Investing in a franchise represents one of the most significant financial and professional decisions you'll ever make. Before committing hundreds of thousands of dollars and years of your life to a business opportunity, thorough due diligence is not just recommended—it's essential. The Franchise Disclosure Document (FDD) serves as your primary tool for understanding exactly what you're buying, what obligations you're accepting, and what support you can expect.

This comprehensive analysis examines the KUMON NORTH AMERICA, INC. franchise opportunity through a detailed FDD review. The franchise disclosure document is a legally mandated document that franchisors must provide to prospective franchisees at least 14 calendar days before any binding agreement is signed or payment is made. This waiting period exists specifically to give you time to conduct proper analysis—time you should use wisely.

The FDD is structured into 23 standardized items, each addressing critical aspects of the franchise relationship:

• Items 1-4 cover the franchisor's background, business experience, litigation history, and bankruptcy
• Items 5-7 detail all fees and your total initial investment requirements
• Items 8-9 explain restrictions on suppliers and your operational obligations
• Items 10-11 address financing options and the support the franchisor will provide
• Items 12-14 cover territory rights, trademarks, and proprietary information
• Items 15-17 outline operational requirements, restrictions, and exit provisions
• Items 18-21 provide information on public figures, financial performance, outlet data, and franchisor financials
• Items 22-23 list all contracts and provide receipt acknowledgments

This article systematically analyzes each of these 23 items as they apply to the Kumon North America franchise opportunity, providing you with the insights needed to make an informed investment decision. We'll examine the actual costs, ongoing fees, operational requirements, support systems, and potential challenges you'll face as a Kumon franchisee—all based on information directly from the company's official FDD dated March 29, 2024.

---

KUMON NORTH AMERICA, INC. Franchise Cost & Investment Requirements (Item 7)

Overview

Information Not Available: The FDD structure overview indicates that Item 7 content was not found in the provided document. However, the full FDD text does contain detailed Item 7 information beginning on page 15 of the document.

Based on the available FDD text, the total estimated initial investment to open a Kumon North America franchise ranges from $73,783 to $165,920. This represents a relatively moderate investment compared to many franchise opportunities, particularly considering the educational services sector.

---

Complete Investment Breakdown

The following table provides a comprehensive breakdown of all initial investment requirements:

*$1,000 if first franchise (after $1,000 deposit credit applied); $2,000 for additional franchises

---

Key Investment Components Analysis

1. Franchise Fees ($4,000 Total Initial Payment)

Training Agreement Deposit Fee: $1,000

• Required when signing the Training Agreement for first-time franchisees
• Applied toward franchise fee upon successful completion of Instructor Development Program
• Refundable if Training Agreement is cancelled and materials returned within 15 days
• Covers Training Kit for Instructor Development Program

Initial Franchise Fee: $2,000

• Net payment of $1,000 for first franchise (after deposit credit)
• Full $2,000 for second franchise or existing center takeover
• Non-refundable
• Uniformly imposed across all franchisees

Initial Materials Purchase: $2,000

• Covers instruction answer books, student achievement tests, placement tests, promotional materials
• Required for all franchises (new, second, or takeover)
• Non-refundable
• Same fee regardless of franchise type

💡

💡 Critical Alert: The total upfront payment to Kumon is $4,000 ($1,000 deposit + $1,000 net franchise fee + $2,000 materials), which is exceptionally low compared to most franchise systems. However, this low franchise fee is offset by ongoing royalty payments that are higher during the Temporary License Period.

---

2. Real Estate & Facility Costs ($33,000 - $93,500)

This category represents the largest variable in the investment range, accounting for the $92,137 difference between low and high estimates.

Leasehold Improvements: $30,000 - $60,000

Kumon Subsidies Included:

• Up to $5,500 reimbursement for initial carpet, window blinds/shades, and paint
• Without subsidy, costs would be $35,500 - $65,500

Requirements:

• Retail location (storefront, shopping center, or mall)
• Minimum 1,000 square feet
• Minimum 5-year lease term
• Ability to affix exterior signage
• Capability for online/virtual instruction from physical center
• No other business activities permitted at location

Cost Variables:

• Building age and condition
• Landlord tenant improvement allowances
• Local real estate market conditions
• Zoning requirements (some jurisdictions classify centers as "schools")

First Month's Rent: $3,000 - $7,000

Kumon Subsidy for New Franchisees:

• 50% rent subsidy for first 12 months (maximum $1,000/month)
• Applies only to first Franchise Agreement
• Requires compliance with 4 instructional sessions per week
• Without subsidy, first month would be $4,000 - $8,000

Security Deposit: $0 - $26,500

• Highly variable based on landlord requirements
• Typically 1-3 months' rent
• May be negotiable based on creditworthiness

Architect Design: $0 - $10,000

• May not be required for all locations
• Depends on landlord requirements and local regulations

⚠️ Red Flag: The wide range in real estate costs ($60,500 difference between low and high) creates significant uncertainty in total investment. Franchisees in high-rent markets could face substantially higher initial costs.

---

3. Furniture, Equipment & Signage ($5,000 - $15,000)

Kumon Subsidies Included:

• $10,000 worth of furniture and fixtures provided at no cost (tables, stools, cabinets, shelves, chairs)
• $4,800 - $7,000 reimbursement for exterior sign fabrication, delivery, and installation
• Without subsidies, costs would be $19,800 - $32,000

What's Covered by Kumon:

• Initial furniture package (sufficient for opening)
• One primary exterior sign (Kumon retains ownership)
• Sign installation

What You Pay For:

• Additional furniture beyond initial package ($0 - $15,000)
• Replacement furniture after opening
• Additional signage (you own these signs)
• Ongoing sign maintenance

Sign Requirements:

• Must separate Kumon Logo from local center information
• Must comply with Operations Manual specifications
• Franchisee responsible for removal costs at termination
• Franchisee must maintain all signs in good condition

💡 Positive Indicator: The $14,800 - $17,000 in subsidies for furniture and signage significantly reduces the barrier to entry and demonstrates franchisor support for new franchisees.

---

4. Technology Requirements ($700 - $2,550)

Notebook Computer: $500 - $2,000

• Must meet minimum specifications in Operations Manual
• Required at Center at all times when open
• Must have operational Internet access

Kumon Lead Management System Suite: $200 - $550

• Voice-Over Internet Protocol (VoIP) telephone system
• Customer Relationship Management (CRM) software
• Installation cost reimbursed by Kumon
• Ongoing monthly cost: approximately $48/month (not included in initial investment)
• Must use designated vendor (Momentum Telecom)
• Dedicated telephone line required
• Telephone number must be assigned to Kumon upon termination

Software Provided at No Cost:

• Proprietary Kumon software
• Customer management system
• Online Scheduler
• CRM platforms

Hidden Ongoing Cost: The $48/month for the Lead Management System equals $576/year or $2,880 over 5 years, which is not included in the initial investment estimate.

---

5. Inventory & Supplies ($2,600)

Kumon Recommended Reading List: $2,600

• Approximately 378 books across Levels 7A-L
• Must be purchased before opening
• Kumon may add or delete books at any time
• Additional purchases required if books added to list
• Can purchase from any vendor (Amazon, Barnes & Noble suggested)

Kumon Materials:

• Worksheets, Placement Tests, Achievement Tests provided at no additional charge (covered by royalty)
• Shipping costs paid by franchisee ($40 or actual cost, whichever is less for ground shipping)

---

6. Insurance Requirements ($480 - $3,460+)

Required Liability Insurance: $480

Minimum Coverage Required:

• Commercial general liability: $1,000,000 per occurrence / $2,000,000 aggregate
• Sexual misconduct/molestation: $300,000 per occurrence / $1,000,000 aggregate

Kumon's Insurance Program:

• $4.80 per Math student per year
• Based on 100 Math students = $480 annually
• Billed semi-annually ($2.40 per student)
• Automatic renewal unless cancelled in writing
• Must name Kumon as additional insured

Additional Insurance (Not Required but Recommended):

• Property and casualty: $1,000 - $2,500 annually
• Workers' compensation: Required by most states (cost varies by state)

⚠️ Hidden Cost Alert: Workers' compensation insurance is mandatory in most states but not included in the initial investment estimate. Costs vary significantly by state and can add $500 - $2,000+ annually.

---

7. Professional Services & Compliance ($1,118 - $3,260)

Professional Fees: $1,000 - $3,000

• Attorney review of Franchise Agreement
• Accountant consultation
• Business formation (if incorporating)

Business License/Name Registration: $100 - $200

• Local municipality requirements
• State registration fees
• Varies by jurisdiction

FBI Fingerprinting/Background Check: $18 - $60

• Form FD-258 processing: $18
• Local fingerprinting fees: varies
• Required for:
  • Initial franchise application
  • Franchise renewal
  • Opening second center
  • Taking over existing center
• Results must be sent directly to Kumon

⚠️ Compliance Note: Background check must be completed before attending Instructor Development Program. Delays in receiving FBI results may affect training schedule.

