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FRANCHISE OFFERING CIRCULAR

Churro Station Franchises, LLC

a California Limited Liability Company

2 Fifer Avenue, Suite 110

Corte Madera, California 94925

(415)927-7141

Churro Station franchisees operate retail shops featuring churros and, Mexican hot chocolate produced in their shops as well as other food items and nonalcoholic beverages. Churro Station franchisees may also be authorized or required to acquire and service wholesale accounts to which they sell items they produce.

The franchise fee for a single Churro Station shop is $25,000.00. The initial franchise fee is discounted for any additional shops covered by the Franchise Agreement. The estimated initial investment required to open a single Churro Station shop, including the initial franchise fee, is $~~73.250.00~~76.750.00 to $158~~.200.00.~~162.600.00.

Risk Factors:

1. THE FRANCHISE AGREEMENT REQUIRES YOU TO MEDIATE, ARBITRATE, AND/OR LITIGATE WITH US ONLY IN SAN FRANCISCO, CALIFORNIA. REQUIRING YOU TO MEDIATE, ARBITRATE, AND LITIGATE IN SAN FRANCISCO MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO MEDIATE, ARBITRATE, AND LITIGATE IN CALIFORNIA THAN IN YOUR HOME STATE.

2. THE FRANCHISE AGREEMENT STATES THAT, EXCEPT FOR CERTAIN PROVISIONS, CALIFORNIA LAW GOVERNS THAT AGREEMENT, AND THAT LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.

3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

Information comparing franchisors is available. Call the state administrators listed on Exhibit 1 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 agencies.

Effective Date: The issuance date of this Franchise Offering Circular is March 31. 2006. The effective date in states that require franchise registration are listed on the State-Specific Addendum to this circular.

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CHURRO STATION FRANCHISES, LLC

FRANCHISE OFFERING CIRCULAR

TABLE OF CONTENTS

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

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

3. LITIGATION...........................................................................................................................................2

4. BANKRUPTCY.......................................................................................................................................2

5. INITIAL FRANCHISE FEE.....................................................................................................................2

6. OTHER FEES..........................................................................................................................................4

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

8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES...................................................9

9. FRANCHISEE'S OBLIGATIONS........................................................................................................11

10. FINANCING.........................................................................................................................................12

11. FRANCHISOR'S OBLIGATIONS......................................................................................................12

12. TERRITORY........................................................................................................................................25

13. TRADEMARKS...................................................................................................................................21

14. PATENTS, COPYRIGHTS, AND PROPRIETARY INFORMATION...............................................22

15. OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF

THE FRANCHISED BUSINESS......................................................................................................23

16. RESTRICTION ON WHAT THE FRANCHISEE MAY SELL..........................................................23

17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION..................................23

18. PUBLIC FIGURES...............................................................................................................................27

19. EARNINGS CLAIMS...........................................................................................................................27

20. LIST OF OUTLETS.............................................................................................................................27

21. FINANCIAL STATEMENTS..............................................................................................................27

22. CONTRACTS.......................................................................................................................................27

23. RECEIPT..............................................................................................................................................28

EXHIBITS

1. List of State Francise Law Administrators

2. Financial Statements

A. Franchise Agreement

B. Addendum to Lease Agreement

C. Disclosure and Confidentiality Agreement

D. General Release

E. Continuing Guaranty

F Acknowledgment at Closing

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1. THE FRANCHISOR AND ITS PREDECESSORS AND AFFILIATES

In this Franchise Offering Circular the words "we", "us", and "our" refer to Churro Station Franchises, LLC, the franchisor of Churro Station shops. The words "you" and "your" refer to the person, people, or entity who buy a Churro Station franchise.

We are a limited liability company that was formed in California on July 20, 2005. We do not do business under any other names. Our business address is 2 Fifer Avenue, Suite 110, Corte Madera, California 94925.

We are licensed to franchise Churro Station shops by Churro Station, LLC, a California limited liability company, which is referred to in this Franchise Offering Circular as "our licensor". Our licensor is currently our only affiliate.

The first Churro Station shop was opened by our licensor in June, 2003, in San Rafael, California. We have contracted with our licensor to perform certain services for us, such as some aspects of franchisee training. However, our licensor is an independent entity without liability for our acts and omissions and we are without liability for the acts and omissions of our licensor.

Our only business is granting franchises for Churro Station shops. We currently do not operate any Churro Station shops. Neither we nor our licensor has offered franchises in any other lines of business.

The principal product sold by Churro Station shops is churros, fluted sticks of fried dough rolled in cinnamon sugar or with fillings. Churros originated in Spain and now are common in Latin America. Churro Station shops also serve Mexican hot chocolate, and other food items as well as soft drinks.

The market for the type of food served by Churro Station shops is developing although it is well developed in the Hispanic community, members of which are currently the primary customers of Churro Station shops. Churro Station shops cater to the general public although the Hispanic market provides our primary customer base.

