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Business Description

We do business under the name ACE DuraFlo Systems, LLC and ACE DuraFlo®. We were organized as a Nevada limited liability company on August 24, 1999. Our principal business address is 3122 West Alpine Street, Santa Ana, California 92704. Our telephone number is (800) 359-6369. We disclose our agents for service of process on Exhibit J. Pipe Restoration Technologies, LLC (“PRT”), a Nevada limited liability company organized on August 11, 1998, owns the patented and proprietary rights to the ePIPE® Process. PRT was awarded a patent for the systems and methodologies that are the core of our pipe restoration technology. PRT has granted us an exclusive license to exploit this technology in North America, which we provide to our franchisees. Until October 15, 2009, PRT was our parent company. Effective on October 15, 2009, PRT became a non-parent affiliate of our company by distributing nearly all its ownership interest in our company to its members. We and PRT are controlled by the same persons. The ownership change did not affect our exclusive license. PRT's principal offices are at 10785 W. Twain Ave, Suite 102, Las Vegas, Nevada 89135-7477. PRT has never sold any franchises in any line of business, and it does not itself operate a pipe restoration business. We currently have no parent company. We do not have any affiliates that presently offer franchises in another line of business. Other than PRT, we do not have any affiliates that provide products or services to our franchisees.

Prior Experience

We have been offering ACE DuraFlo® franchises since November 2001. Although we have never operated a business restoring pipes, since March, 2000, our affiliate, ACE EnviroTech, Inc. (“ETI”), with a principal place of business of 3122 West Alpine Street, Santa Ana, California 92704, has operated a pipe restoration business in the United States under the ACE DuraFlo® brand name that is substantially similar to the residential/commercial franchise that we offer to our franchisees. Neither we nor our affiliates have previously offered franchises for any other type of business. Apart from the ACE DuraFlo® franchise program, in 2006, we began offering separate ePIPE® franchises to existing plumbers who are members of an existing regional or national chain, which permits the use of our proprietary technology only. We do not offer any type of marketing support to ePIPE® franchisees or collect advertising fees from them, nor do we offer ePIPE® franchisees our optional drain repair solution. These are the primary differences between the ACE DuraFlo® and ePIPE® programs currently. Currently, we offer ePIPE® franchises only to eligible franchisees in good standing of the Mr. Rooter and American Leak Detection franchise systems with which we otherwise have no corporate affiliation. In each case, the franchisee to whom we award an ePIPE® franchise would continue to operate under the Mr. Rooter or American Leak Detection brand name, but the franchisee will have the right to offer Authorized Services incorporating the same patented and proprietary technology that we provide to our ACE DuraFlo® franchisees. The ePIPE® license forbids the franchisee from using the ACE DuraFlo® marks other than MODERN PIPE RENOVATION SYSTEM® and ePIPE®. In the future, we may enter into similar licensing arrangements with other plumbing chains.

Business Offered

The ACE DuraFlo® patented and proprietary technology is a technical process for cleaning and reconditioning pipelines of various compositions, coating pipelines against corrosion and installing pipelines that have been pre-coated using our patented and proprietary methods. The core procedure involves a drying process, followed by cleaning the pipelines with an abrasive material, blowing the pipelines clean with compressed air, and lining the pipelines with specialized, proprietary epoxies by applying controlled pressure and air. This patented and proprietary technology allows the building owner to have its pipe systems restored in place instead of being repaired in place or removed and replaced. This process minimizes the disruption to the building owner and may be more cost effective than repairing or replacing worn out, damaged or corroded pipes and may avoid most of the demolition and repair to the building associated with replacing pipes. The “Franchised Business” that we offer will allow you to identify your business under the ACE DuraFlo® brand name and use our proprietary technology to clean and recondition plumbing pipes of various types (with the exception of fire sprinkler systems) having diameters of up to 2” in three types of applications depending on the package that you buy - mini E™, residential or limited commercial: “mini E™” applications involve restoration applications to single lines or parts of a piping system up to 1” in diameter in small sections. “Residential” applications involve single family homes and multi-family (up to 4 units) residential structures with lines from 1” to 2” in diameter. “Limited commercial” applications involve small commercial structures, like apartment buildings, strip centers, and schools that have no more than 3 stories. In this Franchise Disclosure Document, we sometimes collectively refer interchangeably to the various services performed in connection with these three types of applications as the “Authorized Services.” The Authorized Services expressly exclude the reconditioning of fire sprinkler systems in all types of dwellings and applications. When you apply for a franchise, you will indicate your interest in either the mini E™ or residential/limited commercial package and pay the corresponding Initial Franchise Fee when you sign the Franchise Agreement. If you initially purchase a mini E™ package and we approve your request later to expand the scope of your Authorized Services to include residential/limited commercial services, you must pay us an additional Franchise Fee at that time. However, if you initially purchase the residential/limited commercial package and desire to perform mini E™ applications, you must obtain our prior approval, but no additional Initial Franchise Fee is payable. If we approve your request to expand your Authorized Services, we will amend the Franchise Agreement accordingly. Depending on your qualifications, as long as the Authorized Services include residential/limited commercial applications, you may request that we expand the scope of the Authorized Services so that you may apply our proprietary technology to pipes in “Commercial” applications, including mid-rise and high-rise office buildings (4 stories and greater), larger school facilities, apartment buildings, condominiums and hotels. We may grant or deny your request to expand the scope of Authorized Services in our sole discretion and may consider any factors that we believe are most relevant to the scope of work you propose and your qualifications. If we approve your request, we will amend the Franchise Agreement to expand the scope of Authorized Services, but no additional Initial Franchise Fee is payable. Whether you are currently in the plumbing business and already offering drain repair or are getting into the plumbing business for the first time with the purchase of an ACE DuraFlo® franchise, and whether you initially purchase the mini E™ or the residential/limited commercial package, you may expand the scope of the Authorized Services to include drain pipe and branch pipeline repair by entering into our Drain Repair Addendum (Exhibit M), which is an addendum to the Franchise Agreement (Exhibit A). No additional Initial Franchise Fee is payable to add drain pipe and branch pipeline repair. Under the Drain Repair Addendum, you must use the specific drain pipe and branch pipeline repair equipment, consumables and related products that we designate, which you must buy from the supplier that we designate. We may modify the list of drain products and change the supplier at any time effective upon written notice. You may terminate the Drain Repair Addendum within 30 days after we notify you of a supplier change. To add drain repair services to your Authorized Services, you must complete additional training at your expense, with the supplier we designate. While we permit you to perform other types of drain repair services during the term of the Franchise Agreement from other suppliers, under certain circumstances, you must pay us Royalty Fees on your Gross Receipts from other drain repair services. This will occur if you are not already offering drain repair services when you buy the ACE DuraFlo® franchise from us and decide to add drain repair services later. Because the Franchise Agreement allows you to use the ACE DuraFlo® brand name to promote your business generally, your overall ability to sell other types of plumbing services, including non-ACE DuraFlo approved drain repair, benefits from your association with us. Consequently, if you are not already in the drain repair business when you buy the ACE DuraFlo® franchise, and add drain repair services, you will pay us Royalty Fees on your drain repair Gross Receipts to the same extent as you would if you opt into our drain program and sign our Drain Repair Addendum (Exhibit M). Under the franchise that we grant to you, you may not (i) use or sell our proprietary Epoxy except incidental to performing Authorized Services; (ii) market or solicit customers by, among other activities, placing local advertising in media that circulates or broadcasts outside of your Territory; (iii) market, solicit or advertise for restoration jobs that are outside the scope of the Authorized Services; or (iv) perform Authorized Services outside of your Territory. Ace DuraFlo 6 Multistate FDD 4847-2603-1493v.3 0087467-000022 Among other benefits, we provide ACE DuraFlo® franchisees with marketing support and the opportunity to participate in any future national account referral program that we may implement.

