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Business Description

We are a Delaware Limited Liability Company formed on January 27, 2014. We were originally formed as NTY Kids, LLC, but changed our name to Children's Orchard, LLC, in February 2015. 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.

Prior Experience

On February 11, 2015, we purchased certain assets related to the Children's Orchard® franchise system from Children's Orchard, Inc. (“COI”), including the service mark “Children's Orchard” and the Children's Orchard® franchise agreements. As a result of the transaction, COI is considered our predecessor. COI offered Children's Orchard® franchises from 1993 until February 10, 2015. COI also offered a franchise called Newcomers Welcome Service and Style Trader. As of February 12, 2015, COI had no franchisees. COI dissolved on March 3, 2016. Prior to dissolution, COI's principal place of business was 2100 S. Main St., Suite A, and Ann Arbor, Michigan 48103. Following the purchase of the COI's assets we changed the name of the franchise offered from “NTY Kids” to “Children's Orchard,” and all new franchisees must operate their Stores under the Children's Orchard® mark. We have conducted business under the name Children's Orchard since February 12, 2015. We sell franchises for the operation of stores under the name “Children's Orchard” (“Stores”) that buy and sell used and new clothing, equipment, accessories and toys for kids. We have not operated the type of business you will operate. Since December 2006, our affiliate, Clothes Mentor, LLC (“CM”), has offered franchises for the operation of Stores under the name “Clothes Mentor” that buy and sell used and new women's clothing and accessories. As of December 31, 2018, CM had 135 franchised Clothes Mentor® stores and one Clothes Mentor® store operated by its affiliate. CM's principal place of business is 4350 Baker Road, Suite 350, Minnetonka, MN 55343. 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 GP: 4829-7868-8388 v5 (2) 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”) sells franchises for the operation of stores under the name “NTY Clothing Exchange” that buy and sell primarily used and some new teen clothing and accessories for girls and boys from ages 13 to 25. NTY Clothing Exchange began franchising in August 2014 and its principal place of business is 4350 Baker Road, Suite 350, Minnetonka, MN 55343. As of December 31, 2018, there were 4 franchised 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 Children's Orchard® franchised businesses. As described further in Item 11, you must license the Proprietary Software (as defined in Item 11) 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, our parent nor our affiliates have ever offered franchises for any other type of business.

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 “Children's Orchard” (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 Children's Orchard® 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 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. The information below includes average annual Net Sales of all 24 franchised Children's Orchard® Stores in operation for the entire calendar year ended December 31, 2018, divided into quartiles. “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. In Table 1, the first quartile includes the average Net Sales of the 6 Stores with the highest Net Sales for the 2018 calendar year. The second quartile includes the average Net Sales of the 6 Stores with the second highest Net Sales for the 2018 calendar year. The third quartile includes the average Net Sales of the 6 Stores with the third highest Net Sales for the 2018 calendar year. The fourth quartile includes the average Net Sales of the 6 Stores with the lowest Net Sales for the 2018 calendar year. 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, Children's Orchard, LLC, 4350 Baker Road, Suite 350, Minnetonka, MN 55343, (952) 923-1223, the Federal Trade Commission, and the appropriate state regulatory agencies.