UFOC

Download PDF: Kids 'N' Clay UFOC 1

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Sample UFOC

ITEM

PAGE

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

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

3. LITIGATION ............................................................................................................................................ 3

4. BANKRUPTCY ....................................................................................................................................... 3

5. INITIAL FRANCHISE FEE .................................................................................................................... 3

6. OTHER FEES ........................................................................................................................................... 4

7. INITIAL INVESTMENT ......................................................................................................................... 6

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

9. FRANCHISEES OBLIGATIONS ........................................................................................................ 10

10. FINANCING .......................................................................................................................................... 11

11. FRANCHISORS OBLIGATIONS ........................................................................................................ 11

12. TERRITORY .......................................................................................................................................... 15

13. TRADEMARKS ..................................................................................................................................... 16

14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION ................................................. 17

15. OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISED BUSINESS ............................................................................. 18

16. RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL ......................................................... 19

17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION .................................. 19

18. PUBLIC FIGURES ................................................................................................................................. 24

19. EARNINGS CLAIM .............................................................................................................................. 24

20. LIST OF OUTLETS ............................................................................................................................... 24

21. FINANCIAL STATEMENTS ................................................................................................................ 25

22. CONTRACTS ......................................................................................................................................... 26

23. RECEIPT ............................................................................................................................... LAST PAGE

EXHIBITS

A. LIST OF STATE ADMINISTRATORS

B. LIST OF STATE AGENTS FOR SERVICE OF PROCESS

C. FRANCHISE AGREEMENT

D. TABLE OF CONTENTS OF CONFIDENTIAL OPERATIONS MANUAL

E. FINANCIAL STATEMENTS

F. LIST OF TERMINATED FRANCHISEES

G. FRANCHISEE DISCLOSURE QUESTIONNAIRE H. MULTI-STATE ADDENDUM

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ITEM 1. THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATE

The Franchisor

To simplify the language in this Offering Circular, the words we, our and us refer to KIDS N CLAY DEVELOPMENT, LLC, the franchisor of this business. You and your refer to the person who buys the franchise, whether you are a corporation, limited liability company or other business entity. If you are a corporation, limited liability company or other business entity, certain provisions of this Offering Circular also apply to your owners and will be noted.

We are a California limited liability company formed on August 11, 2004 for the sole purpose of offering KIDS N CLAY franchises. Our principal business address is 1824 5^th Street, Berkeley, California 94710. We do business under our corporate name and the name KIDS N CLAY. The registered agents authorized to receive service of process are located in Exhibit B to this Offering Circular. We have offered franchises since the effective date of this Offering Circular. We have not previously offered franchises in this or in any other line of business.

Our Business Activities

We grant franchises to qualified persons or business entities in conjunction with the service mark KIDS N CLAY and certain associated logos (collectively referred to as the Marks).^∗ We refer to these businesses as KIDS N CLAY Pottery Studios. We refer to the KIDS N CLAY Pottery Studio you will operate as the Franchised Business.

The primary function of KIDS N CLAY Pottery Studios is to teach school-age children the ceramic arts, including techniques such as hand building, wheel throwing, sculpting, glazing and finishing. With our approval, KIDS N CLAY Pottery Studios ma y also be expanded to include one or more related concepts. The expanded services include: (a) a paint-your-own-ceramics department in which customers paint and decorate a variety of pre-made bisque ware; (b) preschool and K-12 outreach programs offered through schools as a replacement program for art classes no longer offered by the school due to funding issues; (c) adult classes offered during the studios unused hours, such as during the evening or when kids are in school; (d) the Mudpies program offered to and specially designed for preschool-aged children and their parents; and (e) home-school classes offered to home schoolers looking for enhancement programs for their children. Although you are not required to offer any of these expanded services, we encourage you to consider offering one or more of them. KIDS N CLAYs ceramic arts instruction is usually offered though a multiple-session program, but it (and the paint-your-own-ceramics department, if offered) may also be offered as one-time events in connection with birthday parties, corporate events and other group outings in connection with senior citizen outreach programs, or in connection with summer, winter and spring school holiday camps, among other things.

A KIDS N CLAY Pottery Studio typically requires 800 to 1,800 square feet of space and may be located in a light industrial office center, a strip center, or some other commercial or retail area suitable for the Franchised Business. You must operate your Franchised Business in accordance with our standards, methods, procedures and specifications, which we refer to as our System and which is more particularly described in our Franchise Agreement attached as Exhibit C to this Offering Circular. We are not engaged in any other line of business. We do not own or operate a business of the type being franchised, although our Creative Director, Kevin Nierman, and our President, David Larson, together operate the original KIDS N CLAY Pottery Studio in Berkeley, California.

Capitalized terms not otherwise defined have the same meaning as in our Franchise Agreement attached as Exhibit C to this Offering Circular.

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Our Predecessors and Affiliate

We have no predecessors or affiliates.

General Description of the Market and Competition

Our core concept is targeted to school-age children and their parents. We are one of a rapidly growing number of businesses offering specialized instruction or developmental services for children. As a franchisee, you will compete for parents disposable income with other child-focused businesses offering instruction in a variety of areas, such as art, science, technology, cooking and athletics. Your competition may be local, independent businesses or may be part of a regional or national chain or franchise. You may also encounter competition from other KIDS N CLAY Pottery Studios operated by us or other franchisees. Competition may increase due to fluctuations in the tastes and habits of the public, local and national economic conditions, population density and general traffic conditions; these factors are generally difficult to predict and, therefore, so is the level of future competition you ma y face.

