy any goods or services from us.
You must use PayPal and other credit card processing services that we designate.
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You must use shipping service providers, such as DHL, FedEx, USPS or UPS, that we have approved or, at our option, designated.
You may sell through eBay, uBid.com and Amazon.com which charge various fees and commissions directly online, and any other Internet Selling Sites that we designate in the future.
You must maintain comprehensive public liability insurance, including products liability coverage and automotive liability coverage for your work vehicle, if any, covering a" ABusiness assets, personnel, and activities on an occurrence basis with a combined single limit for bodily injury, death, or property damage of not less than $2.000.000. Your insurance must cover sellers' goods against theft or damagejvhile they_are in your work vehicle. We may increase the minimum coverage requirement annually if necessary to reflect inflation or other changes in circumstances. You must also carry (1) casualty insurance in a minimum amount equal to the replacement value of your interest in the ABusiness premises, including Avehicle and equipment, (2) bailee's insurance sufficient to cover total loss or destruction of all seller's items in your possessionA=and (3) a $10,000 bond to protect your sellers checksA. In addition, you must buy and maintain Internet insurance coverage in the minimum amount of $1,000,000, including coverage for intellectual property, errors and omissions and personal injury. Each insurance policy must contain a provision that the policy cannot be canceled without 30 days' written notice to us. It must be issued by an insurance company of recognized responsibility, designate us as an additional named insured and be satisfactory to us in form, substance, and coverage. You must also maintain policies of workers' compensation insurance and any other types of employment insurance required by applicable law. You must deliver a certificate of the issuer evidencing each policy to us within 10 days after the policy is issued or renewed.
We decide which Internet Selling Sites and shipping companies to approve or designate based on strategic marketing and sales decisions. We decide whether to approve or designate other suppliers based on quality and price considerations and on our ability to negotiate agreements that benefit the Franchise Network with the suppliers. We do not make our criteria for approving or disapproving suppliers known to franchisees. There is no procedure for submitting additional suppliers for our approval.
We formulate and modify our specifications and standards based on market, competitive and economic conditions. We will communicate our standards and specifications to you in writing, usually in the Manual or on our Intranet. We will not make our specifications known to suppliers.
In the past, we received revenue from our franchisees when they bought their Store-in-a-Box package from us. In 2006, our gross sales were $8,310,860. Of this, $3,336,611 was received as payment for Store-in-a-Box packages. After deducting costs directly attributable to Store-in-a-Box packages, we_ had a_ loss on JheAse sales of $152,711 A The source of these figures is our audited Statement of Operations for calendar year 20Q6.We no longer offer Store-in-a-Box packages.
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Approximately 90% of your startup expenses and 40% of your ongoing expenses will be for transactions with approved or designated suppliers or according to our specifications.
We negotiate purchase arrangements with suppliers, including advantageous price terms, for the benefit of all members of the iSold It® Network. In some cases, we may require that all businesses purchase certain items from a designated supplier in return for systemwide benefits, such as a substantial discount or favorable delivery terms or a supplier contribution to the advertising fund.
We will not provide material benefits, such as renewal or granting additional franchises, to you based on your voluntary use of designated or approved sources. Failure to purchase items from approved or designated suppliers or according to specifications when instructed to do so by us is a material event of default that may lead to termination of your franchise.
ITEM 9. FRANCHISEE'S OBLIGATIONS
This table lists your principal obligations under the franchise, area development agreement and other agreements. It will help you find more detailed information about your obligations in these agreements and in other items of this offering circular.