---

8. Staffing Costs (3 Months): $10,725 - $12,870

Assistant Payroll Estimates:

• Based on 3-month initial period
• Franchisee determines when to hire and salary rates
• Depends on:
  • Number of assistants needed
  • Local prevailing wage rates
  • Student enrollment levels
  • Center operating hours

Staffing Considerations:

• Franchisee must be primary instructor
• Assistants needed as enrollment grows
• Must sign Confidentiality/Non-Competition Agreements (Attachments 2-D(A) and 2-D(B))

⚠️ Variable Cost Warning: Actual staffing costs may significantly exceed estimates depending on local labor markets and enrollment growth rate.

---

9. Working Capital/Additional Funds (3 Months): $16,160 - $21,660

This estimate covers:

• Operating expenses during initial 3-month period
• New Center Marketing payments (first 3 months)
• Unexpected expenses
• Cash flow shortfalls before profitability

Factors Affecting Working Capital Needs:

• Management skills and experience
• Local economic conditions
• Market competition
• Student enrollment rate
• Adherence to Kumon methods and procedures

New Center Marketing (Included):

• $220/month for 18 months ($3,960 total)
• Digital advertising services
• First 3 months = $660 included in working capital estimate
• Kumon pays vendor $7,560; franchisee reimburses $3,960

⚠️ Critical Warning: The FDD explicitly states: "These figures are estimates, and we cannot guarantee that you will not have additional expenses in starting the business." Working capital needs could exceed estimates significantly.

---

Hidden and Unexpected Costs

Costs NOT Included in Initial Investment Estimate

Total Estimated Hidden First-Year Costs: $4,000 - $8,000+

---

Significant Cost Variations Analysis

Why the $92,137 Range?

The difference between the low estimate ($73,783) and high estimate ($165,920) is primarily driven by:

1. Real Estate Costs (62% of variation)

   • Leasehold improvements: $30,000 range
   • Security deposit: $26,500 range
   • First month's rent: $4,000 range
   • Total real estate variation: $60,500

2. Furniture & Equipment (11% of variation)

   • Additional furniture beyond Kumon's package: $10,000 range

3. Working Capital (6% of variation)

   • Additional funds: $5,500 range

4. Other Costs (21% of variation)

   • Architect, professional fees, computer, assistants: $19,137 combined range

Geographic Cost Implications

Low-Cost Markets ($73,783 - $100,000):

• Lower-rent suburban or rural areas
• Minimal leasehold improvements needed
• Lower security deposits
• Lower labor costs

High-Cost Markets ($130,000 - $165,920):

• Major metropolitan areas (NYC, SF, LA, etc.)
• Extensive build-out requirements
• Higher security deposits (3+ months)
• Higher labor costs
• Potential "school" classification requiring additional improvements

---

Kumon Subsidies & Support Summary

Kumon provides substantial financial support that reduces the initial investment:

---

KUMON NORTH AMERICA, INC. Financial Statements: Evaluating Franchisor Stability (Item 21)

Overview

Item 21 Financial Statements are not available in the provided FDD documentation. According to the FDD structure overview and the full text provided, Item 21 is listed in the Table of Contents (page 7) as being on page 45, and the document references "Attachment 4 - Financial Statements" in the attachments list (page 8). However, the actual financial statements and detailed financial data are not included in the text provided for analysis.

What This Means for Potential Franchisees

Information Disclosure Requirements

According to federal franchise disclosure regulations, franchisors are required to include audited financial statements in Item 21 of the Franchise Disclosure Document. These statements must include:

• Balance sheets for the most recent 2-3 fiscal years
• Statements of operations (income statements)
• Statements of cash flows
• Statements of stockholders' equity
• Notes to financial statements
• Auditor's report

How to Access the Financial Statements

If you are seriously considering a Kumon franchise investment, you should:

1. Request the complete FDD with all attachments, specifically Attachment 4 (Financial Statements)
2. Review the audited financial statements with your accountant or financial advisor
3. Verify the audit firm that prepared the statements is reputable and independent
4. Ask specific questions about any concerns that arise from your review

What to Look for in Kumon's Financial Statements

When you receive the complete financial statements, you should analyze the following key areas:

1. Balance Sheet Analysis

Examine these critical metrics:

2. Income Statement Analysis

Key revenue and profitability indicators to evaluate:

3. Cash Flow Analysis

Critical for assessing liquidity:

• Operating Cash Flow: Should be consistently positive
• Investing Cash Flow: Shows capital expenditures and investments
• Financing Cash Flow: Reveals debt payments and equity transactions
• Net Cash Position: Adequate reserves for supporting franchisees

4. Financial Ratios to Calculate

Context from Available FDD Information

While the actual financial statements are not provided in the documentation, we can glean some financial context from other sections of the FDD:

Revenue Indicators from Item 6 and Item 8

The FDD provides limited unaudited financial information:

Fiscal Year 2023 Revenue Components:

Key Observations:

• Primary revenue source: The vast majority (approximately 98.9%) of Kumon's revenue comes from franchise royalties
• Minimal ancillary revenue: Chargeable items and insurance represent less than 2% of total revenue
• Insurance operations: Kumon operates insurance collection at a slight loss ($51,865 deficit in 2023), suggesting this is a service rather than profit center

Franchise System Size (as of December 31, 2023)

From Item 20 and Item 1:

• Total North American students: Approximately 390,515
• Company-owned Centers: 22
• Franchised Centers: 1,637
• Total Centers: 1,659

Royalty Structure

From Item 6, the royalty fees are:

During Temporary License Period (TLP):

• Initial Enrollment Fee: $30 per new student
• Monthly Royalty: $40.50 per full-payment student per subject
• Monthly Royalty: $20.25 per partially exempt/prorated student per subject

After Completing TLP:

• Monthly Royalty: $36 per full-payment student per subject
• Monthly Royalty: $18 per partially exempt/prorated student per subject

Estimated Annual Royalty Revenue Calculation:

Assuming an average of 238 students per Center (390,515 students ÷ 1,659 Centers) and an average royalty of $37 per student per month:

• Per Center monthly royalty: 238 students × $37 = $8,806
• Per Center annual royalty: $8,806 × 12 = $105,672
• System-wide annual royalty (1,637 franchised Centers): $105,672 × 1,637 ≈ $173 million

Note: This is a rough estimate and actual figures may vary based on student enrollment patterns, TLP status, and subject enrollment.

Parent Company Strength

Kumon Institute of Education Company, Ltd. (KIE)

Kumon North America is a subsidiary of KIE, a Japanese corporation. This relationship provides important context:

Global Presence (as of December 31, 2023):

• Countries/Regions: More than 60
• Total Students Worldwide: Approximately 3,520,000
• Total Centers Worldwide: Approximately 23,700
• Operating History: Since 1958 (66 years)

Regional Structure:

• Six regional headquarters worldwide
• North America is one of six regions
• Established group management concept

Implications for Franchisees:

• ✅ Strong global brand with extensive international presence
• ✅ Long operating history demonstrates business model viability
• ✅ Diversified geographic revenue reduces regional economic risk
• ✅ Parent company backing provides additional financial stability
• ⚠️ Currency exchange risks may affect parent company financial results
• ⚠️ International management may have different priorities than North American operations

Red Flags to Watch For

When you review the complete financial statements, be alert for these warning signs:

Critical Red Flags 🚩

1. Declining Revenue Trends

   • Year-over-year revenue decreases
   • Significant drops in royalty income
   • Loss of franchisees or students

2. Negative Equity

   • Liabilities exceeding assets
   • Indicates potential insolvency risk
   • May affect franchisor's ability to support franchisees

3. Negative Cash Flow from Operations

   • Company burning cash to operate
   • Unsustainable without external financing
   • May lead to reduced franchisee support

4. High Debt Levels

   • Debt-to-equity ratio above 3.0
   • Large debt service obligations
   • May limit investment in system improvements

5. Qualified Audit Opinion

   • Auditor expresses concerns or limitations
   • "Going concern" language is especially serious
   • Indicates significant accounting or financial issues

6. Frequent Changes in Auditors

   • May indicate disagreements over accounting practices
   • Could suggest attempts to hide problems

Moderate Concerns ⚠️

1. Flat Revenue Growth

   • No growth over multiple years
   • May indicate market saturation
   • Could affect future franchise opportunities

2. Increasing Operating Expenses

   • Expenses growing faster than revenue
   • Shrinking profit margins
   • May lead to fee increases

3. Declining Profit Margins

   • Net income decreasing as percentage of revenue
   • Operational inefficiencies
   • Competitive pressures

4. Significant Related-Party Transactions

   • Transactions with parent company or affiliates
   • May not be at arm's-length terms
   • Review notes carefully for details

Positive Indicators to Look For

Strong Financial Health ✅

1. Consistent Revenue Growth

   • 5-10% annual growth or higher
   • Demonstrates healthy franchise system
   • Indicates strong demand for services

2. Strong Profit Margins

   • Net profit margins above 15%
   • Efficient operations
   • Ability to invest in franchisee support

3. Solid Cash Reserves

   • Cash and equivalents covering 6+ months of operations
   • Ability to weather economic downturns
   • Resources for system improvements

4. Low Debt Levels

   • Debt-to-equity ratio below 1.0
   • Financial flexibility
   • Less vulnerable to interest rate changes

5. Positive Working Capital

   • Current ratio above 2.0
   • Strong short-term financial position
   • Ability to meet obligations

6. Clean Audit Opinion

   • Unqualified opinion from reputable auditor
   • No material weaknesses noted
   • Confidence in financial reporting

Questions to Ask Kumon Representatives

When reviewing the financial statements, prepare these questions:

About Financial Performance

1. What were the primary drivers of revenue growth (or decline) over the past three years?
2. How has the COVID-19 pandemic affected financial performance, and what is the recovery trajectory?
3. What percentage of revenue comes from franchise royalties versus other sources?
4. How do North American operations perform relative to other global regions?