Churro Station shops compete for customers with other sellers of churros, as well as other marketers of snack products, such as donut shops. Churro Station shops normally are located in leased spaces, usually in neighborhood business districts, in local shopping centers, or similar retail areas. It is likely that Churro Station shops will have to compete for customers with other food providers in the same business districts, shopping centers, or other areas in which they are located.

Churro Station shops are subject to laws and regulations affecting sellers of food products, including health and safety codes and environmental laws, as well as other laws and rules applicable to businesses in general.

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2. BUSINESS EXPERIENCE

The principal officer and other executives who have responsibility concerning our franchises are:

Melanie L. Farkas - Chief Executive Officer

Ms. Farkas has been our Chief Executive Officer since our formation. She began developing the Churro Station concept in January, 2000. Ms. Farkas became the Chief Executive Officer of our licensor upon its formation in July, 2002, a position she continues to hold.

Karol Caballero - Director of Franchise Development

Ms. Caballero assumed her position with us in May, 2005. From September, 2004, until May, 2005, Ms. Caballero was a public relations assistant with Allison Speer Public Relations in San Francisco, California. She was Franchise Sales Coordinator of Gymboree Play Programs, Inc. in San Francisco from April, 1999, until April, 2004.

Zoila Aldana - Director of Operations and Training

Ms. Aldana joined us in her present capacity upon our formation. Since April, 2003, she has also been the General Manager of the Churro Station shop owned and operated by our licensor. From October, 2000, until April, 2003, she owned and operated a housekeeping business in Vallejo, California.

3. LITIGATION

No litigation is required to be disclosed in this offering circular.

4. BANKRUPTCY

No person or entity identified in Item 1 or Item 2 of this offering circular has been involved as a debtor in proceedings under the U. S. Bankruptcy Code that are required to be disclosed in this Item 4.

5. INITIAL FRANCHISE FEE

The initial franchise fee for each Churro Station shop depends on the number of shops that you agree in the Franchise Agreement to open. The franchise fee for a single Churro Station shop is $25,000.00. If you agree to open 2 Churro Station shops, the total franchise fee for both shops is $45,000.00. If the Franchise Agreement covers 3 shops, the total franchise fee for all 3 shops is $63,000.00. The franchise fee for 4 shops is $78,000.00 with additional shops over 4 covered by the same Franchise Agreement being $15,000.00 each.

Once you are a Churro Station franchisee, if you want to open Churro Station shops in addition to those covered by your initial Franchise Agreement, the franchise fee for each

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additional shop will be equal to 80% of the single-shop franchise fee we are charging at the time you enter into your subsequent Franchise Agreement or Franchise Agreements.

The initial franchise fee is payable in full when your Franchise Agreement is signed. The refundability of that fee is discussed below.

Once you have signed your Franchise Agreement, if you are opening a single Churro Station shop, you are given the exclusive right to look for a location for your shop in an area designated in your Franchise Agreement. We must approve any proposed location before you can sign a lease or otherwise acquire it. If you do not find a location acceptable to us within the concerned area within 30 days from the date of your Franchise Agreement, you will have another 60 days on a nonexclusive basis within which to find a location in that area that we find acceptable. During the nonexclusive 60-day period, we can allow other Churro Station franchisees to, and can ourselves, seek and take locations for Churro Station shops within the designated area. The taking of sites in your designated area by us, or by others, may limit or eliminate the acceptable locations available to you.

If you do not find an acceptable location in your designated area within 90 days from the date of your Franchise Agreement, we can terminate the Franchise Agreement and refund one-half of your initial fee. We can retain the balance of your initial fee as consideration for our efforts in connection of granting you the franchise.

Once you have identified a location that we find acceptable, you must obtain a lease, or if no lease is then available a letter of intent, within 90 days of our approving the site. If you do not, we can terminate the Franchise Agreement and refund one-half of your initial franchise fee. Once you sign your lease, the franchise fee is not refundable.

If at any time before we have approved a location for your shop, we present you with a location that we consider acceptable, you will have 5 days from being notified of the location within which to accept the location. If you do not accept the location in writing within the 5-day period, we can offer the location to another Churro Station franchisee, we can retain the location for a company-owned Churro Station shop, and/or we can terminate your Franchise Agreement and refund one-half of the franchise fee you have paid.

In connection with our approval of your location, we both must agree on any protected territory granted to you. See Item 12 below for more information about protected territories. If, within a reasonable time we cannot agree on a protected territory, or agree that there will be no protected territory granted to you in connection with your shop, we can terminate the Franchise Agreement and refund one-half of your initial franchise fee.

If the Franchise Agreement grants you the right to open more than one Churro Station shop, your Franchise Agreement will set forth your shop-opening schedule. You must open each shop by the date specified in that schedule or you will lose your right to open any shops not then open or under construction. If you default under your shop-opening schedule, we can retain all fees you have paid to us as consideration for holding your designated area from the market and granting you development rights.

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Since we charge reduced fees if you purchase multiple shops, in our discretion we can reduce or eliminate the initial services we provide in connection with the opening of your second and subsequent shops.

