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FRANCHISE OFFERING CIRCULAR

State of California

SportClips

SPORT CLIPS, INC. (a Texas Corporation) 110 Briarwood

~~t-i a ipr-n iTcs~~r Georgetown, Texas 78628

~~HAIR~~CUTSJ ₍₅₁₂₎ _86Q^_2Q1

(800) 872-4247 www.SportClips.com

The Franchisee will sell, primarily to men and boys, hair cutting services, hair care products, sport memorabilia, and sports accessories, in an environment with a sports theme and multiple televisions featuring sports programming.

The initial Franchise Fee is $25,000 for one store, or $49,500 if you sign a Multi-Unit Development Addendum ("MUDA") for 3 stores. Under a MUDA, the initial Franchise Fee is $25,000 for the first Franchise Agreement, $12,500 for the second Franchise Agreement, and $12,000 for the third Franchise Agreement, and $10,000 for each additional Franchise Agreement. The estimated initial investment required ranges from $127,200 to $245,000 for each store, and $359,100 to $712,200 for 3 stores. This sum does not include rent for the business location.

Risk Factors:

1. THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE TO SUE SPORT CLIPS, INC. ONLY IN TEXAS. OUT OF STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO SUE SPORT CLIPS, INC. IN TEXAS THAN IN YOUR HOME STATE.

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

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

Registration of this franchise with the 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 your state authority listed in Exhibit A of this Offering Circular.

Effective Date: June 24, 2005, as amended

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TABLE OF CONTENTS

ITEM PAGE

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

2. BUSINESS EXPERIENCE................................................................................................3

3. LITIGATION.......................................................................................................................6

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

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

6. OTHER FEES....................................................................................................................8

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

8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICE...............................12

9. FRANCHISEE'S OBLIGATIONS.....................................................................................14

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

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

12. TERRITORY....................................................................................................................23

13. TRADEMARKS................................................................................................................24

14. PATENTS, COPYRIGHTS AND

PROPRIETARY INFORMATION....................................................................................25

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.......................................................................................................29

20. LIST OF OUTLETS.........................................................................................................33

21. FINANCIAL STATEMENTS............................................................................................39

22. CONTRACTS.................................................................................................................39

23. RECEIPT.........................................................................................................................40

STATE ADDENDUM......................................................................................................41

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TABLE OF CONTENTS

(Continued) EXHIBITS

LIST OF STATE ADMINISTRATORS

AND AGENTS FOR SERVICE OF PROCESS..............................................................EXHIBIT A

LIST OF CURRENT SPORT CLIPS FRANCHISEES AND AREA DEVELOPERS.......EXHIBIT B

FINANCIAL STATEMENTS............................................................................................EXHIBIT C

SPORT CLIPS FRANCHISE AGREEMENT..................................................................EXHIBIT D

AGREEMENT TO GUARANTY LEASE ........................................................................EXHIBIT E

LIST OF FRANCHISE BROKERS................................................................................EXHIBIT F

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ITENM THE FRANCHISOR, ITS PREDECESSOR AND AFFILIATES

To simplify the language in this Offering Circular, "the Company," "SCI," or "we" means Sport Clips, Inc., the franchisor. "You" means the person who buys this franchise and your spouse, and may include a corporation or a partnership. If a corporation or a partnership is the franchisee, "you" will also include the franchisee's owners.

The Company does business as Sport Clips, Inc. and we do not do business under any other name. Our principal address is 110 Briarwood, Georgetown, Texas 78628.The Company is a Texas corporation which was incorporated on July 13, 1995.

The Company's agents for service of process are disclosed in Exhibit A.

The Company has sold franchises for the operation of retail stores known as "Sport Clips" since November 1995. As of December 31, 2005, the Company had 301 franchised stores and 9 Company-owned stores operating under the name "Sport Clips." The Company has never offered franchises under any other name or in any other line of business. We have operated Sport Clips stores of the type described in this Offering Circular since 1993.

A Sport Clips business offers hair cutting and hair styling services to primarily men and boys, and sells related hair care products and sports accessories and memorabilia, within a sports themed environment. Sport Clips franchisees operate the franchise pursuant to our System, which includes our standards, specifications, approved products, methods and procedures. The System also includes the use of the trademark and trade name "Sport Clips." The services and products of Sport Clips stores are offered to ajl segments of the public, and the businesses are generally located in strip center locations. In addition to laws or regulations that apply to retail businesses generally, you will need to comply with local and state laws that regulate the operation of a hair care or cosmetology business, and your employees may be required to have a license issued by the state or other local government in order to provide hair cutting and related services.

Our Mission Statement is "To create a Championship Haircut Experience for men and boys in an exciting sports environment." As a Sports Clips franchisee, you will provide your customers with a relaxing atmosphere, surrounded by an exciting sports-themed environment, and be able to watch current and classic sporting events while they receive a consistently well-executed haircut. Some of the specific components of the Sport Clips environment include a big-screen television in the front of the store, and television monitors at each haircutting station. The televisions are turned to live or recorded sports programming approved by the Company. You will also see in your Sport Clips store sports collectibles and merchandise. Your store will also include specific signage and decorating items to create the "Sport Clips" look and atmosphere.