Regulations Specific to the Industry

While we are not aware of any regulations specifically enacted in connection with ceramics studios, you should be aware that the federal government and most states have enacted laws and regulations dealing with matters of employee health and safety. You should investigate whether any health or safety law applies to you or your Franchised Business, including any that might regulate exposure to, safety requirements for or remediation for known hazards associated with the ceramic arts, such as clay and glaze dust containing silica or toxic kiln emissions. Additionally, most states and local jurisdictions have enacted laws, rules, regulations and ordinances which may apply to the operation of your Franchised Business, including those which: (a) establish general standards, specifications and requirements for the construction, design and maintenance of the premises; (b) regulate matters affecting the health, safety and welfare of your students and clients, such as general health and sanitation requirements, restrictions on smoking, and availability of and requirements for public accommodations, including restrooms; (c) set standards and requirements for fire safety and general emergency preparedness; and (d) regulate the proper use, storage and disposal of waste. You should investigate whether there are regulations and requirements that may apply in the geographic area in which you are interested in locating a KIDS N CLAY Pottery Studio and you should consider both their effect and cost of compliance.

ITEM 2. BUSINESS EXPERIENCE

President and Chief Operating Officer: David R. Larson

Mr. Larson is our President and CEO and has been since the formation of Kids N Clay Development LLC on August 11, 2004. He has also been a consultant with respect to marketing and operations matters to the original KIDS N CLAY Pottery Studio in Berkeley, California, since 1997. Mr. Larson has served in a variety of senior (executive) sales, operations and marketing positions in small business, start-up and large multi-national business environments since 1976. Those companies include XEROX, Businessland, Notable Technologies, Claris (Apple) and Automatic Data Processing (ADP).

Vice President & Creative Director: Kevin B. Nierman

Mr. Nierman is our Vice President and Creative Director and has been since the formation of Kids N Clay Development LLC on August 11, 2004. In addition, Mr. Nierman is the Creative Director for the original KIDS N CLAY Pottery Studio in Berkeley, California, which he founded in June 1988 and operated ever since.

ITEM 3. LITIGATION

No litigation is required to be disclosed in this Offering Circular.

ITEM 4. BANKRUPTCY

No person previously identified in ITEMS 1 or 2 of this 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

You must pay an initial Franchise Fee of $30,000. The Franchise Fee is paid to us in a lump sum when you sign the Franchise Agreement and is nonrefundable except as described below. The Franchise Fee is payment, in part, for expenses incurred by us in furnishing assistance and services to you as set forth in the Franchise Agreement and for costs incurred by us, including general sales and marketing expenses, training, legal, accounting and other professional fees. We may reduce the Franchise Fee to $24,000 for our first 5 franchisees. If you and we agree that you will open any additional KIDS N CLAY Pottery Studios, we will reduce the Franchise Fee to $24,000. Additionally, we will reduce the Franchise Fee to $21,000 for our employees with at least two-years seniority. Otherwise, the Franchise Fee is uniform for all franchisees.

We will refund 50% of the Franchise Fee if we, in our discretion, determine that you are unable to satisfactorily complete the training program described in ITEM 11 of this Offering Circular and if we terminate the Franchise Agreement as a result of making that determination.

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ITEM 6. OTHER FEES

Below is a detailed description of other recurring or isolated fees or payments that you must pay to us or that we impose or collect for a third party under the terms of the Franchise Agreement.

Name of Fee	Amount	Due Date	Remarks
Royalty Fee	7% of Gross Sales	Bi-Monthly	See definition of Gross Sales.¹(Section 3.2)^*
Marketing Fund Contribution	Up to 2% of Gross Sales	Bi-Monthly	No fee is currently assessed b ut we reserve the right to charge one. (Sections 3.3 and 11.3) We may require Marketing Fund Contributions to be used in cooperative advertising. (Section 11.4)
Local Advertising	At least 2% of Gross Sales	Monthly	You pay directly subject to our approval. (Section 11.2) We ma y require Local Advertising expenditures to be used in cooperative advertising. (Section 11.4)
Telephone Directory Advertising	Varies according to area and type of listing	As invoiced	You are required to list and advertise in the white pages and yellow pages of your local telephone directory. (Section 11.6)
Audit Expenses	All costs and expenses associated with audit	Upon demand	Audit costs payable only if the audit shows an understatement in amounts due of at least 3%. (Section 12.6)
Late Fees	18% per year or the highest rate allowed by law, whichever is less	Upon demand	Applies to all overdue Royalty Fees, Marketing Fund Contributions a nd other amounts due to us. (Section 3.6) Also applies to any understatement in amounts due revealed by an audit. (Section 12.6)
Approval of Products or Suppliers	All reasonable costs of evaluation	Time of evaluation	Applies to new suppliers yo u wish to purchase from or products you wish to purchase that we have not previously approved. (Section 13.1)
Insurance Policies	Amount of unpaid premiums plus our reasonable expenses in obtaining the policies	Upon demand	Payable only if you fail to maintain required insurance coverage and we elect to obtain coverage for you. (Section 15.5)
Transfer Fee	$15,000	At the time of transfer	Does not apply to an assignment under Section 18.3 of the Franchise Agreement. (Section 18.2.8)
System Modifications	Not to exceed $10,000, subject to adjustments based on Consumer Price Index	As required	If we decide to modify the System by requiring new equipment, fixtures, software, trademarks, etc., you must make the modifications at your expense. (Section 10.2)
Relocation Assistance	Costs of providing relocation assistance	Time of assistance	We will charge you for relocation assistance if you request it and we agree to provide it. (Section 5.6)
Customer Service	All costs incurred in assisting yo ur clients	Upon demand	You must reimburse us if we determine it is necessary fo r us to provide service directly yo ur clients. (Section 13.7)

All citations of Section numbers throughout this Offering Circular refer to the Franchise Agreement attached as Exhibit C.

