UFOC

Sample UFOC

AMMED

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. FRANCHISE OFFERING CIRCULAR

A * * * * A

INFORMATION FOR PROSPECTIVE FRANCHISEES REQUIRED BY THE FEDERAL TRADE COMMISSION

FRANCHISOR:

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.

(a Colorado corporation)

265 Turner Drive

Durango, Colorado 81303

Telephone: (970) 259-0554

www.rmcf.com

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

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

FEDERAL TRADE COMMISSION WASHINGTON, D.C. 20580

THE DATE OF ISSUANCE OF THIS OFFERING CIRCULAR IS:

,2006

(CA 6/1/06)

FRANCHISE OFFERING CIRCULAR

FOR PROSPECTIVE FRANCHISEES REQUIRED BY

THE STATE OF CALIFORNIA

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.

(a Colorado corporation)

265 Turner Drive

Durango, Colorado 81303

Telephone: (970)259-0554

www.rmcf.com

Rocky Mountain Chocolate Factory, Inc., a Colorado corporation, is offering franchises for the retail sale of gourmet chocolate and other premium confectionery products. The initial franchise fee ranges from $32,500 to $39,500 and includes the $24,500 franchise fee and between $8,000 and $15,000 for opening inventory and cooking supplies which you pay to us within 30 days after the products are shipped. The estimated initial investment for a franchise, including the initial franchise fee and opening inventory purchases, ranges from $129,008 to $435,515.

Risk Factors:

1. THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE TO SUE US ONLY IN COLORADO^XCEPT FOR FRANCHISEES IN THE STATES OF CALIFORNIA, IDAHO, ILLINOIS, IOWA, RHODE ISLAND AND SOUTH DAKOTA, THE FRANCHISE AGREEMENT REQUIRES THAT DISAGREEMENTS ARE SUBMITTED FIRST TO NON-BINDING ARBITRATION AND, FAILING SETTLEMENT, THEN ARE LITIGATED. OUT OF STATE NON-BINDING ARBITRATION AND LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT. IT MAY ALSO COST YOU MORE TO SUBMIT DISAGREEMENTS FIRST TO NON-BINDING ARBITRATION OR TO SUE US IN COLORADO THAN IN YOUR HOME STATE.

2. THE FRANCHISE AGREEMENT STATES THAT COLORADO LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.

3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

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

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

Effective date: ________, 2006

(CA 6/1/06)

TABLE OF CONTENTS ITEM PAGE

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

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

3 LITIGATION..............................................................................................................................4

4 BANKRUPTCY..........................................................................................................................6

5 INITIAL FRANCHISE FEE.......................................................................................................7

6 OTHER FEES.............................................................................................................................7

7 INITIAL INVESTMENT............................................................................................................9

8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES....................................14

9 FRANCHISEE'S OBLIGATIONS...........................................................................................15

10 FINANCING.............................................................................................................................16

11 FRANCHISOR'S OBLIGATIONS..........................................................................................17

12 TERRITORY.............................................................................................................................22

13 TRADEMARKS.......................................................................................................................23

14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION..........................._:........24

15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS.........................................................................................................25

16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL............................................25

17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION......................26

18 PUBLIC FIGURES...................................................................................................................28

19 EARNINGS CLAIMS...............................................................................................................28

20 LIST OF OUTLETS..................................................................................................................31

21 FINANCIAL STATEMENTS...................................................................................................35

22 CONTRACTS...........................................................................................................................35

23 RECEIPT.......................................................................................................................Last Page

CALIFORNIA ADDENDUM TO OFFERING CIRCULAR

(CA 6/1/06)

EXHIBITS

Exhibit A	List of State Agencies/Agents for Service of Process
Exhibit B	Franchise Agreement
Exhibit C	List of Franchisees
Exhibit D	Franchisees Who Have Left the System
Exhibit E	Financial Statements
Exhibit F	Operations Manual Table of Contents
Exhibit G	Sublease and Assignment Agreements
Exhibit H	Addendum to Franchise Agreement - Satellite Stores
Exhibit I	Addendum to Franchise Agreement - Temporary Stores
Exhibit J	Addenda to Franchise Agreement - Renewal and Transfer
Exhibit K	Closing Acknowledgment
Exhibit L	Receipt of Offering Circular

ITEM1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES

The Franchisor.

The name of the franchisor is Rocky Mountain Chocolate Factory, Inc. For ease of reference, Rocky Mountain Chocolate Factory, Inc. means "we" or "RMCF" in this Offering Circular. We refer to the person who buys the franchise as "you" throughout this Offering Circular. If you are a corporation, partnership or limited liability company ("Business Entity"), certain provisions of the Franchise Agreement also apply to your owners as noted in the Franchise Agreement.

Our principal offices are located at 265 Turner Drive, Durango, Colorado 81303. We presently do business under the name "Rocky Mountain Chocolate Factory, Inc." We were formed in November, 1982, as a Colorado corporation. We have no predecessors or affiliates. Our agents for service of process are listed on Exhibit A.

The Franchise.

We offer franchises for the establishment and operation of retail stores ("ROCKY MOUNTAIN CHOCOLATE FACTORY Stores" or "Stores") which sell gourmet chocolates and other premium confectionery products, featuring ROCKY MOUNTAIN CHOCOLATE FACTORY brand candy that you purchase from our factory in Durango, Colorado ("Factory Candy"), confectionery items that you make in the Store, such as caramel apples ("Store Candy"), and non-confectionery items ("Items"), including gifts and small toys. We license the Stores to use the service mark "ROCKY MOUNTAIN CHOCOLATE FACTORY" and related trademarks ("Marks") and our marketing plan and proprietary business methods ("System").

You must sign our Franchise Agreement ("Franchise Agreement"), which is Exhibit B to this Offering Circular. The Franchise Agreement grants you the right to use our Marks and System to operate your own Store at a business premises which we must first approve ("Franchised Location"). If they qualify, existing franchisees may operate "Satellite Stores" and "Temporary Stores" by signing the applicable addendums to the Franchise Agreement, Exhibits H and I to this Offering Circular. Depending on the type of retail environment you choose for your Franchised Location and the type of Store you wish to operate, we offer four different Store plans, ranging from a full-sized Store option to a variety of "Kiosk Stores," all of which we refer to in this Offering Circular as "Stores" or "ROCKY MOUNTAIN CHOCOLATE FACTORY Stores." See Item 7

Regulations Affecting Franchise.

There are no regulations specific to the operation of a ROCKY MOUNTAIN CHOCOLATE FACTORY Store in your state, although you must comply with all local, state and federal health and sanitation laws relating to food handling and the sale of food. You must comply with employment, worker's compensation, insurance, corporate, taxing, licensing and similar laws and regulations of a more general nature applicable to most businesses.

Market Competition.

As a ROCKY MOUNTAIN CHOCOLATE FACTORY franchisee, you may face competition from firms such as Godiva Chocolatier, See's Candy, or local, independent candy stores and other specialty food stores.

Our Prior Business Experience.

We have 25 years of experience in the operation of our business and as of the date of this Offering Circular, we operate 9 company-owned Stores, one of which is a Kiosk. We began offering franchises in 1982.

We offered franchises for retail stores which featured moving characters, lights, music and imitation candy-making machines and which sold bulk candy under the mark FUZZIWIG'S CANDY FACTORY from June 1996 through May 1998. Other than the FUZZIWIG'S CANDY FACTORY franchises, we have not offered franchises in any other line of business.

ITEM 2

BUSINESS EXPERIENCE

President, Chairman of Board and Director: Franklin E. Crail.

Franklin E. Crail co-founded the first ROCKY MOUNTAIN CHOCOLATE FACTORY retail store in May 1981. Since our incorporation in November 1982, he has served as our President and a Director, and from September 1984 to January 2000, as Treasurer. He was elected Chairman of the Board in March 1986.

Chief Financial Officer, Chief Operating Officer, Treasurer and Director: Bryan J. Merryman.

Bryan J. Menyman joined us in December 1997 as our Chief Financial Officer. Mr. Merryman became Chief Operating Officer in April 1999 and was appointed to the board of directors in March 1999. He was elected Treasurer in January 2000.

Senior Vice President/Sales and Marketing: Edward L. Dudley.

Edward L. Dudley joined us in January 1997 as Vice President of Product Sales Development. In 1998, he was promoted to Vice President of Sales and Marketing and in 2000, he was promoted to Senior Vice President of Sales and Marketing.

Senior Vice President/Franchise Development and Operations: Gregory L. Pope.

Gregory L. Pope was appointed Senior Vice President of Franchise Development and Operations in May 2004. He served as Vice President of Franchise Operations beginning in June 2001. Since joining RMCF in October 1990, he has served in various positions including Store manager, new Store opener and franchise field consultant. In March 1996, he became our Director of Franchise Development and Support.

Chief Information Officer: William K. Jobson.

William K. Jobson joined RMCF in July 1998 as Director of Information Technology. In June 2001, he was promoted to Chief Information Officer, a position created to enhance RMCF's strategic focus on information and information technology.

Vice President/Creative Services: Jay B. Haws.

Jay B. Haws joined us in August 1991 as Vice President of Marketing. In 1998, we changed the name of our Marketing Department to Creative Services.

Secretary: Virginia Perez.

Virginia Perez has served as our corporate secretary since June 1996.

Director: Fred M. Trainor.

Fred M. Trainor became a director in August 1992. He has served as Chief Executive Officer and President of Avcor Health Care Products, Inc., located in Fort Worth, Texas, since December 1984.

Director: Lee N. Mortenson.

Lee N. Mortenson became a director in November 1987. Mr. Mortenson has been engaged in consulting, investments, troubled companies, and due diligence activities since July 2000, and has served as a Managing Director in Kensington Partners, LLC, a private investment firm located in Hickory, North Carolina, since June 2001. Mr. Mortenson has been President and CEO of Newell Resources, LLC, located in Hickory, North Carolina, since 2002 providing management consulting and investment services. He was President, Chief Operating Officer and a director of Sunstates Corporation, located in Raleigh, North Carolina, from December 1990 to February 2000. ^!

Director: Gerald A. Kien.

Gerald A. Kien became a director in August 1995. He retired in 1995 from his positions as President and Chief Executive Officer of Remote Sensing Technologies, Inc., a subsidiary of Envirotest Systems, Inc., a company engaged in the development of instrumentation for vehicle emissions testing located in Tucson, Arizona. Mr. Kien has served as a Director and as Chairman of the Executive Committee of Sun Electric Corporation since 1980 and he served as Chairman, President and Chief Executive Officer of Sun Electric Corporation until he retired from these positions in 1993.

Director: Clyde W. Engle.

Clyde W. Engle became a director in January 2000. To the best of our knowledge, he has served as Chairman of the Board of Coronet Insurance Company, Crown Casualty Company and National Assurance Indemnity Company, all insurance companies, from 1986 to 1996; as Chairman of the Board and Chief Executive Officer of Sunstates Corporation (formerly known as Acton Corporation), located in Raleigh, North Carolina, since December 1985; and as Chairman of the Board, President and Chief Executive Officer of Lincolnwood Bancorp, Inc., (formerly known as GSC Enterprises, Inc.), and Chairman of the Board and Chief Executive Officer of its subsidiary, Bank of Lincolnwood, both located in Chicago, Illinois, since 1976.