The Company offers a Multi-Unit Development Addendum {"MUDA"). It is not our policy to award a single-store Franchise Agreement except in unusual circumstances, such as a store manager who is approved to become a franchisee. We have not awarded a single-store Franchise Agreement since 2002. Under a MUDA, you will open 3 or more Sport Clips stores within a specified time period and you pay a reduced initial franchise fee for each store. All information in this Offering Circular is applied to the MUDA unless specifically and otherwise stated.

The Company also offers Area Development Agreements. An Area Developer purchases a larger territory, and has the right to sell franchises in the territory on behalf of. the Company, and an Area Developer provides certain support services to franchisees in the area. As of December 31, 2005, SCI had 30 Area Developers in 28 states (3 of these states - California, Maryland and New Mexico - did not have a store open as of December 31, 2005). This Offering Circular is not an offer for an Area Development Agreement. Depending upon your location, however, an Area Developer may provide certain services offered by the Company under the Franchise Agreement.

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You will compete with other businesses that offer a wide range of hair cutting and hair care services and that sell hair care products, similar to those offered by a Sport Clips business, including businesses which may be located in the same strip center as your Sport Clips franchise. Existing or new competitors in the market may offer similar goods and engage in aggressive promotion which may include discounting.

Affiliates

Sport Clips, IP, Inc. ("SCIP") and Sport Clips I Prop., Ltd. (SCLTD) own several trademarks that are licensed to you by the Company under the Franchise Agreement. SCIP and SCLTD license the trademarks exclusively to the Company. The principle address of SCIP and SCLTD is 110 Briarwood, Georgetown, Texas 78628. SCIP is a Texas corporation that was formed on August 22, 1995 and SCLTD is a Texas limited liability partnership that was formed on July 6, 2004. Neither SCIP nor SCLTD has ever offered franchises under any name.

Sport Clips Realty, Inc. ("SCR") may guarantee your lease under certain circumstances (see Item 10). The principle address of SCR is 110 Briarwood, Georgetown, Texas 78628. SCR is a Texas corporation that was formed on August 15, 2005. SCR has ever offered franchises under any name.

Predecessors

There are no predecessors known to the Company that need to be disclosed in this Offering Circular.

All information contained in this Offering Circular regarding the offer and sale of franchises applies only to such activity within the United States.

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ITEM 2

BUSINESS EXPERIENCE

1. Chief Executive Officer: Gordon B. Logan

Gordon B. Logan has served as Chief Executive Officer of the Company and SCIP since 1995, and President of the Company from 1995 until February 2006. Mr. Logan has served as President of SCR since August 2005.

2. President: Clete Brewer

Clete Brewer has served as President of the Company since February 2006. From November 2002 until January 2006, Mr. Brewer was President of Horizant Sports, LLC, a Sport Clips Area Developer for the states of Arkansas, Oklahoma, Kansas, SW Missouri and West Texas. From March 1996 until January 2002, Mr. Brewer served in Fayetteville, Alabama as President and CEO of Edgewater Technology {EDGW:NASDAQ, formerly StaffMark, Inc.) and Non-Executive Chairman until May 2002. From January 2002 until the present, Mr. Brewer . -has been a member of the Boards.of Edgewater Technology, and the Executive Advisory Board of the Sam Walton College of Business at the University of Arkansas.

3. Vice President of Business Development: Paul Mangiamele

Paul Mangiamele has served as Vice President of Business Development since April 2006. He acted as a consultant to the Company from January 2006 until March 2006. From August 2004 until December 2005, Mr. Mangiamele was Chief Operating Officer of the Company. He served as Vice President of Business Development with Regis Corporation in Minneapolis, Minnesota from February 2003 until February 2004, where he focused on global new market development. From August 2000 to February 2003 he was the Vice President of International Operations for Sylvan Learning Systems in Baltimore, Maryland, with responsibilities in both market expansion and operational leadership.

4. Vice President of Market Development: Jean Booth

Jean Booth has served as Vice President of Market Development since March 1996. From January 1996 until March 1996, Ms. Booth was the Company's Director of Market Development.

5. Vice President of Operations and Senior Regional Coach: Kerin Haney

Kerin Haney has served as Vice President of Operations since November 1995. Ms. Haney is closely involved in the development of all the Sport Clips systems, including our proprietary "All-Star Cutting System," and is responsible for developing our Area and Regional Coaches and Technical Coaches.

6. Vice President of Team Development: Nancy Vandiver

Nancy Vandiver has served as Vice President of Team Development since November 1995 and is responsible for the development and coordination of our educational programs. Ms. Vandiver has owned and operated a Sport Clips franchise in Salt'Lake City, Utah since April 2000.

7. Vice President of Finance, Chief Financial Officer, and Secretary: Rhonda Belam

Rhonda Belam has served as the Company's Vice President, Chief Financial Officer and Secretary since January 2000. From March 1998 until January 2000, Ms. Belam was the Company's Controller.

