UFOC

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Sample UFOC

KidzArt Texas, LLC

UNIFORM FRANCHISE OFFERING CIRCULAR

KidzArt Texas, LLC

A Nevada Limited Liability Company

1327 Dime Box Circle

1902 E. Common Street. Suite 400

New Braunfels, TX 78130

830-626-1959

,

The franchisee will provide art instruction and products to children and adults. The initial fee ranges from $26,000 to $29,500 (the high end include;; a $3,500 training fee if you have a non-spouse co-owner attend training). You must pay an additional fee (currently $1,900) for each additional 10,000 people (or less) in vour Territory beyond the standard 150.000 people. ("See Item 5)32.700 to $36.450. including the initial franchise fee of $31.900 for a standard territory with 60.000 qualifying households and $800 for an initial inventory of art supplies and marketing materials. The fee for additional territory, if available, is $0.32 to $0.35 per qualifying household in that additional territory. The estimated initial investment required for a KidzArt® franchise ranges from $32.75037.450 to $15.000.51.700.

Risk Factors:

THE FRANCHISE AGREEMENT REQUIRES THAT ALL DISAGREEMENTS BE SETTLED BY ARBITRATION IN TEXAS. OUT OF STATE ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO ARBITRATE WITH US IN TEXAS THAN IN YOUR HOME STATE.

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

SOME STATE FRANCHISE LAWS PROVIDE THAT CONSENT TO JURISDICTION AND CHOICE QE^AW-PROVISIONS (OTHER THAN THOSE IN AN ARBITRATION PROVISION) ARE VOID OR SUPERSEDED. YOU MIGHT WANT TO INVESTIGATE WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE LAW. YOU SHOULD REVIEW ANY ADDENDA OR RIDERS ATTACHED TO THIS OFFERING CIRCULAR FOR DISCLOSURES REGARDING STATE FRANCHISE LAWS.

THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

KidzArt®

Information comparing franchisors is available. Call your state administrator Cif applicable) listed in Exhibit D 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 circularOffering Circular. If you learn that anything in this offering circularOffering Circular is untrue, contact the Federal Trade Commission and the state authority for your state listed in Exhibit D.

The effective dates of this offering circularOffering Circular in the states with franchise registration laws are in Exhibit D.

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THE FOLLOWING PROVISIONS APPLY ONLY TO TRANSACTIONS GOVERNED BY THE MICHIGAN FRANCHISE INVESTMENT LAW

THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE SOMETIMES IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE IN THESE FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE ENFORCED AGAINST YOU.

(a)     A prohibition on the right of a franchisee to join an association of franchisees.

(b)    A requirement that a franchisee assent to a release, assignment, novation, waiver, or estoppel which deprives a franchisee of rights and protections provided in this act. This shall not preclude a franchisee, after entering into a franchise agreement, from settling any and all claims.

(c)     A provision that permits a franchisor to terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful provision of the franchise agreement and to cure such failure after being given written notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure such failure.

(d)    A provision that permits a franchisor to refuse to renew a franchise without fairly compensating the franchisee by repurchase or other means for the fair market value at the time of expiration of the franchisee's inventory, supplies, equipment, fixtures, and furnishings. Personalized materials which have no value to the franchisor and inventory, supplies, equipment, fixtures, and furnishings not reasonably required in the conduct of the franchise business are not subject to compensation. This subsection applies only if: (i) the term of the franchise is less than 5 years and (ii) the franchisee is prohibited by the franchise or other agreement from continuing to conduct substantially the same business under another trademark, service mark, trade name, logotype, advertising, or other commercial symbol in the same area subsequent to the expiration of the franchise or the franchisee does not receive at least 6 months advance notice of franchisor's intent not to renew the franchise.

(e)     A provision that permits the franchisor to refuse to renew a franchise on terms generally available to other franchisees of the same class or type under similar circumstances. This section does not require a renewal provision.

(f)     A provision requiring that arbitration or litigation be conducted outside this state. This shall not preclude the franchisee from entering into an agreement, at the time of arbitration, to conduct arbitration at a location outside this state.

(g)    A provision which permits a franchisor to refuse to permit a transfer of ownership of a franchise, except for good cause. This subdivision does not prevent a franchisor from exercising a right of first refusal to purchase the franchise. Good cause shall include, but is not limited to:

(i) The failure of the proposed transferee to meet the franchisor's then current reasonable qualifications or standards.