ITEM 3 LITIGATION

1. Harbor Finance Partners v. Franklin Crail. et al.. (No. 99CV3494, Denver Dist. Ct). On May 26, 1999, one of RMCF's shareholders, individually and on behalf of all other RMCF shareholders similarly situated, filed a class action against RMCF and individual members of RMCF's board of directors, alleging breach of fiduciary duty when the board took certain defensive actions designed to discourage a hostile takeover attempt by Whitman's Candies, Inc. The complaint asked for compensatory damages, plus interest and costs, in an unspecified amount, and for injunctive relief to enjoin defendants from taking action that would have prevented the public stockholders from maximizing the value of their shares. The case was moved to the District Court for La Plata County, Colorado. On December 15, 1999, the court dismissed the case on the grounds that the plaintiffs failed to satisfy the requirements for bringing a derivative action, and the plaintiffs could not bring a direct action. The plaintiffs did not appeal the dismissal of the case.

2. American Environmental Safety Institute v. Mars. Incorporated et al. (No. BC 273433). On May 8, 2002, a California non-profit corporation filed a law suit against RMCF; Mars, Incorporated; Hershey Foods Corporation; Nestle USA, Inc.; Kraft Foods North America; and See's Candies, Inc. in Superior Court for the County of Los Angeles, California. The Complaint was later amended to add more defendants. The lawsuit claimed that RMCF and the other defendants were aware that their chocolate products contain cadmium and lead in amounts exceeding the permissible levels under California Proposition 65 and that the defendants failed to properly warn the public of the potentially hazardous effect of these minerals in chocolate. The complaint demanded injunctive relief and money damages including fines exceeding $5,000,000 plus interest, attorney's fees and other legal costs. On September 28, 2001, the California Attorney General had released a statement refusing to prosecute a similar action against chocolate manufacturers on behalf of the State of California, stating that such an action lacked merit. The defendants made an offer to settle for a total of $20,000 and the plaintiffs accepted this offer. RMCF did not pay any part of the settlement amount. This case was dismissed on December 19, 2003.

3. Rocky Mountain Chocolate Factory. Inc. v. The Chocolate Factory. Opposition No. 91161249, U.S. Trademark Trial and Appeal Board, filed on July 6, 2004. We filed this action against a pending registration for THE CHOCOLATE FACTORY because we believe the applicant's mark so resembles our Marks when applied to applicant's goods and services, as to be likely to cause confusion among consumers. Our application for the Mark "CHOCOLATE FACTORY" filed November 19, 2003, Serial No. 76/563190, has been suspended pending the outcome of this opposition proceeding. We are requesting the application for registration be denied. The applicant has filed an answer generally denying our allegations. This case is currently in the discovery phase.

4. Kristine A. Kieland. et al. v. Rocky Mountain Chocolate Factory. Inc.. Case No. 05-I50DWF/JSM, U. S. District Court, D. Minn. In March 2005, two of our franchisees filed a complaint alleging that we failed to disclose certain information, that we breached certain provisions of the franchise agreements and that we breached the implied covenant of good faith and fair dealing. Claimants seek damages in excess of $75,000. We have denied all of the claims and we are vigorously defending them.

Engle Litigation.

Clyde W. Engle, one of our directors, is or has been a party to each of the following litigation matters. We are describing each of these matters to the best of our ability, after due diligence and our own independent investigation to obtain this information. Due to Mr. Engle's inability or unwillingness to provide us with any additional information about his litigation matters, however, we cannot be certain that

our descriptions are complete, accurate or that we have included each disclosable matter to which Mr. Engle is or has been a party.

5. Shapo v. Engle. et al. (No. 98 C 7909, N.D. HI.) On February 23, 1999, the Director of Insurance of the state of Illinois, in his capacity as liquidator ("Liquidator") of Coronet Insurance Company, Crown Casualty Company and National Assurance Indemnity Company (the "Insurance Companies"), filed a Second Amended Complaint against 14 entities and 14 individuals (the "Defendants"), two of whom, Lee Mortenson and Clyde Engle, are directors of RMCF. Mr. Engle has served as president of the Insurance Companies since 1986, though Mr. Mortenson served as President of Coronet Insurance Company during the period 1994 to 1996. The Complaint alleges illegal transfers of more than $70 million out of the Insurance Companies between 1985 and 1996, to support personal and business interests of the Defendants, rendering the Insurance Companies unable to pay claims made by their policyholders and ultimately resulting in the liquidation of the Insurance Companies. The complaint alleges RICO claims and seeks treble damages. On November 10, 1999, the court denied Mr. Engle's motion to dismiss, but dismissed the Liquidator's claim for declaratory relief against Mr. Mortenson and the other Defendants, except Mr. Engle. On February 11, 2000, the court granted a motion to intervene filed by Springs-Illinois, Inc., a wholly-owned subsidiary of the Insurance Companies. The Court also allowed the Liquidator to amend his complaint to add allegations regarding transactions involving Springs-Illinois, Inc. On June 30, 2000, the Court denied the Liquidator's motion to amend its complaint to add a fraud claim against the Bank of Lincolnwood ("BOL"). Mr. Engle is the Chairman of BOL's Board of Directors and the majority shareholder of BOL's parent company. On February 28, 2001, the judge granted the plaintiffs' motion to compel the defendants to disclose certain financial information and required Mr. Engle to produce documents relating to transactions entered into between him and certain companies. On May 25, 2001, a magistrate judge granted the Liquidator's follow-up motion to compel further discovery and ordered the defendants to pay the Liquidator's costs and attorneys' fees in bringing the motion. On February 5, 2004, the Court dismissed the case without prejudice with leave to reinstate on or before June 7, 2004 and stated that if the case was not reinstated by that date, the dismissal would be with prejudice. On August 18, 2005, the Court entered judgment in favor of Foley & Lardner, LLP against Engle in the amount of $200,000 plus interest and the reasonable costs of collection that Foley & Lardner, LLP incurred due to Engle's breach of the Master Payment Agreement. To the best of RMCF's knowledge, Foley & Lardner, LLP is a law firm that represented Clyde Engle in this case. Following August 18, 2005, Foley & Lardner, LLP filed additional motions for confession of judgment for payments due. On September 11, 2005, the Court granted the Director of Insurance's motion to enforce provisions of the settlement when the Defendants failed to appear. To the best of RMCF's knowledge, it appears that the case was settled in 2004 and that the recent case activity is related to enforcement of the settlement.

6. Robert A. Lee, et al. v. Clyde Wm. Engle. et al. (C.A. No. 13323); and Richard N. Frank v. Clyde Wm. Engle. et al. (C.A. No. 13284). On December 8, 1993, the plaintiffs in the first action filed a complaint in the Court of Chancery of Delaware, New Castle, to initiate a shareholders' derivative suit and class action against Clyde Engle, in his capacity as the Chairman of the Board and Chief Executive Officer of Sunstates Corporation ("Sunstates"), naming the other directors and executive officers of Sunstates, and naming Sunstates as a nominal defendant (the "Frank Action"). The plaintiffs in the second action also filed a complaint in the Court of Chancery to initiate a shareholders' derivative suit against Mr. Engle and the other directors and executive officers of Sunstates on behalf of Sunstates (the "Lee Action"). The Frank Action alleges breaches of fiduciary duty, waste of corporate assets, failure to pay dividends on cumulative preferred stock, and a violation of the duty of disclosure with regard to a proxy statement. The Frank Action seeks injunctive, declaratory, and monetary relief. The Lee Action alleges waste and breach of fiduciary duty, requesting declaratory and monetary relief. The Frank Action and the Lee Action were consolidated into one action, C.A. No. 13323, and also consolidated with other actions involving Sunstates, into a single action for discovery purposes, known as In Re Sunstates Corporation Shareholder Litigation (C.A. No. 13284). On May 2, 2001, the court granted Sunstate's partial summary

judgment motion dismissing plaintiffs claim that Sunstate, through its subsidiaries, improperly repurchased Sunstate's preferred and common stock. According to the public record, there has been no activity in this case since May 2, 2001 and based on that inactivity, we presume the case was settled, although there is no public record of a settlement agreement.

7. Saks and Company d/b/a Saks Fifth Avenue v. Siobhan O'Meara and Clyde Engle. (No. 97 C 829, ND 111., Feb. 11, 1998). On February 6, 1997, Saks and Company ("Saks") filed a complaint against Siobhan O'Meara and Clyde Engle, as husband and wife, for recovery of amounts due on a Saks Fifth Avenue charge account in the amount of $116,503 plus finance charges and court costs. Plaintiff alleged that Mr. Engle was liable on this account solely by operation of the Illinois Family Expense Act. Mr. Engle counterclaimed against Saks claiming some of the charges on the account were for business expenses and for libel, alleging that Saks submitted false information to one or more credit services. The court granted Saks' motion for summary judgment against Ms. O'Meara but denied Saks' motion for summary judgment against Mr. Engle. On February 25, 1998, the court dismissed the case with leave to reinstate on or before April 13, 1998 and stated that if the case was not reinstated by that date, the dismissal would be with prejudice. To the best of RMCF's knowledge, the case was not reinstated and the claims between Saks and Mr. Engle were most likely settled, however, there is no public record of the terms of any settlement agreement, so RMCF does not know whether or how much Mr. Engle may have paid to settle this case.

8. Lexecon. Inc. v. Clyde Engle. (No. 2005L-7012, Circuit Court of Cook County, Illinois). On June 27, 2005, Lexecon, Inc. ("Lexecon") filed a complaint against Clyde Engle for recovery of $223,834 billed by Lexecon to Sunstates Corporation ("Sunstates") in connection with valuation services provided by Lexecon. Lexecon alleged that Clyde Engle, individually and in his capacity as the Chief Executive Officer of Sunstates, accepted Lexecon's services and that Lexecon was damaged as a result of Clyde Engle's fraudulent actions. Lexecon claims that Clyde Engle made false promises, failed to pay for Lexecon's services and fraudulently induced Lexecon to continue performing its services. To the best of RMCF's knowledge, this case is currently being litigated by the parties.

9. Gladys Boles, et al. v. National Development Company. Inc.. Sunstates Corporation and Clyde Engle. No. 94-5027C, Circuit Ct. for the 21^s1 Judicial Dist., Centerville, Hickman Cty., Tennessee. On January 19, 1999, Clyde Engle was added as a defendant to a class action originally filed on March 29, 1994, alleging that Mr! Engle operated the two defendant corporations as his alter ego. On January 24, 2000, the court found defendant National Development Company, Inc. liable for over $2.5 million to the plaintiffs for the diminution in value of their real property based on a failure to build an adjacent lake as promised. On August 30, 2005, a judgment entered against Mr. Engle, personally, for the amount of the original judgment plus statutory interest to date. On May 4, 2006, plaintiffs filed a petition to register the Tennessee judgment with the Cook County Circuit Court in Illinois.

Other than thescnine actions, no litigation is required to be disclosed in this Offering Circular to the best of our knowledge.

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 between $32,500 and $39,500 as an initial franchise fee. Of this amount, you must pay $24,500 when you sign the Franchise Agreement for your ROCKY MOUNTAIN CHOCOLATE FACTORY Store. If you fail to find an acceptable site and open your Store within 180 days after you sign the Franchise Agreement and we terminate your Franchise Agreement, we will refund $5,000 of your initial franchise fee. You must pay between $8,000 and $15,000 to us for opening Factory Candy inventory and cooking supplies within 30 days after the products are shipped to you. These costs are nonrefundable in all circumstances. We discount the initial franchise fee by $10,000 if you purchase an additional franchise. Other than as described above, we do not give refunds of these amounts, once paid, under any circumstances. See Item 7. We offer no financing for the initial franchise fee. See Item 10.