Name of Fee	Amount	Due Date	Remarks
Ongoing Training Programs	You are required to pay your expenses as well as employees expenses in attending	Time of program	No tuition or training fees are assessed; attendance will not be required more than 2 times per year and collectively will not exceed 4 days in any year. (Section 8.5)
Additional Training	Market rates; currently, $550 per day, plus our expenses and your expenses as well as your employees expenses in attending	Time of service	We provide approximately 2 weeks of training for you and one additional person. You pay for additional training if you request it. (Section 8.1)
Additional Operations Assistance	Market rates; currently, $850 per day, plus our expenses	Time of assistance	We provide approximately 5 days of assistance around the beginning of operations. You pay for additional assistance if yo u request it. (Section 8.2)
Cost of Enforcement	All costs including attorneys fees	Upon demand	You must reimburse us fo r all costs in enforcing obligations if we prevail. (Section 22.4)
Indemnification	All costs including attorneys fees	Upon demand	You must defend lawsuits at your cost and hold us harmless against lawsuits arising from your operation of the Franchised Business. (Section 21.2)

No other fees or payments are to be paid to us, nor do we impose or collect any other fees or payments for any other third party. All fees are generally nonrefundable.

NOTES

¹ Gross Sales means the aggregate of all revenue from the sale of products and services from all sources in connection with the Franchised Business whether or not you collect it and whether for check, cash, credit or otherwise, including all proceeds from any business interruption insurance, but excluding all refunds made in good faith, any sales and equivalent taxes that you collect and pay to any governmental taxing authority, and the value of any allowance issued or granted to any client or student, or parent of a student, that you credit in full or partial satisfaction of the price of any products and services offered by the Franchised Business. (Section 1)

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ITEM 7. INITIAL INVESTMENT

We anticipate that you will incur the following estimated initial expenditures in the establishment of the Franchised Business.

Names of Expenditures	Actual or Estimated Amounts For You $ 30,000	Method of Payment	When Due	To Whom Payment Is To Be Made
Franchise Fee¹	Actual or Estimated Amounts For You $ 30,000	Cashiers Check	Upon Signing Franchise Agreement	Us
Real Estate/Rent²	400 4,800	As Arranged	Before Beginning Operations	Lessor
Utility Deposits³	0 300	As Arranged	Before Beginning Operations	Utilities
Leasehold Improvements⁴	1,000 16,000	As Arranged	Before Beginning Operations	Third Parties
Furniture, Fixtures & Equipment⁵	16,000 20,000	As Arranged	Before Beginning Operations	Approved Suppliers
Initial Inventory⁶	1,800 2,400	As Arranged	Upon Our Approval of Site	Approved Suppliers
Insurance⁷	1,000 2,500	As Arranged	Before Beginning Operations	Third Parties
Office Equipment and Supplies⁸	2,500 3,000	As Arranged	Before Beginning Operations	Approved Suppliers
Training⁹	2,500 8,000	As Arranged	Before Beginning Business	Third Parties
Signage¹⁰	200 2,000	As Arranged	Before Beginning Business	Third Parties
Grand Opening¹¹	2,500 4,000	As Arranged	First 3 Months of Operation	Third Parties
Licenses & Permits¹²	200 500	As Arranged	Before Beginning Business	Licensing Authorities
Legal & Accounting¹³	2,000 3,500	As Arranged	Before Beginning Business	Attorney, Accountant
Additional Funds¹⁴(3 months)	10,000 20,000 $ 70,100 $ 117,000	As Arranged	As Necessary	You Determine
TOTAL¹⁵	10,000 20,000 $ 70,100 $ 117,000

NOTES

¹ Franchise Fee. The Franchise Fee is described in greater detail in ITEM 5 of this Offering Circular.

² Real Estate. You must lease or otherwise provide a suitable facility for the operation of the Franchised Business. Typically, a KIDS N CLAY Pottery Studio will be located in a light industrial office center, a strip center, or some other suitable commercial or retail area and will range in size from 800 to 1,800 square feet. It is difficult to estimate lease expenses because of the wide variation in these costs between various locations. Lease expenses will vary based upon square footage, cost per square foot and required maintenance costs. We assume you will have to pay the first months rent and a security deposit equal to one months rent in advance. Rent you pay is typically not refundable, but in certain circumstances the security deposit may be.

³ Utility Deposits. If you are a new customer of your local utilities, you will generally have to pay deposits in connection with services such as electric, telephone, gas and water. The amount of deposit will vary depending upon the policies of the local utilities.

⁴ Leasehold Improvements. To convert an existing facility into a KIDS N CLAY Pottery Studio, the facility must be renovated according to our standards and specifications. The cost of the leasehold improvements will vary depending upon the size and location of the Franchised Business, local wage rates and material costs. The low estimate assumes that your landlord will provide a partial build-out allowance.

⁵ Furniture, Fixtures & Equipment. You will be required to purchase and install equipment, fixtures, furniture and items of dcor necessary to outfit and operate your Franchised Business according to our specifications, including tables, benches, vacuums, pottery wheels, tools and a kiln. The cost of the furniture, fixtures and equipment will vary according to local market conditions, the size of the Franchised Business, additional services you offer (such as paint-your-own pottery) competition among suppliers and other related factors.

⁶ Initial Inventory. You will be required to purchase an initial supply of clay, glazes, bisque ware and other products and supplies needed for the operation of the Franchised Business. These costs will vary based upon the size and location of the Franchised Business, additional services offered, competition among suppliers and other related factors.