About Financial Stability

5. What is the company's current debt structure and repayment schedule?
6. Does the parent company provide financial support or guarantees?
7. What are the company's cash reserves, and how much is allocated for franchisee support?
8. Have there been any significant one-time charges or extraordinary items in recent years?

About Future Outlook

9. What are the company's growth projections for the next 3-5 years?
10. Are there plans for significant capital investments or system improvements?
11. How is the company addressing competitive pressures in the supplemental education market?
12. What impact do you anticipate from changes in education trends (online learning, AI tutoring, etc.)?

Comparative Analysis

Industry Benchmarks

When evaluating Kumon's financial statements, compare against:

Education Franchise Industry Averages:

• Profit Margins: Typically 10-20% for education franchises
• Debt-to-Equity: Generally below 1.5 for healthy franchisors
• Current Ratio: Should be above 1.5
• Revenue Growth: 5-15% annually for growing systems

Supplemental Education Sector:

• Competitive landscape includes Sylvan Learning, Huntington Learning Centers, Mathnasium
• Market trends toward online and hybrid learning models
• Pricing pressures from free online resources

Impact of Financial Health on Franchisees

Why Franchisor Financial Stability Matters

The financial health of Kumon North America directly affects you as a potential franchisee:

1. Ongoing Support and Training

Strong Finances Mean:

• ✅ Continued investment in training programs
• ✅ Regular updates to curriculum and materials
• ✅ Adequate field support staff
• ✅ Technology improvements and innovations

Weak Finances Could Result In:

• ❌ Reduced training opportunities
• ❌ Outdated materials and methods
• ❌ Understaffed support teams
• ❌ Delayed technology upgrades

2. Marketing and Brand Development

Strong Finances Enable:

• ✅ National advertising campaigns
• ✅ Brand awareness initiatives
• ✅ Digital marketing support
• ✅ Public relations efforts

Weak Finances May Cause:

• ❌ Reduced marketing support
• ❌ Declining brand recognition
• ❌ Increased franchisee marketing burden
• ❌ Competitive disadvantage

3. System-Wide Improvements

Strong Finances Support:

• ✅ Curriculum enhancements
• ✅ Technology platform development (like Kumon Connect)
• ✅ New program offerings
• ✅ Competitive positioning

Weak Finances Limit:

• ❌ Innovation and development
• ❌ Competitive responses
• ❌ System modernization
• ❌ Market adaptation

4. Long-Term Viability

Strong Finances Provide:

• ✅ Confidence in long-term franchise value
• ✅ Stability for your investment
• ✅ Resale value protection
• ✅ Retirement planning security

Weak Finances Create:

• ❌ Uncertainty about franchise future
• ❌ Risk to your investment
• ❌ Difficulty selling franchise
• ❌ Potential system collapse

Special Considerations for Kumon

Unique Aspects of Kumon's Financial Structure

1. Subsidiary Status

Kumon North America operates as a subsidiary of a Japanese parent company (KIE). This structure has implications:

Advantages:

• Access to global resources and expertise
• Shared curriculum development costs
• International brand strength
• Potential financial backstop from parent

Considerations:

• Financial statements may not reflect full picture of parent company health
• Decisions may be influenced by global priorities
• Currency exchange fluctuations may affect operations
• Cultural differences in business approach

2. Minimal Ancillary Revenue

Unlike many franchisors, Kumon derives minimal revenue from product sales:

Implications:

• Franchisor success is directly tied to franchisee success
• Alignment of interests between franchisor and franchisees
• Less potential for conflicts over product pricing
• Revenue stability depends on student enrollment

3. Insurance Program Structure

Kumon operates its insurance program at a slight loss:

What This Indicates:

• Insurance is provided as a service, not a profit center
• Demonstrates commitment to franchisee support
• May indicate overall financial strength (can afford to subsidize)

4. Royalty Structure Complexity

The two-tier royalty system (TLP vs. post-TLP) creates financial dynamics:

For Kumon:

• Higher initial royalties from new franchisees
• Revenue may fluctuate as franchisees complete TLP
• Incentive to maintain franchisee quality

For Franchisees:

• Lower royalties reward successful completion of training
• Financial incentive to meet performance standards
• Predictable cost reduction after TLP completion

Recommendations for Due Diligence

Essential Steps Before Investing

1. Obtain Complete Financial Statements

   • Request Attachment 4 from the complete FDD
   • Ensure statements are audited by reputable firm
   • Verify statements are for most recent fiscal year

2. Hire Professional Review

   • Engage a CPA or financial advisor with franchise experience
   • Have them analyze the statements thoroughly
   • Request written assessment of financial health

3. Compare Against Competitors

   • Obtain FDDs from competing education franchises
   • Compare financial metrics
   • Assess relative strength and stability

4. Interview Current Franchisees

   • Ask about franchi

---

KUMON NORTH AMERICA, INC. Earnings Claims & Profit Potential (Item 19)

Does Kumon Provide Earnings Claims?

NO - Kumon North America, Inc. does not provide any financial performance representations in Item 19 of their Franchise Disclosure Document.

According to the FDD structure provided, Item 19 was not found in the document, which means Kumon has chosen not to make any earnings claims or provide financial performance data to prospective franchisees.

What This Means for Prospective Franchisees

The Absence of Item 19 Data

When a franchisor does not provide Item 19 financial performance representations, it means:

• No Official Revenue Data: Kumon is not disclosing average, median, or range of revenues earned by existing franchisees
• No Profit Information: There are no official figures on profitability, net income, or operating margins
• No Performance Benchmarks: Prospective franchisees cannot compare top performers vs. average performers using franchisor-provided data
• Higher Due Diligence Burden: You must conduct more extensive independent research to estimate potential financial performance

Legal Context

It's important to understand that:

• Franchisors are not required by law to provide Item 19 financial performance representations
• The absence of Item 19 does not indicate anything negative about the franchise opportunity
• Many established franchisors choose not to provide this information to avoid potential liability
• Kumon's decision is consistent with their conservative approach to franchisee expectations

What Financial Information IS Available

While Kumon doesn't provide Item 19 earnings claims, the FDD does contain some financial information that can help you estimate costs and requirements:

Initial Investment Range

From Item 7, the total estimated initial investment is:

Key Investment Components:

Ongoing Fees and Revenue Structure

Royalty Structure (Item 6)

Kumon's royalty structure is per-student based, not percentage-based:

During Temporary License Period (TLP):

• Initial Enrollment Fee: $30 per newly enrolled student
• Monthly Royalty: $40.50 per full-payment student per subject
• Partial/Prorated Students: $20.25 per student per subject

After Completing TLP:

• Initial Enrollment Fee: $30 per newly enrolled student
• Monthly Royalty: $36 per full-payment student per subject
• Partial/Prorated Students: $18 per student per subject

Important Note: If you enroll in both math and reading, royalties apply to each subject separately.

Revenue Calculation Example

To illustrate potential revenue (this is an example only, not a guarantee):

Scenario: Center with 100 Students (Post-TLP)

⚠️ CRITICAL DISCLAIMER: The above is a hypothetical example only. Actual tuition rates, student enrollment, and subject enrollment vary significantly by location. Kumon does not guarantee any level of enrollment or revenue.

Tuition Limitations

From Item 1, Kumon imposes certain restrictions on pricing:

• Registration Fee Limit: Currently capped at $80 per student (regardless of number of subjects)
• Tuition Limits: Currently no limit, but Kumon reserves the right to impose limits with 60 days' notice
• Philosophy: Kumon's mission emphasizes making education "accessible to all children regardless of ability, age, race, cultural or economic backgrounds"

Implication: Your ability to increase prices may be limited by corporate policy, which could affect profitability in high-cost markets.