Other than as discussed above, none of our franchise fees are refundable and are the same for all franchisees.

6. OTHER FEES

The following chart lists the other fees you must pay to us in connection with a single-shop Churro Station franchise.

Name of Fee

(See Note 1)

Amount

Due Date

Remarks

Royalty

5% of your gross receipts

Monthly by the 10th day of each month based on your gross receipts for the prior month.

"Gross receipts" includes all revenues you receive from your Churro Station business. "Gross receipts'" does not include sales or use taxes, or certain other items. (See Note 2)

Advertising Fund

Up to 3% of your gross receipts

Monthly by the 10th day of each month based on your gross receipts for the prior month.

This fee is not currently payable. It is due only if we begin a national or regional cooperative advertising program. We will determine the amount payable to this program but it will not exceed 3% of your gross revenues. (See Note 3)

Regional Advertising Fund

Up to 2% of your gross receipts

Monthly or as specified at the time

This fee is not currently payable. It is due only if we begin a regional cooperative advertising program. We will determine the amount payable to this program but it will not exceed 2% of your gross revenues.

Relocation Fee

30% of the franchise fee we are charging for new single-unit franchises at the time of your relocation (See Note 4)

Upon our approval of the site for your relocated shop

If you relocate your shop on renewal you will pay both the renewal fee and the relocation fee.

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Name of Fee

(See Note 1)

Amount

Due Date

Remarks

Renewal Fee

10% of the franchise fee we are charging for new single-unit franchises at the time of your renewal or the amount of the time and expenses we incur in connection with your renewal, whichever amount is greater. (See Note 4)

Upon our approval of your renewal

If you relocate your shop on renewal you will pay both the renewal fee and the relocation fee.

Transfer Fee

50% of the franchise fee then being charged for new Churro Station franchises. If the transfer is to an existing Churro Station franchisee, the transfer fee will be equal to 25% of the then-current franchise fee or the amount of our time and costs, whichever amount is greater (See Note 4)

Upon approval of the transfer

Payable when there is a cumulative transfer of over 50% of the ownership of the franchise or any entity owning it. The transfer fee is not charged if you transfer the franchise to a wholly-owned entity. If the transferee is not then a Churro Station franchisee, and more than one shop is being transferred, the transfer fee will be 50% of our then-current initial fee for the first shop being transferred, 25% of that fee for the second shop, and no additional fee for shops over 2.

Special Shop Opening Charge

(See Note 5)

Up to $300.00 per day plus our out of pocket expenses for travel, lodging, and related costs.

As we direct

This fee is payable only if you have notified us that your shop is ready for opening but it is not ready for our representative to assist with the set up and opening when he or she arrives.

Additional Training Fee

Not to exceed $250.00 per person per day (See Note 5)

In advance of the service or as we otherwise specify

This fee is only for extra training. We do not charge for your initial training.

Special Visit Fee

$250.00 per day plus

our out of pocket

costs

(See Note 5)

In advance of the service or as we otherwise specify

This fee is only for assistance at your shop location over and above that which we routinely provide to you at no extra charge.

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Name of Fee Amount Due Date Remarks

(See Note 1)

Meeting Fees As specified at the As specified at the We can charge you a

time time reasonable fee for

attending our meetings, conventions, seminars, courses, sessions, events, and programs.

Late Charge 1 Vi% per month Monthly Payable on past due

balances.

Audit Fees Cost of audit and our On demand Due only if an audit shows

out of pocket an understatement of at

expenses least 5% of gross receipts

in any monthly report you make to us or if you fail to send us the financial reports required by your Franchise Agreement.

NOTES:

1. These fees are payable to us and are not refundable.

2. See Section 9.10 of the Franchise Agreement for a complete definition of "Gross Receipts".

3. We can charge the advertising fund for the time, expenses, and overhead of our employees who work on shop-related advertising, promotion, and public relations activities and for the administration of, and accounting for, the fund. Rather than trying to determine the exact amount of this charge, we can charge the fund in an amount equal to 10% of the sums collected by the fund.

4. If we are not granting new franchises at the time the fee is to be paid, this fee is based on the franchise fee we were charging for single-shop franchises at the time we stopped granting new franchises, adjusted by any increase in the Consumer Price Index between the time we stopped granting new franchises and the date of the transaction on which the fee is being charged.

5. This fee can be adjusted if there has been any increase in the Consumer Price Index between the date of your Franchise Agreement and the date of the service or transaction for which we charge this fee.