⁷ Insurance. Requirements are described in greater detail in Section 15 of the Franchise Agreement. Factors that may affect your cost of insurance include the size and location of the Franchised Business, value of the leasehold improvements, amount of inventory, number of employees and other factors.

⁸ Office Equipment and Supplies. You must purchase general office supplies and typical office equipment, including a personal computer, software and a printer. Factors that may affect your cost of office equipment and supplies include local market conditions, competition among suppliers and other factors.

⁹ Training. The cost of initial training is included in the Franchise Fee, but you are responsible for transportation and expenses for meals and lodging while attending training. The total cost will vary depending on the number of people attending, how far you travel and the type of accommodations you choose.

¹⁰ Signage. This range includes the cost of all signage used in the Franchised Business. The signage requirements and costs will vary based upon the size and location of the Franchised Business, local zoning requirements and local wage rates for installation, among other things.

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¹¹ Grand Opening. You must spend a minimum of $2,500 on Grand Opening Advertising during the first 3 months of operation. You may choose to spend more. See ITEM 11. Factors that ma y affect the actual amount you spend include they type of media used, the size of the area you advertise to, local media cost, location of the Franchised Business, time of year and the demographics of the surrounding area.

¹² Licenses & Permits. Local government agencies typically charge fees for occupancy permits, operating licenses and sales tax licenses, among other things. Your actual costs may vary based on the requirements of local government agencies.

¹³ Legal & Accounting. You will need to employ an attorney, an accountant a nd other consultants to assist you in establishing your Franchised Business. These fees may vary from location to location depending upon the rates of local attorneys, accountants and consultants.

¹⁴ Additional Funds. We recommend that you have a minimum amount of money available to cover operating expenses, including employees salaries, for the first 3 months that the Franchised Business is open. However, we cannot guarantee that our recommendation will be sufficient. Additional working capital may be required if sales are low or operating costs are high.

¹⁵ Total. In compiling this chart, we relied on our Creative Directors industry experience and over 16 years of experience in operating a KIDS N CLAY Pottery Studio. The amounts shown are estimates only and ma y vary for many reasons including the size of your Franchised Business, the capabilities of your management team, where you locate your Franchised Business and your business experience and acumen. You should review these estimates carefully with an accountant or other business advisor before making any decision to buy a franchise. These figures are estimates only and we cannot guarantee that you will not have additional expenses in starting the Franchised Business.

ITEM 8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

Except as indicated below, you are not required to purchase or lease products or services from us or an affiliate or from suppliers approved by us or under our specifications.

Approved Suppliers/Standards and Specifications

You must remodel, furnish and equip the Franchised Business according to our standards and specifications. All equipment, fixtures, furniture, insurance, inventory, decorations, signs and other products or materials for use or sale in your Franchised Business must meet our specifications and quality standards and, if required by us, shall be purchased only from an Approved Supplier, which may be us or an affiliate. We or our affiliates are not currently approved suppliers. We will provide, in the Manual or by other written or electronic form, a list of items you will need to purchase for use in or sale from your Franchised Business and, if required, a list of Approved Suppliers for some or all of these items, and from time to time we ma y revise this list. Our specifications may include minimum standards for performance, design, appearance a nd quality. We formulate and modify our specifications and standards for products and services based upon our and our Creative Directors industry knowledge and our Creative Directors experience in operating a KIDS N CLAY Pottery Studio since 1988.

If you would like to use any item or service in establishing or operating the Franchised Business that we have not approved (for items or services that require supplier approval), you must first send us sufficient information, specifications and/or samples for us to determine whether the item or service complies with our standards and specifications or the supplier meets our Approved Supplier criteria. We ma y charge a reasonable fee to you or the prospective supplier in connection with determining whether we will approve an item, service or supplier. We will decide within a reasonable time (usually, 30 days) after receiving the required information

whether you ma y purchase or lease such items or services or from such supplier. We apply the following and other general criteria in approving a proposed supplier or product: the marketability of the product to our students and clients; the ability to provide sufficient quantity of product; quality of products and/or services at competitive prices; production and delivery capability; and dependability and general reputation of the supplier.

From time to time, we may review our approval of any item, service or supplier. We will notify you in writing if we revoke our approval of an item, service or supplier, and you must immediately stop purchasing disapproved items or services, or must immediately stop purchasing from a disapproved supplier.

Currently, neither we nor our Affiliate derive revenue based on your required purchases or leases.

Computer System

You are required to purchase and use the computer hardware and software described in ITEM 11 of this Offering Circular. We do not receive any discounts, rebates or other benefits as a result of your purchase of the computer and point-of-sale system.

Insurance

You must purchase and maintain in effect during the term of the Franchise Agreement the type and amount of insurance specified in Section 15 of the Franchise Agreement in addition to any other insurance that ma y be required by applicable law, any lender or lessor. Your insurance policies must name us as an additional insured and/or loss payee. We do not receive any discounts, rebates or other benefits as a result of your purchase of insurance.

Miscellaneous

We ma y negotiate group rates, including price terms, for purchases of equipment and supplies necessary for the operation of the Franchised Business. Presently, there are no such purchase or supply agreements in effect and no purchasing or distribution cooperatives that you must join. Currently, we receive no revenue or other material consideration from third-party suppliers as a result of purchases made by you or any other franchisee. However, we may receive volume rebates, markups and other benefits from suppliers in the future.

We estimate that approximately 65% to 75% of your expenditures for leases and purchases in establishing your Franchised Business will be for goods and services that must be purchased either from us, an affiliate or an Approved Supplier, or in accordance with our standards and specifications. We estimate that approximately 25% to 35% of your expenditures on an ongoing basis will be for goods and services that must be purchased from either us, an affiliate, an Approved Supplier or in accordance with our standards and specifications.