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(ii) The fact that the proposed transferee is a competitor of the franchisor or subfranchisor.

(iii) The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.

(iv) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor or to cure any default in the franchise agreement existing at the time of the proposed transfer.

(h) A provision that requires the franchisee to resell to the franchisor items that are not uniquely identified with the franchisor. This subdivision does not prohibit a provision that grants to a franchisor a right of first refusal to purchase the assets of a franchise on the same terms and conditions as a bona fide third party willing and able to purchase those assets, nor does this subdivision prohibit a provision that grants the franchisor the right to acquire the assets of a franchise for the market or appraised value of such assets if the franchisee has breached the lawful provisions of the franchise agreement and has failed to cure the breach in the manner provided in subdivision (c).

(i) A provision which permits the franchisor to directly or indirectly convey, assign, or otherwise transfer its obligations to fulfill contractual obligations to the franchisee unless provision has been made for providing the required contractual services.

If the franchisor's most recent financial statements are unaudited and show a net worth of less than $100,000, the franchisor shall, at the request of a franchisee, arrange for the escrow of initial investment and other funds paid by the franchisee until the obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the franchise offering are fulfilled. At the option of the franchisor, a surety bond may be provided in place of escrow.

THE FACT THAT THERE IS A NOTICE OF THIS OFFERING ON FILE WITH THE ATTORNEY GENERAL DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION, OR ENFORCEMENT BY THE ATTORNEY GENERAL.

Any questions regarding this notice should be directed to:

State of Michigan Consumer Protection Division

Attn: Franchise

670 G. Mermen Williams Building

525 West Ottawa

Lansing, Michigan 48933

(517)373-7117

Despite subparagraph (f) above, we intend to enforce fully the provisions of the arbitration section contained in our Franchise Agreement. We believe that subparagraph (f) is unconstitutional and cannot preclude us from enforcing our arbitration section. You acknowledge that we will seek to enforce this section as written.

Michigan - 2

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KidzArt®

TABLE OF CONTENTS

ITEM___________________________________________________________________PAGE

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

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

ITEM 3 LITIGATION........................._........................................................_....................................................................................._.................3

ITEM 4 BANKRUPTCY.................................................................................................................................................................................41

ITEM 5 INITIAL FRANCHISE FEE................................._..............................................._..............._..............................................41

ITEM 6 OTHER FEES........................................................................................................................................................................................54

ITEM 7 INITIAL INVESTMENT...............................................................................................................................................................7

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

ITEM 9 FRANCHISEE'S OBLIGATIONS....................._............................_..........................................................................91Q

ITEM 10 FINANCING......................................_...........................................................................................................................................4011

ITEM 11 FRANCHISOR'S OBLIGATIONS........................................................._................................................................_11

ITEM 12 TERRITORY.................................................................................................................................................._..............................4-61S

ITEM 13 TRADEMARKS...........................................................................................................................................................................472Q

ITEM 14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION..............................4922

ITEM 15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF

THE FRANCHISE BUSINESS...................................._..........................._................................................................4922

ITEM 16   RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL.........._................................3021

ITEM 17   RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION........3021

ITEM 18   PUBLIC FIGURES..........................................................................................................._.........................................._........3326

ITEM 19   EARNINGS CLAIMS......................................................................................._................................................................3322

ITEM 20   LIST OF LOCATIONS.............................................................................................................................._.........................3322

ITEM 21   FINANCIAL STATEMENTS......................................._....................._........................................_.............................2422

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2422 Mm

Exhibits

A.        Financial Statements

B.         Franchise Agreement

C.         Lists of Existing Franchisees/Franchisees Who Have Left System or Not Communicated

D.         State Administrators/Designation of Service of Process/Effective Dates D-l      State Addendum and State-Specific Requirements

E.         Operations Manual Table of Contents

F.         Additional Franchise Broker Disclosures

APPLICABLE STATE LAW MIGHT REQUIRE ADDITIONAL DISCLOSURES RELATED TO THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. THESE ADDITIONAL DISCLOSURES, IF ANY, APPEAR IN EXHIBIT D-l.

ITEM1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES

To simplify the language in this Offering Circular, "we," "us," or "KidzArt" means KidzArt Texas, LLC, the franchisor. "You" means the person, corporation, partnership or other entity who bttysacquires the franchise and is the franchisee. If you are a legal entity, your owners must sign our "Guaranty and Assumption of Obligations," which means that all of our Franchise Agreement's provisions (Exhibit B) also will apply to your owners. We are a Nevada limited liability company that was formed in July 2002. We do not do business under any other name. Our principal business address is 1327 Dime Box Circle.1902 E. Common Street. Suite 400. New Braunfels, Texas 78130.