Except as set forth above, all franchisees currently acquiring a franchise pay the same initial franchise fee.

ITEM 6

OTHER FEES

Name of Fee	Amount	Due Date	Remarks
Product Purchase Costs³	As stated in our published price lists	Net 30 days from invoice	We may change our price lists
Royalty¹⁴'⁵	5% of Gross Retail Sales each month, with a quarterly adjustment to exclude payments on purchases of Factory Candy, Store Candy ingredients and other items purchased from us.	Payable monthly by the 15th day of the next month. Any amounts due following the quarterly adjustment are payable by the 15^thday of the next month.	"Gross Retail Sales" is defined below. Following the end of each quarter, we calculate the number of pounds of Factory Candy and other items you purchased during the previous quarter, multiply those numbers times a fixed amount depending on the item purchased and subtract the resulting total estimated retail value of items purchased from us from Gross Retail Sales, resulting in an Adjusted Gross Retail Sales figure. You owe us 10% of Adjusted Gross Retail Sales each quarter. We then compare total monthly Royalty paid to the amount due on Adjusted Gross Retail Sales and you are billed or credited the difference, if any. If you already own a Store that calculates Royalty differently, we reserve the right to modify the purchases per Store to even out the Adjusted Gross Retail Sales amounts among your Stores.
Interest¹	18% per annum	On demand, but only if you are delinquent in your payments to us.	Begins to accrue the day after payments are due

(CA 6/1//06) 7

Name of Fee	Amount	Due Date	Remarks
Marketing and Promotion Fee¹ ^,A	1% of Gross Retail Sales	Payable monthly by the 15th day of the next month	"Gross Retail Sales" is all revenue from the Store, but does not include taxes, refunded sales, settlements, certain fundraising sales and corporate sales, non-inventory sales or shipping expenses charged to a customer
Inspection and Audit Fee¹	Costs of audit or inspection	On demand	Payable only if you understate your Gross Retail Sales by more than 5%
Transfer Fee¹	$5,000	Before effectiveness of transfer	Payable when you transfer the Franchise Agreement, an interest in the Store or the franchise
Successor Franchise Fee¹	$2,500 if you renew on time or $5,000 if you do not	When you sign the then current Franchise Agreement	We will charge $2,500 if you renew by signing the then current Franchise Agreement within 30 days after you receive the Franchise Agreement for signature. If more than 30 days elapses, you will pay $5,000
Training Program Expenses²	Costs associated with attending mandatory training session	As incurred	We may require additional training occasionally
Payments for Items Supplied by Us¹'⁴	Then current published price	As incurred	We may charge you for all items you buy through us
Costs and Attorneys' Fees'	Varies under circumstances	As incurred	Payable only if you do not comply with the Franchise Agreement
Design Fee for the Interior and Layout of Relocated or Remodeled Stores'	$2,500	As incurred	Payable only if you relocate or remodel your Store during the term of your Franchise Agreement
Indemnification Under Franchise Agreement¹	Varies under circumstances	As incurred	You must reimburse us if we are held liable for claims resulting from your Store
Insurance Premiums¹	Varies under circumstances	As incurred	If you do not pay your premiums, we can pay them for you and you must reimburse us
Administrative Fee¹	Varies up to 15% of the amount collected by us	As incurred	If you do not pay your landlord or any other third party, we can collect the money from you and pay the person owed and you must reimburse us.

Fees we impose and you pay to us. All of these fees are nonrefundable.

Expenses associated with travel, meals and lodging while you attend initial training sessions. You pay all of these expenses to third parties.

You may purchase products from us or a supplier we designate or approve. These fees are nonrefundable.

We plan to require you to transfer funds to us electronically beginning in^2008

We currently use the following formula when calculating the quarterly Royalty adjustment: (a) number of pounds of Factory Candy x $17.50 (our maximum suggested retail price for Factory Candy) = Factory Candy retail value plus (b) Store Candy ingredient costs and other item costs x 220%-290% (our estimated retail mark-up) = Store Candy ingredient retail value ~ (c) Total Calculated Retail Value of items purchased from us. Then we take your quarterly reported Gross Retail Sales and subtract (c). The resulting number is (d) Adjusted Gross Retail Sales. Multiply (d) by 10% to get the amount owed for the quarter. Compare the amount owed to the amount actually paid and you are billed or credited the difference. Note that the figures for our maximum suggested retail price and our estimated mark-up on Store Candy ingredients and other items should not be construed as nor are they intended to suggest a level of sales or income. See Item 19.

ITEM 7

INITIAL INVESTMENT

FOR FULL-SIZED STORES

LOCATED IN VARIOUS RETAIL ENVIRONMENTS

Full-Sized Store Expenditures	Full-Sized Store Hiah	Full-Sized Store Low	When Due	Method of Pavment	Whether Refundable	To Whom Payment Must Be Made
Initial Franchise Fee (See Note 1)	39,500	$32,500	Due in full at signing of Franchise Agreement	Cash or Check	No	Us
Real Estate and Improvements (See Note 2)	189,703	105,625	Before opening	As incurred	No	Landlord, Contractor, Architect or Engineer
Furniture and Fixtures (See Note 3)	34,513	21,894	Before opening	As incurred	No	Suppliers
Equipment (See Note 3)	54,396	35,098	Before opening	As incurred	No	Suppliers
Signs (See Note 3)	18,170	4,787	Before opening	As incurred	No	Suppliers
Opening Inventory and Cooking Supplies Purchased from Us (See Note 4)	See Note 1	See Note 1	30 days after shipping	Lump sum	No	Us
Opening Inventory and Cooking Supplies Purchased from Other Suppliers (See Note 4)	10,523	1,700	10-30 days after shipping	As incurred	No	Suppliers

(CA 6/1/06) 9

Full-Sized Store Exoenditures	Full-Sized Store Hieh	Full-Sized Store Low	When Due	Method of Pavment	Whether Refundable	To Whom Payment Must Be Made
In-Store Promotional Graphics (Note 5)	6,320	5,560	Before opening	Lump sum	No	Suppliers
Security Deposits, Utility Deposits, Business Licenses (See Note 6)	3,291	720	Before opening	As incurred	Deposits are refundable; business licenses are not	Suppliers
Pre-Opening Training, Travel and Living Expenses (See Note 7)	4,000	1,500	Before opening	As incurred	No	Suppliers
Additional Funds -3 months (See Note 8)	64,347	19,078	As incurred	As incurred	No	Suppliers
TOTAL ESTIMATED INITIAL INVESTMENT FOR STORES (See Note 9)	$435,515	$230,400

Explanatory Notes for Full-Sized Stores

Note 1: Initial Franchise Fee. The initial franchise fee for a full-sized Store includes $24,500 for the initial fee and between $8,000 and $15,000 for opening candy inventory and cooking supplies you must buy from us. See Item 5.

Note 2: Real Estate and Improvements. Real estate costs vary from location to location, so we cannot estimate your real estate expenditures. First, you must purchase or lease retail space that meets our standards and specifications. If your landlord at your Franchised Location requires us to sign the lease for your Franchised Location, we may hire a professional to negotiate the lease for us and you must reimburse us for the professional's fees or you may hire your own professional subject to including certain provisions in the lease. We include an estimated amount for these fees in the high number. See Item 5. Space requirements for Stores may range from approximately 300 to 650 retail square feet, resulting in cost variances to you. Your costs to improve the Franchised Location will depend in part on whether your space is completely constructed, or is the remodel of an existing space. It will also depend on the size of the space and the type of retail environment in which the Store is located. We assist you in determining which of our two different full-sized Store configurations will suit your Franchised Location. You must hire an architect to design your Store layout according to our specifications and submit a plan to us for our prior approval. Architect fees depend on the condition of the space, its location and local permitting requirements. If your Store opens in a strip center or any building other than a major mall, the landlord will sometimes pay a portion of your tenant improvements. If your Store is in a major mall or Triple A location, the landlord will usually not pay for any of your tenant improvements, resulting in higher construction costs to you. The condition of previously occupied sites varies greatly and the amount of usable space also varies greatly.

(CA 6/1/06) 10

Note 3: Furniture, Fixtures. Equipment and Signs. These items include the estimated costs to equip your Store with storage cabinets, display cabinets, cooking equipment, storage fixtures, signs, refrigeration equipment, and an integrated Store information system that includes one or two cash registers, scales and modems. Most full-sized Stores require two cash registers.

Note 4: Opening Inventory and Cooking Supplies. Because Stores may range in size from 300 square feet to 650 retail square feet, we do not have a minimum opening inventory requirement. You must maintain a minimum inventory of no less than 1,000 pounds of Factory Candy throughout the term of your Franchise Agreement. In addition, you need cooking supplies consisting of chocolate, sugar, glucose, nuts, butter, evaporated milk, fresh and preserved fruit, flavorings and other items.

Note 5: In-Store Promotional Graphics. We provide you with at least four packages of promotional graphics for the walls of your Store, each of which is tailored to a particular season of the year. You will alternate these graphics depending on the season or time of year.

Note 6: Security Deposits. Utility Deposits, Business Licenses. Security deposits range from $0 to two months' rent; utility deposits range from $0 to approximately $1,500 and business licenses range from approximately $50 to $550, depending on your location.

Note 7: Pre-Qpening Training, Travel and Living Expenses. Your travel and living expenses when you attend our initial training program vary depending on the length of your instruction, the ■ distance you must travel and the standard of living you desire while you attend the program.

Note 8: Additional Funds. This estimates your pre-operational expenses, which are not listed above, as well as additional funds necessary for the first three months of your business operations. These figures are estimates and we cannot guarantee that you will not have additional expenses when you start the business. Your costs depend on factors such as: how much you follow our methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for our products; the prevailing wage rate; competition; and the sales level you reach during this initial period. This item includes a variety of expenses and working capital items during your start-up phase, such as legal and accounting fees; insurance premiums; advertising, promotional and grand opening expenses and materials; rent; employee salaries; and other miscellaneous costs. This item does not include your salary or living expenses.

Note 9: Total Estimated Investment. We relied on our 25 years experience in the industry and on information voluntarily reported by franchisees when we prepared these figures, but we have not made any independent verification of the information reported by franchisees. You should review these figures carefully with a business advisor before you make any decision to purchase a franchise. We offer no direct financing of the initial franchise fee. See Item 10 of this Offering Circular.