Initial Fees

The Initial Franchise Fee that you pay to us for an ACE DuraFlo® franchise depends on the franchise package that you buy and the population in your Territory. We identify your Territory before you sign the Franchise Agreement. In determining the population in the Territory, we rely on the most recent U.S. census data compiled by the federal Office of Management and Budget or comparable statistical information. We sold no new franchises in our most recent fiscal year. However, in selling new franchises, our policy is to calculate the Initial Franchise Fee in a uniform manner using this formula. The Initial Franchise Fee is due in full when you sign the Franchise Agreement and is not refundable. When you apply for a franchise, you will indicate your interest in either the mini E™ or residential/limited commercial package and pay the corresponding Initial Franchise Fee. If you initially purchase a mini E™ package and later seek our approval to perform residential/limited commercial services, you must pay us the sum of (i) the difference between the then-current Initial Franchise Fee for residential/limited commercial package at the time of your request (which may be higher than $34,900) and $19,900 (the Initial Franchise Fee that you paid for the mini E™ package), and (ii) the difference between the then-current incremental Initial Franchise Fee for population over 1 Million for the residential/limited commercial package (measuring population on the date you and we enter into the Franchise Agreement originally) and $5,000. Example: under the current Initial Franchise Fee schedule, the additional Initial Franchise Fee to add the residential/limited commercial package would be (i) $15,000 ($34,900 minus $19,900), plus (ii) $3,000 ($8,000 minus $5,000) per increment of 250,000 population in your Territory. If you initially purchase the residential/limited commercial package and later seek our approval to perform mini E™ applications, no additional Initial Franchise Fee is payable. If we approve your request to buy an additional package, we will amend the Franchise Agreement to expand the scope of Authorized Services accordingly. In addition to the Initial Franchise Fee, before you begin in business you will buy an equipment package and initial supply of Epoxy from us. The equipment package includes an Epoxy mixer, air distribution header, sander, filters and air dryers (residential/limited commercial package only). The cost of the package, excluding tax and shipping, depends on the application. You must place your order for the equipment package within the two-week period beginning on the date that you (or your principal owner or designated Manager) complete the one-week (5 days) Initial Training Program and must take delivery of the equipment before you begin performing Authorized Services. When you place your order, you must remit payment of 20% of the cost of the equipment and pay the balance before we ship the equipment. All payments are non-refundable. You place and pay for your initial order of Epoxy when you order the equipment package. Payments for Epoxy are non-refundable. The above range is only for the initial order of Epoxy and does not reflect our estimate of your low/high costs for Epoxy during the first three months that you are in business.

Financing

We do not offer direct or indirect financing nor do we guaranty any note, lease, or obligation you might incur.

Franchisee Revenue and Profit

The FTC's Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances. We do not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchisee-owned ACE DuraFlo® business. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing ACE DuraFlo® business from us or an affiliate of ours, however, we may provide you with the actual records of that ACE DuraFlo® business. If you receive any other financial performance information or projections of your future income, you should report it to our management by contacting Larry Gillanders of ACE DuraFlo Systems, LLC, 3122 West Alpine Street, Santa Ana, California 92704 (telephone: (800) 359-6369; fax: (714) 564-7607; e-mail: [email protected]), the Federal Trade Commission and any appropriate state regulatory agencies.