|
OBLIGATION |
SECTION IN FRANCHISE AGREEMENT |
SECTION IN AREA DEVELOPMENT AGREEMENT |
ITEM IN OFFERING CIRCULAR |
|
a. Site selection and acquisition/lease |
7.2.1,7.2.2, Attachment 1;A |
6.1 |
11 |
|
b. Pre-opening purchases/leases |
7.2.2, 7.3.3 |
6.1 |
5,7,8 |
|
c. Site development and other pre-opening requirements |
7.3.3, Attachment 1^ |
6.1 |
11 |
|
d. Initial and ongoing training |
5.A2, 7.3.1,7.3.2, 7.4, 7.5.1 |
7.3.2 (c) |
11,15, 16 |
|
e. Opening |
7.3.4 |
N/A |
11 |
|
f. Fees |
Article 6 |
Article 5 |
5,6,7 |
|
g. Compliance with standards and policies/Operating Manual |
7.3.5 |
6.1, 10.1 |
8, 11, 16 |
|
h. Trademarks and proprietary information |
7.3.1*2,7.3.1*3,8.4, Attachment 5 § 3, Attachment 6 § 3 |
2,3.14 |
13, 14, 15 |
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Offering Circular May 22, 2007
|
OBLIGATION |
SECTION IN FRANCHISE AGREEMENT |
SECTION IN AREA DEVELOPMENT AGREEMENT |
ITEM IN OFFERING CIRCULAR |
|
i. Restrictions on products/services offered |
7.3.12 |
7.3.1 |
16 |
|
j. Warranty and customer service requirements |
7.3.6-7.3.10,7.5.2, 8.2,8.3 |
None |
N/A |
|
k. Territorial development and sales quotas |
None |
4.2,4.3,4.4.2-4.4.5, Attachment 2 |
12 |
|
1. Ongoing product/service purchases |
7.3.6,7.3.12 |
NA |
8 |
|
m. Maintenance, appearance and remodeling requirements |
4.5.2, 7.3.9, 9.4 |
NA |
17 |
|
n. Insurance |
7.9 |
NA |
7,8 |
|
o. Advertising |
5.8,6.3,7.1.3,7.6 |
NA |
11 |
|
p. Indemnification |
8.5 |
9.4 |
N/A |
|
q. Owner's participation/management/ staffing |
7.3.1,7.5.1,7.5.2 |
NA |
15 |
|
r. Records/reports |
7.7.1,7.7.2, 10.3(e) |
NA |
N/A |
|
s. Inspections/audits |
6.5,7.3.11 |
NA |
6 |
|
t. Transfer |
Article 9 |
Article 7 |
6,17 |
|
u. Renewal |
4.5.2 |
4.4 |
6,17 |
|
v. Post-termination obligations |
10.3(b) -(h) |
9.3 |
17 |
|
w. Noncompetition covenants |
8.6, Attachment 6 |
8.1,8.2 |
17 |
|
x. Dispute resolution |
11.7-11.11 |
10.7-10.11 |
17 |
ITEM 10. FINANCING
We do not offer direct or indirect financing. We will not guarantee your note, lease, or obligation.
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ITEM 11. FRANCHISOR'S OBLIGATIONS
Except as described below, we do not have to give you any assistance: Preopeninq Services
Site Approval
Alf you plan to operate a storefront Business, we will Aadvise you ^n finding a site for your ABusiness, but it is ultimately your responsibility to find a mutually acceptable site in time to open by the Start Date. You must obtain our written approval of the proposed site and proposed lease before you sign the lease. We may not withhold our approval of your location unreasonably. You must secure the site (Franchise Agreement § 7.2).
To seek our approval of a site, you must follow our currently effective site approval process, as described in our Manual, updated on our Intranet. We will base our approval of the site on general guidelines for suitable franchise premises that will be given to you in writing. By approving a particular site for the premises of an iSold AlT®Business. we do not guarantee that the ^Business operating at that location will be successful. Success will depend on many factors, many of which are not within our control (Franchise Agreement § 7.2.1).
To seek our approval of the lease for the premises of the ^-Business, you must provide a copy of the proposed lease or a lease summary. The terms of the lease must meet our requirements. A lease must grant us an option, without cost or expense to us, to assume or authorize our assignee to assume the lease if the franchise agreement is terminated or if you should fail to cure a material default under the lease within the time allowed by the lease. Your lessor and you may meet this requirement by adding the lease provisions listed in Attachment 4 to the Franchise Agreement to the lease (Franchise Agreement § 7.2.2).
Some of the factors that we consider in approving a site are co-tenants, parking, space configuration, traffic patterns, lease terms, demographics of the area and visibility. We will approve or disapprove your proposed site within Aseven days after you present the information described above to us. If we do not agree with you about a site, you may not use that site for your ABusiness. You must cooperate with us fully to develop your ABusiness in a timely manner in relationship to the Start Date stated in the Franchise Agreement or any written extension of the Start Date (Franchise Agreement § 7.2.1).