Our agent for service of process in your state (if applicable) is disclosed in Exhibit D of this Offering Circular.

We franchise the operation of what generally are home-based Offices known as KidzArt®, a business which provides art instruction and products to children and adults through a uniform system that includes high standards of service, use of quality products, and the business format we created and developed (the " KidzArt® System"!

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ITEM 22 CONTRACTS ITEM 23 RECEIPT.............

KidzArt®

We never have offered franchises in any other line of business. We have no other business activities. KidzArt or its affiliates have since October 1997 operated at least 1 KidzArt® location that is similar to the franchise being offered to vou from October 1997 until 2005. Thev no longer operate such locations. (See Item 20)

KidzArt authorizes you to use its trademarks.

The market for KidzArt® services is developing. You will have to compete with other businesses, including franchised operations, national chains and independently owned companies, offering similar or related art services.

KidzArt has been offering KidzArt® franchises since July 2002.

KidzArt is not aware of any laws or regulations specific to our business, but you should check your local jurisdiction. However, since we do work primarily with children, you must submit to a thorough background and credit check. You must comply with laws that apply generally to all businesses. You should investigate these laws.

KidzArt has no predecessors and no affiliates who transact business with its franchisees or offer franchises.

ITEM 2

BUSINESS EXPERIENCE

CEO and Director: Shell M. Herman

MfsMs. Herman has been an officer of KidzArt since its inception in October 1997 and after its formation in July 2002. She serves as our Director and Chief Executive Officer. MrsMs. Herman trains and works with each franchisee to ensure smooth operations.

President: Chris Cruikshank

From October 1997 until we were formed in July 2002, Mrs. Cruikshank owned and operated a branch of KidzArt® in Corte Madera, CA. Since then, she has served as our President and Director of Curriculum Development and continues to operate a KidzArt® program in California-Operations Manager: Michael R. Herman

Mr. Herman has been our Operations Manager since December 2003. He was General Manager for CAVCO Industries, located in Seguin, Texas and Phoenix, Arizona, from August 1998 until November 2003.

Franchise Consultant: Richard Houston George

Mr. George has been our Franchise Consultant since August 2003. He has held several positions at GlaxoSmithKline in Georgia since March 2000, including his current position of Executive

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Sales Representative. He was a Senior Sales Representative for Aventis Pharmaceutical in North Carolina from March 1998 until March 2000.

Sales and Marketing Representative: Lisa Magit

Ms. Magit has been our Sales and Marketing Representative since February 2004. She also has been one of our franchisees in Massachusetts since November 2003. M.s. Magit was Manager, Marketing Strategy for Software Spectrum, located in Garland, Texas, from August 2002 until August 2003;Senior Marketing Manager for Corporate Software, located in Norwood, Massachusetts, from February 2001 until August 2002; Senior Manager Corporate Marketing for Rowecom, located in Westwood, Massachusetts, from March 2000 until February 2001; and Marketing Programs Manager for News Edge, located in Burlington, Massachusetts, from June 1997 until March 2000.

Sales and Marketing Representative: Patricia K. Barber

Ms. Barber has been our Sales and Marketing Representative since September 2004. She also has been one of our franchisees in New Jersey since April 2004. Ms. Barber was Senior Sales Consultant for Siebel, located in San Mateo, California, from January 2001 until April 2004; Senior Application Consultant for Claris (Epicor), located in Swanee, Georgia, from June 2000 until January 2001; and Sales Engineer for nQuire (Siebel), located in San Mateo, California, from May 1999 until June 20Q0.Sales and Marketing Representative: Jessica FrancisHunter

Msv-MafcJ?rancis has been etna Sales and Marketing Representative for us since March 2005. She also has been one of our franchisees in Arizona since July 2004. Ms. Francis was Coordinator for Action, located in Tempe, Arizona, from August 2003 until August 2004; Operations Manager for Purple Rhino, located in Scottsdale, Arizona, from April 2002 until August 2003; and Branch Manager for Remedy^ located in Scottsdale, Arizona, from December 1999 until April 2002.