Vice President of Franchise Sales: Richard (Dick) Mueller

Richard Mueller has served as Vice President of Franchise Sales since October 2003. From August 2001 until October 2003, Mr. Mueller was employed by the Company as a Franchise Sales Representative. From January 1998 until August 2001, Mr. Mueller was a Franchise Sales Representative for Opal Concepts, Inc. in Anaheim, California, the franchisor of Fantastic Sams and Pro-Cuts.

Director of Marketing: Beth Boecker

Beth Boecker has served as Director of Marketing since January 2005. From January 2004 until January 2005, Beth served as Director of Franchise Licensing Support. From March 1997 until January 2004, Ms. Boecker served as the Company's Franchise Licensing Support Coordinator and assisted Franchisees in the implementation of Local Store Marketing Programs.

Director of Business Coaching: Larsen Sharp

Larsen Sharp has served as Director of Business Coaching since May 2005. From January 2004 until May 2005, Mr. Sharp was a Business Coach for the Company, and provided support to several Area Developers. From July 1986 until January 2004, Mr, Sharp was employed by Pizza Hut, a division of Yum!, Inc. in Dallas, Texas, as a Field Consultant.

Director of Real Estate: Greg Smith

Greg Smith has served as Director of Real Estate since July 2003. From November 2000 until July 2003 Mr. Smith was a Senior Real Estate Manager for Sally Beauty Company of Denton, Texas.

Director of Franchise Administration: Donna lipsey

Donna Lipsey has served as Manager of Franchise Administration since March 2005. From September 2000 until March 2005, Ms. Lipsey served as an Intellectual Property Litigation Paralegal for a law firm in Austin, Texas.

Director of Training: Sandra Craven

Sandra Craven has served as Director of Training since April 2004. From January 1998 until January 2004, Ms. Craven served as Instructional Designer, Communications and Training Manager and National Manager for AT&T Wireless in Austin, Texas.

Director of Information Technology: Josh Wilmoth

Josh Wilmoth has served as Director of Information Technology for the Company since December 2004. From May 2003 until December 2004, Mr. Wilmoth served as the Company's Manager of Information Technology Development. Mr. Wilmoth has been President of Central Texas Technology Solutions in Georgetown, Texas, since September 2001.

Creative Director:______Neal Geiger

Neal Geiger has served as the Company's Creative Director since February 2006. Mr. Geiger was Creative Director for Egg Design Group in Austin, Texas, from January 2001 until February 2006. Mr. Geiger was Creative Director for Stanhope & Geiger Advertising in Austin, Texas from June 1987 until January 2001.

16. Director: Jay Novacek

Jay Novacek was elected to the Company's Board of Directors in July 2002. Mr. Novacek has owned and operated Upper 84 Ranch in Brady, Nebraska since March 1992. From July 2002, Mr. Novacek has been a partner with the Company in a Sport Clips store in the Dallas, Texas.

17. Director: Louis Mancini

Louis Mancini was elected to the Company's Board of Directors in 1995. Mr. Mancini has served as President and CEO of Murray's Discount Auto, Belleville, Michigan since January 2005. From December 2003 to November 2004, he was President and CEO of General Nutrition Centers, Inc. (GNC) in Pittsburgh, Pennsylvania. From February 2003 to December 2003 he served as Executive Vice President and Chief Marketing Officer of GNC. From March 2000 until February 2003, Mr. Mancini served as President and CEO of Nutraceutical Enterprises, LLC in Las Vegas, Nevada. From April 1999 until March 2000, Mr. Mancini served as Chief Executive Officer of Omni Nutraceuticals, Inc. of Culver City, California.

18. Director: Rick Herrman

Rick Herrman was elected to the Company's Board of Directors in December 1997. From January 1990 until the present, Mr. Herrman has acted as an officer of various investment funds in Houston, Texas, including Catalyst Capital Partners I, Ltd., Catalyst Partners II, Ltd., Catalyst Ventures, Ltd., and Catalyst/Hall Growth Capital, Ltd.

19. Director: C. William Devaney

C. William Devaney was elected to the Company's Board of Directors in July 1995. Mr. Devaney has been retired in Houston, Texas since June 1986 after serving for 20 years in the Management . Consulting Services division of Price Waterhouse, LLP, in Houston, Texas.

SEE EXHIBIT "F" FOR A LIST OF FRANCHISE BROKERS

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ITEM 3

LITIGATION

Other than the 1 action below, no litigation or arbitration is required to be disclosed in this Offering Circular.