(CA 6/1/06)

INITIAL INVESTMENT FOR KIOSKS LOCATED IN VARIOUS RETAIL ENVIRONMENTS

Kiosk Expenditures	High Kiosk Cost	Low Kiosk Cost	When Due	Method of Payment	Whether Refundable	To Whom Payment Must Be Made
Initial Franchise Fee (See Note 1)	$36,000	$34,500	Due in full at signing of Franchise Agreement	Cash or Check	No	Us
Real Estate and Improvements (See Note 2) i	96,362	25,000	Before opening	As incurred	No	Landlord, Contractor, Architect or Engineer
Furniture and Fixtures (See Note 3)	38,600	26,852	Before opening	As incurred	No	Suppliers
Equipment (See Note 3)	32,700	17,200	Before opening	As incurred	No	Suppliers
Signs/Graphics (See Note 3)	3,400	2,650	Before opening	As incurred	No	Suppliers
Opening Inventory and Cooking Supplies Purchased from Us (See Note 4)	See Note 1	See Note 1	30 days after shipping	Lump sum	No	Us
Opening Inventory and Cooking Supplies Purchased from Other Suppliers (See Note 4)	6,000	2,500	10-30 days after shipping	As incurred	No	Suppliers
Security Deposits, Utility Deposits, Business Licenses (See Note 5)	2,500	750	Before opening	As incurred	Deposits are refundable; business licenses are not	Suppliers
Pre-Opening Training, Travel and Living Expenses (See Note 6)	5,000	2,000	Before opening	As incurred	No	Suppliers
Additional Funds -3 months (See Note 7)	30,800	17,556	As incurred	As incurred	No	Suppliers
TOTAL ESTIMATED INITIAL INVESTMENT FOR KIOSKS (See Note 8)	$251,362	$129,008

(CA 6/1/06) 12

Explanatory Notes for Kiosk Chart

Note 1: Initial Franchise Fee. The initial franchise fee for a Kiosk includes $24,500 for the initial fee and between $10,000 and $11,500 for opening candy inventory and cooking supplies you must buy from us. See Item 5.

Note 2: Real Estate and Improvements. Real estate costs vary from location to location, so we cannot estimate your real estate expenditures. First, you must purchase or lease retail space that meets our standards and specifications. If your landlord at your Franchised Location requires us to sign the lease for your Franchised Location, we may hire a professional to negotiate the lease for us and you must reimburse us for the professional's fees or you may hire your own professional subject to including certain provisions in the lease. We have not included any amounts for lease negotiation fees in the chart above. See Item 5. Space requirements for Kiosk Stores may range from approximately 100 to 260 retail square feet, resulting in cost variances to you. Your costs to improve the Franchised Location will depend in large part on the size of your Kiosk Store and its configuration, including whether your space includes cooking facilities or sells only products that require little or no preparation. It will also depend on the size of the space and the type of retail environment in which the Kiosk Store is located. We assist you in determining which of our two different Kiosk Store configurations will suit your Franchised Location. You must hire an architect to design your Kiosk Store layout according to our specifications and submit a plan to us for our prior approval. Architect fees will depend on the condition of the space, its location and local permitting requirements. If your Kiosk Store opens in a strip center or any building other than a major mall, the landlord will sometimes pay a portion of your tenant improvements. If your Kiosk Store is in a major mall or Triple A location, the landlord will usually not pay for any of your tenant improvements, resulting in higher construction costs to you. The condition of previously occupied sites varies greatly and the amount of usable space also varies greatly.

Note 3: Furniture, Fixtures, Equipment and Signs/Graphics. These items include the . estimated costs to equip your Kiosk Store with storage cabinets, display cabinets, storage fixtures, signs, promotional graphics, refrigeration equipment, chocolate dipping equipment, and an integrated Store information system that includes one or two cash registers, scales and modems. All large Kiosk Stores and some small Kiosk Stores require two cash registers. Large Kiosk Stores also require some cooking equipment, which is included in the high Kiosk number.

Note 4: Opening Inventory and Cooking Supplies. Neither large nor small Kiosk Stores have a minimum opening inventory requirement, but both must maintain a minimum inventory of no less than 1,000 pounds of Factory Candy throughout the term of their Franchise Agreements. If you purchase a large Kiosk Store, you need cooking supplies consisting of chocolate, sugar, glucose, nuts, butter, evaporated milk, fresh and preserved fruit, flavorings and other items, included in the high Kiosk number.

Note S: Security Deposits, Utility Deposits, Business Licenses. See Note 6 for full-sized Stores above.

Note 6: Pre-Opening Training, Travel and Living Expenses. See Note 7 for full-sized Stores above.

Note 7: Additional Funds. See Note 8 for full-sized Stores above.

Note 8: Total Estimated Investment. See Note 9 for full-sized Stores above.

(CA 6/1/06)-

ITEM 8

RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

You must establish and operate your Store in compliance with your Franchise Agreement and the operations manual we loan to you, in the form of several manuals, technical bulletins, cookbooks and other written materials ("Operations Manual"), which we may modify occasionally, in our sole discretion. All equipment, services, supplies, materials, uniforms and inventory items that you use or offer for sale through your Store must meet the minimum standards and specifications in our Operations Manual.

You must sell only Factory Candy, Store Candy and Items that we designate. If you want to sell other products, you must first receive our written consent, which we may withhold in our sole discretion. You may not sell any products resembling Factory Candy we manufacture unless you first receive our written consent. In addition, your Store must devote at least 50% of its retail display space to ROCKY MOUNTAIN CHOCOLATE FACTORY bulk chocolates and packaged Factory Candy. The only Store Candy you may sell that we do not supply are those made at your Store that you prepare from recipes found in our Operations Manual through the process of molding, cooking and dipping foods such as cookies, crackers, pretzels, fresh and dried fruit, dog bones and plain chocolates, but you may sell them only if you prepare them according to our recipes and specifications. We will provide you with these recipes and specifications. You may not purchase or manufacture any product such as assorted chocolates or boxed chocolates unless we consent in writing.

You must purchase all of the Factory Candy, ingredients for Store Candy and other Items that you sell at or through your ROCKY MOUNTAIN CHOCOLATE FACTORY Store from us or a source we designate. If you propose to offer, conduct or utilize any products, services, materials, forms, items or supplies for sale or use in your ROCKY MOUNTAIN CHOCOLATE FACTORY Store which we have not previously approved as meeting our specifications, you must first notify us in writing requesting our approval. We may, in our sole discretion, and for any reason, withhold our approval. For us to make a determination, you must submit specifications, information, or samples of the proposed products and services. We will advise you within 60 days whether the products or services meet our specifications.

You must purchase all products and services that you require to operate your Store from manufacturers or suppliers we designate. We are the designated supplier of ROCKY MOUNTAIN CHOCOLATE FACTORY branded Factory Candy. First-time franchisees must use one of our designated fixture contractors for the build-out of their Stores and we reserve the right to require experienced franchisees to use a designated contractor as well. We require all franchisees to purchase pre-recorded music from Muzak, located in Fort Mill, South Carolina, (800) 331-3340, our designated music supplier. You must purchase an integrated store information system for your Store from Retail Anywhere, formerly AIM Software Systems Incorporated, located in Atascadero, California (805) 546-2900. See Item 11 for more information. We reserve the right to derive rebates from designated suppliers. If there is no designated supplier for a particular item, you must purchase all products and services from other suppliers who meet all of our specifications and standards. We formulate and modify our specifications and standards based on quality, composition, finish, appearance and service. Suppliers must adequately demonstrate their capacity to supply your needs, in the quantities, at the times and with the reliability requisite to an efficient operation. We may change our standards and specifications, or suppliers who have our authorization, at any time if we give you 30 days written notice in advance.

Our criteria for supplier approval are available to you upon request. We base our approval on quality, vendor reputation, pricing and our opinion about the compatibility of the product with our company image and product line. We may require that samples from a proposed new supplier be

delivered to us for testing before we approve the supplier. You must reimburse us for the cost of conducting the test.

We derive revenue from the sale of Factory Candy, Store Candy ingredients, packaging materials, other Items and certain services to you. In the fiscal year ended February 28, 2006, our revenue from purchases by franchisees was $ 16,689,500 or 59% of our total revenues of $28,073,612. See our financial statements in Item 21. We estimate that the costs of your purchases from designated or approved sources, or according to our standards and specifications will range from 80% to 84% of the total cost of establishing your Store and approximately 38% of the total cost of operating your Store after that time. We are not affiliated with any approved or designated suppliers.

Except as described above, we do not derive income based on any required purchases or leases, except that in an effort to make sources or supplies available to you and to monitor and maintain consistency throughout the system, we may negotiate with approved vendors from whom you can purchase items which meet our specifications. We may collect a fee from approved vendors on the items franchisees purchase from our approved vendors. These vendors may sell you various Items, raw materials for the preparation of Store Candy, such as fudge, brittles and caramel, packaging items such as bags and tins, and other items. We estimate that any purchases by you for which we collect a fee will. constitute less than 3% of your total cost of establishing your Store and less than 3% of your total cost of operating your Store.

Except as described above, we do not negotiate purchase arrangements with suppliers for the benefit of franchisees, although we reserve the right to do so in the future. We have no purchasing or distribution cooperatives. We do not give you any material benefits based on your use of designated or approved sources or suppliers.

ITEM 9

FRANCHISEE'S OBLIGATIONS

THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AGREEMENT. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THE FRANCHISE AGREEMENT AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.

Obligation	Section in Franchise Agreement	Item in Offering Circular
(a) Site selection and acquisition/lease	Sections 3.1 and 5.1	Items 7, 8 and 11
(b) Pre-opening purchases/leases	Sections 5.1, 5.3 and 5.4	Items 5, 7 and 8
(c) Site development and other pre-opening requirements	Sections 5.2 and 5.5	Items 7, 8 and 11
(d) Initial and ongoing training	Article 6	Items 6,7 and 11
(e) Opening	Section 5.6	Item 11
(f) Fees	Articles 11 and 12	Items 5 and 6
(g) Compliance with standards and policies/ Operations Manual	Article 8 and Sections 13.1 and 13.2	Items 8, 11,14, 15 and 16

Obligation¹	Section in Franchise Agreement	Item in Offering Circular
(h) Trademarks and proprietary information	Article 14 and Section 20.3	Items 13 and 14
(i) Restrictions on products/services offered	Sections 10.1(d) and 13.4	Items 8 and 16
(j) Warranty and customer service requirements	None	None
(k) Territorial development and sales quotas	None	None
(1) On-going product/service purchases	Sections 13.5,13.6 and 13.7	Items 8 and 16
(m) Maintenance, appearance and remodeling requirements	Sections 10.1(a), (b) and (g)	Item 8
(n) Insurance	Article 21	Item 7
(o) Advertising	Article 12	Items 6 and 11
(p) Indemnification	Section 19.3	None
(q) Owner's participation/management/ staffing	Sections 10.1(c) and (li)	Item 15
(r) Records and reports	Article 15	Item 6
(s) Inspections/audits	Sections 13.3 and 15.5	Item 6
(t) Transfer	Article 16	Item 17
(u) Renewal	Sections 17.2,17.3 and 17.4	Item 17
(v) Post-termination obligations	Section 18.4	Item 17
(w) Non-competition covenants	Article 20	Item 17
(x) Dispute Resolution	Article 22	Item 17

ITEM 10

FINANCING

If a landlord refuses to allow you to sign a lease and instead requires us to sign or guaranty the lease for your Franchised Location, we may sign it, in our discretion. If we become liable under the lease for your Franchised Location, we will either sublease the Franchised Location to you or assign it to you on the same terms and conditions contained in the landlord's lease agreement. Our Sublease Agreement and Assignment and Assumption of Lease are Exhibit G to this Offering Circular. We do not receive any payments when we sign or guaranty a lease for your Franchised Location.

Except as stated above, neither we nor any agent or affiliate currently offer, directly or indirectly, any financing to you, nor do we guarantee any lease or other obligations for you. We cannot estimate whether you can obtain financing for any part or all of your investment and, if so, the terms of the financing, which depend on your creditworthiness and other characteristics. We do not have any past or present practice or intention to sell, assign or discount to any third party, any note, contract or other instrument signed by you.