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7. INITIAL INVESTMENT

Below is the estimated initial investment for a single Churro Station shop. YOUR ESTIMATED INITIAL INVESTMENT

Cost Category

Amount

Method Of When Due To Whom Payment

Payment Is Made

Initial Franchise Fee

(See Note 1)

$25,000 for a single shop with reduced fees for multiple shops

Lump sum

Upon signing Us your Franchise Agreement

Architects and Engineers	$500 to $3,000	Lump sum or progress payment	As agreed with providers	Architects and engineers
Leasehold Improvements (See Note 2)	$0 to $60,000	Progress Payments	Over course of construction	General contractor
Furniture, Fixtures, Equipment, and Decor (See Note 3)	$25,00027,500 to $34r0003 7,400	Lump sum	Before opening	Suppliers
Interior and Exterior Signs (See Note 4)	$500 to $3,000	Lump sum	Before opening	Suppliers
Point of Sale System	SSjOOOilpJQ	Lump sum	Before opening	Supplier

Lease and Utility Deposits, Insurance, Licenses, and Permits

(See Note 5)

$ 1,000 to $ 1,200 Lump sum

As required

Landlord, utility companies, government agencies, etc.

Opening Inventory	$1,200 to $1,500	Lump sum	Before opening	Vendors
Grand Opening Promotion	$800 to $2,000	As needed	Before and right after opening	Vendors
Travel and Living Expenses While Training	$750 to $1,500	As incurred	As needed	Airlines, hotels, restaurants, etc.

Other Initial Expenses

$500 to $1,000

As needed

Prior to or after opening

Legal and accounting services, employee salaries during training, advertising for employees, and other miscellaneous expenses

Real Estate Lease (See Note 6)

$1.00 to $3.50 per square foot per month plus any related occupancy costs

Lump sum

Monthly

Landlord

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Cost Category Amount Method Of When Due To Whom Payment

Payment Is Made

Additional Funds During $18,000 to $24,000 As incurred As incurred Working capital;

First 3 Months of employee salaries,

Operation supplies, utilities,

(See Note 7) operating expenses,

etc.

TOTALS: $ ~~73.250.00~~76.750.00 to $

(See Note 9) 158~~.200.00~~162.600.00

Notes:

1. See Item 5 of this circular for the conditions under which this fee is refundable. We do not finance any of the foregoing fees or charges.

2. The cost of leasehold improvements can vary depending, among other things, on the previous use of the space, cost of labor and materials in the area in which the shop is located, local building, health, and other code requirements, the amount of the landlord's contribution to leasehold improvement expenses, if any, and other such factors.

3 The costs of furniture, fixtures, equipment and decor can vary depending on the size of the space and the items offered in your shop. This category includes food storage and preparation equipment and display fixtures.

4. Sign costs can vary depending on the sign requirements of the shopping center or other development in which your shop is located.

5. Lease security deposits normally equal 1 or 2 months rent.

6. Churro Station shops normally occupy 800 to 1,000 square feet of space. Occupancy costs will vary depending on the type of shopping center or other location occupied by your shop. Other occupancy costs can include your share of common area maintenance charges, shopping center insurance costs, heating, ventilating, and air conditioning charges, shopping center real estate and other taxes and assessments, and similar fees. We have made no allowance in this chart for any rent that you may have to pay before your shop is open for business. The need for rent payments before opening will depend on the terms of your lease.

7. This is an estimate of the additional cash you will need over and above the net income of your shop for your initial 3 months of operation. The need for, and amount of, additional funds can vary greatly. The need for these additional funds will depend on such factors as: your management skill, experience, and business ability, local economic conditions, the local market for our type of shop, Churro Station name recognition in your market, prevailing wage rates, competition, your marketing efforts, the sales levels you reach during your initial period of

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operation, your ability to control your payroll and food cost, and other such factors. _#

8. No allowance has been made in this chart for any principal or interest expenses or equipment lease payments required before the opening of your shop. The need for these outlays will vary with the terms of any financing you get in connection with your shop. No amounts have been shown for financing or equipment lease deposits and/or charges since this chart assumes the cash purchase of all of your equipment and the other items you need to open your shop.

8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

Because we want to develop the public image and increase consumer acceptance of Churro Station shops, and because we have to protect the Churro Station service marks, we must control the appearance of Churro Station shops and the goods and services provided under the Churro Station name. For this reason, we require you to purchase and use all of the equipment, decor, furniture, and fixtures we specify. We must approve all of the goods and services you provide under the Churro Station name, including all of the ingredients and products you use in the preparation of the food and other items sold in your shop. We must also approve all of the uniforms, packaging material, containers, and the other items used in your shop.

Your shop location must meet our standards and must be approved by us in writing before you can acquire it.

You have to use the cash register or other sales recordation and reporting systems we specify. See Item 11 below for a further discussion of the system we currently require.

We give you our specifications and standards for each of the items you must use in your Churro Station shop. We specify items used in Churro Station shops either by describing the physical characteristics of the items, by listing the features, materials, capabilities, or other characteristics of the items, or by indicating the specific brands and model numbers of the items you are authorized or required to purchase and use.

We develop our standards and specifications in a variety of ways. We consider new equipment based on its ability to perform needed functions, the manufacturer's ability to fill orders promptly, the warranties provided, the serviceability of the equipment, the quality of manufacture, and its ability to be licensed by the National Sanitation Foundation and Underwriters Laboratories, among other things. Our criteria for food items include the manufacturer's and supplier's ability to provide a consistently high quality product, its ability to service all of our shops, the price of the items, the manufacturer's and supplier's customer service, and its ability to protect our trade secrets.