Sales and Marketing Representative: Suzanne Saliba

Ms. Saliba has been our Sales and Marketing Representative since March 2005.She also has been one of our franchisees in Georgia since January 2004. Ms. Saliba was Assistant Director for Discovery Point, located in Dacula, Georgia, from September 2003 until December 2003 and After Care Director and Teacher for The First Academy, located in Orlando, Florida, from September 1996 until July 2003.

Sales and Marketing Representative: Linda Y. Shaw

Ms. Shaw has been ewa Sales and Marketing RepresentativeJhrjis since March 2005. She also has been one of our franchisees in North Carolina since August 2002. Ms. Shaw was an Administrative Assistant at Okuma America Corporation, located in Charlotte, North Carolina, from 1989 to November 2000.

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Sales and Marketing Representative: Robert R. Denton

Mr. Denton has been eura Sales and Marketing Representative for us since March 2005. He also has been one of our franchisees in Mississippi since May 2004. Mr. Denton held various positions with Federal Express, located in Memphis, Tennessee, from November 1987 until November 2003, the last being Operations Manager from September 2000 until November 2003.

Sales and Marketing Representative: Susan C. Bartman

Ms. Bartman. who is based in Jackson. Michigan, has been a Sales and Marketing Representative for us since March 2006. Ms. Bartman has been self-employed as President of Advantage Cards. located in Jackson. Michigan, since 1999.

Sales and Marketing Representative: Steve Scalzo

Mr. Scal/o, who is based in Scottsdale. Arizona, has been a Sales and Marketing Representative for us since March 2006. Mr. Scalzo was an Account Manager for Dart Container, located in Mason. Michigan, from October 1999 until December 2005.

Exhibit F discloses the names, principal business and employment histories, and litigation histories (if any) of additional franchise brokers operating in your state who represent KidzArt in offering KidzArt franchises and with whom you might have contact if you are interested in a KidzArt franchise.

ITEM 3

LITIGATION

No litigation is required to be disclosed in this offering circular. (Also see California Addendum to this offering circular appearing in Exhibit D-l and Exhibit F)

ITEM 4 BANKRUPTCY

No person previously identified in Item 1, and no officer previously identified in Item 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 pay us a $25.50031.900 lump sum franchise fee when you sign the franchise agreement, less any deposit you previously paid. We typically request that you pay us a $2,000 deposit (toward the initial franchise fee) before you sign the franchise agreement to hold your spot in our next training program and your desired territory. No documents are signed when you pay the deposit. If you pay us a deposit, you will pay us the remaining $23.50029.900 of the initial franchise fee

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when you sign the franchise agreement. The $2,000 is refundable if you choose not to sign the franchise agreement. The initial franchise fee otherwise is not refundable once paid. (The initial JrancMae,fcej:;haigeji^^                         from $23.500 to $28.500.*)

We train yeuup to 2 people for no additional fee. (See Item 11)However, this training is available only to one person. If you want your spouse to attend training too, you must pay us an additional $2,000.(This fee covers a 4 day training program, including certified instructor training for your spouse.) If you are a legal entity and another owner (other than your spouse) wishes to attend training, you must pay us an additional $3,500 per person. (This covers a 4 day training program, including certified instructor training for that other owner.)You must pay us $3.500 for each additional person attending the full initial training program. You must arrange for the training of your certified instructors after vou complete the initial training program. Our certified instructor training currently is $250 for one of your employees. These training fees are not refundable. (See Item 11 for a detailed description of our training program and these fees.)

You also must pay us $500800 when you sign the franchise agreement for an initial inventory of art and marketing materials needed to start operating your Office. This payment is not refundable.

If you want additional territory for your franchise (beyond the standard 150.000 people60.000 qualifying households), you currently must pay us $1,900 for each additional 10,000 people (or lessffl.32 per qualifying household added to your Territory (although we may increase this fee to $2-^000.35 per qualifying household any time during the franchise term). Our willingness to increase your Territory's size will depend on how well you operate your Office in the Territory after completing training, where other franchises operate, and what is in our and eurthe KidzArt® System's best interests. We have no obligation to allow you to increase your Territory's size. In fact, we are unlikely to do so (if at all) until after you have operated your Office for a significant time period. The additional territory fee is not refundable.

If an existing franchisee refers a prospective franchisee to us who ultimately purchases a franchise, we may pay the referring franchisee up to $500, although we may stop this practice or change the amount at any time.