ITEM 11

FRANCHISOR'S OBLIGATIONS

Except as listed below, we need not provide any assistance to you. Pre-Opening Assistance.

Before you open your Store, we (or our designee) will:

1. Provide you with written guidelines for the Franchised Location, but you must have an approved location as of the date you sign the Franchise Agreement. We base our approval of a proposed Franchised Location on information you submit and information we gather in a form sufficient to assess the location. (Section 7.1(b), Franchise Agreement.)

2. Provide you with advice regarding the required conversion, design and decoration of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store premises, plus specifications concerning signs, decor and equipment. (Section 7.1(c), Franchise Agreement.)

3. Provide you with advice regarding the selection of suppliers of equipment, supplies and materials used and Factory Candy, Store Candy and Items offered for sale through your ROCKY MOUNTAIN CHOCOLATE FACTORY Store. Depending on the size and configuration of your Store, we will determine your initial purchase of Factory Candy inventory. We provide you with a list of approved suppliers, if any, of equipment, supplies, materials, ingredients for Store Candy and Items, and, if available, a description of any national or central purchase and supply agreements that approved suppliers offer for the benefit of ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees. (Section 7.1(d), Franchise Agreement.)

4. Train you in Durango, Colorado or at another location we designate. (Section 7.1(a), Franchise Agreement.)

5. Loan you one copy of an Operations Manual, covering the operating and marketing techniques of the Store and all updates and revisions. (Section 8.1, Franchise Agreement.)

6. Provide up to five days of opening assistance, beginning approximately two days before you open a new ROCKY MOUNTAIN CHOCOLATE FACTORY Store, or we provide up to two days of opening assistance if you purchase a Store that was already operating. (Section 7.1(f), Franchise Agreement.)

Continuing Assistance.

During the operation of your Store, we will:

1. If you request, provide consultation by telephone regarding the continued operation and management of your ROCKY MOUNTAIN CHOCOLATE FACTORY Store and advice regarding retail services, product quality control, inventory issues, customer relations and similar advice. (Section 9.1(a), Franchise Agreement.)

2. Give you access to advertising and promotional materials as we may develop, the cost of which we may pass on to you at our option. (Section 9.1(b), Franchise Agreement.)

3. Provide you with on-going updates of information and programs regarding the candy industry, the ROCKY MOUNTAIN CHOCOLATE FACTORY concept and related Licensed Methods, including information about special or new products we develop and make available to our franchisees. (Section 9.1(c), Franchise Agreement.)

4. Train replacement or additional General Managers during the term of the Franchise Agreement. We may charge a tuition or fee, commensurate with our other current published prices, for training and payable in advance. You must pay all travel and living expenses for your personnel during the training program. The availability of the training programs depends on space considerations and prior commitments to new ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees. (Section 9.1(d), Franchise Agreement.)

5. Make our employees or designated agents available to you for advice and assistance regarding the on-going operation of the Store. If you request additional assistance and we agree to provide it, we may charge you for all travel, lodging, living expenses, telephone charges and other identifiable expenses associated with the assistance, plus a fee based on the salary of each employee and the time spent by each employee on your behalf. (Section 9.2, Franchise Agreement.)

Marketing and Promotion.

You must pay a Marketing and Promotion Fee of 1% of your monthly Gross Retail Sales. You must pay the Marketing and Promotion Fee with the payment of the monthly Royalty, within 15 days after the end of each calendar month, based on the amount of Gross Retail Sales in the previous month. We deposit the Marketing and Promotion Fee in a bank, commercial account or savings account ("Marketing Fund"). We contribute 1% of the monthly Gross Retail Sales of our Stores to the Marketing Fund. If you request it in writing, we send you an annual unaudited financial statement for the Marketing Fund that indicates how we spent the Marketing Fund. Because we do not have the Fund audited, audited financial statements are not available to franchisees.

We administer the Marketing Fund in our sole discretion. We use the Marketing Fund to create, produce and place point of purchase advertising, in-store signs and in-store promotions. In the future, we may use the Marketing Fund for commercial advertising, agency costs and commissions, to create and produce video, audio, and written advertisements, to administer multi-regional advertising programs, including direct mail and other media advertising, to implement and administer gift card and customer loyalty card programs, and to employ advertising agencies and in-house staff assistance, to support public relations, market research and other advertising and marketing activities. We do not solicit franchisees with the Fund's money.

We may reimburse ourselves from the Marketing Fund for administrative costs, salaries and overhead expenses related to the administration of the Marketing Fund and its marketing programs, including conducting market research, preparing material, collecting and accounting for Marketing Fund contributions. In any fiscal year we may spend an amount greater or less than the aggregate contribution of all ROCKY MOUNTAIN CHOCOLATE FACTORY Stores to the Marketing Fund in that year. The Marketing Fund may borrow from us or other lenders to cover deficits or cause the Marketing Fund to invest any surplus for future use. Any amounts that remain in the Marketing Fund at the end of each year accrue and we apply them toward the next year's expenses. We do not guarantee that advertising expenditures from the Marketing Fund benefit you or any other franchisee directly or on a pro rata basis. We assume no other direct or indirect liability or obligation to you for collecting amounts due to any advertising account or for maintaining, directing or administering any advertising account.

We have used in-house personnel and outside ad agencies in the past to create point-of-purchase advertising and promotions.

You may create your own advertising and promotional materials; however, all of your materials must be in media, of a type and in a format as we approve, must be conducted in a dignified manner and must conform to the standards and requirements we specify. This also applies to all advertising on the Internet. You may not use any advertising or promotional plans or materials, including advertising on the Internet, until you receive our written approval. We approve or disapprove of your proposed advertising within 14 days of the date we receive it.

In fiscal year 2006, we spent 85% of the Fund's proceeds on national marketing, 24% on new products and packaging development and 14% on local store marketing materials. These percentages total 123% because RMCF added 23% in addition to the amount the franchisees contributed to the Fund during fiscal year 2006.

Local Advertising.

We may require you to spend up to 1% of Gross Retail Sales each month on local advertising in addition to the 1 % Marketing and Promotion Fee. If we require it, you must give us an accounting of the amounts you spent on local advertising within 30 days following the end of each calendar quarter. If we require you to spend money on local advertising, all company-owned Stores would spend money for local advertising on an equal percentage basis with all franchised Stores. You may purchase local advertising separately through local marketing and media sources within a geographical area. Local advertising is your responsibility. We approve all final advertising and promotional materials before publication.

Regional Advertising.

We reserve the right to designate geographic areas to establish regional advertising associations ("Associations"). If your Store is within the territory of an existing Association when your Store opens, you must become a member of the Association. If we establish an Association during the term of the Franchise Agreement, you must become a member within 30 days after we establish the Association. If you fail to participate in the Association or pay any Association dues, you breach the Franchise Agreement. We must approve all final advertising and promotion materials before publication. At the request of the Association, you would contribute up to 50% of your 1% Marketing and Promotion Fee described in this Item 11, as would all other franchises in the Association. These funds would be available . for specific programs selected by the majority of the Association members and which we have approved in advance. If we form an Association, you will be bound by the decisions of the majority of the members of the Association with respect to expenditures, assessments and dues, to the extent we approve them. Each Association could require its members to make additional minimum contributions to the Association monthly up to the full amount of your Marketing and Promotion Fee. We would approve all advertising materials before they were used by an Association or furnished to its members. The Association would be required to prepare unaudited annual financial statements and send them to you if you request them. An Association would be comprised of franchisees. We can form, change and dissolve Associations. Each Association would-operate under written documents which franchisees could view. Either we or the Association could create the Association's advertising, but advertising created by the Association would be required to have our written approval before use. We also reserve the right to establish advertising cooperatives in particular regions to enable the cooperative to self-administer a regional advertising program. If we establish a cooperative, you must participate in it.

See Items 6, 8 and 9 of this Offering Circular for more discussion of advertising.

Operations Manual.

Exhibit F to this Offering Circular are the tables of contents of our Operations Manual. The total number of pages in our Operations Manual as of the date of this Offering Circular is 228.

Site Selection Assistance.

You must select and acquire the premises for your Store. You must not, without our prior written approval, enter into any contract for the purchase or lease of any premises you intend to use as a Franchised Location for your Store. At our option, we may sign the lease or other acquisition document in our name or jointly with you. If this happens, we may sublease or assign the premises to you on the same terms on which we acquired the right to use the premises. Our Sublease Agreement and Assignment and Assumption of Lease are Exhibit H to this Offering Circular. We consider the following factors when we approve or disapprove your proposed Franchised Location: the coordination of the proposed Franchised Location's address with protected territories previously granted to other franchisees operating . under the ROCKY MOUNTAIN CHOCOLATE FACTORY Mark, if any, mall character, quality and location and the nature and location of other competition and potential customers. Approval of a location does not infer or guarantee the success or profitability of a Franchised Location in any manner. There is no contractual limit on the time it takes.us to approve or disapprove your proposed site. We typically take 30 days to approve or disapprove of your proposed Franchised Location.

Schedule For Opening.

We estimate that the typical length of time between the date you sign the Franchise Agreement and the date your ROCKY MOUNTAIN CHOCOLATE FACTORY Store opens will be between 90 and 180 days. The factors which may affect this time period are your ability to locate a site, secure financing, and obtain a lease, the extent to which you must upgrade or remodel an existing location, the delivery schedule for equipment, inventory and supplies, and completing your training. You must open your Store within 180 days after you sign the Franchise Agreement.

Integrated Store Information System.

You must use an integrated store information system ("System") in your Store that you purchase from Retail Anywhere, formerly AIM Software Systems Incorporated ("RA"), located at 4450 El Camino Real, Atascadero, California 93422, (805) 546-2900. As of the date of this Offering Circular, the System consists of an electronic PC based register (IBM Sure POS 300 series register), FTP Store Communication software, PC/Anywhere, a thermal receipt printer, a scale, and a 56K (minimum) modem. At your option, the System may include credit card authorization software, a credit card scanner, a laser bar code scanner, a bar code printer and a Hewlett Packard Deskjet printer. You must dedicate one.phone line to the System. You must contract with an Internet service provider ("ISP") to facilitate communication between your System and our data collection server. The System will be delivered to you already configured with proprietary software owned by RA. RA will provide all support, updates and maintenance for your System. As of the date of this Offering Circular, RA charges an annual support fee of between $1,105 and $1,972, depending on the System options you have selected. You must subscribe to an annual maintenance and support service package from RA. Most Stores require two cash registers. We may require you to upgrade or update your System. No contractual limitation exists on the frequency or cost of this obligation.

The System provides you with detailed information about your inventory, sales, purchasing, receiving, time and attendance, depending on options selected. The System also permits us to receive

information electronically regarding your Store's sales. There is no contractual limit on our right to receive information through the System.

In conjunction with the operation of your System, you must use an IBM-compatible personal computer installed with Windows 2000 operating system or higher, including Microsoft Office version 97 or higher, and up-to-date virus protection. We recommend that you use a personal computer to communicate with us by electronic mail. You must maintain an electronic mail account through which we can communicate with you. You will find it is more convenient to send and receive electronic mail messages and depending on options you select, track information generated by the System on a personal computer.

Additional Training Information.

After you sign the Franchise Agreement and before you open your Store, you must complete the initial training program to our satisfaction. We do not charge you for this training for up to three individuals, although you must pay travel, living expenses and wages for you and all employees who attend ihe training session. The initial training program consists of a total of 7 days of instruction and all training is currently conducted in Durango, Colorado. The training material consists of written, video and audiotaped instruction. The initial training program includes hands-on training in a mock retail store in our training center.