We estimate that the average length of time between signing of a franchise agreement and opening of a Astorefront Business will be between 60 and 90 days. Factors that may affect the length of time it takes to open include attending training, site location, obtaining permits, construction and landlord approvals and applying for any necessary licenses. We do not yet have experience in franchising mobile Businesses, but we anticipate that the time until opening will be somewhat less than for storefront Businesses-Factors that will affect the length of time it takes to open will include attending training,
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.applying for any necessary licenses, finding warehouse space and obtaining and equipping your work vehicle.
Training
The initial training program will cover the following:
|
SUBJECT |
HOURS OF CLASSROOM TRAINING |
HOURS OF ON THE JOB TRAINING |
TYPE OF FACILITY |
|
Overview |
4 |
Classroom |
|
|
eBay and Other Sites |
4 |
Al |
Classroom |
|
Systems^ Software and Operations |
1*§ |
*24 |
Classroom |
|
Marketing |
% |
A2 |
Classroom |
|
Sales |
A2 |
2A |
Classroom |
|
Accounting and Admin |
A3 |
Ai |
Classroom |
|
ABusiness Management |
AI |
a3 |
Classroom |
|
Compliance |
1 |
0 |
Classroom |
|
ATOTAL |
*36 |
40 |
A The initial training program will take place in a hands-on classroom environment
Ain Solana Beach. California, and in a designated franchised Business in San Diego or. if available, a designated franchised Business closer to your Approved Location. The program takes approximately two weeks to complete.
The primary instructional materials for the initial training program will be the iSold It® Operations Manual and other materials that you may download from our AIntranet. There will be no additional charge for training material.
The training program will be supervised by ADavid Crocker, whose experience is detailed in Item 2 of this offering circular.
You or, if you are a company franchisee, your Designated Manager must faithfully attend all phases of the initial training program and complete it to our satisfaction. Failure to successfully complete any aspect of the training program, as we determine in our sole discretion, constitutes grounds for immediate termination of your franchise, but we have the right to offer you one or more remedial courses of action, such as additional training or employment of supplemental personnel, if we believe the alternative or alternatives may make termination of the franchise unnecessary. If you do not accept the alternative course of action within the time we allow, we may terminate your franchise, effective immediately (Franchise Agreement §§ 7.3.1A).
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We may, at our sole discretion, arrange an annual meeting to provide updates, offer continuing education, and encourage discussion of topics of importance to the Franchise Network. If we designate attendance at the annual meeting as mandatory, you and your Designated Manager must attend at your own expense. We also provide ongoing training at other times and places and we have the right to make these programs mandatory (Franchise Agreement § 7.4).
We will not charge a fee for the initial training program at which we train you or your Designated Manager or both. We will train you and as many as two other people at no additional charge. However, if you send more people to the initial training program or later replace your Designated Manager, we may charge a training fee, not to exceed $750 per person. We offer supplemental training materials that you may download from our A|ntranet. We do not charge a fee for this material but you must bear any expense incurred for internet access and printing. For all training we offer, you must pay any costs of travel, lodging, meals, and other incidental expenses that you or your employees incur. We may charge a registration fee of up to $750 for each person attending our Annual Meeting. Payment is due at least one week before the Meeting begins. Your attendance will be mandatory (Franchise Agreement §§ 6.6, 6.9).
Operations Manual
We will lend to you or make available to you on our A|ntranet a Manual containing explicit instructions for use of the Marks, specifications for goods that will be used in or sold by the ABusiness. sample business forms, information on marketing, management, and administrative methods developed by us for use in the ABysiness, names of approved suppliers, and other information that we believe may be necessary or helpful to you in your operation of the ABusiness. We will revise the Manual periodically to conform to the changing needs of the Franchise Network and will post revisions on our A|ntranet (Franchise Agreement § 5.7).
A copy of the table of contents of our manual is attached to this offering circular as Exhibit C-3.
Selection and Installation of Computer Equipment and Software
AFor a storefront Business, the computer system includes at least Athree CPUs with keyboards and Amouses with a minimum 2.4GHz processor and 80 GB hard drive, Athre§ or more 17-inch flat-screen monitors, one laser printer^, a digital camera and one or more scan guns. AYou may use a laptop computer if you operate a mobile Business.
