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Business Description

We are a Delaware Limited Liability Company formed on August 23, 2006. Our principal place of business is at 4350 Baker Road, Suite 350, Minnetonka, MN 55343; telephone number is (952) 923-1223. Our agents for service of process are disclosed in Exhibit D. Our Business Experience, Predecessor, and Affiliates OUAM, Inc. (the “Predecessor”) created the “Clothes Mentor” concept in 2001. OUAM, Inc.'s principal place of business is 6215 Enterprise Court, Dublin, Ohio 43016. We purchased the assets of the business, including the trademarks, from the Predecessor in October 2006. The Predecessor operates five Clothes Mentor® stores in Ohio, and Predecessor's affiliate, OUAC 1, Inc. operates one Clothes Mentor® store in Ohio. The Predecessor also licensed the right to use the Clothes Mentor® trademark to a business in Canton, Ohio (the “Licensee”). The Licensee has entered into a franchise agreement with us.

Prior Experience

We sell franchises for the operation of stores under the name “Clothes Mentor” (“Stores”), which buy and sell gently used and new women's clothing and accessories. We commenced offering franchises for Clothes Mentor® Stores in December 2006. We have not operated the type of business you will operate. Our affiliate, Clothes Mentor Minnetonka, LLC, has operated a Clothes Mentor® Store in Minnetonka, Minnesota, since April 2008. Clothes Mentor Minnetonka's principal business address is 14200 Wayzata Blvd, Minnetonka, MN 55305. As of December 31, 2018, Clothes Mentor had 135 franchised Clothes Mentor stores and one Clothes Mentor store operated by its affiliate. Our affiliate, New Uses, LLC (“New Uses”), sells franchises for the operation of stores under the name “New Uses” that buy and sell used and new home furnishings and accessories, including furniture, electronics, lamps, artwork, tools and household items and accessories. New Uses was formed in May 2011. New Uses began franchising in July 2011, and its principal place of business is 4350 Baker Road, Suite 350, Minnetonka, MN 55343. As of December 31, 2018, New Uses had 7 franchised New Uses® stores and one New Uses® store operated by its affiliate. Our affiliate Device Pitstop, LLC (“Device Pitstop”), sells franchises for the operation of stores under the name “Device Pitstop” that buy and sell primarily used and some new laptops, iPads, iPods, smartphones and accessories. Device Pitstop began franchising in August 2013 and its principal place of business is 4350 Baker Road, Suite 350, Minnetonka, MN 55343. As of December 31, 2018, Device Pitstop had 11 franchised Device Pitstop stores and one Device Pitstop store operated by its affiliate. Our affiliate, NTY Clothing Exchange, LLC (“NTY Clothing Exchange”) began selling franchises for the operation of stores under the name “NTY Clothing Exchange” that buy and sell used and new clothing and accessories for teens and young adults. NTY Clothing Exchange® stores may offer certain products that are offered for sale in Clothes Mentor® Stores, such as shoes, purses and other accessories. NTY Clothing Exchange was formed in January 2014. NTY Clothing Exchange's principal 2019 CLOTHES MENTOR FDD - 4/17/19 GP: 4846-0321-2934 v5 (2) place of business is 4350 Baker Road, Suite 350, Minnetonka, MN 55343. As of December 31, 2018, NTY Clothing Exchange had 4 NTY Clothing Exchange® franchised stores. Our affiliate, Children's Orchard, LLC (“Children's Orchard”) sells franchises for the operation of stores under the name “Children's Orchard” that buy and sell used and new clothing, accessories and toys for kids from infant to age 13. Children's Orchard was formed in January 2014 as NTY Kids, LLC. In February 2015, it acquired certain assets of the Children's Orchard® system and changed its name to Children's Orchard, LLC. Children's Orchard's principal place of business is 4350 Baker Road, Suite 350, Minnetonka, MN 55343. As of December 31, 2018, Children's Orchard had 25 franchised Children's Orchard® stores. Our affiliate, BST Software Company (“BST”), a Delaware corporation, owns proprietary third-party software for use in point-of-sale cash registers and back-office computers for tracking, analyzing and reporting sales, inventory and other operational information, customized for use in Clothes Mentor® franchised businesses. As described further in Item 11, you must license the proprietary software from BST for use in operating your Store. BST shares our principal business address. Our parent company, NTY Franchise Company, LLC formerly known as CMF Holdings, LLC, shares our principal business address. Neither we nor the Predecessor, our parent or our affiliates has ever offered franchises for any other type of business. Other than as described above, we have no parents, affiliates or predecessors.