In addition to the initial training program, we will provide up to five days of opening assistance at your Store near the time that your Store opens. We do not provide this assistance between approximately December 22^nd and January 4^th, however, nor do we offer this training within three days before or after the following holidays: Valentine's Day, Easter, Memorial Day, July Fourth, Labor Day, Thanksgiving and Hanukkah.

As often as annually, we may require you and/or your General Manager to attend, at your expense, a national, regional or local meeting, seminar or conference that we present for the purpose of discussing a topic such as advertising programs, new operations methods, training, management, sales, or sales promotion, to the extent that we offer any meetings, seminars or conferences.

As of our most recent fiscal year end, we gave the following initial training to franchisees.

Subject¹	Hours of Classroom Training²	Instructor
Introduction to Rocky Mountain Chocolate Factory	1.5	Director of Franchise Support/Field Consultant
Customer Service Techniques	I	Director of Franchise Support/Field Consultant
Factory Candy Identification	1.5-2.0	Director of Franchise Support/Field Consultant
Chocolate Dipping Technique	2-3	Director of Franchise Support/Field Consultant
Cash Register and Scale Operation	2	Director of Franchise Support/Field Consultant

Subject¹	Hours of Classroom Training²	Instructor
Cooking	20	Director of Franchise Support/Field Consultant
Design and Construction	0.5	Design & Construction
Employees (responsibilities, opening and closing dates)	1	Director of Franchise Support/Field Consultant
Employees (hiring, training, scheduling)	1.5	Director of Franchise Support/Field Consultant
Daily Bookkeeping, Month-end Inventory and Other Bookkeeping Methods to Increase Gross Margins	2	Retail Operations Manager
Our Accounting Policies	1	Various Finance Personnel
Our Factory Candy Manufacturers and Shipping	3 (in factory)	Various Factory Department Heads
Our Ordering and Shipping Procedures	1	Customer Service
Authorized and Recommended Outside Suppliers	1	Director of Franchise Support/Field Consultant
Merchandising and Marketing Techniques	6.5	Merchandising Manager
Our Philosophy, Franchisor/Franchisee Responsibilities	1	Various members of Management
Integrated Store Information System	3	Various IT Personnel

For each subject, we hold training classes approximately 6 to 12 times per year. You must attend training after you sign the Franchise Agreement and before you open your Store.

If you wish, you may work in a company-owned Store at your expense to gain experience interacting directly with actual customers. If you live near a company-owned Store, you may spend up to three days in that Store; otherwise you may travel to one of our company-owned Stores at your expense for one day. In addition, many experienced franchisees allow new franchisees to work in their Stores at no charge after the new franchisee has completed the initial training program.

ITEM 12

TERRITORY

You will operate your ROCKY MOUNTAIN CHOCOLATE FACTORY Store at a specific location that is referred to as the "Franchised Location" in the Franchise Agreement. You may not relocate your Franchised Location without our prior written approval. If you have operated your ROCKY MOUNTAIN CHOCOLATE FACTORY Store for at least 12 months and you desire to change its Franchised Location, you may send us a written request explaining your reasons and proposing an alternative location. If we approve an alternative location in writing, you must pay us a Design Fee of $2,500 (see Item 6), sign our then current form of Franchise Agreement, you may not change the owners

or your percentage ownership interests from that of the prior location and you must complete the move and open your new Franchised Location within 12 months from the date the Store at the prior Franchised Location closes.

We must approve your Franchised Location before you sign a Franchise Agreement. The designation of your Franchised Location does not grant you the exclusive right to any particular market or customers. You may advertise your ROCKY MOUNTAIN CHOCOLATE FACTORY Store anywhere, as long as you receive our prior approval of all advertising. Other ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees have the same rights to advertise. See Item 11 for more discussion of advertising.

We may establish other related franchises or company-owned Stores that sell or lease similar products or services under a different name or trademark. We retain the rights, among others: (1) to use, and to license others to use, the Marks and Licensed Methods for the operation of ROCKY MOUNTAIN CHOCOLATE FACTORY Stores, including Kiosk Stores, Satellite Stores and Temporary Stores, at any location other than at the Franchised Location; (2) to use the Marks and Licensed Methods to identify services and products, promotional and marketing efforts or related items, and to identify products and services similar to those which you will sell, but made available through alternative channels of distribution other than through traditional ROCKY MOUNTAIN CHOCOLATE FACTORY Stores, at any location other than at the Franchised Location, including through Satellite Stores, Temporary Stores, Kiosk Stores, by way of mail order, (including electronic mail order), the Internet, catalog, television, retail store display or through the wholesale sale of its products to unrelated retail outlets or to candy distributors or outlets located in stadiums, arenas, airports, turnpike rest stops or supermarkets; and (3) to use and license the use of other proprietary marks or methods in connection with the sale of products and services similar to those which you will sell or in connection with the operation of retail stores selling gourmet chocolates or other premium confectionery products, at any location other than at the Franchised Location, which stores are the same as, or similar to, or different from a traditional ROCKY MOUNTAIN CHOCOLATE FACTORY Store, a Kiosk Store or a Satellite Store or a Temporary Store, on any terms and conditions as we deem advisable, and without granting you any rights in them.

Your continuation of the right to operate the Store during the term of the Franchise Agreement does not depend on achievement of any certain sales volume, market penetration or similar contingency. Although in some instances, we grant a franchisee a right of first refusal on a neighboring or extended territory, you have no option, right of first refusal or similar contractual right to acquire additional Stores within a territory or in areas contiguous to your Store(s).

ITEM 13

TRADEMARKS

We grant you the right to use the Marks, including the trademark and service mark ROCKY MOUNTAIN CHOCOLATE FACTORY, ROCKY MOUNTAIN CHOCOLATE FACTORY and design and other trademarks, service marks and commercial symbols which we may authorize. We have registered the following principal trademarks on the Principal Register of the United States Patent and Trademark Office:

Mark	Registration No.	Date of Registration
Rocky Mountain Chocolate Factory	Reg. No. 1,552,146	August 15, 1989
Rocky Mountain Chocolate Factory and design	Reg. No. 1,718,498	September 22, 1992

We have filed all required affidavits and renewals for these Marks. You must follow our rules when you use the Marks. You may not use the phrase, an abbreviation or two or more of the words "ROCKY MOUNTAIN CHOCOLATE FACTORY" in the legal name of your Business Entity.

You must modify or discontinue your use of a Mark if we require you to modify or discontinue it, at your own expense. We do not allow you to use or register any domain names or use the Internet to market or promote your Store, Factory Candy, Store Candy or other Items sold in or through your Store without our prior written consent. See Items 11 and 16.

There are no presently effective determinations of the United States Patent and Trademark Office, the trademark trial and appeal, board, the trademark administrator of any state or any court, any pending infringement, opposition or cancellation proceedings or material litigation involving the principal Marks.

No agreements limit our right to use or license the use of the Marks.

We are not contractually obligated by the Franchise Agreement to protect you against claims of infringement or unfair competition related to your use of the Marks, but it is our policy to do so when, in the opinion of our legal counsel, your right to use the Marks requires protection. In this case, we will pay all costs, including attorneys' fees and court costs, associated with any litigation required to defend or protect your authorized use of the Marks. You must cooperate with us in any litigation.

Other than the opposition we filed against a pending registration for THE CHOCOLATE FACTORY, disclosed in Item 3 of this Offering Circular, we do not know of any infringing uses that could materially affect your use of the Marks.

ITEM 14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION

No patents or copyrights are material to the franchise.

We consider our Operations Manual and related materials to be proprietary and confidential and we consider them to be our property to be used by you only as described in the Franchise Agreement. You must maintain the confidentiality of our information and adopt reasonable procedures to prevent unauthorized disclosure of these secrets and information.

ITEM 15

OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS

You (or your managing shareholder or partner) are not required to participate personally in the direct operation of your Store although we strongly urge you to do so. If you (or your managing partner or shareholder) do not participate in the day-to-day operation of the Store, you must designate a manager ("General Manager") to be responsible for the direct on-premises supervision of the Store at all times during its hours of operation. If you are a Business Entity, we do not require that your General Manager own an equity interest in you. You or, if applicable, the General Manager, must successfully complete our mandatory initial training program. You and your managers must enter into a confidentiality and noncompetition agreement with us (Exhibit VI to Franchise Agreement). We make no recommendations and have no requirements regarding employment or other written agreements between you and your employees.

We may require each of your officers, directors, principal shareholders, partners and/or members to sign an agreement (Exhibit III to Franchise Agreement) personally guaranteeing and agreeing to perform all of your obligations under the Franchise Agreement.

ITEM 16

RESTRICTIONS ON WHAT THE FTUNCHISEE MAY SELL

You must offer for sale through your Store only the Factory Candy, Store Candy and Items that we approve in writing. The authorized vendor list, which is part of our Operations Manual, describes the full line of products identified with the ROCKY MOUNTAIN CHOCOLATE FACTORY System. We may change the types of authorized products and services, and do not limit our right to do so, although we provide you with written notice 30 days before any change becomes effective.

You must devote a minimum of 50% of all retail display space to Factory Candy, or in other words, RMCF-manufactured bulk chocolates and packaged candies. The other edible items we permit you to serve, make and sell through your Store are store-made candies that you prepare from recipes and specifications in the Operations Manual, through the process of molding, cooking and dipping various foods, such as cookies, crackers, pretzels, fresh and dried fruits, dog bones, plain chocolate and other items we approve in writing, in our sole discretion. We refer to these other edible items as "Store Candy" throughout this Offering Circular. All Factory Candy, Store Candy and Items must be sold in containers or bags that we approve.

You must obtain our consent in writing before you operate food carts, participate in food festivals or offer any other type of off-site food services using our Marks and Licensed Methods. See Exhibits H (Satellite Store) and I (Temporary Store) to this Offering Circular.

You must not offer any other type of product or service, or operate or engage in any other type of business or profession, from or through your Franchised Location, including, filling "wholesale orders," which we define in the Franchise Agreement as those orders or sales where the principal purpose of the purchase is for resale, not for consumption, or any sale other than over-the-counter sales at a price other than the price charged to the general public. We permit volume discounted sales made at the Franchised Location to a single purchaser, not for resale, and discounted sales made at the Franchised Location to

charitable organizations for fund-raising purposes. You may not offer any Store Candy, Factory Candy or Items for sale on the Internet.

ITEM 17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION

This table lists certain important provisions of the Franchise Agreement. You should read these provisions in the Franchise Agreement attached to this Offering Circular.