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ITEM 6

OTHER FEES

Name of Fee

Amount

Due Date

Remarks

Royalty

?% of monthly gross revenues+Gross Revenues' until annual Gross Revenues reach $1 80.000: 6% on portion

of annual Gross Revenues over SI 80.000 per year (minimum monthly royalty of $300250 during each month of 1st year of franchise term, $250 during each month of 2"d-year of franchise term, $350 during each month ef~y** and 4th years of franchise term, and $400 during the 5th and each remaining year of franchise term)________

First payment due 1 full month cycle from the end of initial training. Payments are due on 1st day of each month and considered late if not received by us by 10th day of each month!

"Gross Revenues" are defined in footnote 1

1  Gross Revenues include the total of all receipts derived from services performed and products sold by your Office, even if you do not directly derive all of the receipts. For example, if you conduct classes at locations (including recreation centers, YMCAs, and park districts) that deduct a portion of the amounts paid by participants in your classes in order to be compensated because you conduct classes at those locations or for other reasons, Gross Revenues on which the Royalty Fee is due will be the total amounts paid by participants in your classes before any deduction by those locations. However, Gross Revenues do not include sales taxes collected from customers and paid to the appropriate taxing authority. You are deemed to receive Gross Revenues when the services or products from which they were derived are delivered or rendered or when the relevant sale takes place, whichever occurs firsts regardless of when or whether vou actually receive payment for these services or products.

2 Before or after vour Office begins operating, vou must sign and deliver documents we require authorizing us to debit

vour business checking account automatically for the Royalty. Advertising Fund contributions, and other amounts due under the franchise agreement (the "EFT Account"), We will debit the EFT Account for these amounts on their due dates. Funds must be available in the EFT Account to cover our withdrawals. We may require payment other

than bv automatic debit, and you must comply with our payment instructions. D

Tf vou do not renort the Office's Gross Revenues, we may debit the EFT Account for 120% of the last Royalty and

Advertising Fund contribution that we debited f together with the late fee). If the amounts we debit are less than the

amounts vou actually owe us. we will debit the EFT Account for the balance on the dav we specify. Tf the amounts

we debit exceed the amounts vou actually owe us. we will credit the excess against the amounts due the following

month.

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Name of Fee

Amount

Due Date

Remarks

Advertising Fund

21% of monthly Gross Revenues but no less than $3-5-25 per month

Same time as Royalty

We began collecting this fee in March 2005. See Item 11 for a detailed discussion about this Fund

JUsUnnig

No charge ioi IheJLltsjJL attendees at initial training pjograrn, $3,500 hr each additional attendee

Prior to receiving training

See Item 11

Certified Instructor Training for Additional Persons

Currently $250 per person (1 day) (we may increase to no more than $750 per personthis charge)______________

2 weeks prior to beginning of training

Also see Item 5

Additional Territory Fee

$1,900 toQM^S^m-for each additional 10,000 people (or less40.35 per qualifying household

Before Territory change made effective

Also see Item 5

Additional Assistance

$200 per day + travel expenses

30 days after billing

For training or assistance beyond what KidzArt typically provides_______

Transfer

S5QQ25% of then-S25i)0 current initial franchise fee for size and type of Territory you have

Prior to acceptance of transfer

Payable before you sell your franchise. No transfer fee charged if the transferee

is a current franchisee of KidzArt

Audit

Cost of audit plus late fee and interest

30 days after billing

Cost of audit payable only if audit shows an understatement of at least 2% of g*ess(jrasj revenueRevenues

Indemnification

Will vary under circumstances

As incurred

You must reimburse KidzArt if it incurs costs or is held liable for claims from your Office's operation_______________

Fees for Lost Manuals

Actual Replacement cost

Upon delivery

2- Due oftly-tfyott-stfH-or-traflsfer your-&anehise-te-a4"!-f>afty.-

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Name of Fee

Amount

Due Date

Remarks

Interest/Late Charges

Late fee equal to greater of 15% of amount due or $25 for each late payment, plus 1 lA% interest per month for each payment more than 7 days late (or highest commercial contract interest rate law allows)

30 days after billing

Dishonored Pa>ments

&75

As mc Lined

* i "

1 t

Due each lime a check or an attempted debit from, your account is dishonored' due to instLL^v.±aiLJiuid>s;"oi. >ou take any. oilier action to impede the automatic ' -debiting pioce-ss