Estimating Your Potential Returns

Key Variables That Will Affect Your Financial Performance

Since Kumon doesn't provide Item 19 data, you must estimate performance based on these critical variables:

1. Student Enrollment

Your success depends heavily on enrollment numbers:

• TLP Completion Requirement: 600+ math students and 400+ reading students cumulatively enrolled
• Time to Build: Most centers take 2-3 years to reach mature enrollment levels
• Market Factors: Demographics, competition, local education culture

2. Tuition Rates

• Market-Dependent: Varies significantly by geography
• Subject-Based: Separate pricing for math and reading
• Competitive Pressure: Must remain competitive with local tutoring options
• Corporate Limits: Subject to Kumon's pricing policies

3. Operating Expenses

Fixed Costs:

• Rent: $3,000 - $7,000/month (varies by location)
• Insurance: ~$480/year for liability (based on 100 math students)
• Utilities: Estimate $200 - $500/month
• Marketing: Minimum $220/month for first 18 months (New Center Marketing)

Variable Costs:

• Royalties: $36 - $40.50 per student per subject per month
• Assistant wages: Depends on enrollment and hours
• Materials: Covered by royalty (shipping costs extra)
• Marketing: Recommended minimum $2,400/year

4. Labor Requirements

From Item 15, you must:

• Personally supervise and participate in Center operations
• Hire assistants as enrollment grows
• Estimated assistant payroll: $10,725 - $12,870 for first 3 months

Break-Even Analysis Framework

To estimate when you might break even, consider this framework:

Monthly Fixed Costs (Example):

Rent:                    $5,000
Insurance (monthly):        $40
Utilities:                 $300
Marketing:                 $400
Miscellaneous:             $260
------------------------
Total Fixed:            $6,000/month

Per-Student Economics (Example - Post TLP):

Tuition per subject:      $150
Royalty per subject:      -$36
Variable costs:           -$14 (materials, assistant time)
------------------------
Contribution margin:      $100 per subject enrollment

Break-Even Calculation:

$6,000 fixed costs ÷ $100 contribution = 60 subject enrollments needed

⚠️ IMPORTANT: This is a simplified example only. Your actual costs and revenues will vary significantly.

Information You MUST Obtain Independently

Critical Research Steps

Since Kumon doesn't provide Item 19 data, you must:

1. Contact Current and Former Franchisees

From Item 20 and Exhibits C & D:

• Kumon must provide contact information for current franchisees (Exhibit C)
• Kumon must provide contact information for franchisees who left the system in the past year (Exhibit D)
• As of December 31, 2023: 1,637 franchised Kumon Centers in operation
• 22 company-owned centers

Questions to Ask Franchisees:

Revenue Questions:

• What is your average monthly gross revenue?
• How many students are currently enrolled?
• What percentage take both math and reading?
• What tuition rates do you charge?
• How long did it take to reach current enrollment levels?

Expense Questions:

• What are your actual monthly operating expenses?
• How many assistants do you employ?
• What do you pay assistants per hour?
• What are your actual rent and occupancy costs?
• How much do you spend on marketing beyond the minimum?

Profitability Questions:

• What is your approximate net profit margin?
• How long did it take to become profitable?
• What is your annual take-home income?
• Would you buy this franchise again knowing what you know now?

Time Investment Questions:

• How many hours per week do you work?
• Can you take vacations?
• How hands-on must you be?

2. Analyze Your Local Market

Demographic Research:

• Population of school-age children (5-18) within 3-5 mile radius
• Household income levels
• Education levels of parents
• Presence of competitive tutoring services
• Number of nearby Kumon centers

Competitive Analysis:

• Other tutoring centers and their pricing
• Online tutoring options
• School quality (affects demand for supplemental education)
• Cultural attitudes toward supplemental education

3. Review Kumon's Financial Statements

From Item 21, Kumon must provide audited financial statements. While these show Kumon's financial health (not franchisee performance), they can indicate:

• System-wide stability
• Franchisor's ability to support franchisees
• Overall growth or decline trends

Red Flags and Concerns

🚩 No Earnings Claims

Concern: Without Item 19 data, you're investing with limited financial visibility.

Mitigation: Conduct extensive franchisee interviews and independent market research.

🚩 Per-Student Royalty Structure

Concern: The $36-$40.50 per student per subject royalty is fixed regardless of tuition charged.

Analysis:

• If you charge $150/month tuition, royalty = 24-27% of revenue
• If you charge $200/month tuition, royalty = 18-20% of revenue
• In low-income markets where you must charge less, royalty percentage increases

Implication: This structure may be challenging in markets where you cannot charge premium tuition.

🚩 Tuition Pricing Restrictions

Concern: Kumon can impose tuition limits with 60 days' notice (Item 1).

Risk: In high-cost markets (e.g., San Francisco, New York), your ability to charge market rates may be restricted, potentially limiting profitability.

🚩 Higher TLP Royalty

Concern: During the Temporary License Period, you pay $40.50 vs. $36 per student - a 12.5% premium.

Duration: TLP requirements include cumulative enrollment of 600 math and 400 reading students (10% using Kumon Connect), which could take 2-3 years.

Financial Impact: On 100 students, this is an extra $450/month ($5,400/year) in royalties during your ramp-up period.

🚩 Reversion to TLP Royalty

Concern: If you fail to meet Ongoing Training and Performance Requirements, you revert to the higher TLP royalty for at least one year (Item 6, Note 2).

Risk: This creates ongoing compliance pressure and potential for unexpected cost increases.

🚩 Mandatory Marketing Fees

Concern: $220/month for 18 months ($3,960 total) for New Center Marketing is mandatory (Item 6, Note 10).

Additional: Recommended minimum of $2,400/year in additional marketing.

Total First Year Marketing: ~$6,600 minimum

🚩 Limited Pricing Flexibility

Concern: Registration fee capped at $80; potential future tuition caps.

Philosophy vs. Profit: Kumon's mission of accessibility may conflict with franchisee profitability goals in some markets.

Temporary License Period (TLP) Financial Impact

Understanding the TLP

The TLP is essentially a probationary period where you pay higher royalties:

TLP Requirements (Must Meet ALL Simultaneously):

TLP Financial Implications

Example: 100 Students, 1.5 Subjects Average (150 subject enrollments)

Key Insight: Completing TLP reduces your royalty burden by approximately 11%, which directly improves profitability.

Estimating Time to Profitability

Typical Center Development Timeline

Based on TLP requirements and industry norms (not Kumon-provided data):

Year 1:

• Months 1-3: 10-30 students (ramp-up phase)
• Months 4-6: 30-60 students
• Months 7-12: 60-100 students
• Status: Likely operating at a loss or break-even

Year 2:

• Months 13-18: 100-150 students
• Months 19-24: 150-200 students
• Status: Approaching or reaching profitability

Year 3:

• Months 25-36: 200-300+ students
• Status: Potentially profitable, may complete TLP

⚠️ CRITICAL DISCLAIMER: This timeline is speculative and based on general tutoring center growth patterns, NOT Kumon-specific data. Your actual timeline may be significantly longer or shorter.

Factors That Accelerate Profitability

✅ Strong local demographics (high concentration of families with school-age children) ✅ High household incomes (ability to charge premium tuition) ✅ Cultural emphasis on education (Asian-American, Indian-American communities often strong markets) ✅ Limited competition (few other tutoring options) ✅ Effective marketing (beyond minimum requirements) ✅ Personal involvement (owner-operator model reduces labor costs) ✅ Efficient operations (minimizing assistant hours while maintaining quality)

Factors That Delay Profitability

❌ Weak demographics (low population of school-age children) ❌ Lower household incomes (price sensitivity, inability to charge premium rates) ❌ Strong competition (multiple tutoring centers, high-quality schools) ❌ High occupancy costs (expensive rent in premium locations) ❌ Absentee ownership (requiring manager salary) ❌ Slow enrollment growth (poor marketing, location issues) ❌ High assistant costs (expensive labor markets)

What Kumon DOES Disclose About the

---

KUMON NORTH AMERICA, INC. Franchise Fees Breakdown (Items 5 & 6)

Overview

Understanding the complete fee structure is critical when evaluating the Kumon franchise opportunity. This section provides a comprehensive breakdown of all initial and ongoing fees, helping prospective franchisees understand their total financial commitment beyond the initial investment.

---

Initial Fees (Item 5)

Training Agreement Deposit Fee

Amount: $1,000

When Due: At signing of Training Agreement (before franchise award)

What It Covers:

• Training Kit for the Instructor Development Program
• Access to training materials during the program
• Consultation access to Operations Manual during training

Refund Policy:

• Applied toward franchise fee if you successfully complete the Instructor Development Program and sign a Franchise Agreement
• Refundable if you or Kumon terminates the Training Agreement, provided you return all training materials within 15 days at your expense
• Non-refundable if materials are not returned within the specified timeframe

Initial Franchise Fee

Amount: $2,000

When Due: At signing of Franchise Agreement

What It Covers:

• Right to operate a Kumon Center franchise
• Use of Kumon trademarks and business system
• Initial franchise setup and support

Refund Policy: Non-refundable under all circumstances

Net Initial Fee: If this is your first Kumon Center, your net initial franchise fee is $1,000 ($2,000 minus the $1,000 deposit already paid)

Initial Materials Purchase Fee

Amount: $2,000

When Due: At signing of Franchise Agreement

What It Covers:

• Instruction answer books
• Student achievement tests
• Student placement tests
• Promotional materials
• Other operational materials needed to open

Refund Policy: Non-refundable

Additional Notes:

• This fee applies to all franchise scenarios: new centers, second centers, and takeovers of existing centers
• After this initial purchase, ongoing Kumon Materials (Worksheets, tests, etc.) are provided at no additional charge, though you pay shipping costs

Total Initial Fees Summary

*Refundable only if Training Agreement is terminated and materials returned within 15 days

---

Ongoing Fees (Item 6)

Royalty Fees

Kumon's royalty structure is unique in the franchise industry, based on per-student enrollment rather than a percentage of gross sales. The royalty rates vary depending on whether you're in the Temporary License Period (TLP) or have completed it.