PENDING LITIGATION

MAG Sunshine Investments, Inc., Karen H. Gugino and Mel Gugino v. Davis Holdings, LP, Lance Davis, Royalty Oaks Plaza, Ltd., Sport Clips, Inc. and Gordon Logan. District Court of Harris County, Texas, 125th Judicial District, case no. 2005-08477. In April 2005, Sport Clips franchisees Karen H. Gugino and Mel Gugino and their corporate entity (the "Franchisee") served a lawsuit seeking unspecified damages on several parties, including the Company and its CEO, Gordon Logan. In the lawsuit, the Franchisee alleges fraud and negligent misrepresentation in the approval of the site of a franchise location. The Company and Mr. Logan each filed an Answer denying all allegations and the Company filed a counterclaim for amounts due. The parties are currently conducting discovery, and the Company and Mr. Logan intend to defend against the lawsuit vigorously.

ITEM 4

BANKRUPTCY

No person identified in Items 1 or 2 of this Offering Circular has been involved as a debtor in proceeding under the United States Bankruptcy Code required to be disclosed in this Item.

ITEM 5

INITIAL FRANCHISE FEE

Except as described in this Item, all new franchisees pay a $49,500 lump sum franchise fee when they sign a MUDA {$25,000 for the first Franchise Agreement, $12,500 for the second Franchise Agreement, and $12,000 for the third Franchise Agreement), and have the right to open 3 Sport Clips stores within a specified area and during a specified time period. In very rare circumstances, and if we agree to award a single store Franchise Agreement or a 2 store MUDA, the franchisee will pay a $25,000 lump sum franchisee fee when the franchisee signs a Franchise Agreement for a single store, or a $37,500 lump sum franchisee fee when the franchisee signs a Franchise Agreement with a 2 store MUDA. We will only grant a 2 store MUDA if your store is in a city of less than 100,000 people and is at least 75 miles from any city that has more than 100,000 people. If we grant you a single store Franchise Agreement or a 2 store MUDA, you have no rights to buy additional franchises at a reduced price. There are no refunds under any circumstances.

Under the MUDA, you must sign a separate Franchise Agreement before you open each store. There are no refunds if you do not open the additional stores on time, or under any other circumstances. If you agree to open more than 3 stores under a MUDA, the initial franchise fee for each store after the third store, is $10,000 per store if these licenses are purchased at the time the MUDA is executed. If you purchase the right to open an additional Sport Clips store after you sign the MUDA, the initial franchise fee for each additional store is $15,000. The price of $15,000 for an additional store, after you sign a MUDA, is guaranteed for 3 years. After 3 years, the initial franchise fee for each store will be the then-current fee as stated in the then-current Offering Circular.

SCI participates in the International Franchise Association's VetFran program. Under this program, a veteran of the U.S. Armed Services who has been honorably discharged, and who has had at least one year of active service, may sign a MUDA, granting licenses to open 3 Sport Clips businesses, for a reduced initial franchise fee of $44,500.

If we offer Supplemental Services in your area, you will sign the Supplemental Services Agreement that is Attachment E to the Franchise Agreement and pay a Supplemental Services Fee of $5,000 for your first store, $4,000 for your second store, and $3,000 for your third store and any additional stores in one lump sum. See Item Item 7, Note 7, for more information regarding the Supplemental Services Agreement. Before you open your Sport Clips store, you pay a Grand Opening Advertising Fee of $15,000 in one lump sum. Neither the Supplemental Services Fee nor the Grand Opening Advertising Fee is refundable under any circumstances.

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ITEM 6 OTHER FEES

NAME OF FEE	AMOUNT	DUE DATE	REMARKS
Royalty	6% of net sales	Payable on Monday of each week by ACH transfer	Gross sales include all revenue from the franchise location. Gross sales do not include sales tax.
Advertising	$250 per week	Same as royalty fee	See Note 2
Local Advertising Coop Fee	Up to $250 per week	Same as royalty fee	See Note 3
Training Fee	$50 per week	Same as royalty fee	See Note 4
Computer Software Monthly Maintenance Fee	$30 per month	On the first Monday of each month	The fee includes all updates to your required POS computer software. See Item 11
Renewal Fee	$5,000 if you own fewer than 3 open franchised Sport Clips; $3,500 if you own 3 or more open franchised Sport Clips	Upon renewal
Interest	Maximum permitted by law, on late royalties and advertising fees	Upon payment of late royalties and advertising fees
Fee for Failure to Maintain POS Computer System Communication	$25 per week for each week, or portion of a week, that your POS Computer System is not maintained so that we can access your sales data	Within 10 days of the end of the week that we cannot access your Computer System
Supplemental Services Fee	$5,000 for your first store, $4,000 for your second store, and $3,000 for the third store and any additional stores.	Before you open your Sport Clips Store	See Item 7, Note 7
Transfer Fee	$5,000 for the first store transferred, and $1,000 for each additional store or license transferred if the transfers are in one transaction	Prior to consummation of transfer	Payable when you sell your franchise. No charge if franchise transferred to a corporation that you control. See Note 5
Audit	Cost of audit plus 10% interest on underpayment.	30 days after billing	Payable only if audit shows an understatement of at least 2% of gross sales for any month.
Meeting Registration Fees	$500 per Meeting	Upon registration for national and area meetings

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NAME OF FEE	AMOUNT	DUE DATE	REMARKS
Indemnification	All losses and expenses incurred	Upon being incurred by SCI	Payable only if SCI incurs liability because of your actions
Product Review Fee	SCl's out-of-pocket cost	Upon your request that SCI approve product
Confidential Operating Manual Replacement Fee	$250 per volume, or $1,000 per set of volumes	Upon reissue of Confidential Operating Manual	Payable only if your Confidential Operating Manual is lost or destroyed
Extension Fee	$5,000 per Franchise Agreement to extend the time by 1 year to open your stores as stated in the Development Schedule attached to your Franchise Agreement	Within 30 days of the date that your store should be open, but is not	This extension is at your option See Note 6

Notel

All fees are imposed by and are payable to the Company. All fees are non-refundable unless it is otherwise stated in these Notes.