We do not provide or withhold material benefits to you (such as renewal rights or the right to open additional KIDS N CLAY Pottery Studios) based on whether you purchase through the sources we designate or approve; however, purchases of unapproved products or purchases from unapproved suppliers in violation of the Franchise Agreement will entitle us, among other things, to terminate the Franchise Agreement.

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ITEM 9. FRANCHISEES OBLIGATIONS

This table lists your principal obligations under the Franchise 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 The Franchise Agreement	ITEM In the Offering Circular
a.	Site selection and acquisition/lease	Sections 2 and 5	ITEMS 11 and 12
b.	Pre-opening purchases/leases	Sections 5, 12 and 15	ITEMS 7 and 8
c.	Site development and other pre-opening requirements	Sections 5 and 8	ITEMS 7, 8 and 11
d.	Initial and ongoing training	Section 8	ITEMS 6, 7 and 11
e.	Opening	Sections 5, 8, and 11	ITEMS 7 and 11
f.	Fees	Sections 3, 5, 8, 10, 11, 12, 13, 15, 18, 21 and 22	ITEMS 5, 6 and 7
g.	Compliance with standards and policies/Operating Manual	Sections 5, 6, 7, 9, 10, 11 and 13	ITEMS 8 and 16
h.	Trademarks and proprietary information	Sections 6, 7 and 9	ITEMS 13 and 14
i.	Restrictions on products/services offered	Sections 5, 6, 7 and 13	ITEMS 8 and 16
j.	Warranty and customer service requirements	Section 13	ITEM 16
k.	Territorial development and sales quotas	None	ITEM 12
l.	Ongoing product/service purchases	Section 13	ITEM 8
m.	Maintenance, appearance and remodeling requirements	Sections 5, 10 and 13	ITEM 6
n.	Insurance	Section 15	ITEMS 6, 7 and 8
o.	Advertising	Section 11	ITEMS 6 and 11
p.	Indemnification	Section 21	ITEM 6
q.	Owners participation/management/ staffing	Section 13	ITEM 15
r.	Records and reports	Sections 3 and 12	ITEM 11

s.	Inspections and audits	Sections 6 and 12	ITEMS 6, 11 and 13
t.	Transfer	Section 18	ITEM 17

Obligation		Section In The Franchise Agreement	ITEM In the Offering Circular

u.	Renewal	Section 4	ITEM 17
v.	Post-termination obligations	Section 17	ITEM 17
w.	Non-competition covenants	Sections 7 and 17	ITEM 17
x.	Dispute resolution	Section 23	ITEM 17

ITEM 10. FINANCING

We do not offer direct or indirect financing. We do not guarantee your lease or other obligations.

ITEM 11. FRANCHISORS OBLIGATIONS

Except as listed below, we need not provide any assistance to you under the Franchise Agreement. A. Before The Franchised Business Opens

Before you open your Franchised Business, we will:

1. designate your Protected Territory, as further described in ITEM 12. (Section 2.5)

2. if we have not already approved a site that you have selected before signing the Franchise Agreement, designate the area within which you will locate the Franchised Business, provide you with our criteria for site selection and approve the site you have selected for the location of the Franchised Business. (Sections 2.3 and 5.1)

Neither we nor any of our employees have special expertise in selecting sites; we make no representations that your Franchised Business will be profitable or successful by being located at the Approved Location. Any approval is intended only to indicate that the proposed site meets our minimum criteria based upon our general business experience.

3. review and approve your lease or purchase agreement for the site for the Approved Location. (Section 5.2)

Our review of your lease or purchase agreement and any advice or recommendations we may offer is not a representation or guarantee by us that you will succeed at the leased or purchased pre mises.

4. provide you with a copy of standard plans and specifications for the build-out of the Franchised Business and list of required equipment and improvements that you are required to purchase and install. (Section 5.3)

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5. provide an initial training program lasting approximately 2 weeks. This training is described in detail later in this ITEM. (Section 8.1)

6. provide to you on-site assistance and guidance for approximately 5 days to assist you with any questions you ma y have in operating the Franchised Business. (Section 8.2)

7. provide to you, on loan, one copy of the KIDS N CLAY Operations Manual containing 425 pages. The Table of Contents of the Operations Manual, along with number of pages devoted to each section, is included as Exhibit D to this Offering Circular. (Section 9.1)

B. Other Assistance During the Operation of The Franchised Business After the opening of the Franchised Business, we will:

1. from time to time, advise and offer general guidance to you by telephone, e-mail, facsimile, newsletters and other methods. Our guidance is based on our and our franchisees experience in operating KIDS N CLAY Pottery Studios. Our advice and guidance may consist of knowledge and experience relating to the authorized services or products, as well as operational methods, accounting procedures, and marketing and sales strategies. (Section 14.1)

2. at our discretion, make periodic visits to the Franchised Business for the purposes of consultation, assistance and guidance in various aspects of the operation and management of the Franchised Business. We ma y prepare written reports outlining any suggested changes or improvements in the operations of the Franchised Business and detail any deficiencies that become evident as a result of any such visit. If we prepare a report, you may request a copy from us. (Section 14.2)

3. make available to you operations assistance and ongoing training as we deem necessary. (Sections 8.2 and 8.5)

4. make available to you changes and additions to the System as generally made available to all franchisees. (Section 14.3)

5. periodically provide advertising and promotional materials including ad-slicks, brochures, fliers and other materials for your use. (Section 14.4)

6. approve forms of advertising, marketing, media and promotional materials you will use for public relations, Local Advertising, Grand Opening Advertising and Cooperative Advertising. (Section 11)

7. provide you with modifications to the Manual as they are made available to franchisees. (Section 9.2)

C. Advertising and Promotion

1. Each month, you must spend at least 2% of your Gross Sales on advertising, promotions

and public relations in the local area surrounding the Franchised Business. You will pay for your ads, yellow pages advertising and promotions directly, but we will provide you with general marketing guidelines and we will review and approve your advertisements and press releases. (Section 11.2) you must receive our prior written consent to advertise on the Internet.