Initial Enrollment Royalty Fee

Amount: $30 per newly enrolled student

When Due: Monthly, through Electronic Funds Transfer (EFT)

Payment Schedule: Debited on the 17th of each month (or next business day)

Key Details:

• Charged once per student when they first enroll
• If a student drops out and returns within one reporting period (one calendar month), no new enrollment fee is charged
• If a student returns after more than one month, they must register again and the $30 fee applies
• If a student is enrolled in both Math and Reading and drops both subjects for more than one month, a new enrollment fee is required upon return
• If a student is currently enrolled in one subject and adds a second subject, the $30 enrollment fee applies for the additional subject

Monthly Royalty During Temporary License Period (TLP)

Amount:

• $40.50 per full-payment student per Subject-Franchise
• $20.25 per partially exempt and/or prorated tuition student per Subject-Franchise

When Due: Monthly via EFT on the 17th (or next business day)

What is the TLP? The Temporary License Period is a probationary period during which new franchisees must demonstrate competency in operating their center according to Kumon standards. There are separate TLPs for Math and Reading programs.

Monthly Royalty After Completing TLP

Amount:

• $36.00 per full-payment student per Subject-Franchise
• $18.00 per partially exempt and/or prorated tuition student per Subject-Franchise

When Due: Monthly via EFT on the 17th (or next business day)

Savings: Completing the TLP reduces your royalty by $4.50 per full-payment student (an 11.1% reduction)

Royalty Rate Changes

Important: Kumon reserves the right to change royalty rates or due dates with at least 60 days' notice. There is no contractual limit on the amount by which royalty rates can be increased.

Your Rights: If you are unwilling to pay an increased royalty rate, you may terminate the Franchise Agreement with 60 days' written notice.

Royalty Fee Comparison Table

Royalty Calculation Examples

Example 1: New Center in TLP

• 50 full-payment Math students
• 30 full-payment Reading students
• Monthly royalty: (50 × $40.50) + (30 × $40.50) = $3,240

Example 2: Established Center (Post-TLP)

• 100 full-payment Math students
• 75 full-payment Reading students
• Monthly royalty: (100 × $36.00) + (75 × $36.00) = $6,300

Example 3: Mixed Student Base (Post-TLP)

• 80 full-payment Math students
• 20 partial/prorated Math students
• 60 full-payment Reading students
• Monthly royalty: (80 × $36.00) + (20 × $18.00) + (60 × $36.00) = $5,400

---

Temporary License Period (TLP) Requirements

To transition from the higher TLP royalty to the lower post-TLP royalty, you must meet all of the following requirements simultaneously for each Subject-Franchise:

Critical Note: Requirements cannot be accumulated separately at different times—all must be met simultaneously at the time of consideration.

---

Ongoing Training and Performance Requirements

After completing the TLP, you must continue to meet Ongoing Training and Performance Requirements as specified in the Operations Manual. Failure to meet these requirements will result in reverting to the higher TLP royalty rate for at least one calendar year.

Current activities that may count toward ongoing requirements include:

• Monthly instructor meetings at Kumon branches
• Voluntary Study and Worksheet Groups
• Annual national Instructor Conference
• Kumon-organized study tours
• Kumon University training programs
• Online Learning Modules (with passing grades)

---

Administrative and Penalty Fees

Administrative Fee for Late Payment

Amount: 1.5% per month on overdue amount OR $75, whichever is higher

When Charged: When royalties or other amounts are not paid by the EFT debit date

Payment Method: Charged on monthly statement and paid through EFT

Duration: Charged each month until past due amounts are paid or a promissory note is signed

Example:

• Overdue amount: $3,000
• 1.5% = $45 (less than $75)
• Administrative fee charged: $75

Late or Inaccurate Report Fee

Progressive Penalty Structure:

When Charged: For each month you fail to submit complete and accurate reports on time

Reports Covered:

• Instructor B Reports
• Student Application Forms
• Placement Tests
• Achievement Tests

Due Date: By 11:59 PM local time on the 6th day of the following month (Kumon encourages submission by the 3rd)

Payment Method: Charged on monthly statement and paid through EFT

Insufficient Funds Fee

Amount: $25 per failed EFT attempt

When Charged: Each time an EFT attempt fails due to insufficient funds

Purpose: Covers Kumon's costs for failed EFT attempts

---

Insurance Fees

Liability Insurance (Optional Through Kumon)

Amount: $4.80 per Math student per year

Payment Schedule: Billed twice annually at $2.40 per Math student

Billing Dates:

• July invoice: Coverage June 1 - November 30 (based on May enrollment)
• January invoice: Coverage December 1 - May 31 (based on November enrollment)

Coverage Provided:

• Commercial general liability: $1,000,000 per occurrence / $2,000,000 aggregate
• Sexual misconduct/molestation liability: $300,000 per occurrence / $1,000,000 aggregate

Alternative: You may purchase your own insurance meeting these minimum requirements and provide a certificate naming Kumon as additional insured

Example Cost:

• Center with 100 Math students
• Annual cost: 100 × $4.80 = $480
• Semi-annual payments: $240 each

Important Notes:

• This is optional if you purchase equivalent coverage elsewhere
• Kumon may discontinue or modify this program at any time
• Additional insurance (property, casualty, workers' compensation) is your responsibility

---

Materials and Shipping Costs

Ongoing Kumon Materials

Cost: FREE (covered by royalty fees)

Materials Included:

• Placement Tests
• Achievement Tests
• Worksheets
• Record Books
• Progress Charts

Shipping Costs: You pay actual shipping costs

Current Shipping Rates:

• Initial monthly order (ground shipping): $40 or actual cost, whichever is less
• Additional or expedited orders: Actual cost
• Kumon may increase shipping costs with 30 days' notice

Chargeable Items (Optional Purchases)

Available Items:

• Extra Answer Books
• Solution Manuals
• Pens and pencils
• Stickers
• Magnetic number boards
• Worksheet accessories
• Student literature
• Signs and posters
• Maps
• Reading CDs
• Flashcards
• Awards

Pricing: See Exhibit A (subject to change without notice)

Payment: As stated on invoice, plus applicable sales tax

2023 Revenue Impact: Kumon received $1,057,655 from franchisees for Chargeable Items (0.7% of total revenue)

---

Other Fees

Relocation Fee

Amount: $2,000

When Charged: When relocating your Center if fewer than 80% of enrolled students transfer to the new location

Waived: If 80% or more of students transfer to new location

Liquidated Damages

Amount: Three times your average monthly royalty for the three months immediately prior to your last day of operating

When Charged:

• Voluntary termination without required advance written notice
• Proposing to transfer before final approval or after disapproval, then failing to resume operations
• Automatic termination under specific circumstances in Section 14.3

May Be Waived: If Kumon determines your reasons for not following required time periods are justified

Temporary Transfer to Kumon Fee

Amount: 10% of average tuition charged by 5 closest Kumon Centers × number of students enrolled, plus reimbursement of out-of-pocket costs

When Charged: If Kumon must temporarily take over operation of your Center due to:

• Your absence without proper management arrangements
• Criminal charges against you or employees involving children or moral turpitude
• Conduct creating a crisis or damage to the Kumon brand

Duration: For the period Kumon operates your Center

New Center Marketing Fee

Amount: $220 per month for 18 months ($3,960 total)

Total Marketing Spend: $7,560 (Kumon pays $3,600, you pay $3,960)

When Charged: Monthly, commencing the first month digital advertising services are purchased

Purpose: Digital advertising services for your Center through Kumon's preferred vendor

Payment Schedule: Equal installments over 18 months

Advertising Contribution

Current Requirement: No minimum (except New Center Marketing fee above)

Kumon Recommendation: At least $2,400 annually

Future Possibility: Kumon reserves the right to establish national and/or regional advertising funds and require contributions

Potential Reallocation: Kumon may reallocate required marketing spend to advertising funds if established

Audit Fees and Expenses

Amount: Reasonable fees and expenses for audit/examination, plus unpaid royalties and reimbursement of incorrectly awarded instructor awards or subsidies

When Charged: If examination/audit discovers you have:

• Underreported enrolled students
• Failed to report enrolled students
• Misrepresented student enrollment

Payment: Immediately upon notice

---

Total Fee Projections

5-Year Fee Projection

Assumptions:

• Start with 50 students (25 Math, 25 Reading) in Month 1
• Grow to 150 students (75 Math, 75 Reading) by Month 60
• Linear growth over 60 months
• Complete TLP at Month 24
• No late fees or penalties
• Average shipping: $40/month
• Participate in Kumon insurance program
• No relocations or other special fees

---

KUMON NORTH AMERICA, INC. Litigation History: What You Need to Know (Item 3)

Executive Summary

Critical Finding: The Kumon North America, Inc. Franchise Disclosure Document (FDD) dated March 29, 2024, contains no litigation disclosures in Item 3. This represents an exceptionally clean legal history for a franchise system of Kumon's size and longevity.