Franchise Renewal Fee

$05% of then-$3500* current initial franchise

30 days prior to renewal

Initial franchise term is 10 years. Renewal term is 10 years

fee for size and tvpe of

Territory vou have

RcinilLutbjjrieni oi Inspaliun Lxpcnses and Corrects e Action

Depends un.Qjjr JjxycL touts

As.jncjjne4

*

Dufijpjjiillijv -tip , x>,. -, inspccuonaftcr\\e t 4 .. determine that you die-in default or if we pcrfounV ycLiiLobligalioiis.jo.p!rQiect -KukAiHi biand ''"*

Conference Fee

Depends on our direct costs

Before you attend

See Item 11 You must pay our annual conference fee whether or not you attend the conference (although attendance is mandatory)

Insurance

Will vary under circumstances

Within 5 days

You must reimburse us if we obtain insurance on your behalf

Attorneys' Fees and Costs

Will vary under circumstances

As incurred

Due when you do not comply with the Franchise Agreement

Except as noted, all fees are imposed and collected by and payable to KidzArt. All fees are non-refundable. There are no advertising cooperatives.

-To encourage compliance witli our operating systems, if you do not have ony violations of the franchise agreement, than there is no Rmicwal Foe. -Otherwise, a Renewal Fee of $2,500 is charged.

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ITEM 7

INITIAL INVESTMENT

YOUR ESTIMATED INITIAL INVESTMENT

Expense

Amount (Low)

Amount (High)

Method of payment

When due

To whom

payment is to be

made

Initial Franchise Fee1

$25,50021 .900

$35TS0H ,200

Lump sum

Deposit due before Franchise Agreement signed; balance due when Franchise Agreement signed

KidzArt

Training Fee for the 3rd and each Additional Owners or

$2^0001)

$3,500

Lump sum

Before training

KidzArt

Travel and Living Expenses (during training)

$1,000

$2,500

As incurred

During training

Airlines, Hotels, Restaurants, etc.

Certified Instructor Training (each person)Jincludine

$250

$3,000

As incurred

As incurred

KidzArt^

Contractors,

Airlines,

Restaurants,

Hotels

Rent or Real Estate and Improvements2

See Note 2

See Note 2

Initial Inventory of Art Supplies^ and Marketing

$5Q0QQ

$SG©SQQ

Lump sum

When Franchise

Agreement

signed

KidzArt

Miscellaneous

1 KidzArt will approve or decline your application within 45 days after receipt of the completed application. You typically must pay a $2,000 deposit before you sign the Franchise Agreement. You must pay the balance of the initial franchise fee when you sign the Franchise Agreement. There are NO REFUNDS UNDER ANY CONDITIONS once you have paid your full Franchise Fee. (The $2,000 deposit is refundable.) KidzArt does not finance any fee.

You may operate from your home, but if you choose to operate from a commercial location and yen-do not own adequate space, you must lease the space for your business. Generally, this will include first and last months' rent, plus a security deposit. Typical locations are less visible, lower cost office space. The typical space contains 200 to 1,000 square feet. Rent is estimated to be between $4,000 to $22,000 per year depending on factors such as size, conditions, and location of the leased premises. (See Items 11 and 121

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Expense

Amount (Low)

Amount (High)

Method of payment

When due

To whom

payment is to be

made

Opening Costs3

$2,000

$4,500

As incurred

Prior to opening

Suppliers, Insurance, Utilities, etc.

Initial Advertising4

$1,000

$3,000

As incurred

Prior to opening

Media

Additional Funds5 - 3 months

$500

$2,500

As incurred

As incurred

Employees,

Suppliers,

Utilities

TOTALS6

.450

$45 flflfKI

KidzArt relied on its principals' experience in the teaching and art business to compile these estimates. You should review these figures carefully with a business advisor before deciding to purchase the franchise. None of these payments are refundable.

KidzArt does not provide financing arrangements for you. If you obtain financing from others to pay for some of the expenditures necessary to establish and operate the franchise, the cost of financing will depend on your creditworthiness, collateral, lending policies, financial condition of the lender, and regulatory environment.

ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

KidzArt may offer centralized purchasing to receive the lowest possible price for products and services sold in KidzArt® offices and franchises. KidzArt may derive revenue from your product and/or service purchases. All goods and services you sell must meet the high standards set by KidzArt. KidzArt must approve all services and products you sell. This approval is based upon quality standards and other standards that may be implemented by KidzArt.

During 2004. we derived $16.694 fromWe received $6.500 during 2005 for selling initial inventories of training supplies and marketing materials to franchisees for curriculum fees for our Preschool Kindergarten program. (New franchises granted under this Offering Circular need not

3 Includes other deposits, utility costs, insurance, equipment (including video camera and tripod), telephone and communications costs, licenses, and legal fees.