2. We ma y develop a System-wide Marketing Fund, and if we do, you will be required to contribute up to 2% of your Gross Sales to the fund. (Section 11.3) We will set the exact percentage that you must contribute and we ma y adjust the percentage from time to time. We will administer the Marketing Fund as follows:

(a) We will control the creative concepts and the materials and media to be used, and we will determine the placement and allocation of advertisements. We may use print, television, radio, Internet or other media for advertisements and promotions. We do not guarantee that any particular franchisee will benefit directly or in proportion to their contribution from the placement of advertising by the Marketing Fund.

(b) We may use your contributions to meet any cost of producing, maintaining, administering and directing consumer advertising (including the cost of preparing and conducting television, radio, Internet, magazine, direct mail and newspaper advertising campaigns and other public relations activities; developing and/or hosting an Internet web page of similar activities; employing advertising agencies to assist therein; providing promotional brochures; conducting market research; and providing other marketing materials to franchisees). We initially plan to conduct all advertising in-house, but we may use a national or regional advertising agency in the future. We will maintain your contributions in a separate account from our funds and we will not use them for any of our general operating expenses, except for our reasonable administrative costs and overhead related to the administration of the Marketing Fund. We will not use Marketing Fund Contributions for the direct solicitation of franchise sales.

(c) We expect to use all contributions in the fiscal year they are made. We will use any interest or other earnings of the Marketing Fund before using current contributions. We intend for the Marketing Fund to be perpetual, but we have the right to terminate it if necessary. We will not terminate the Marketing Fund until all contributions and earnings have been used for advertising and promotional purposes or have been returned to our franchisees on a pro rata basis.

(d) The original KIDS N CLAY Pottery Studio in Berkeley, California, and any KIDS N CLAY Pottery Studios owned by us will ma ke similar contributions to the Marketing Fund as required of franchisees.

(e) We will have an accounting of the Marketing Fund prepared each year and we will provide you with a copy if you request it. We may require that the annual accounting be audited by an independent certified public accountant at the expense of the Marketing Fund.

(f) The Marketing Fund is not a trust and we assume no fiduciary duty in administering the Marketing Fund.

3. Although we are not obligated to do so, we may create a Cooperative Advertising program for the benefit of all KIDS N CLAY Pottery Studios located within a particular region. We have the right to: (a) allocate any portion of the Marketing Fund to a Cooperative Advertising program; and (b) collect and designate all or a portion of the Local Advertising for a Cooperative Advertising program. We will determine the geographic territory and market areas for each Cooperative Advertising program. You must participate in any Cooperative Advertising program established in your region. If a Cooperative Advertising program is implemented in a particular region, we may establish an advertising council for franchisees in that region to self-administer the program. (Section 11.4)

4. During your first 3 months of operation, you must spend at least $2,500 on Grand Opening Advertising, including print or news media and/or direct mail advertising, dues for business organizations, event dues or other solicitation and promotional efforts. We will provide you with guidance for conducting Grand

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Opening Advertising, and we will review and approve the materials you use in your Grand Opening Advertising. (Section 11.1)

5. You must list the telephone number for the Franchised Business in your local telephone

directory and advertise your Franchised Business in the yellow pages category that we specify. You must place the listings together with other KIDS N CLAY Pottery Studios operating within the distribution area of the directories. (Section 11.6)

D. Computer System

We have the right, under the Franchise Agreement, to require you to purchase and use any and all hardware and computer software programs that we ma y designate. (Section 12.5) We do not specify any particular brand or configuration of computer equipment, but we do require you to use a Windows-based PC system capable of running the following software: Microsoft Office (or equivalent) for word processing, spreadsheets, and general office tasks, Filemaker Pro (or equivalent) for database creation or maintenance and information management, and Intuit Quicken (or equivalent) for accounting and record keeping.

We may require you to update, modify or replace your system during the term of the franchise. (Section 10.2)

You are not required to enter into any ongoing maintenance or support agreements but you may find it advantageous to do so. You must update or upgrade computer hardware and software as we deem necessary but not more than one time per year.

We have the right to independently access all information you collect or compile at any time without first notifying you. (Section 12.5)

E. Methods Used to Select the Location of the Franchised Business

If you have a potential site for the Franchised Business, you may propose the location for our consideration. We ma y consent to the site after we have evaluated it. If you do not have a proposed site, we will designate a geographic area within which you must locate the Franchised Business and we will furnish you with our general site selection criteria. You are solely responsible for locating and obtaining a site that meets our standards and criteria and that is acceptable to us. (Sections 2.3 and 5.1)

The general site selection and evaluation criteria which we consider in approving your site includes the condition of the premises, demographics of the surrounding area, proximity to other KIDS N CLAY Pottery Studios, lease requirements, available parking or drop-off/pick-up areas and overall suitability. We will provide you with written notice of our approval or disapproval of any proposed site within a reasonable time after receiving all requested information. If you a nd we cannot agree on a suitable site for the Franchised Business, we may terminate the Franchise Agreement.