We can change the specifications of the items we approve for use in or by Churro Station shops when we think that is in the best interest of the Churro Station system. If we change the specifications of the items you are using or providing, we will tell you when you have to stop using the items you are currently using and start using the new items. If we want you to start using new items, we will give you enough time to use up your supply of the old items before you have to start using the new ones. If an item we change is not used up in the normal operation of Churro Station Franchises, LLC 9 Franchise Offering Circular

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your business, we will give you a reasonable time to amortize the cost of the old item before you have to buy a new one.

We must approve the manufacturers and suppliers of all of the items you purchase. We will advise you upon your request of our supplier criteria. We can change our supplier criteria when we decide that is in the best interest of the Churro Station system. We can revoke our approval of any approved supplier or item when we think that is justified.

We will make our specifications for items authorized to be purchased by Churro Station shops available to suppliers meeting our supplier criteria upon their request. We will review and decide whether to approve any items submitted to us within a reasonable time after the items, and all appropriate data on the items, are given to us.

We can charge suppliers a reasonable fee for the time and effort we take in reviewing items submitted to us for approval and for investigating and deciding whether to approve a proposed supplier or item.

We can limit the number of suppliers to whom we reveal any information or product specifications we consider to be our trade secrets. We also can decide that we or an affiliate will be the only supplier of any trade secret items.

We do not charge suppliers for doing business with Churro Station shops. If any suppliers pay us any money based on purchases by our franchisees, we return those funds to the franchisees who have made the purchases on a pro rata basis. If any suppliers pay us any advertising, promotional, or similar allowances, we will use that money for advertising the Churro Station system or put that money into our advertising fund.

We and our licensor are the sole suppliers of certain items used in the decoration or operation of Churro Station shops. These items are our decorative tiles, churro maker, churro fryer, and a replacement parts kit for both. In addition, if we direct, you must purchase from us or our licensor our churro mix, hot chocolate mix, and such other items as we may periodically specify. If we sell items to you, we and our licensor will derive revenue from these sales. We anticipate that your purchases from us and our licensor will amount to about 10% to 25% of your initial purchases and approximately 5% to 20% of your ongoing purchases depending on the items we decide to sell to you and the volume of business done by your shop. For items you are required to purchase from us or our licensor, you will be charged our, or its, cost of the items plus any costs we, or it, incur in connection with the items purchased, such as for modifying the churro maker and fryer to meet United States standards, in addition to shipping, handling, and administrative costs.

You may be required to purchase various marketing and training materials from us or our licensor. You will be charged for these items at cost, plus shipping, handling, and administrative costs.

As we grow, we may enter into national purchasing contracts or establish national accounts for items used in Churro Station shops in order to get the best possible prices for those items. If we do enter into that type of contract or establish a national account, you agree in the

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Franchise Agreement to buy reasonable amounts of the goods covered by those contracts and accounts so that the minimum amounts we are required to buy under the contracts and accounts will be purchased by our shops.

Although we do not do so now, it is possible that in the future we or an affiliate will manufacture, or we may have manufactured for us, private-labeled merchandise. If we do so, it is possible that we or our affiliates may become approved suppliers of these items. It is also possible that we or our affiliates may be the only approved supplier of these items. If we sell these items to you, we will derive income from those sales.

You are required to carry insurance meeting the minimum specifications set forth in your Franchise Agreement or as we otherwise specify.

9. FRANCHISEE'S OBLIGATIONS

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

Obligation Section in Franchise Item in Offering

Agreement Circular

a. Site selection and acquisition/lease	Sections 3 and 5	Items 7, 8, and 11
b. Pre-opening purchases/leases	Sections 5, 6, 8, and 12	Items 6, 8, and 11
c. Site development and other pre-opening requirements	Sections 5, 6, and 7	Items 7 and 11
d. Initial and on-going training	Section 7	Items 6 and 11
e. Opening	Sections 7, 8, and 10	Items 7 and 11
f. Fees	Sections 3, 4, 5, 7, 8, 9, 11, 15, and 16	Items 5 and 6
g. Compliance with standards and policies/Operating Manual	Sections 5, 6, 8, 10, 11, 12, 14, and 19	Items 8 and 11
h. Trademarks and proprietary information	Sections 2, 8, and 14	Items 13 and 14
i. Restrictions on products/services offered	Section 8	Items 8, 11, 12, and 16
j. Warranty and customer service requirements	Section 8	Item 15
k. Territorial development and sales quotas	Sections 3, 5, 7, 14, and 15	Items 5 and 12
1. On-going product/service purchases	Sections 8 and 10	Items 8 and 16
m. Maintenance, appearance, and remodeling requirements	Sections 4 and 6	Items 8 and 11
n. Insurance	Section 12	Items 6 and 8
o. Advertising	Sections 9 and 10	Items 6 and 11
p. Indemnification	Section 13	None