Note 2

The Company has established and administers an Advertising Fund. There may be additional advertising requirements contained in your premises lease. The extent of such advertising requirements in your lease may or may not be subject to negotiation; consequently, the extent of any such advertising obligation, if any, may be unknown to the Company.

Note 3

Under the Franchise Agreement, if you are in a Metropolitan Statistical Area ("MSA") that has 2 or more Sport Clips franchisees operating 4 or more Sport Clips businesses, the Company has the right to require you to join a local advertising cooperative. The local advertising cooperative can assess each member a fee of up to $250 per week. The amount of the fee is decided by a vote of the cooperative's members. See Item 11 for more information on the local advertising cooperation.

Note 4

Under the Franchise Agreement, we can require your employees and stylists to attend periodic training programs sponsored by the Company. Other than the weekly training fee, there is no additional charge for this training although you or your employees may incur expenses to travel to the training programs held in your local area.

Note5

If you sell your business to an existing Sport Clips franchisee, you pay a reduced fee of $2,500 for the first store or license that is transferred to the existing franchisee.

NoteS

You are required to open your stores as stated on a Development Schedule that is Schedule A of your Franchise Agreement. If you do open a store by the due date, the Company's current policy is to grant you, on your request, a one-time, one-year extension to open the store if you pay a fee of $5,000 for each store that does not open according to the date stated on Schedule A.

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ITEM 7 INITIAL INVESTMENT

	AMOUNT (Single Store)	METHOD OF PAYMENT	WHEN DUE	TO WHOM PAYMENT IS MADE	MUDA AMOUNT (3 stores)
Initial Franchise Fee	$25,000 (Note 2)	Lump sum	Prior to Execution of Franchise Agreement	The Company	$49,500 (Note 2)
Travel and living expenses while attending initial training	$1,000-$2,000	As Incurred	During Initial Training	Airlines, Hotels and Restaurants	$3,000-$6,000
Real Estate	(Note 3)				(Note 3)
Opening Inventory	$3,000-$5,000 (Note 4)	Lump Sum	Prior to Opening	Vendors	$9,000-$15,000 (Note 4)
Fixtures and Equipment	$30,000-$40,000 (Note 5)	Lump Sum	Prior to Opening	Contractors and/or Suppliers	$90,000-$120,000 (Note 5)
Leasehold Improvements	$25,000-$100,000 (Note 6)	Lump Sum	Prior to Opening	Contractors and/or Suppliers	$75,000-$300,000 (Note 6)
Supplemental Services Fee	$3,000-$5,000 (Note 7)	Lump Sum	Prior to Opening	The Company	$12,000 (Note 7)
Professional Fees	$1,000-$5,000 (Note 8)		Prior to Opening	Suppliers	$3,000-$15,000 (Note 8)
Permits and Licenses	$1,000-$3,500	As Incurred	Prior to Opening	Local and State Agencies	$3,000- . $10,500
Lease Deposit	$0-$5,000	Lump Sum	Prior to Opening	Landlord	$0-$15,000
Signage	$4,000-$8,000 {Note 9)	Lump Sum	Prionto Opening	Suppliers	$12,000-$24,000 (Note 9)
Miscellaneous Opening Costs	$3,000-$5,000 (Note 10)	As Incurred	As Incurred	Suppliers, Utilities, etc.	$9,000-$15,000 (Note 10)
Insurance	$1,200-$2,400 (Note 11)	Lump Sum	Prior to Opening	Insurance Company	$3,600-$7,200 (Note 11)
Grand Opening Advertising	$15,000 (Note 12)	Lump Sum	Prior to Opening	The Company	$45,000 (Note 12)
Additional Funds-3 Months	$15,000-$25,000 (Note 13)	As Incurred	As Needed	Employees, Creditors and/or Suppliers	$45,000-$75,000 (Note 13)
"TOTAL	$127,200-$245,900				$359,100-$712,200

'Does not include Real Estate Costs, Royalties, or Marketing Fund Contribution.

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Note!

Except as stated in these Notes, none of the fees listed above are refundable once it is incurred by you. The Company does not offer financing for any of the fees listed above.