F. Typical Length of Time Before Operation

We estimate that the typical length of time between the signing of the Franchise Agreement and the opening of a KIDS N CLAY Pottery Studio is 4 months. Factors that may affect your beginning operations include ability to secure permits, zoning and local ordinances, weather conditions and delays in installation of equipment and fixtures. You are required to open your Franchised Business and be operational within 6 months after signing the Franchise Agreement. (Section 5.4)

G. Training

We will conduct an initial training program that the Designated Manager (which is you, if you are not a corporation or other business entity) must attend and complete to our satisfaction. Although initial training is mandatory for the Designated Manager, it is also available for one additional assistant. Training will take place at our facility in Berkeley, California, or at another location we designate, on an as needed basis as we may determine. The initial training program consists of approximately 2 weeks of training. Initial training covers all material aspects of the operation of a KIDS N CLAY Pottery Studio, including such topics as teaching in the studio; sales and marketing methods; financial controls; maintenance of quality standards; customer service techniques, record keeping and reporting procedures, other operational issues and on-the-job training. If you replace your Designated Manager, your new Designated Manager must attend our training program. Although we do not charge for initial training, you will be charged fees for additional training of a new Designated Manager. You are required to pay your expenses as well as employees expenses in attending this initial training program. You are responsible for training your own employees and other management personnel. This initial training is in addition to the 5 days of on-site opening assistance we provide to you. (Section 8)

SUBJECT	INSTRUCTIONAL MATERIAL	HOURS OF CLASSROOM TRAINING	HOURS OF ON-THE-JOB TRAINING	INSTRUCTOR
Marketing and Promotion	Manual/reference materials	10		David Larson
Business Operations & Systems	Manual/sample documents	20		David Larson, Kids N Clay Administrative Staff
Personnel Management	Manual	5		Kevin Nierman, David Larson
In-studio (hands-on training)	Hands-on and Instructional DVD		25	Kevin Nierman & KNC Instructors
Skills training	Hands-on and Instructional DVD		35	Kevin Nierman, KNC Instructors & Master Potters

Kevin Nierman, David Larson, Kids N Clay instructors and operational staff and (at times) visiting master potters will provide training. Mr. Nierman & Mr. Larsons qualifications are as disclosed in ITEM 2 of this Offering Circular.

From time to time we ma y require that previously trained and experienced franchisees, their managers, and/or employees attend refresher-training programs to be conducted at our headquarters. Attendance at these programs will be at your sole expense; however, we will not require you to attend more than 2 of these programs in any calendar year and these programs will not collectively exceed 4 days during any calendar year. (Section 8.5)

ITEM 12. TERRITORY

You must operate the Franchised Business only from the Approved Location listed in Section 2.2 of the Franchise Agreement. If the Approved Location has not already been determined when you sign the Franchise Agreement, you and we will agree upon a Designated Area within which you will locate the Franchised Business. Although we may assist you in selecting a location, you are solely responsible for selecting the Approved Location and negotiating the terms of the lease. You may not relocate the Franchised Business without our consent.

We also grant you a Protected Territory. Your Protected Territory will be delineated by streets, highways, natural and/or political boundaries and will consist of the area containing approximately 200,000 persons, of which the percentage of the school-age population is approximately the national average. If you are in compliance with

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the Franchise Agreement during its term, we will not establish or operate, or license others to establish or operate, KIDS N CLAY Pottery Studios or competing businesses within the Protected Territory. Also, we have the right to: (a) establish or operate, and license others to establish or operate, KIDS N CLAY Pottery Studios outside of the Protected Territory; (b) establish or operate, and license others to establish or operate, other businesses under other systems using other trademarks at locations either inside or outside of the Protected Territory; (c) provide the services and sell any products authorized for KIDS N CLAY Pottery Studios using the Marks or other trademarks and commercial symbols through alternate channels of distribution, such as joint marketing with partner companies, direct mail and Internet and catalogue sales, but we will not sell to any Competitive Business in the Protected Territory; and (d) engage in any other activities not expressly prohibited in by the Franchise Agreement.

You are not restricted from soliciting or advertising for students or clients outside your Protected Territory, except you may not advertise on the Internet without our prior written consent. You are not required to achieve a sales or market penetration quota in order to maintain the exclusivity of your Protected Territory. We cannot change the Protected Territory without your consent.

ITEM 13. TRADEMARKS

We grant our franchisees the right to operate KIDS N CLAY Pottery Studios under the name KIDS N CLAY, which is the principal Mark used to identify our System. You ma y also use any other current or future Mark to operate your Franchised Business that we designate in writing, including the logo on the front of this Offering Circular and the trademarks listed below. By Marks, we mean the trade names, trademarks, service marks and logos used to identify KIDS N CLAY Pottery Studios. Kevin B. Nierman owns the following Mark, which is listed on the Principal Register of the U.S. Patent and Trademark Office (PTO):

Mark	Registration Number	Registration Date
KIDS N CLAY (words only)	2050926	April 8, 1997

Kevin B. Nierman has granted us a non-exclusive license to use and sublicense the use of the KIDS N CLAY Mark. The term of the license coincides with Mr. Niermans perpetual rights in the Mark.

Additionally, as of the date of this Offering Circular, we have a pending application for the following Mark on the Principal Register of the PTO:

Mark	Serial Number	Filing Date
MUDPIES (words in stylized form)	78484465	September 16, 2004

There are currently no effective material determinations of the United States Patent and Trademark Office, trademark trial and appeal board, the trademark administrator of this state or any court; pending infringement, opposition or cancellation; or pending material litigation involving the Marks. Mr. Nierman has filed all affidavits required by the PTO relating to the Marks shown above.

There are no infringing or prior superior uses actually known to us that could materially affect the use of the Marks in this state or any other state in which a KIDS N CLAY Pottery Studio may be located.

There are no agreements currently in effect, which significantly limit our rights to use or license the use of the Marks in any manner material to the franchise.