Provision	Section in Franchise Agreement	Summary
a. Term of the franchise	Section 17.1	10 years
b. Renewal or extension of the term	Section 17.2	One 10-year term.
c. Requirements for you to renew or extend	Section 17.3	Pay fee, sign new agreement with addendum attached as Exhibit J.
d. Termination by you	None	N/A
e. Termination by us without cause	None	N/A
f. Termination by us with cause	Sections 18.1 and 18.2	We can terminate only if you commit any one of several listed violations.
g. "Cause" defined-defaults which can be cured	Sections 18.1 and 18.2	15 days for failure to comply with any provision of Franchise Agreement or Operations Manual.
h. "Cause" defined-defaults which cannot be cured	Section 18.1	Assignment for benefit of creditors, inability to pay debts, bankruptcy,* reorganization, liquidation, dissolution, receivership, certain unreversed judgments, abandonment, material understatement of income, unlawful or deceptive practices, failure to pay fees, etc. to us after 10 days notice, repeated defaults.
i. Your obligations on termination/nonrenewal	Section 18.5	Pay outstanding amounts, de-identify Store, transfer telephone number, no use of our trade secrets or proprietary materials, covenant not to compete, sign general release (see also r).
j. Assignment of contract by us	Section 16.6	No restriction on our right to assign.
k. "Transfer" by you - definition	Section 16.1	Includes transfer of at least 25% of stock or assets of Store.
1. Our approval of transfer by you	Section 16.3	We have the right to approve all transfers, our consent not to be unreasonably withheld.

Provision		Section in Franchise Agreement	Summary
m.	Conditions for our approval of transfer	Section 16.2	You must have complied with Franchise Agreement and Operations Manual, transferee must qualify, you must pay all amounts due in full, you must pay transfer fee, transferee must sign the then current contract and you must sign a release.
n.	Our right of first refusal to acquire your business	Section 16.4	We may match any offer.
0.	Our option to purchase your business	Section 18.4	We may offer to buy your Store or just your Store assets.
P-	Your death or disability	Section 16.7	Transfer must occur within 120 days.
q-	Non-competition covenants during the term of the franchise	Section 20.1	No involvement in competing business.
r.	Non-competition covenants after the franchise is terminated or expires	Section 20.2	No involvement in competing business.
s.	Modification of the agreement	Section 22.3	No modifications generally but Operations Manual may change.
t.	Integration/merger clause	Section 22.4	Only terms of Franchise Agreement are binding (subject to state law).
u.	Dispute resolution by arbitration or mediation	None	Ni'A***-
u.	Dispute resolution by arbitration or mediation	None
v.	Choice of forum	Section 22.1	Litigation in LaPlata County, Colorado (subject to state law).
w.	Choice of law	Section 22.1	Colorado law applies (subject to state law).

This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq). However, in California, Idaho, Illinois, Iowa, Rhode Island and South Dakota, most disputes must be submitted to non-binding arbitration before either party can pursue a civil action against the other.

These states have statutes which may supersede the Franchise Agreement in your relationship with us, including the areas of termination and renewal of your franchise: ARKANSAS [Stat. Sections 4-72-201 to 4-72-210], CALIFORNIA [Bus. & Prof. Code Sections 20000-20043], CONNECTICUT [Gen. Stat. Ch. 739, Sections 42-133e to 42-133h], DELAWARE [Title 6, Ch. 25, Code Sections 2551-2556], HAWAII [Title 26, Rev. Stat. Section 482E-6], ILLINOIS [ILCS, Ch. 815, Sections 705/1-705/44], INDIANA [Code Section 23-2-2.7-1 to 7], IOWA [Title XX, Code Sections 523H.1-523H.17], MARYLAND [MD. CODE ANN., BUS. REG. Sections 14-201 to 14-233 (2004 Repl. Vol.)], MICHIGAN [1979 Comp. Laws, Section 445.1527], MINNESOTA [1996 Stat. Section 80C.14], MISSISSIPPI [Code Sections 75-24-51 to 75-24-63], MISSOURI [Rev. Stat. Sections 407.400-407.410, 407.413, 407.420], NEBRASKA [Rev. Stat. Sections 87-401 to 87-410], NEW JERSEY [Rev. Stat. Sections 56:10-1 to 56:10-12], SOUTH DAKOTA [Codif. L. Section 37-5A-51], VIRGINIA [Code Sections 13.1-557-574], WASHINGTON [Rev. Code Sections 19.100.180, 19.100.190], WISCONSIN [Stat. Sections 135.01-135.07], DISTRICT OF COLUMBIA [Code Sections 29-1201 to 29-1208], PUERTO RICO [Ann. Laws, Title 10, Ch. 14, Sections 278-278d], VIRGIN ISLANDS [Code Ann., Title 12A, Ch. 2, Subch. Ill, Sections 130-139]. These and other states may have court decisions which may supersede the Franchise Agreement in your relationship with the Franchisor, including the areas of termination and renewal of your franchise.

SEE ATTACHED ADDENDUM IMMEDIATELY FOLLOWING ITEM 23 OF THIS OFFERING CIRCULAR FOR INFORMATION REGARDING CALIFORNIA LAW.

(CA 6/1/06)

ITEM 18

PUBLIC FIGURES

We do not use any public figure to promote our franchise.

ITEM 19

EARNINGS CLAIMS

CAUTION: WHILE THE ATTACHED FIGURES REPRESENT ACTUAL GROSS SALES OF FRANCHISED STORES DURING OUR MOST RECENT FISCAL YEAR ENDED FEBRUARY 28, 2006, THE FOLLOWING DATA SHOULD NOT BE CONSIDERED AS THE ACTUAL, POTENTIAL OR PROBABLE GROSS SALES THAT WILL BE REALIZED BY YOU OR ANY OTHER FRANCHISEES. WE DO NOT REPRESENT THAT YOU CAN EXPECT TO ATTAIN THESE GROSS SALES LEVELS OR ANY INCOME OR PROFIT THAT COULD RESULT FROM THESE GROSS SALES. YOUR FINANCIAL RESULTS ARE LIKELY TO DIFFER FROM THE FIGURES PRESENTED. YOU SHOULD CAREFULLY REVIEW THE ATTACHED EXPLANATORY NOTES.

THE EARNINGS CLAIM FIGURE(S) DOES (DO) NOT REFLECT THE COSTS OF SALES, OPERATING EXPENSES OR OTHER COSTS OR EXPENSES THAT MUST BE DEDUCTED FROM THE GROSS REVENUE OR GROSS SALES FIGURES TO OBTAIN YOUR NET INCOME OR PROFIT. YOU SHOULD CONDUCT AN INDEPENDENT INVESTIGATION OF THE COSTS AND EXPENSES YOU WILL INCUR IN OPERATING YOUR ROCKY MOUNTAIN CHOCOLATE FACTORY STORE. FRANCHISEES OR FORMER FRANCHISEES, LISTED IN THE OFFERING CIRCULAR, MAY BE ONE SOURCE OF THIS INFORMATION.

THIS FINANCIAL INFORMATION IS PREPARED WITHOUT AN AUDIT. PROSPECTIVE FRANCHISEES OR SELLERS OF FRANCHISES SHOULD BE ADVISED THAT NO CERTIFIED PUBLIC ACCOUNTANT HAS AUDITED TFIESE FIGURES OR EXPRESSED HIS/HER OPINION WITH REGARD TO THE CONTENT OR FORM.

FISCAL YEAR 2006 ACTUAL GROSS SALES FOR TOP 75% OF FRANCHISED STORES OPEN FOR AT LEAST 12 MONTHS

Year Year Year

Store	Sales	Opened
1	$1,309,391.01	1996
2	$874,473.34	2004
3	$856,951.19	1999
4	$816,869.52	1991
5	$781,368.28	1995
6	$763,882.85	1999
7	$736,518.75	1995
8	$728,818.54	1985
9	$704,136.00	1998
10	$701,509.78	2001
11	$667,985.25	1995
12	$664,033.01	2002
13	$646,020.50	2002
14	$642,623.50	1996
15	$628,654.00	1997

Store	Sales	Opened
59	$424,509.62	2000
60	$423,834.23	1997
61	$415,598.28	2003
62	$405,932.60	2000
63	$400,045.06	2004
64	$399,267.78	1986
65	$397,684.60	2000
66	$390,687.70	2004
67	$390,308.92	1984
68	$386,887.21	2000
69	$386,834.40	1997
70	$386,822.26	2004
71	$384,006.74	2000
72	$382,175.08	1995
73	$380,179.94	1992

Store	Sales	Opened
117	$302,457.18	1995
118	$300,519.66	2003
119	$299,770.23	2004
120	$299,453.30	1990
121	$299,029.82	2003
122	$298,028.78	2002
123	$297,431.68	2002
124	$294,740.43	2001
125	$293,013.01	2003
126	$292,188.60	2000
127	$291,873.89	2001
128	$291,844.72	2004
129	$290,348.56	2004
130	$289,285.74	2003
131	$285,392.35	2002

(CA 6/1/06) 28

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Top 25% Middle 50% Lower 25%

No. Of Stores

Combined Annual

Gross Retail

Sales

Average Annual

Gross Retail

Sales

115

$33,328,534

$35,654,186

$9,743,412

$574,630 $310,036 $167,990

All Stores

231

$78,726,132

$340,806

EXPLANATORY NOTES

1. The information provided above is based on reports of Gross Retail Sales (as defined in the Franchise Agreement) provided by all 231 franchised ROCKY MOUNTAIN CHOCOLATE FACTORY Stores that had been open for at least 12 months as of the end of our most recent fiscal year, February 28, 2006. This information is for the 12 months prior to that date. We have listed the individual Gross Retail Sales for only the top 173 or 75 % of the 231 Stores. We included actual gross sales for only the top 75% of franchised Stores because we believe that these results, considered together with the overall average and the average of the lower 25% of franchised Stores, are representative of the results of the franchised Stores overall. The Gross Retail Sales for Stores that we own are not included in this information, but we have included information on any satellite or temporary Stores operated by Franchisees.

2. Of the 58 Stores included in the top 25%, 22 met or exceeded the average Gross Retail Sales of $574,630. Of the 115 Stores in the middle 50%, 52 met or exceeded the average Gross Retail Sales of $310,036. Of the 58 Stores in the lower 25%, 37 met or exceeded the average Gross Retail Sales of $167,990. Of the 231 Stores, 95 met or exceeded the average Gross Retail Sales of $340,806.

3. Differences in Gross Retail Sales may be attributable to differences in the mix of Factory Candy, Items and Store Candy offered for sale at each Store, which is subject, in part, to the Franchisee's discretion. Other factors that may affect the results among Stores include geographic and demographic characteristics, the type of mall or other location, length of time the Store has been open and the managerial or entrepreneurial abilities of the franchisee and its managers.

4. The above information was prepared from royalty reports provided by each individual franchisee. A franchisee pays us a royalty based on sales. We know of no instance, and have no reason to believe, that any franchisee would overstate its level of sales receipts in its royalty report, however, these results have not been audited and we have not independently verified these results.

5. We do not have access to nor knowledge of the expenses or costs incurred by each of the 231 franchised Stores. The above Gross Retail Sales figures may not necessarily be predictive of any given Store's profitability.

6. This information represents aggregate results of sales reported to us and should not be considered the actual or probable sales, which will be achieved by any individual franchisee. We do not represent that any prospective franchisee can expect to attain these results. A franchisee's results are likely to be lower in its first year of business. We recommend that the prospective franchisee make his or her own independent investigation to determine whether or not a franchise may be profitable. We further recommend that prospective franchisees consult with professional advisors before executing any agreement.

7. Actual results may vary from franchise to franchise and depend on a variety of internal and

external factors, many of which neither we nor any prospective franchisee can estimate, such as competition, economic climate, demographics, changing consumer demands and tastes, etc. A franchisee's ability to achieve any level of gross sales or net income will depend on these factors and others, including the franchisee's level of expertise, none of which are within our control. Accordingly, we cannot, and do not, estimate the results of any particular franchise.

Substantiation for this data is available for inspection at our corporate headquarters and will be provided to you following your reasonable request.