4 This payment is for your beginning advertising and will vary depending upon your preferences.

5 This amount is an estimate of additional funds needed (working capital) for the initial phase of your business (first 3 months) based on figures derived from our first franchises, industry averages, and the current costs of operations. This is only an estimate, and it is possible that you will need additional working capital during the first 3 months you operate your Office and for a longer time period after that. This 3-month period is not intended, and should not be interpreted, to identify a point at which your Office will break even.

6 This estimates your initial start up expenses. These expenses do not include payroll costs or any owner's draw. These figures are estimates, and KidzArt cannot guarantee that you will not have additional expenses starting your business. Your expenses will depend on factors such as: how much you follow KidzArt's methods and procedures; your management skill, experience and business acumen; local economic conditions, e.g., the local market for our product; the prevailing wage rate; competition; and the sales level reached during the initial period.

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pay separate curriculum fees.)This is 3. This is approximately 1% of our total 30042005 revenue of $569.721.575.675. This information is from our audited financial statements. There currently are no arrangements in place under which we receive revenue from suppliers on account of their dealings with franchisees (although we have the right to receive this revenueV

To maintain quality and uniformity throughout the KidzArt® systemSvstem. KidzArt may require that the goods, services, supplies, fixtures, equipment, inventory, computer hardware and software, and Office used to operate your business meet certain standards or specifications. The Manual and our Franchise System Website provide you with these standards or specifications and the names and addresses of designated and recommended vendors, who may or may not be affiliated with KidzArt, with whom you must or may do business. Y-euWe will provide the art curriculum at no cost. You must use only the art curriculum we provide. We mav require vou to obtain art products from a designated source. We mav also require vou to purchase the Computer System fdefined in Item 11) from a designated source-Other than as described above, vou currently may purchase from any vendor of your choosing as long as our standards and specifications are followed and approval is obtained (we will give you our decision within 30 days). We condition our approval on the supplier's quality and prices. We do not charge fees for our approval. Except as noted below, KidzArt currently is not an approved or designated supplier of any item that you must buy.KidzArt sells you an initial inventory of art supplies and marketing materials. (See Item 5) KidzArt provides the standard curriculum to you at no cost.You must use only KidzArt® cumculum in operating your Qf-fieeOtherwise. KidzArt is not an approved or designated supplier of any item that vou must buv. During the franchise term, we may require vou on a going-forward basis to obtain products and services that previously could be obtained from anv approved or other available supplier only from sources we designate (including and/or limited to us and/or our affiliates).

KidzArt must approve your advertising materials before you use them and will do so within 10 working days after receiving them from you. (See Item 11) You mav not create or maintain vour own website. Your Office will be included on our Franchise System Website on the conditions described in Item 11. You must have a digital camera and a video camera with a tripod, and we may recommend or require a scanner and color copier.

You must obtain and maintain the computer svstemComputer System necessary to operate the computer software we require you to use. (See Item 11) We communicate any required standards to you in our Operations Manual or other materials.

You must have general liability and product liability insurance for at least $1 million, automobile liability insurance with a $500.000 combined single limit or a $250.000/$500.000 split limit. property insurance for at least 90% of the property's replacement cost, and workers' compensation insurancejis required by law. Premiums depend on the insurance carrier's charges, terms of payment, and your history. We may increase the current insurance limits and require additional types of insurance. All insurance must name us as an additional insured. If you fail to obtain or maintain adequate insurance, we may do so on vour behalf and vou must reimburse us our costs of obtaining or maintaining the insurance. ("See Item 6)

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KidzArt may negotiate purchase arrangements with suppliers or vendors to obtain price terms and other benefits of a buying cooperative. However, there currently are no purchasing or distribution cooperatives. We do not provide material benefits to you (for example, renewal or granting additional franchises) for using designated or approved sources.

Collectively, the purchases and leases described above are approximately 40% of your overall purchases and leases in establishing and operating the business.

ITEM 9 FRANCHISEE'S OBLIGATIONS

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

Obligation

Section in Franchise Agreement .

Item in Offering Circular

(a) Site selection and acquisition/lease

1.1 and W

7, 11, and 12

(b) Pre-opening purchases/leases

1L.12.2, 13.1, and 14

5, 7, 8, and 11

(c) Site development and other pre-opening requirements

942

11

(d) Initial and ongoing training

8.3

6, 7, and 11

(e) Opening

9.1

11

(f) Fees

2^3, 4, 5, 6, 7, 8, UJL.