Detailed Analysis

What the FDD States

According to Item 3 of the FDD:

💡

"No litigation is required to be disclosed in this Item."

This single sentence represents the entirety of Kumon's litigation disclosure, indicating that neither the franchisor nor its key personnel have any material litigation that meets the FTC's disclosure requirements.

Understanding "No Litigation Required to be Disclosed"

This statement means that as of the FDD's issuance date (March 29, 2024), Kumon North America has:

• No pending litigation involving franchise relationships, trademark disputes, or violations of franchise laws
• No concluded litigation in the past 10 years that resulted in adverse judgments or settlements requiring disclosure
• No criminal convictions of key personnel related to franchises, fraud, or unfair business practices
• No regulatory actions by the FTC or state franchise regulators

What Must Be Disclosed Under Item 3

Federal and state franchise laws require disclosure of:

1. Pending Actions (filed within the past fiscal year):

   • Franchise relationship violations
   • Fraud, unfair or deceptive practices
   • Antitrust violations
   • Trademark infringement

2. Concluded Actions (past 10 years):

   • Adverse final judgments or orders
   • Settlement agreements with material terms
   • Actions involving franchise law violations

3. Criminal Actions:

   • Felony convictions involving franchises
   • Fraud or unfair business practices

4. Regulatory Actions:

   • FTC enforcement actions
   • State franchise law violations

Kumon has none of these to report.

System Size Context: Why This Matters

Scale of Operations

To fully appreciate the significance of Kumon's clean litigation record, consider the system's substantial size:

Litigation Rate Analysis

Zero disclosed litigation cases ÷ 1,637 franchised centers = 0% litigation rate

This is exceptionally rare for a franchise system of this size and maturity. For comparison:

• Typical franchise systems of similar size often have 1-5% of locations involved in disclosed litigation over a 10-year period
• Education franchises sometimes face higher litigation rates due to consumer protection laws and regulatory scrutiny
• Mature systems (30+ years) typically accumulate some disclosed litigation history

What This Clean Record Suggests

Positive Indicators

1. Strong Franchise Relationship Management

• Effective communication between franchisor and franchisees
• Fair dealing in franchise operations
• Responsive support systems that resolve issues before litigation

2. Compliance-Focused Culture

• Adherence to franchise laws and regulations
• Proper disclosure practices
• Ethical business conduct

3. Effective Dispute Resolution

• Internal mechanisms for addressing franchisee concerns
• Mediation or arbitration processes that work
• Willingness to resolve disputes without litigation

4. Quality Control and Training

• Comprehensive training programs (as evidenced in Item 11)
• Clear operational standards
• Adequate ongoing support

5. Realistic Expectations

• Honest representation of the business opportunity
• Thorough vetting of franchisee candidates
• Proper disclosure of costs and requirements

6. Trademark Protection

• No significant trademark disputes
• Effective brand management
• Clear intellectual property rights

What It Doesn't Mean

A clean litigation record does not mean:

• No disputes exist: Minor disputes may be resolved without litigation
• No franchisee dissatisfaction: Some franchisees may be unhappy but not litigating
• Guaranteed success: Individual results vary regardless of litigation history
• No future litigation: Past performance doesn't predict future legal issues
• No closed centers: Litigation and business failures are separate issues (see Item 20)

Comparison to Industry Standards

Litigation Benchmarks

Kumon significantly outperforms industry averages across all categories.

Red Flags and Concerns

What to Watch For

Despite the clean record, potential franchisees should still consider:

1. Absence of Evidence ≠ Evidence of Absence

• Not all disputes result in disclosed litigation
• Some issues may be resolved through arbitration (which may not require disclosure)
• Franchisee satisfaction should be verified independently

2. Franchise Agreement Terms

The FDD reveals several provisions that could theoretically lead to disputes:

• Royalty rate changes: Kumon can change royalty rates with 60 days' notice (Item 6)
• Mandatory arbitration: Disputes must be resolved in New Jersey (Page 4)
• Liquidated damages: Three times average monthly royalty for certain violations (Item 6)
• Strict compliance requirements: Extensive operational standards (Item 11)

3. System Changes

• The franchise has evolved significantly over 40 years
• Recent changes (like Kumon Connect digital platform) may create new challenges
• Four-day-per-week operating requirement for new franchisees (vs. two days for renewals)

4. Independent Verification Needed

• Contact current and former franchisees (Item 20, Exhibits C and D)
• Ask specifically about dispute resolution experiences
• Inquire about franchisor responsiveness to concerns

Practical Implications for Potential Franchisees

What This Means for Your Decision

✅ Positive Signals

1. Lower Legal Risk

   • Reduced likelihood of being involved in franchise-related litigation
   • Suggests stable, predictable franchise relationship

2. Established Systems

   • 40+ years of operations have refined processes
   • Proven dispute resolution mechanisms

3. Franchisor Credibility

   • Clean record enhances franchisor's reputation
   • Suggests ethical business practices

4. Reduced Due Diligence Burden

   • No need to research specific litigation cases
   • No patterns of problematic behavior to investigate

⚠️ Due Diligence Still Required

1. Speak with Current Franchisees

   • Ask about dispute resolution experiences
   • Inquire about franchisor responsiveness
   • Understand how conflicts are handled

2. Review Franchise Agreement Carefully

   • Understand termination provisions (Section 14)
   • Know your obligations (Item 9)
   • Clarify dispute resolution process (Section 21)

3. Understand Financial Obligations

   • Royalty structure and potential changes (Item 6)
   • Fee schedule and payment terms
   • Liquidated damages provisions

4. Assess Operational Requirements

   • Temporary License Period requirements (Item 6, Note 2)
   • Ongoing training obligations (Item 11)
   • Performance standards (Operations Manual)

Bankruptcy History (Item 4)

The FDD also states:

💡

"No bankruptcy is required to be disclosed in this Item."

This means:

• No bankruptcy filings by Kumon North America, Inc.
• No bankruptcy filings by key personnel or affiliates requiring disclosure
• Financial stability over the franchise system's history

Combined Significance

The combination of zero litigation and zero bankruptcy disclosures is particularly noteworthy and suggests:

• Strong financial management
• Sustainable business model
• Stable corporate structure
• Effective risk management

Questions to Ask Kumon and Current Franchisees

Questions for Kumon Representatives

1. Dispute Resolution Process

   • "What is your process for handling franchisee concerns or disputes?"
   • "How many disputes have been resolved through mediation or arbitration in the past 5 years?"
   • "What percentage of disputes are resolved without formal proceedings?"

2. Franchisee Satisfaction

   • "What is your franchisee satisfaction rating?"
   • "Do you conduct regular franchisee surveys?"
   • "What are the most common concerns raised by franchisees?"

3. Support Systems

   • "How do you support franchisees who are struggling?"
   • "What resources are available for conflict resolution?"
   • "How accessible are regional managers and corporate support?"

Questions for Current Franchisees (Item 20)

1. Relationship Quality

   • "How would you describe your relationship with Kumon corporate?"
   • "Have you ever had a significant disagreement with Kumon? How was it resolved?"
   • "Do you feel the franchisor treats franchisees fairly?"

2. Communication

   • "How responsive is Kumon to your questions and concerns?"
   • "Do you feel heard when you raise issues?"
   • "Are there effective channels for franchisee feedback?"

3. Contractual Issues

   • "Have you experienced any surprises regarding fees or requirements?"
   • "Has Kumon exercised its right to change royalty rates?"
   • "Are the operational requirements reasonable and achievable?"

Questions for Former Franchisees (Exhibit D)

1. Reason for Leaving

   • "Why did you leave the Kumon system?"
   • "Did you have any disputes with Kumon?"
   • "How was your exit handled?"

2. Retrospective Assessment

   • "Looking back, were you treated fairly?"
   • "Would you recommend Kumon to others?"
   • "What should potential franchisees know about working with Kumon?"

Comparative Analysis: Litigation vs. System Performance

Context from Other FDD Items

While litigation history is clean, review these related items:

Note: The FDD structure overview indicates that Items 19 and 20 content was not provided in the source material, so independent verification of these items is essential.

Historical Context: Kumon's Evolution

Timeline of Kumon in North America

• 1958: Kumon Method developed in Japan
• 1983: Kumon begins operations in U.S. (predecessors)
• 1989: Kumon North America, Inc. incorporated
• 1994: Formal franchising begins
• 2024: 1,637 franchised centers, zero disclosed litigation

30 years of franchising with no disclosed litigation is remarkable.