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Obligation

Section in Franchise Item in Offering

Agreement Circular

q. Owner's participation/ management/staffing	Sections 7 and 8	Items 11 and 15
r. Records and reports	Sections 8 and 11	Items 6 and 11
s. Inspections and audits	Sections 6, 8, and 11	Items 6 and 11
t. Transfer	Section 15	Item 17
u. Renewal	Section 4	Item 17
v. Post-termination obligations	Sections 16 and 17	Item 17
w. Non-competition covenants	Section 17	Item 17
x. Dispute resolution	Section 18	Item 17

10. FINANCING

We do not offer direct or indirect financing for your Churro Station shop. We do not guaranty any lease or financing you may obtain.

11. FRANCHISOR'S OBLIGATIONS

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

Pre-Opening Assistance

Before you open your Churro Station shop, we will:

1. Grant you a 30-day exclusive, and an additional 60-day nonexclusive, right to locate your shop within a designated area. (Franchise Agreement Section 3.02)

2. Consult with you on the location for your Churro Station shop. (Franchise Agreement Section 5.02)

3. Review the lease, sublease, or other document of occupancy for your shop location. (Franchise Agreement Section 5.06)

4. Designate your protected territory. (Franchise Agreement Section 5.10)

5. Provide you with typical plans and specifications for your shop. (Franchise Agreement Section 6.01)

6. Review your final plans and specifications. (Franchise Agreement Section 6.02)

7. Be available by telephone to consult with you about the construction of your shop. (Franchise Agreement Section 6.04)

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8. Provide you with a listing of approved furniture, fixtures, decor, sales recordation system, equipment, signs, inventory, and other items needed for the opening of your shop. (Franchise Agreement Section 6.03)

9. Train you and your shop manager in the operation of a Churro Station shop. (Franchise Agreement Sections 7.01 and 7.02)

10. For your first Churro Station shop we will provide a member of our staff to help you with the setup and initial operation of your shop. (Franchise Agreement Section 7.14)

Continuing Assistance

During the operation of your Churro Station shop we provide the following services:

1. You have the continuing use of our operations and any other manuals we develop for use by Churro Station shops. These manuals are confidential and are our property. Our manuals are subject to change at our discretion. You have to follow these changes when they are made. (Franchise Agreement Sections 8.01 - 8.05)

2. Our representatives are available on the telephone during our normal business hours to consult with you on the operation of your Churro Station shop. (Franchise Agreement Section 8.24)

3. We will send a representative to visit your Churro Station shop periodically to inspect your shop and work with you on the operation of your shop. (Franchise Agreement Section 8.25)

4. You are allowed to operate your shop and sell products using our trade names, trademarks, service marks, commercial symbols, shop format, and other proprietary property. (Franchise Agreement Section 14.01)

Advertising

We have the right to form national and regional advertising funds that we will use for national and regional advertising, public relations, and promotional activities. If and when they are formed, you must contribute to these funds the amounts we specify, as described in Item 6 above. These funds will be used to promote the business of Churro Station shops, not the sale of franchises. We can use these outside advertising and public relations agencies, as well as our own staff, to develop advertising, promotional, and public relations material. (Franchise Agreement Sections 9.03 - 9.05) We can use various media to disseminate our advertising including print, radio, television, Internet, billboards, direct mail, and any other means on which we decide. We plan to use local and regional media unless and until we are large enough to use national media.

We are not required to spend all the money received by the advertising funds within any particular time. (Franchise Agreement Section 9.05) Any money not spent in any given year is carried over to the next year.

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We intend that all Churro Station franchisees will contribute to the advertising funds on the same basis and at the same rates as you do. If we own and operate any Churro Station shops, we will contribute to the advertising funds on the same basis as our franchisees. (Franchise Agreement Section 9.05)

We need not spend the money collected by our national advertising fund in the areas in which those funds were collected. (Franchise Agreement Section 9.05) The funds of any regional advertising association will be spent in the region where it is collected.

We do not have to audit the financial statements of the advertising funds but we will send you annual financial reports on the funds to which you contribute showing all of the receipts of and expenditures from those funds. (Franchise Agreement Section 9.04)

We will administer the advertising funds. We can charge these funds for our time and expenses, or up to 10% of the amounts collected by the funds, for the administration of the funds. (Franchise Agreement Section 9.06)

We have the right to form national and regional advertising councils made up of our franchisees to advise us on the use of our advertising funds. If we form one or more of these councils, you must follow the rules of the councils and, if we request, participate in the activities of those councils. (Franchise Agreement Section 9.07)

In addition to your payments to our advertising funds, you are required to spend at least 1% of your gross receipts on the local advertising of your Churro Station shop. As part of your local advertising, you are required to advertise monthly in your local Spanish language newspapers, or on local Spanish language radio or television stations. You can decide how to spend this money but we have to approve your plans and the material you plan to use. (Franchise Agreement Section 10.01) If the shopping center in which your Churro Station shop is located requires you to participate in any advertising or promotional activities, one-half of the amounts you spend on those activities will be credited to your local advertising requirement. (Franchise Agreement Section 10.02)