Note 2

If you sign a MUDA Agreement, the initial franchise fee is 515,000 for the first store and $12,500 for the second store, and $12,000 for the third store. If you purchase more than 3 franchises under a MUDA, the initial franchise fee is $10,000 for each franchise that is in addition to 3 Sport Clips stores if these licenses are purchased at the time the MUDA is executed. If purchased within three years of the date of the MUDA, the cost is $15,000 per license. The cost could be higher if purchased more than three years after the MUDA is executed.

Note 3

Lease payments will vary significantly depending upon the geographic location, terms of the lease, the total area of your store, and various other fees for occupancy charged by the lessor. The typical space that the Company will approve will range from 1,000 to 1,500 square feet, although smaller or larger spaces may be approved in special situations. The rent for one month may range from $10.00 to $50.00 per square foot per year, depending on a number of factors.

Note 4

The cost of initial inventory will vary depending on your store size. The estimated amount is based on our previous experience with franchisees. You are required to purchase an initial inventory of Paul Mitchell and other approved hair products for retail sale, as well as a representative sampling of sports collectables and apparel for retail sale.

Note 5

The cost of the fixtures and equipment will vary depending on the size, configuration, and location of your store. This amount includes such items as hair cutting furniture and equipment, television sets, merchandise displays, and computer equipment. See Item 11 for a detailed description of computer equipment you are required to purchase for your store.

Note 6

The estimated amount for leasehold improvements is based on the Company's experience with existing franchisees. Your cost of construction will depend upon the size of the space, whether the space is new construction or previously occupied, if there is a landlord allowance in the form of either cash or free rent, and your geographical area of the country.

Note 7

If we or an Area Developer in your geographical area offer Supplemental Services, you are required to participate in this service plan. If you sign a MUDA, we will charge you a Supplemental Services fee of $5,000 for the first store, $4,000 for the second store, and $3,000 for the third store and any additional stores.

Note 8

This estimate includes the cost of initial legal, accounting and architectural services. Some cities and/or landlords may require that you use a professional architect or engineer to complete the plans beyond that which is provided by our store designer.

Note 9

The estimated amount for signage includes both store front and in-store signs. Pricing will vary depending on your landlord's sign criteria.

Note 10

This amount includes utility deposits, miscellaneous business licenses and permits. Some states require a tax deposit, which can be covered by a bond or interest bearing deposit with a bank or with the state.

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Note 11

Insurance requirements under the Franchise Agreement are summarized as follows:

Comprehensive General Liability $ 1,000,000

Worker's Compensation Per state requirements

Commercial General Liability $ 1,000,000

Professional Liability $ 1,000,000

Business Interruption Insurance $ 100,000

Umbrella Coverage $ 1,000,000

Key Man Life Insurance $ 1,000,000

Insurance costs may not be uniform since premiums differ depending upon location, amounts of insurance acquired, the insurance company's assessment of risk, the location of the insured business and business premises, insurance requirements of the landlord as set forth in the business premises lease, and applicable law.

Note 12

The amount of $15,000 is paid to the Sport Clips Ad Fund and is spent by the Ad Fund to promote your store in its local market area using a mix of public relations, promotions, advertisements, direct mail, coupons, and other marketing strategies determined by us and in our sole discretion. You may spend additional amounts on other promotional activities that are arranged by or approved by us. Any part of the grand opening advertising deposit that is not spent promoting your store during the first 120 days after you open your store will be returned to you.

Note 13

This estimates your initial start up expenses. These expenses include payroll costs. These figures are estimates and we cannot guarantee that you will not have additional expenses starting the business. Your costs will depend on factors such as: How well you execute and how thoroughly you implement our methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for our product and services; the prevailing wage rate; competition; and the sales level reached during the initial period.

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ITEM 8

RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICE

You must purchase all equipment, supplies and inventory in accordance with specifications issued by the Company. These specifications include design, appearance and quality. You must also

purchase inventory and equipment from our approved vendors. Our specifications for vendor approval include warranty, reliability and delivery. All specifications for inventory and vendors will be given to you upon your request.

In order to maintain a consistent image, store design and quality throughout the System, you are required to purchase for resale, and maintain a minimum inventory level of Paul Mitchell and other brands of hair care products as specified by Sport Clips from time to time. If you wish to purchase inventory or equipment not previously approved by the Company, or from an unapproved vendor, you must submit to us a written request. We will investigate the vendor and examine the product, and assess whether or not the product will enhance the System's integrity and uniformity. We may charge you a fee that will not exceed the cost of our examination. Typically, we will give you a written response within 30 days.

The Company maintains a National Vendor Program list. The vendors on the list are approved by us, and in many cases we have negotiated purchase arrangements with these vendors, including price and credit terms. However, you are not prohibited from negotiating your own terms with these or other vendors.

We may purchase some supplies in large quantities to reduce the unit cost to you. These items are sold to you at our cost plus approximately 25% to cover overhead and handling costs. You are not required to purchase these items from us, and these supplies will constitute less than 5% of your initial and on-going expenses. In the calendar year of 2005, our total revenue from sale of supplies to franchisees was $314, 640, which was less than 3% of our total revenue for the year 2005. Our cost to purchase these supplies was approximately $247,066.