EXCEPT FOR THE INFORMATION IN THIS ITEM, NO REPRESENTATIONS OR STATEMENTS OF ACTUAL, AVERAGE, PROJECTED, FORECASTED OR POTENTIAL SALES, COSTS, INCOME OR PROFITS ARE MADE TO FRANCHISEES BY US. WE DO NOT FURNISH OR MAKE, OR AUTHORIZE OUR SALES PERSONNEL TO FURNISH OR MAKE, ANY ORAL OR WRITTEN INFORMATION CONCERNING THE ACTUAL, AVERAGE, PROJECTED, FORECASTED OR POTENTIAL SALES, COSTS, INCOME OR PROFITS OF A FRANCHISE OR PROSPECTS OR CHANCES OF SUCCESS THAT ANY FRANCHISEE CAN EXPECT OR THAT PRESENT OR PAST FRANCHISEES HAVE HAD, OTHER THAN AS SET FORTH IN THIS ITEM. WE DISCLAIM AND WILL NOT BE BOUND BY ANY UNAUTHORIZED REPRESENTATIONS.

ITEM 20

LIST OF OUTLETS

FRANCHISED BUSINESS STATUS SUMMARY FOR FISCAL YEARS 2006/2005/2004°⁾

State⁽³⁾	Transfers	Cancelled or Terminated by Franchisor	Not Renewed by Franchisor	Reacquired by Franchisor	Left the System/ Other	Total from left Columns	Franchisees Operating at Year End
Arizona	2/2/1	0/0/0	0/0/0	0/0/0	0/0/0	2/2/1	11/9/9
Arkansas	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/1/1
California	6/1/3	0/2/0	0/0/0	0/1/0	0/2/0.	6/6/3	74/63/55
Colorado	3/3/2	0/0/0	0/0/0	0/0/0	0/0/1	3/3/3	26/25/26
Delaware	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	2/2/2
Florida	2/0/0	0/0/0	0/1/0	0/0/0	0/0/2	2/1/2	11/10/11
Georgia	1/0/0	0/0/0	0/1/0	0/0/0	0/0/1	1/1/1	1/1/2
Hawaii	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	4/4/4
Idaho	0/0/0	0/0/0	0/1/0	0/0/0	1/0/0	1/1/0	3/4/3
Illinois	0/0/0	0/0/0	0/1/0	0/0/0	0/0/0	0/1/0	15/14/10
Indiana	0/0/0	0/0/0	0/1/0	0/0/0	0/0/0	0/1/0	2/1/2
Iowa	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	2/1/1

State³	Transfers	Cancelled or Terminated by Franchisor	Not Renewed by Franchisor	Reacquired by Franchisor	Left the System/ Other	Total from left Columns	Franchisees Operating at Year End
Kansas	0/0/0	0/0/0	0/0/0	0/0/0	2/0/0	2/0/0	3/3/3
Kentucky	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/1/1
Louisiana	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	3/1/1
Maryland	1/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	2/3/3
Michigan	0/0/0	0/0/0	0/0/0	0/0/0	0/0/2	0/0/2	4/4/4
Minnesota	0/1/0	0/0/0	0/0/0	0/0/0	1/0/0	1/1/0	6/5/4
Mississippi	0/0/0	0/0/0	0/0/0	0/0/0	0/0/1	0/0/1 '	0/1/1
Missouri	0/0/2	0/0/0	0/0/0	0/0/0	0/0/0	0/0/2	2/3/4
Nebraska	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0 .	5/5/4
Nevada	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	3/3/3
New Hampshire	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	3/3/3
New Jersey	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	6/5/4
New Mexico	0/0/0	0/0/0	0/0/0	0/0/0	0/0/2	0/0/2	5/5/4
New York	0/0/0	0/0/0	0/0/0	0/0/0	1/0/0	1/0/0	2/3/3
North Carolina	0/0/1	0/0/0	0/0/0	0/0/0	0/0/1	0/0/2	7/4/2
Ohio	0/0/1	0/0/0	0/1/0	0/0/0	0/0/0	0/1/1	6/6/4
Oklahoma	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	2/2/1
Oregon	2/1/0	0/0/0	0/0/0	0/0/0	0/0/0	2/1/0	10/10/7
Pennsylvania	0/0/0	0/0/0	0/0/0	0/0/0	1/0/0	1/0/0	3/3/3
South Carolina	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	2/2/2
Tennessee	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	4/4/5
Texas	0/0/2	0/0/0	0/1/0	0/0/0	1/0/0	1/1/2	14/15/14
Utah	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	7/5/5
Virginia	0/0/0	0/0/0	0/0/0	0/0/0	0/0/1	0/0/1	2/2/1
Washington	0/0/0	0/0/0	0/0/0	0/0/0	0/0/1	0/0/1	8/8/7
West Virginia	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/1/1
Wisconsin	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/1/1
Canada	0/0/0	0/0/0	0/0/0	0/0/0	0/0/2	0/0/2	33/29/27
Guam	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	1/1/1
Abu Dhabi, United Arab Emirates	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	2/2/2
TOTALS	17/8/12	0/2/0	0/7/0	0/1/0	6/2/14	23/20/26	300/275/251

All numbers are as of February 28 or 29 for each year.

The numbers in the "Total" column may exceed the number of Stores affected because several events may have affected the same Store. For example, the same Store may have had multiple owners.

In November 1999, we signed a Master Franchise Agreement for the Gulf Cooperation Council States and Stores opened in the United Arab Emirates in May 2000 and October 2001.

STATUS OF COMPANY OWNED STORES FOR FISCAL YEARS 2006/2005/2004

STATE	STORES CLOSED DURING YEAR	STORES OPENED DURING YEAR	TOTAL STORES OPERATING AT YEAR END
Alabama	0/0/0	0/0/0	0/0/0
California	0/0/0	0/0/0	0/0/0
Colorado	0/0/0	0/0/0	4/4/4
Connecticut	1/0/0	0/0/0	1/2/2
Florida	0/0/0	0/0/0	0/0/0
Georgia	0/0/0	0/0/0	0/0/0
Illinois	0/0/0	0/0/0	0/0/0
Indiana	0/0/0	0/0/0	0/0/0
Iowa	0/0/0	0/0/0	1/1/1
Kentucky	0/0/0	0/0/0	0/0/0
Maryland	0/0/0	1/0/0	1/0/0
Massachusetts	0/0/0	0/0/0	1/1/1
Michigan	0/0/0	0/0/0	0/0/0
Minnesota	0/0/0	0/0/0	0/0/0
Missouri	0/0/0	0/0/0	0/0/0
Nevada	0/0/0	0/0/0	0/0/0
New Hampshire	0/0/0	0/0/0	0/0/0
New York	0/0/0	0/0/0	0/0/0
Ohio	0/0/0	0/0/0	0/0/0
Oklahoma	0/0/0	0/0/0	0/0/0
Pennsylvania	0/0/0	0/0/0	0/0/0
South Carolina	0/0/0	0/0/0	0/0/0
Virginia	0/0/0	0/0/0	0/0/0
Washington	0/0/0	1/0/0	1/0/0
Wisconsin	0/0/0	0/0/0	0/0/0
TOTALS	1/0/0	2/0/0	9/8/8

PROJECTED OPENINGS

FOR FISCAL YEAR 2007

AS OF MAY 15, 2006

STATE	FRANCHISE AGREEMENTS SIGNED BUT STORE NOT OPENED	PROJECTED FRANCHISED NEW STORES IN FISCAL YEAR 2007	PROJECTED COMPANY OWNED STORE OPENINGS IN FISCAL YEAR 2007
Arizona	0	2	0
California	7	15	0
Colorado	1		0
Connecticut	I	11	0
Illinois	1		0
Louisiana	1		0
Kansas	1		0
Michigan	1		0
Minnesota	1		0
Missouri	1		0
Nevada.	I		0
New Jersey	1	2	0
North Carolina	0		0
Ohio	1		0
Oklahoma	0		0
Oregon.	1		0
Pennsylvania	0		0
South Carolina	I		0
Texas	]		0
Utah	0		0
Virginia	0		0
Washington	1		0
Canada	0	2	0
United Arab Emirates	0	2	0
TOTALS	22	58	0

A list of names of all Franchisees and the addresses and telephone numbers of their Stores are listed as Exhibit C to this Offering Circular. A list of the name and last known home address and telephone number of every Franchisee who has had a franchise terminated, cancelled, not renewed, or otherwise voluntarily or involuntarily ceased to do business under the Franchise Agreement during fiscal

year 2006 and through the date of this Offering Circular or who has not communicated with us within 10 weeks of the date of this Offering Circular is listed on Exhibit D to this Offering Circular.

ITEM 21

FINANCIAL STATEMENTS

Attached to this Offering Circular as Exhibit E are our balance sheets as of February 28, 2006 and February 28, 2005 and the related statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended February 28, 2006.

ITEM 22 CONTRACTS

Attached to this Offering Circular are the following franchise-related contracts:

Exhibit B Franchise Agreement

Exhibit G Sublease and Assignment Agreements

Exhibit H Addendum to Franchise Agreement - Satellite Stores

Exhibit I Addendum to Franchise Agreement - Temporary Stores

Exhibit J Addenda to Franchise Agreement - Renewal and Transfer

ITEM 23

RECEIPT

THE LAST PAGE OF THE OFFERING CIRCULAR (FOLLOWING THE EXHIBITS AND

ATTACHMENTS) IS A DOCUMENT ACKNOWLEDGING RECEIPT OF THE OFFERING

CIRCULAR BY YOU (ONE COPY FOR YOU AND ONE TO BE SIGNED FOR US).

ADDENDUM TO THE

ROCKY MOUNTAIN CHOCOLATE FACTORY

OFFERING CIRCULAR FOR THE STATE OF CALIFORNIA

THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE OFFERING CIRCULAR.

OUR WEBSITE (www.rmcf.com) HAS NOT BEEN REVIEWED OR APPROVED BY THE CALIFORNIA DEPARTMENT OF CORPORATIONS. ANY COMPLAINTS CONCERNING THE CONTENT OF THIS WEBSITE MAY BE DIRECTED TO THE CALIFORNIA DEPARTMENT OF CORPORATIONS AT www.corp.ca.gov.

1. The following paragraphs are added to the end of Item 17:

The California Business and Professions Code Sections 20000 through 20043 provide rights to the franchisee concerning termination or nonrenewal of a franchise. If the Franchise Agreement contains a provision that is inconsistent with the law, the law will control.

Neither the Franchisor, any person or franchise broker in Item 2 of the Offering Circular is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et seq., suspending or expelling such persons from membership in such association or exchange.

The Franchise Agreement contains a liquidated damages clause. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.

The Franchise Agreement contains a covenant not to compete which extends beyond the termination of the Franchise. This provision may not be enforceable under California law.

You must sign a general release if you renew or transfer your franchise. California Corporations Code §31512 voids a waiver of your rights under the Franchise Investment Law (California Corporations Code §§31000 through 31516). Business and Professions Code §20010 voids a waiver of your rights under the Franchise Relations Act (Business and Professions Code §§20000 through 20043).

Section 31125 of the Franchise Investment Law requires us to give to you a disclosure document approved by the Commissioner of Corporations before we ask you to consider a material modification of your Franchise Agreement.

The Franchise Agreement requires application of the laws of the State of Colorado. This provision may not be enforceable under California law.

(CA 6/1/06)

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