Business Offered

You will receive the right to own and operate a Store at a location we approve, offering the products and services we approve and using our formats, designs, methods, specifications, standards, operating and marketing procedures and the “Licensed Marks” (as defined in Item 13), including “Clothes Mentor” and “Once Upon a Mom” (collectively, the “System”).

Initial Fees

We offer an individual unit franchise. The “Initial Franchise Fee” for an individual unit franchise is $25,000 for each Store. If you already own and operate a Clothes Mentor® Store, the Initial Franchise Fee for each additional Store is $20,000. You must pay the Initial Franchise Fee when you sign the Franchise Agreement. The Initial Franchise Fee is not refundable under any circumstances. You must pay BST $3,000 as a Proprietary Software fee. You must also purchase or lease point of-sale hardware and other software (“POS System”). If you purchase the POS System, you must purchase the POS System from us or BST. The cost of the POS System is $10,500. You must pay BST or us these amounts when you order the software and computer hardware. These amounts are not refundable. If you lease the POS System, you will license the Proprietary Software from BST (currently $3,000) and will lease the POS System and Service Area Tech Package from a third party as part of a larger start-up package that also includes the fixtures and supplies. These fees are payable in a lump sum and not refundable. As further described in Items 6 and 11, when you sign the Franchise Agreement, you will pay us a prorated portion of the Technology Access Fee for the remaining months in the calendar year.

Financing

We do not offer direct or indirect financing. We do not guarantee your note, lease or obligation, nor do we receive payment or other consideration for the placing of financing