Your purchases from SCI or our designated or approved sources or under our specifications will be approximately 75% of your total initial investment (not including the initial franchise fee) and approximately 5% of your ongoing expenses (not including royalties and advertising fees) in the operation of the Franchised Business.

Shortcuts USA, in Long Beach, California, is the only approved supplier of certain computer hardware you are required to purchase. Shortcuts USA loads the software onto the CPU and tests it before selling it to you. Except for its agreement to supply Sport Clips franchisees and Area Developers with computer hardware, we are not affiliated with Shortcuts USA and we do not derive any income from your purchase of computer hardware from Shortcuts USA. The cost of the computer hardware that you are required to purchase from Shortcuts USA is less than 3% of your total purchases in connection with establishment of your store. See Item 11 for more information on the computer you are required to purchase.

You must purchase Sport Clips point-of-sales computer software system for your Pilot Store from the Company, because we are the only supplier of this system. We purchase the point-of-sales programs in bulk, and mark up the price by 25% when we sell it to you in order to cover our costs, including the cost of maintaining an off-site host computer system with multiple safeguards against loss of data and down time. In the year ending December 31, 2005, SCI's had no revenues from the sale of the point-of-sales system to franchisees, because we started this program in 2006. The cost of the point-of-sales software system from SCI is less than 5% of your total purchases in connection with establishment of your store. See Item 11 for more information on the computer software you are required to purchase.

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We do not seek or accept commissions or any other payments or consideration from approved vendors. Some vendors may contribute to the cost of hosting an annual or area meeting for franchisees. In this case, we may accept the contribution and, if the contribution is in cash, we will deposit the contribution into our general operating account.

If you are in an area that we or an Area Developer offers certain Supplemental Services, then the Company or the Area Developer is the only approved vendor for these services. These services include assistance with site review, working with the store designer or architect, soliciting and comparing construction bids, assistance with ordering signs, and coordination with your general contractor. The charge for Supplemental Services is less than 5% of your initial startup costs. During the calendar year of 2005, our total revenue for supplemental services provided to franchisees was $213,500, and $108,000 of this amount was paid to Area Developers for the services they provided. The remaining amount of $105,500 from these fees was less than 1% of our total revenue for the year 2004.

Your premises lease is subject to the Company's approval. In order to obtain our approval, the lease must include the following provisions:

1) The premises are used for the business licensed under the Franchise Agreement. _

2) The Company will have the right to enter the premises to make any modifications necessary to protect our Proprietary Marks.

3) Upon the written request of the Company, the landlord will supply us with a written copy of the lease, your account information, sales reports, and any other related information.

4) The Company will have the option, but not the obligation, to assume the lease and occupy the business premises, with the right to sublease to another franchisee, upon the default, termination or expiration of the Franchise Agreement or the lease. The landlord will give the Company 30 days upon termination of your rights under the lease to exercise its option.

5) The lease may not be amended, assigned or sublet without the Company's prior written approval.

Other than as disclosed in this Item, neither the Company nor any affiliate of the Company, is an approved supplier or the only approved supplier for any products or services offered by you in a Sport Clips store, nor does the Company or any affiliate of the Company derive revenue or any other material consideration as a result of required purchases or leases.

As of the date of this Offering Circular, there are no purchasing and distribution cooperatives in the Sport Clips System, except as disclosed in this Item. We provide no material benefits (such as renewal or granting additional franchises) based on your use of designated or approved sources.

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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	ARTICLE IN AGREEMENT	ITEM IN OFFERING CIRCULAR
a. Site selection and acquisition	Articles 1(B), IV(A) and V(C) of Franchise Agreement	Items 6 and 11
b. Pre-opening purchases/leases	Articles V(F) and V(K) of Franchise Agreement	Item 8
c. Site development and other pre-opening requirements	Article V of Franchise Agreement	Items 6, 7 and 11
d. Initial and on-going training	Article IV(G) of Franchise Agreement	Item 11
e. Opening	Articles IV(A), V(E), and V(F) of Franchise Agreement	Item 11
f. Fees	Article III of Franchise Agreement	Items 5 and 6
g. Compliance with standards and policies/Policies & Procedures Manual	Articles Article V(J), V(K) and VII of Franchise Agreement	Item 11
h. Trademarks and proprietary information.	Article VI of Franchise Agreement	Items 13 and 14
1. Restrictions on product/ services offered	Articles V(J),V(K) and V(L) of Franchise Agreement	Item 16
j. Warranty and customer service requirements	Article V(N) of Franchise Agreement	Item 11
k. Territorial development and sales	None	N/A
1. On-going product/service purchases	Articles V(L) of Franchise Agreement	Item 8
m. Maintenance, appearance and remodeling requirements	Articles 11(B)(2), V(DJ(2), V(K) of Franchise Agreement	Item 11