You must use the Microsoft operating system and the auction management software we designate. Our Acurrent auction management software licensor charges a monthly fee for software that has been customized for our Franchise Network. The base fee is $250 per month plus a per transaction charge of 750 per transaction. Our agreement provides that your transaction charge may be reduced to as low as fifty cents per transaction based on the volume of transactions of all our ^-Businesses worldwide. The
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software licensor may increase its overall fees, but must always grant you terms at least as favorable as those granted to any similarly situated licensee. You must also use the money management software, as yet undetermined, that we specify. You must buy any additional software that we specify in the future. You must upgrade the hardware and software when we modify our standards to require an upgrade (Franchise Agreement §§ 7.3.5, 7.3.9). There is no limit in the contract on the frequency at which you may be required to upgrade or on the annual cost of doing so. However, we do not intend to require unnecessary upgrades and will try to minimize cost to you.
You will use the computer system and software to manage your business, record intake of items, register new clients, photograph and list items, respond to buyer questions, receive notification of sale closings and pay sellers' checks.
Although, under the Franchise Agreement, we have an independent right to access your computer data (Franchise Agreement § 7.7.2), access will actually be possible only with your cooperation.
We are not obligated by the Franchise Agreement to assist you to obtain the above items except for our proprietary software, but we expect to do so.
We have an Ajntranet system for use by all members of the iSold It® Network. You must register and actively use the Intranet for updates to the Manual, downloading marketing materials, posting questions to other franchisees and other purposes, using a web browser and the Internet to access it. There is no additional fee for Intranet access at this time. We have a right to limit or bar postings by franchisees who misuse the A]ntranet or do not comply with forum policies.
Postopeninq Services
Advertising and Marketing
We develop advertising Amaterials that AuseA a mix of media, possibly including direct mail, coupons, FSI's (free standing inserts), radio, sponsorships, television and public relations. The materials we provide to you may be designed for local, regional, or national media. We produce some of our advertising materials in-house and some through regional advertising agencies.
All advertising and promotion that you undertake must be completely truthful, conform to the highest standard of ethical advertising, meet our image and identity specifications and comply with any applicable laws and regulations. You and the regional advertising cooperative of which you are a member must submit to us copies of all promotional and advertising materials that you or the cooperative, as the case may be, propose to use at least two weeks before the proof approval deadline. We will review the materials within a reasonable time and will promptly notify you whether we approve them, require you to change them or reject them. We may not withhold our approval unreasonably. Even if we approve specified materials, we may later withdraw our approval
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if we reasonably believe it necessary to make the advertising conform to changes in the System or to correct unacceptable features of the advertising (Franchise Agreement § 7.1.3).
We reserve the exclusive right to control Internet promotion and online marketing of ABusiness services (Franchise Agreement § 4.3). We have the right to restrict or prohibit franchisee web sites.
There is no franchisee advisory council to advise us on advertising.
We administer the advertising fund that pays for the advertising program (Franchise Agreement § 5 A7.1).A We may use the Fund to pay for market research, advertising materials, media space and time, sponsorships, our toil-free telephone number and supporting services. The fund may also be used for advertising grants to franchisees, individuaily or collectively. In addition, the Fund may be used to pay for point-of-buy materials, promotional web site development or public relations projects. Upon request, we will distribute to our franchisees, once a year, an advertising fund Areport that will set out the total amounts of money collected and spent by the Fund during the past year and list, by general category, the manner in which we spent the money.
Franchisees contribute to the advertising fund according]q a formula described in Item 6A of this offering circular. During 2006, we made an additional contribution of approximately $2,294,864 to the fund. We do not expect to contribute additional funds in the future.
During 2006, we spent $2,782,225 on ABusiness advertising and marketing to support ABusiness sales. About 93% of the fund's money was spent on media, 5% on production of advertising materials and 2% on public relations agencies. We did not reimburse ourselves for any of our administrative costs in operating the fund during 2006.
We do not have to spend a specified amount of advertising fund money on advertising in your geographic area (Franchise Agreement § 5.A7.2).
We will prepare an annual accounting for the fund. You may review it upon request once a year. The report will not be audited. Most of the money in the advertising fund will be spent during the year in which it is contributed. Any unspent money will be retained in the account for use during the following year.
We have the right to compensate ourselves for overhead and other expenses incurred in administering the fund in an amount not exceeding 20% of the cost of the goods or services (Franchise Agreement § 5 A7.1)A
Within 30 days after opening, you must spend at least $2,500 on a grand opening advertising program conducted according to the general guidelines in the Manual for an initial advertising program (Franchise Agreement § 7.6.1).
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The original documents were scanned as an image. The original file can be downloaded at the link above.