uWink Franchising. In addition to our company-owned restaurants, we believe we can efficiently grow our operations through franchising to qualified area developers. In order to offer to sell franchises to operate a uWink restaurant, Federal Trade Commission rules require us to first provide prospective franchisees with a disclosure document called a Uniform Franchise Offering Circular, or UFOC, which includes, among other things, our various franchise agreements. In addition, before we can offer our franchises in certain states that have enacted state franchise or business opportunity laws, we must add certain state-specific disclosures to our UFOC, and register our offer with a state agency. We have now completed our UFOC for the uWink brand and are authorized to sell uWink franchises and may engage in discussions with prospective franchisees in every state in the United States and the District of Columbia, except in the following states where we must complete the state registration process: California, Connecticut, Hawaii, Illinois, Indiana, Maine, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Carolina, South Dakota, Virginia, Washington and Wisconsin. Many of these states evaluate franchisor financial condition as part of the registration process. We believe that the proceeds from this offering will significantly improve the likelihood that we will be approved to franchise in these states.
In January 2007, we began to actively market uWink franchise rights. Over the next several months following completion of this offering, we will begin the registration process in most of the states that require registration. We have received a significant number of inquiries from prospective franchisees and are now in the process of opening discussions with candidates in the states that do not require registration of franchise offers. Once the registration process is complete in the states that require registration, we intend to begin discussions with candidates in those states. We have also received franchise inquiries from other countries and have begun preparing the necessary documents and filings to be able to offer franchises in certain foreign countries. At this point, even though we have received a number of inquiries from potential franchises and have entered into our first area development agreement, we cannot guarantee that we will be able to franchise our concept at all, or that we will be able to do so on acceptable terms.
We plan to utilize a franchise area development model for uWink in which we will assign exclusive rights to develop restaurants within a defined geographic region within a specified period of time. We are targeting franchise area developers who have the existing infrastructure, operational experience and financial strength to develop several restaurants in a designated market. We currently contemplate requiring each of our franchisees to pay us an up-front fee of $50,000 for the first restaurant in a development area and $40,000 for each additional restaurant in a development area, and a 4% basic royalty, together with a 2% software royalty, each based on gross sales. We expect that these terms will be included in the majority of any final agreements with franhisees, but we may modify the terms of individual agreements based on market conditions and franchisee resources and qualifications.
We intend to enter into franchise area development agreements in geographic markets where we currently do not have uWink restaurants or in markets that can be segmented so that a franchised restaurant does not compete with a company-owned restaurant. In markets where we have limited market penetration, we may in the future consider selling existing uWink restaurants to a franchise area developer. In these instances, we plan to require the franchise area developer to open a minimum number of additional restaurants in a designated period of time.
In June 2007, our subsidiary, uWink Franchise Corporation, entered into an area development agreement with OCC Partners, LLC for our first three planned franchised restaurants, to be built in Miami-Dade County, Florida over the next four years.
Pursuant to our area development agreement with OCC Partners, we have granted to OCC Partners the right to develop three franchised uWink restaurant, each of which will be subject to OCC Partners' meeting certain development deadlines and entering into definitive franchise agreements. OCC Partners has paid us $40,000 to secure the development rights granted in the area development agreement, $20,000 of which was deposited into escrow and is refundable until the first franchise agreement is signed, which is contemplated to occur following the selection of location for the first unit. We anticipate that these franchise agreements will include terms providing for a $20,000 upfront franchise fee for the second and third franchised units, after netting out the $20,000 development fee already paid by OCC Partners in respect of those units. We have agreed to waive the $50,000 up-front fee for the first unit. In addition, the form of franchise agreement provides that we will receive a $100,000 software fee (we have agreed to discount this fee by 50% for the first unit) and, in exchange for our delivery of our proprietary touchscreen terminals, a hardware fee of $3,125 per restaurant seat (we have agreed to discount this hardware fee by 20% for the first unit). Recurring royalty fees are set at a 4% basic royalty, together with a 2% software royalty, each based on gross sales. We have filed a copy of the area development agreement, including the form of franchise agreement, as an exhibit to the registration statement of which this prospectus is a part.
uBuy until uSell - uWink, uWait, uWin! - Netman
I base my trading decisions on my own DD, research, evaluation, constant re-evaluation, insight and information. Everyone should do their own DD, and constantly evaluate their own conclusions IMO.