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OBLIGATION	ARTICLE IN AGREEMENT	ITEM IN OFFERING CIRCULAR
n. Insurance	Article X of Franchise Agreement	Items 6 and 8
o. Advertising	Article IX of Franchise Agreement	Items 6 and 11
p. Indemnification	Articles X(A) and XI(F)2 of Franchise Agreement	Item 6
q. Owner's participation/ management/staffing	Articles V(G)(1) and (V)(G)(2) of Franchise Agreement	Items 11 and 15
r. Records/reports	Article VIII of Franchise Agreement	Item 6
s. Inspections/audits	Article X(G) of Franchise Agreement	Items 6 and 11
t. Transfer	Article XI of Franchise Agreement	Item 17
u. Renewal	Article II of Franchise Agreement	Item 17
v. Post-termination obligations	Article XIII of Franchise Agreement	Item 17
w. Non-competition covenants	Article XIV of Franchise Agreement	Item 17
x. Dispute resolution	Article XVII of Franchise Agreement	Item 17

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ITEM 10 FINANCING

SUMMARY OF FINANCING OFFERED

Item Financed (Source)	Amount Financed	Down Payment	Term (y«)	APR (%)	Monthly Payment	Prepay Penalty	Security Required	Liability Upon Default	Loss of Legal Right Upon Default
Initial Franchise Fee	None
Financing for build-out, inventory, equipment and fixtures	None
Lease Space (SCR) (Note 1)	Guarantee of Lease	1 or 2 months rent	5-10 years	None	None	None	Personal Guaranty, Equipment, Fixtures and Inventory	Loss of franchise, and unpaid rent and attorney fees	None

Notel

In some cases, our affiliate SCR will guarantee your lease with a third party if you have acceptable credit and that is the only way to obtain an exceptional location. (Agreement to Guaranty Lease, Section 3). If SCR agrees to guarantee your lease, you and your corporation and all the shareholders of your corporation, or all the members of your limited liability company must execute SCR's Agreement to Guaranty Lease, a copy of which is included in Exhibit E to this Offering Circular (See Item 22). SCR will charge you a fee for this guarantee, equal to 2 months' rent (including your "Triple Net Charges" that you pay to the landlord, and that include Cam charges) if you are a new franchisee, and one month's rent (including Triple Net Charges) if you already have at least one open Sport Clips store. SCR will require your personal guaranty, and the personal guaranty of all shareholders and members if you are a corporation or a limited liability company, SCR will also require a security interest in your equipment and fixtures. (Agreement to Guaranty Lease, Section 2). Generally, leases can be prepaid without penalty at any time during the term. SCR requires that you pledge your fixtures, equipment and inventory as collateral for SCR's guaranty (Agreement to Guaranty Lease, Section 9). If you do not make a rent payment on time and the landlord seeks payment from SCR, SCR has the right to collect the unpaid rent plus an additional 2 months' rent as liquidated damages. (Agreement to Guaranty Lease, Section 7). SCR can also obtain court costs and attorney's fees if a collection action is necessary. (Agreement to Guaranty Lease, Section 14).

Except as disclosed in these Notes, the Company does not offer financing that requires you to waive notice, confess judgment or waive a defense against the Company, although you may lose your defenses against the Company and others in a collection action on a note that is sold or discounted.

The Company does not receive direct or indirect payments for placing financing. Other than SCR, the Company does not arrange financing from other sources.

Except as disclosed in Note 1, the Company does not offer financing or guarantee your obligations to third parties. We may assist you in preparing your business plan for presentation to potential sources of financing, such as banks offering Small Business Administration guaranteed loans. Many of our franchisees have obtained SBA loans for their businesses through banks or finance companies, and we can refer you to these lending institutions.

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ITEM 11

FRANCHISOR'S OBLIGATIONS

Except as listed below, the Company need not provide any assistance to you. Before you open your business, the Company or the Area Developer will:

1) Review and approve your location within 60 days of your request, but this review and approval is not a warranty or guaranty of the likelihood of success of your Sport Clips business (Article IV.A.1).

2) Within 30 days of signing the Franchise Agreement, provide written specifications for store construction or remodeling and for all required and replacement equipment, inventory and supplies (Franchise Agreement, Article IV.A.2). See Item 8 of this Offering Circular.

3) Upon registration in the initial training program, we will lend to you one copy of Sport Clips Operating Manuals that contain mandatory and suggested standards and procedures. The Manuals are confidential and remain the Company's property. The Company may modify this Manual, but the modifications will not alter your status and rights under the Franchise Agreement. (Franchise Agreement, Articles IV.A.6 and VII). The table of contents of the Manual is as follows:

*Subject*	*Number of Pages*
Operations Standards	209
Reception and Desk Procedures	135
Personnel	201
Franchise Operations	221
Team Member Handbook (sample)	51
Pre-Opening Workbook	107
OSHA/MSDS	78
Software Point-of-Sale System	376
Management Development	33
Team Member Recruitment & Resource Workbook	83
Guide to Successful Neighborhood Marketing	13
Total Number of Pages	1507

Upon request, we will permit you to view the Manual before you sign a Franchise Agreement. To protect the confidentiality of the Manual, we may require you to sign a confidentiality agreement.

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