You are required to conduct a grand opening advertising, promotion, and public relations campaign in the manner and at the time we specify or approve. You are not required to spend over $2,000.00 in this activity. (Franchise Agreement Section 10.04)

We have the right to approve any advertising, promotion, and public relations activities you propose to use, including any Internet, or other alternative, advertising that you propose, and any charitable donations and participation in charitable activities you plan. (Franchise Agreement Section 10.05)

Without our consent, you cannot use any of our trademarks, service marks, or other identification on the Internet or in any other alternative media, whether it now exists or is developed in the future. We can require that your only Internet presence be through our Internet site. (Franchise Agreement Section 8.40)

See also Items 6 and 9 above.

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Electronic Cash Recording/Inventory Control System

You are required to use the sales recordation system that we specify. (Franchise Agreement Section 8.32) We currently require you to purchase and use a Sharp UP700 small business cash register. The cash register is designed for the restaurant industry and features 2 displays-one customer and one operator, compact cabinet design, standard 7 bill/5 coin heavy duty cash drawer, full range of PLU/UPC/EAN codes, price inquiry for PLU, group discounts, tray subtotal, multiple menu levels, tip with edit tip function, macro function key, PLU menu keys, and standard credit/debit card interface. This machine is a product of Sharp Electronics Corporation, Sharp Plaza, Mahwah, New Jersey 07430-2135; Telephone (201) 529.8200; www.sharpUSA.com. This machine is available from any Sharp small business equipment dealer. We will help you find a dealer for your cash register.

We can require you to upgrade the cash register to a computerized point of sale system using the hardware and software we specify. There are no contractual limits on when we can require you to make these changes or the cost of the modifications we can require. However, we will give you a reasonable time to amortize the cost of any component of your system that we require to be replaced. (Franchise Agreement Section 8.32)

We have the right to access the information in your cash register and computer system when we visit your shop without limitation. We can require you to install a computer system that allows us to independently access system, the data in it, and the reports it creates. (Franchise Agreement Sections 8.32 and 8.33)

Operations Manuals

Before you purchase a Churro Station franchise, you will be allowed to review our manuals. Before we let you see these manuals, you will have to sign the Disclosure and Confidentiality Agreement that is attached to this circular. Your examination of our manuals has to take place at our offices unless we allow you to examine the manuals elsewhere.

Selection Of Your Shop Location

When we sign your Franchise Agreement we specify the area in which you can seek a location for your Churro Station shop. You are given the exclusive right to find a location within this area for 30 days following the signing of your Franchise Agreement. If you do not find an acceptable location for your Churro Station shop within the 30-day period, you have another 60 days to find a site for your shop on a nonexclusive basis. That means that other prospective Churro Station franchisees, and we ourselves, can look for, and take, locations within that area within the 60-day period. (Franchise Agreement Section 3.02) We are available to consult with you concerning the characteristics a location must have to get our approval. (Franchise Agreement Section 5.02) If you do not find an acceptable location in your designated area within the 60-day period, we can terminate the Franchise Agreement and refund one-half of your initial fee to you, the balance of which we can retain as consideration for our efforts in connection with granting you the franchise. (Franchise Agreement Section 3.02)

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Before you can lease or otherwise acquire a site for your Churro Station shop we have to approve the site and the lease, or any other document giving you the right to occupy the premises. (Franchise Agreement Sections 5.05 and 5.06)

Once we have approved the location for your Churro Station shop you have 90 days within which to acquire use of the space. (Franchise Agreement Section 5.06) If you do not obtain a lease within that time period, we can terminate the Franchise Agreement and retain one-half of your initial franchise fee as consideration for granting you the franchise. If you refuse or fail for any reason to go forward with your Churro Station shop after you sign your lease, we can terminate the Franchise Agreement without any refund to you. (Franchise Agreement Section 5.06)

Most Churro Station shops will be located in areas with a large Hispanic population. When we evaluate a site we look at the demographics of the area, traffic patterns, competitive shops in the area, the location's visibility, accessibility, convenience, size, layout, parking, other businesses in the area, and similar things. We agree in the Franchise Agreement to notify you promptly of our approval or disapproval of your proposed location. If we disapprove the location but our objections can be rectified, we will advise you of what needs to be done in order to obtain our approval of the site. (Franchise Agreement Section 5.05)

If we find a location in your area before you have located a site acceptable to us, we will offer that location to you. If we present you with such a location, you will have 5 days from being notified of the location within which to accept the location. If you do not accept the location in writing within the 5-day period, we can offer the location to another Churro Station franchisee, we can retain the location for a company-owned Churro Station shop, and/or we can terminate this Agreement and refund one-half of ~~your~~ the initial franchise fee to you, the balance of which we can retain as consideration for granting you the franchise and presenting you with the proposed location. If we do not terminate this Agreement for that reason, the provisions concerning your obligation to obtain a location for your shop, and the time periods within which you must do so, remain in effect.