12.2G. 12.4. 14.3. 14.4.

and-19.2(cV and 22.3

5, 6, and 7

(g) Compliance with standards and policies/operating manual

10, 11, 12, and 13

8 and 11

(h) Trademarks and proprietary information

15

13 and 14

(i) Restrictions on

products/services offered

10 and 12

8, 11, and 12

(j) Warranty and customer service requirements

None

None

(k) Territorial development and sales quotas

1.2

12

(1) Ongoing product/service purchases

12 and 13

6 and 8

(m) Maintenance, appearance and remodeling requirements

Neae<L2

None

(n) Insurance

14

?ULand8

(o) Advertising

5

6, 7, 8, and 11

(p) Indemnification

14.4

6

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Obligation

Section in Franchise Agreement

Item in Offering Circular

(q) Owner's

participation/management/ staffing

8.3 and 12.2A

11 and 15

(r) Records/reports

7

None

(s) Inspection/audits

7 and 12.4

6

(t) Transfer

19

17

(u) Renewal

2

17

(v) Post-termination obligations

15, 17, and 18.4 18.7I&2

17

(w) Non-competition covenants

17

17

(x) Dispute resolution

22^7-22.7. 22.8. and

17

ITEM 10

FINANCING

KidzArt does not offer direct or indirect financing. KidzArt does not guarantee your note, lease, or obligation.

ITEM 11 FRANCHISOR'S OBLIGATIONS

Except as listed below, KidzArt need not provide any assistance to you.

Before you begin your business, KidzArt will:

A. Within 60 days after you sign the Franchise Agreement, or any other time as may be mutually agreed upon, train 1 person as followsup to 2 people. You or. if you are a legal entity. an owner vou designate to be responsible for overseeing and supervising the Office's operation fthe "Managing Owner"^ must satisfactorily complete the following initial training program (Franchise Agreement - Section 8.3):

Subject! \ !;,

7 Hours of Classroom Training

Instructional ," Material

Hours of bhjthe';' jbb^trainuig.-"-

Instructor

Teaching Art

7 Hours

Live instruction, Operations Manual, Forms, Applications

None

KidzArt principal

Policies in Working With Children

2 Hours

Live instruction, Manuals, and Customer Service Forms

None

KidzArt principal

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Subject

Hours of

Classroom

Training

Instructional Material'

Hours of on the job training

Instructor

Management

2 Hours

Live instruction, Operations Manual, Control Forms, Quality Control Specifications

None

KidzArt principal

Sales

2 Hours

Live instruction, Sales Manual, Forms, Credit Processing Forms

None

Houston GeorgeKidzArt principal or

Contractor

Operating Procedures

8 Hour

Live instruction, Manuals, Forms

None

KidzArt principal

Reporting

lHour

Live instruction, Forms

None

KidzArt principal

Support Procedures

2 Hours

Live instruction, Operations Manual, Support Forms

None

KidzArt principal

Accounting

1 Hours

Live instruction, Operations Manual, Software Manual, Accounting Forms

None

KidzArt principal or Contractor

KidzArt does not charge for this training (unless more than 1 person is2 people are attending) (see Item 5), but you must pay the travel and living expenses for you andor vour Managing Owner, your employeefsV and your independent contractors to attend training. All training, except any on-site training, will be held in New Braunfels, Texas. KidzArt typically conducts training once per month. Ms. Shell Herman and Ms. Chris Cruikshank (see Item 2) supervise and conduct the training program. You must complete training before beginning operations.

KidzArt provides you with the initial training program described above. You must arrange for the training of your certified instructors after you return from the initial training program. Your certified instructors will be trained by an authorized trainer. You must pay a training fee for each certified instructor (see Items 5 and 6) and all expenses (including travel, hotel, food, and related expenses) incurred in having this training take place. You must pay for the trainer's expenses of traveling to your Territory to conduct the training, or you must arrange for your certified instructors to travel to the trainer's site for training.

Four months after you complete initial training, we may require you to send us a 1-hour video of you training a KidzArt® class (for evaluation). If we do not believe you are conducting the class properly, we may require you to return to our principal training location (at your expense) for 1 to 2 days of additional training.

Six months after you complete initial traimng, you must send us another video of you teaching a KidzArt® class so that we can determine whether you are qualified to teach certified instructor

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The original documents were scanned as an image. The original file can be downloaded at the link above.