Franchisee Revenue and Profit

The FTC's Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances. 2019 CLOTHES MENTOR FDD - 4/17/19 GP:4846-0321-2934 v5 (28) PART A – AVERAGE ANNUAL NET SALES AND GROSS PROFITS Part A of Item 19 includes average annual Net Sales and Gross Profit of all 133 franchised Clothes Mentor® Stores in operation for the entire calendar year ended December 31, 2018, divided into quartiles. The information in Part A does not include information from the one Store operated by our affiliate. “Net Sales” means all revenues received from the sale of goods and services, whether for cash or by check, credit card or trade, in connection with the Store, less sales tax, discounts and customer refunds and returns. “Gross Profit” is Net Sales less Cost of Goods and does not reflect any expenses related to Store operations. “Cost of Goods” means the franchisee's cost of the Product and inventory shrinkage only and does not include other cost of goods such as freight or warranty expense. In Table 1, the first quartile includes the average Net Sales of the 33 Stores with the highest Net Sales for the 2018 calendar year. The second quartile includes the average Net Sales of the 33 Stores with the second highest Net Sales for the 2018 calendar year. The third quartile includes the average Net Sales of the 33 Stores with the third highest Net Sales for the 2018 calendar year. The fourth quartile includes the average Net Sales of the 34 Stores with the lowest Net Sales for the 2018 calendar year. In Table 2, the first quartile includes the average Gross Profit of the 33 Stores with the highest Gross Profit for the 2018 calendar year. The second quartile includes the average Gross Profit of the 33 Stores with the second highest Gross Profit for the 2018 calendar year. The third quartile includes the average Gross Profit of the 33 Stores with the third highest Gross Profit for the 2018 calendar year. The fourth quartile includes the average Gross Profit of the 34 Stores with the lowest Gross Profit for the 2018 calendar year. In Table 3, we have disclosed Average and Median Net Sales, Gross Profit and Gross Profit Percentage of all 133 franchised Clothes Mentor Stores in operation for the entire calendar year ended December 31, 2018, divided into the number of years in operation. (1) Of the 28 Stores, 10 Stores (36%) met or exceeded the average Net Sales and 11 Stores (39%) met or exceed the average Gross Profit for those Stores open for 8 to 11 years as of December 31, 2018. These Stores' median Net Sales was $687,238, the median Gross Profit was $438,710, and the median Gross Profit percentage was 65.57%. (2) Of the 31 Stores, 15 Stores (48%) met or exceeded the average Net Sales and 15 Stores (48%) met or exceed the average Gross Profit for those Stores open for 6 to 7 years as of December 31, 2018. These Stores' median Net Sales was $673,061, the median Gross Profit was $441,891, and the median Gross Profit percentage was 66.85%. (3) Of the 16 Stores, 6 Stores (38%) met or exceeded the average Net Sales and 6 Stores (38%) met or exceed the average Gross Profit for those Stores open for 5 years as of December 31, 2018. These Stores' median Net Sales was $603,932, the median Gross Profit was $394,144, and the median Gross Profit percentage was 67.21%. (4) Of the 27 Stores, 10 Stores (37%) met or exceeded the average Net Sales and 10 Stores (37%) met or exceed the average Gross Profit for those Stores open for 4 years as of December 31, 2018. These Stores' median Net Sales was $539,553, the median Gross Profit was $363,502, and the median Gross Profit percentage was 66.5%. (5) Of the 14 Stores, 7 Stores (50%) met or exceeded the average Net Sales and 6 Stores (43%) met or exceed the average Gross Profit for those Stores open for 3 years as of December 31, 2018. These Stores' median Net Sales was $473,786, the median Gross Profit was $309,812, and the median Gross Profit percentage was 65.5%. (6) Of the 17 Stores, 9 Stores (52.9%) met or exceeded the average Net Sales and 9 Stores (52.9%) met or exceed the average Gross Profit for those Stores open for 1 to 2 years as of December 31, 2018. These Stores' median Net Sales was $381,937, the median Gross Profit was $254,356, and the median Gross Profit percentage was 67%. (7) Of the 133 Stores, 56 Stores (42%) met or exceeded the average Net Sales for all Stores and 54 Stores (41%) met or exceeded the average Gross Profit for all Stores. These Stores' median Net Sales was $559,697, the median Gross Profit was $378,625, and the median Gross Profit percentage was 66.47%. PART B – PROFIT AND LOSS STATEMENT ANNUAL EXPENSE OVERVIEW Part B of Item 19 includes average annual expenses as a percentage of net sales, for the 12- month period ended December 31, 2018. The information is based on the profit and loss statements submitted by 91 franchised Clothes Mentor® Stores. We received this information from the franchisees and have not independently verified it. There were a total of 135 franchised Stores as of December 31, 2018. We did not include information from 37 franchised Stores that were in operation for at least one full year as of December 31, 2018, because we did not receive complete financial information from these franchisees. We did not include information from 5 franchised Stores that were in operation for at least one full year as of December 31, 2018 that were transferred in 2018. We also did not include information from 2 other franchised Clothes Mentor® Stores that were in operation as of December 31, 2018, as neither of those Stores had been in operation for the entire 12-month period reviewed. In addition, we did not include information for one Store operated by our affiliate. The chart reflects the percentage of each expense category as a percentage of sales. The percentage reflects the average for a group of Stores based on the number of years in operation. Written substantiation of the data used in preparing this financial performance representation will be made available to you upon reasonable request. Other than the preceding financial performance representation, we do not make any financial performance representations. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor's management by contacting Michael Smith, Clothes Mentor, LLC, 4350 Baker Road, Suite 350, Minnetonka, MN 55343, (952) 923-1223, the Federal Trade Commission, and the appropriate state regulatory agencies