Time Needed To Open A Churro Station Shop

It should take you no more than 90 days to find a suitable location for your Churro Station shop. Finding a suitable location, negotiating an approved lease, having your plans and specifications prepared, obtaining bids for any improvements required, obtaining the required construction permits, completing the construction of your shop, and the installation of your equipment and decor should take between 3 and 6 months. If the location is not ready for your improvements, or if unusual complications exist, the time required for the design, construction, and opening of your shop can be longer.

Other things can affect the time in which your Churro Station shop can be built and opened. Such things as difficulty in getting building and health permits, zoning laws, local ordinances, weather, availability of labor and materials, delay in installing equipment, fixtures, decor, and similar things can delay your opening. We will do our best to help you overcome any difficulties that come up during this process.

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Training

Our franchisee training program is conducted as often as we deem necessary. It is conducted by members of our staff and by shop operating personnel of our licensor. Training is discussed in detail in Section 7 of the Franchise Agreement.

A month or so before the opening of your Churro Station shop, we will train you and your shop manager for approximately 5 days at our corporate offices in Corte Madera, California and at our licensor's Churro Station shop in San Rafael, California. You and your manager must attend our training course at the same time. (Franchise Agreement Sections 7.01-7.03)

You and your manager must satisfactorily complete our training course before we will allow your shop to open for business. If you do not satisfactorily complete training, we can terminate your Franchise Agreement. (Franchise Agreement Section 7.08) If a partnership, limited liability company, corporation, or other entity plans to have a principal active in the operation of the shop, that person must take and pass our training course. If they do not, they cannot assume a supervisory role in the operation of the shop and you must send another principal to our training course. (Franchise Agreement Section 7.09) If your manager does not satisfactorily complete our training course, he or she cannot manage your shop and you will be required to send another manager to our training course. (Franchise Agreement Section 7.07) If you are required to send another principal or manager to our training course, or want to send others to our training course at any time, we can charge our additional training fee, as described in Item 6 above, for each such person trained. (Franchise Agreement Section 7.11)

If you own more than one Churro Station shop, you need only attend the training course given in connection with the opening of your first shop. After that, we will train one manager for each subsequent shop that you open. (Franchise Agreement Section 7.04) If we decide that you do not have to send anyone to training in connection with any of your shops, there is no refund of any portion of the initial franchise fee. (Franchise Agreement Section 7.04)

You are not charged an additional fee for the initial training course, except as noted above. You do have to pay for your own costs of travel and living while you are at training and those of your employees who attend the training. We do not pay you or your employees any type of salary while you attend training. You have to pay the salaries of your employees while they attend our training course. (Franchise Agreement Section 7.06)

If we sponsor conventions, courses, seminars, programs, or other meetings for our franchisees or for their employees, you must attend, and have the appropriate employees attend, those meetings, but not more than one such meeting in any 12-month period. In addition, if we sponsor any regional training seminars or other meetings in the region in which your Churro Station shop is located, you are required to attend these meetings and to send to these meetings those of your employees we designate but not more than one such meeting in any 6-month period. (Franchise Agreement Section 7.15) In addition, you must pay your own expenses, and those of your employees, for travel, lodging, salaries, benefits, and the other costs incurred in attending these events. (Franchise Agreement Section 7.15) We can charge reasonable fees for your and your employees' attendance at any such meetings.

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Following is our tentative schedule for our training course, the principal instructional material you will use, where the training will take place, and who the instructors will be.

FRANCHISEE TRAINING PROGRAM

Subject	Instructional Material	Hours of Classroom Training	Hours of On The Job Training	Instructor
Introduction to the Churro Station system		1		Melanie Farkas
Marketing	Operations Manual	2		Melanie Farkas and Karol Cabal lero
Shop Operations and Equipment Maintenance	Operations Manual	6	16	Zoila Aldana
Financial Management and Reporting	Operations Manual	2		Melanie Farkas
Wholesale Marketing and Service	Operations Manual	4		Melanie Farkas and Zoila Aldana
Special Events	Operations Manual	2		Zoila Aldana
Health and Safety	Operations Manual	1	2	Zoila Aldana and Melanie Farkas
Human Resources	Operations Manual	2		Melanie Farkas
Totals:		20	18

The background of our instructions is described in Item 2 above.

12. TERRITORY

Your Protected Territory

The franchise is granted only for the specific location or locations we approve. As a condition of approving a Churro Station shop location, we must mutually agree on any protected territory that will be granted in connection with that shop. Except under the circumstances discussed below, a protected territory is the geographic area within which we agree not to open another company-owned or franchised Churro Station shop. We base the boundaries of your protected territory on the population, and the demographics of that population, within those borders and the nature of the market in that area. There is no minimum area that we grant as a protected territory. Once it is decided, your protected territory will be described on an exhibit to your Franchise Agreement.

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