You will not receive any rights to the Marks other than the nonexclusive right to use them in the operation of your Franchised Business. You may only use the Marks in accordance with our standards, operating procedures and specifications. Any unauthorized use of the Marks by you is a breach of the Franchise Agreement and an infringement of our rights in the Marks. You may not contest the validity or ownership of the Marks, including any Marks that we license to you after you sign the Franchise Agreement. You may not assist any other person in contesting the validity or ownership of the Marks.

You must immediately notify us of any apparent infringement of, or challenge to your use of, any Mark, or any claim by any person of any rights in any Marks, and you may not communicate with any person other than us and our counsel regarding any infringements, challenges or claims unless you are legally required to do so, however, you may communicate with your own counsel at your own expense. We may take whatever action we deem appropriate in these situations; we have exclusive control over any settlement or proceeding concerning any Mark. You must take any actions that, in the opinion of our counsel, may be advisable to protect and maintain our interests in any proceeding or to otherwise protect and maintain our interests in the Marks.

We can require you to modify or discontinue the use of any Mark and to use other trademarks or service marks. We will not be required to reimburse you for modifying or discontinuing the use of a Mark or for substituting another trademark or service mark for a discontinued Mark. We are not obligated to reimburse you for any loss of goodwill associated with a modified or discontinued Mark.

We will reimburse you for all of your expenses reasonably incurred in any legal proceeding disputing your authorized use of any Mark, but only if you notify us of the proceeding in a timely manner and you have complied with our directions with regard to such proceeding. We have the right to control the defense and settlement of any such proceeding. Our reimbursement does not include your expenses for removing signage or discontinuing your use of any Mark. Our reimbursement also does not apply to any disputes where we challenge your use of a Mark. Our reimbursement does not apply to legal fees you incur in seeking separate, independent legal counsel.

You must use the Marks as the sole trade identification of the Franchised Business, but you may not use any Mark or part of any Mark as part of your corporate name in any modified form. You may not use any Mark in connection with the sale of any unauthorized products or services, or in any other manner that we do not authorize in writing. You must obtain a fictitious or assumed name registration if required by your state or local law.

You must notify us if you apply for your own trademark or service mark registrations. You must not register or seek to register as a trademark or service mark, either with the PTO or any state or foreign country, any of the Marks or a trademark or service mark that is confusingly similar to any of our Marks.

You ma y not establish, create or operate an Internet site or website using any domain name containing any variation of the words KIDS N CLAY or any variation of the Marks without our prior written consent. We retain the sole right to advertise on the Internet and create websites using KIDS N CLAY or any other Mark as the domain name and any other domain names we may designate in the Manual.

ITEM 14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION

No patents are material to the franchise. We own copyrights in the Manual, marketing materials and other copyrightable items that are part of the System. While we claim copyrights in these and similar items, we have not registered these copyrights with the United States Registrar of Copyrights and need not do so to protect them. You may use these items only as we specify while operating the Franchised Business and you must stop using them if we direct you to do so.

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There are currently no effective determinations of the Copyright Office (Library of Congress) or any court regarding the copyrighted materials. Our right to use or license copyrighted items is not materially limited by any agreement or known infringing use.

We have developed certain Confidential Information, including certain trade secrets, methods of business management, sales and promotion techniques, and know-how, knowledge of, and experience in, operating a KIDS N CLAY Pottery Studio. We will provide our Confidential Information to you during training, in the Manual and as a result of the assistance we furnish you during the term of the franchise. You may only use the Confidential Information for the purpose of operating your Franchised Business. You ma y only divulge Confidential Information to employees who must have access to it in order to operate the Franchised Business. You are responsible for enforcing the confidentiality provisions as to your employees.

We claim ownership of all student and client information, including names, addresses, contact information, course histories, even if you collect or compile this information. You must send us your student or client lists and other information within 5 days after the start of any class or event.

Certain individuals with access to Confidential Information, including your owners (and members of their immediate families and households), officers, directors, partners, members, if you are a corporation, limited liability company or other business entity, and your managers, executives, employees and staff may be required to sign nondisclosure and non-competition agreements the same as or similar to the Nondisclosure and Non-competition Agreement attached to the Franchise Agreement.

All ideas, concepts, techniques or materials concerning the Franchised Business, whether or not protectable intellectual property and whether created by or for you or your owners or employees, must be promptly disclosed to us and will be deemed our sole and exclusive property and a part of the System that we may choose to adopt and/or disclose to other franchisees. Likewise, we will disclose to you concepts and developments of other franchisees that we make part of the System. You must also assist us in obtaining intellectual property rights in any concept or development if requested.

ITEM 15. OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISED BUSINESS

The Franchised Business must always be under the direct full-time supervision of a Designated Manager, which is you if you are an individual, or is an individual you select if you are a business entity. You (or your Designated Manager) must attend and satisfactorily complete our initial training program before opening the Franchised Business. You must keep us informed of the identity of your current Designated Manager. If you are a corporation or other business entity and the Franchised Business is under the supervision of a Designated Manager, he or she does not have to be one of your owners.

As described in ITEM 14, your owners (and members of their immediate families and households), officers, directors, partners, members, managers, executives, employees and staff, and other individuals having access to Confidential Information may be required to sign nondisclosure and non-competition agreements nondisclosure and non-competition agreements the same as or similar to the Nondisclosure and Non-competition Agreement attached to the Franchise Agreement. We will be a third-party beneficiary with the right to enforce the agreements.

If you are a business entity, anyone who owns a 5% or greater interest in the entity must personally guarantee the performance of all of your obligations under the Franchise Agreement and agree to be personally liable for your breach of the Franchise Agreement by signing the Guaranty and Assumption of Obligations attached to the Franchise Agreement.

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