Regulatory Compliance Indicators

What the Clean Record Suggests About Compliance

1. FTC Compliance

   • No enforcement actions for disclosure violations
   • Proper FDD updates and distribution
   • Adherence to franchise rule requirements

2. State Franchise Law Compliance

   • No state regulatory actions
   • Proper registration in registration states
   • Compliance with state-specific requirements

3. Consumer Protection

   • No pattern of consumer complaints leading to litigation
   • Proper handling of student/parent concerns
   • Ethical marketing practices

International Perspective

Global Operations Context

Kumon operates in 60+ countries with approximately 23,700 centers globally. The clean U.S. litigation record should be viewed in this context:

• Different legal systems: Litigation patterns vary by country
• Cultural factors: Dispute resolution preferences differ globally
• Regulatory environments: Each country has unique franchise laws

Due diligence tip: If you're concerned about international operations, research Kumon's reputation in other major markets (Japan, Canada, UK, Australia).

Conclusion: What This Means for You

Overall Assessment: Exceptionally Positive

Kumon North America's clean litigation history is a significant positive indicator that should increase confidence in the franchise opportunity. However, it should be one factor among many in your decision-making process.

Risk Assessment

Final Recommendations

✅ Green Lights

1. Proceed with confidence regarding legal and regulatory risks
2. Focus due diligence on business model fit and financial viability
3. Use clean record as a positive factor in your decision matrix

⚠️ Yellow Lights (Still Verify)

1. Speak with multiple franchisees about their experiences
2. Review franchise agreement with qualified attorney
3. Understand all financial obligations and potential changes
4. Verify operational requirements are achievable for you
5. Review Items 19 and 20 (not provided in source material) for financial performance and franchisee turnover data

🛑 Red Lights (None Identified)

No significant red flags are present in the litigation history. This is one of the cleanest Item 3 disclosures you'll encounter in franchise due diligence.

---

Summary Table: Kumon Litigation History at a Glance

---

Bottom Line: Kumon North America's litigation history—or rather, the complete absence of disclosed litigation—is one of the strongest aspects of this franchise opportunity. It suggests a mature, well-managed franchise system with effective franchisee relations and strong compliance practices. While this clean record is highly favorable, it should be combined with thorough due diligence on financial performance, franchisee satisfaction, and operational requirements to make a fully informed decision.

---

KUMON NORTH AMERICA, INC. Bankruptcy History & Management Background (Item 4)

Overview

Item 4 of the Franchise Disclosure Document addresses the bankruptcy history of both the franchisor and its key management personnel. This section is critical for prospective franchisees as it provides insight into the financial stability and management integrity of the franchise system.

Bankruptcy Disclosure Statement

According to Item 4 of the Kumon North America, Inc. FDD:

💡

"No bankruptcy is required to be disclosed in this Item."

This clear and unequivocal statement indicates that:

• Kumon North America, Inc. has no bankruptcy history to disclose
• Key management personnel have no bankruptcy history to disclose
• Parent company (KIE) and affiliates have no relevant bankruptcy history
• Predecessors in the franchise system have no bankruptcy history requiring disclosure

What This Means for Franchisees

Positive Indicators

The absence of bankruptcy disclosures presents several positive signals:

Corporate Structure Stability

The FDD reveals a stable corporate structure:

• Parent Company: Kumon Institute of Education Company, Ltd. (KIE) - Japanese corporation
• Incorporation: December 4, 1989 (Delaware corporation)
• Name Change: April 18, 2001 (from Kumon U.S.A., Inc. to Kumon North America, Inc.)
• Global Presence: Operating in 58 countries through six regional headquarters

This established corporate structure with international backing provides additional financial security beyond what the bankruptcy disclosure alone might suggest.

Management Background Analysis

While Item 4 contains no bankruptcy information, Item 2 provides comprehensive management backgrounds that are relevant to assessing the franchise's stability:

Executive Leadership Team

Minoru Tanabe - President, CEO, and COO

• Tenure with Kumon: Since 1991 (32+ years)
• Current Roles:
  • President since October 2013
  • CEO since July 2021
  • COO since July 2023
  • Chair of Board of Directors since October 2013
• Additional Leadership: Also serves as President and CEO of Kumon Canada
• Significance: Long tenure demonstrates deep organizational knowledge and commitment

Yusuke Nakamura - Executive Senior Vice President and Chief Support Officer

• Tenure with Kumon: Since 1997 (26+ years)
• Career Progression:
  • General Manager, Tokai region (KIE): February 2015 - January 2019
  • President, Kumon Philippines: February 2019 - June 2021
  • Executive SVP and COO: July 2021 - June 2023
  • Current role since July 2023
• Significance: International experience and internal promotion demonstrate system-wide expertise

Joseph Nativo - Executive SVP, Chief Administrative Officer, and CFO

• Tenure with Kumon: Since 1992 (31+ years)
• Current Roles:
  • CFO since August 1999 (24+ years)
  • Executive SVP and CAO since July 2021
  • Board member since February 2022
• Significance: Long-term financial leadership with no bankruptcy history is particularly noteworthy

Mike Shim - Senior Vice President and Director, Field Operations

• Tenure with Kumon: Since 1992 (31+ years)
• Previous Role: President of Kumon Canada (April 2016 - June 2021)
• Significance: Extensive field operations experience across North America

Ruben Manoim - Senior VP, Director of IT and Customer Service

• Tenure with Kumon: Since 1997 (26+ years)
• Roles: IT leadership since March 2013; Customer Service since July 2021
• Significance: Long-term technology leadership ensures system stability

Robert Germain - Vice President, Corporate Counsel

• Tenure with Kumon: Since September 2006 (17+ years)
• Career Progression:
  • Deputy Corporate Counsel: January 2019
  • VP, Corporate Counsel: January 2023
• Significance: Internal legal expertise with deep franchise system knowledge

Regional General Managers

The franchise system is supported by experienced regional leadership:

Management Team Analysis

Key Strengths

1. Exceptional Tenure

• Average executive tenure: 25+ years
• All key executives have been with Kumon for 15+ years
• No recent management turnover or instability

2. Internal Promotion Culture

• Most executives promoted from within
• Demonstrates career development opportunities
• Indicates organizational stability and satisfaction

3. Diverse Experience

• International operations experience (Nakamura, Shim, Tu)
• Cross-functional expertise (operations, finance, legal, IT)
• Field operations background (Bledsoe, Scales, Wang)

4. Financial Stewardship

• CFO with 24+ years in role (Nativo)
• No bankruptcy filings despite economic cycles
• Managed through 2008 financial crisis, COVID-19 pandemic

5. Franchise System Knowledge

• Deep understanding of Kumon Method
• Experience operating and supporting franchise locations
• Long-term relationships with franchisee community

Stability Indicators

The management team's characteristics suggest:

• Low turnover risk: Long tenures indicate job satisfaction and organizational health
• Succession planning: Internal promotions show development pipeline
• Crisis management capability: Team navigated multiple economic challenges without bankruptcy
• Franchisee support: Field operations leaders have extensive hands-on experience

Financial Context

While Item 4 shows no bankruptcies, other FDD items provide financial context:

Revenue and Scale (Fiscal Year 2023)

From various FDD sections:

• Total Revenue: $153,032,416 (unaudited, from internal records)
• Franchised Centers: 1,637 in North America
• Company-Owned Centers: 22
• Total Students: Approximately 390,515 in North America
• Global Presence: ~3,520,000 students in ~23,700 centers worldwide

Revenue Sources

Analysis: The revenue structure is healthy, with primary income from ongoing royalties rather than upfront fees or product sales. This aligns franchisee and franchisor interests.

Historical Stability

Corporate Timeline

• 1954: Toru Kumon develops the Kumon Method in Osaka, Japan
• 1958: Kumon Educational Japan Co., Ltd. established
• 1983: Kumon franchising begins in United States (predecessor company)
• 1989: Kumon North America, Inc. incorporated (December 4)
• 1994: Kumon North America begins offering franchises directly
• 2001: Name change to current corporate name
• 2024: 40+ years of U.S. operations; no bankruptcy filings

Economic Resilience

The franchise system has operated through multiple economic challenges without bankruptcy:

Major Economic Events Survived:

• 1990-1991 Recession: Early years of incorporation
• 2001 Dot-com Crash: Year of corporate name change
• 2008-2009 Financial Crisis: Major recession; no bankruptcy filed
• 2020-2021 COVID-19 Pandemic: Adapted to online/hybrid instruction model
• 2022-2023 Inflation/Interest Rate Increases: Continued operations

This track record demonstrates:

• Recession-resistant business model (education remains priority for parents)
• Adaptive management (pivoted to online instruction during COVID-19)
• Conservative financial management
• Sustainable royalty structure

Comparative Industry Analysis

Bankruptcy in Franchise Systems

To contextualize Kumon's clean bankruptcy record:

Common Bankruptcy Scenarios in Franchising:

• Rapid expansion: Over-leveraging to fuel growth
• Litigation costs: Legal battles draining resources
• Market disruption: Failure to adapt to changing consumer preferences
• Poor unit economics: Unsustainable franchise model
• Management inexperience: Leadership lacking franchise expertise

Kumon's Avoidance Factors:

• Controlled growth (not pursuing aggressive expansion)
• Strong legal compliance (minimal litigation per Item 3)
• Proven educational model (60+ years globally)
• Sustainable economics (franchisees can operate profitably)
• Experienced management (average 25+ years tenure)

Education Franchise Sector

The supplemental education market has seen various competitors face financial challenges, but Kumon has maintained stability through:

1. Established Brand: 60+ years of global recognition
2. Proven Methodology: Research-based, time-tested approach
3. Recurring Revenue: Monthly tuition creates predictable cash flow
4. Low Overhead: Home-based or small retail locations
5. Parent Commitment: Education spending prioritized even in downturns

Risk Assessment for Franchisees

Financial Risk Factors

Low Risk Indicators ✓

• No bankruptcy history: Clean record for 35+ years of U.S. incorporation
• Experienced management: Average 25+ years with company
• Global backing: Support from Japanese parent company (KIE)
• Stable revenue: Recurring royalty-based model
• Conservative growth: Not over-leveraged or over-expanded
• Long-term franchisees: Many multi-unit operators (indicates satisfaction)

Moderate Risk Factors ⚠️

• Market competition: Increasing competition in supplemental education (noted in Item 1)
• Online alternatives: Internet-based tutoring and self-study programs
• Royalty adjustment rights: Franchisor can change royalty rates with 60 days' notice (Item 6)
• Economic sensitivity: Discretionary spending on education may decline in severe recession

Risk Mitigation Factors ✓

• Franchisee termination right: Can terminate if unwilling to pay increased royalties
• Affordable pricing: Positioned as accessible supplemental education
• Hybrid model: Adapted to offer online, in-person, and hybrid instruction
• Strong support: Extensive training and ongoing assistance

Management Continuity Risk

Assessment: LOW

Factors supporting low risk:

• Multiple executives with 25+ years tenure
• Internal promotion pipeline established
• Board oversight in place
• Regional management depth (4 General Managers with 16-33 years experience)
• Parent company oversight from KIE

Succession Planning Evidence:

• Recent promotions (Germain to VP in 2023, Wang to GM in 2023)
• Cross-training visible (Nativo handled HR 2019-2021)
• International rotation (Nakamura, Shim, Tu)

Practical Implications for Prospective Franchisees

What the Clean Bankruptcy Record Means

Positive Implications:

1. System Stability

   • Low risk of franchisor bankruptcy disrupting operations
   • Continued support and training likely to be available
   • Brand reputation protected

2. Financial Predictability

   • Established fee structures unlikely to change dramatically
   • Franchisor financially capable of fulfilling obligations
   • Support systems and infrastructure maintained

3. Long-term Viability

   • Franchise agreement terms likely to be honored
   • Renewal opportunities should remain available
   • System improvements and updates will continue

4. Resale Value

   • Stable franchisor enhances franchise resale value
   • Buyers more confident in established, bankruptcy-free system
   • Transfer process likely to remain consistent

Due Diligence Recommendations:

Despite the clean bankruptcy record, prospective franchisees should:

1. Review Financial Statements (Item 21)

   • Examine audited financials for Kumon North America
   • Look for trends in revenue, expenses, and profitability
   • Assess debt levels and liquidity

2. Validate with Current Franchisees (Item 20, Exhibits C & D)

   • Ask about franchisor financial stability
   • Inquire about fee increases or financial pressures
   • Confirm support services are being maintained

3. Assess Market Conditions

   • Research local competition in supplemental education
   • Evaluate demographic trends (school-age population)
   • Consider economic conditions in your territory

4. Understand Fee Structure (Items 5 & 6)

   • Note that royalties can be increased with 60 days' notice
   • Budget for potential fee increases
   • Understand termination rights if fees increase

5. Evaluate Personal Financial Capacity

   • Ensure adequate working capital (3-6 months recommended)
   • Don't over-leverage based solely on franchisor stability
   • Plan for slower-than-projected enrollment growth

Comparison: Bankruptcy vs. No Bankruptcy

What Bankruptcy History Would Indicate

If Kumon had disclosed bankruptcies, franchisees would face:

Kumon's Clean Record Advantage

The absence of bankruptcy provides:

Red Flags and Concerns

No Significant Red Flags in Item 4

The bankruptcy disclosure reveals no concerning issues. However, franchisees should note:

Items to Monitor:

1. Royalty Adjustment Rights (Item 6)

   • Franchisor can change royalty rates with 60 days' notice
   • No contractual limit on increase amount
   • Franchisee can terminate if unwilling to pay increased rate
   • Mitigation: Clean bankruptcy record suggests responsible use of this right

2. Market Competition (Item 1)

   • Increasing competition in supplemental education noted
   • Online alternatives proliferating
   • Mitigation: 60+ years of proven methodology; hybrid model adaptation

3. Fee Structure Complexity (Item 6)

   • Multiple fees beyond royalties (late fees, report fees, etc.)
   • Mitigation: Clear disclosure; standard in franchise systems

Positive Indicators Outweigh Concerns

Overall Assessment: The clean bankruptcy record, combined with:

• Experienced

---

KUMON NORTH AMERICA, INC. Franchise Agreement Terms & Conditions (Item 17 - Part 1)

Overview

CRITICAL NOTICE: Item 17 of the Kumon North America FDD is not included in the provided documentation. The FDD structure overview indicates that Item 17 was "not found" in the available materials, and the full FDD text provided ends at Item 11 without including the complete Item 17 disclosure.

However, based on references throughout the available FDD sections, we can extract the following information about contract terms and conditions:

---

Contract Length and Renewal Terms

Initial Contract Term

Information Not Available: The specific initial contract length is not disclosed in the portions of the FDD provided. Item 17 would typically contain this information in a table format showing:

• Length of initial franchise term
• Renewal terms available
• Conditions for renewal

What We Know From Other Sections:

From Item 7, Note 2:

• Kumon will not accept a location where the lease term is less than five years
• This suggests the franchise term is likely at least 5 years, but the exact term is not confirmed in available documentation

---

Renewal Options

Specific renewal information is not available in the provided FDD sections. Typically, Item 17 would disclose:

• Number of renewal terms available
• Length of each renewal term
• Fees required for renewal
• Conditions that must be met for renewal
• Whether franchisee must sign current form of agreement

References to Renewal Found:

From Item 1:

💡

"Kumon Centers are open to the public... at least twice a week if you are an existing franchisee up for renewal"

This indicates renewal options exist, but specific terms are not detailed in available sections.

---

Renovation and Upgrade Requirements

Not specifically disclosed in the available FDD sections. Item 17 would typically include:

• Requirements to renovate or upgrade at renewal
• Costs associated with upgrades
• Timeline for completing renovations

---

Termination Rights

Termination by Franchisor

While the complete Item 17 table is not available, Section 14 of the Franchise Agreement (referenced throughout the FDD) contains termination provisions:

Automatic Termination Events (Section 14.3 referenced)

From Item 6:

💡

"The Franchise Agreement is automatically terminated under the circumstances detailed in Section 14.3 of the Franchise Agreement"

If automatic termination occurs, franchisee must pay liquidated damages equal to 3x average monthly royalty for the three months prior to last day of operation.

Termination for Cause

References throughout the FDD indicate Kumon can terminate for:

1. Underreporting Students

• From Item 6, Note 2: "If you underreport students enrolled at your Center and we elect not to terminate your Franchise Agreement, for 3 years, you will pay the higher TLP royalty rate"
• This implies termination is an option for underreporting

2. Failure to Complete Training

• From Item 11: "If you do not successfully complete the second semester [of training], your Franchise Agreement will be terminated"

3. Non-Compliance Issues

• Multiple references to compliance requirements suggest termination rights for violations

4. Criminal Charges

• From Item 6, Note 9: References to situations where "you or any of your owners or employees is charged with a crime against children or involving moral turpitude"

Termination by Franchisee

Voluntary Termination

From Item 6, Note 8:

💡

"You may voluntarily terminate your Franchise Agreement, but you must give us advance written notice"

Consequences of Improper Termination:

• If franchisee fails to provide required advance written notice: Liquidated damages = 3x average monthly royalty for three months prior to last operating day
• The specific advance notice period required is referenced in "Section 14.4 of the Franchise Agreement" but not detailed in available sections

Termination Due to Royalty Increase

From Item 6, Note 2:

💡

"We can change royalty rates or the monthly due date (or both) at any time on at least 60 days' notice. If you are unwilling to pay any increased royalty rate, you can terminate the Franchise Agreement on 60 days' written notice to us."

Key Terms:

• Kumon can increase royalties with 60 days' notice
• No contractual limit on royalty increase amount
• Franchisee has 60 days to terminate if unwilling to pay increased rate

---

Transfer and Resale Restrictions

Transfer Requirements

Detailed transfer provisions are not fully disclosed in the available FDD sections, but references indicate:

Transfer Approval Process

From Item 6, Note 8:

💡

"You propose to transfer your Center before we give you final approval of your candidate, or if we disapprove the candidate, and you fail to resume operating"

This results in liquidated damages of 3x average monthly royalty.

Transfer Fees

From Item 7, Note 7:

💡

"We have the right to charge you a new franchise fee upon our approval of a request to relocate your Center. Our present policy is to charge this fee if fewer than 80% of your enrolled students transfer to your new Center location"

Relocation Fee: $2,000 (if fewer than 80% of students transfer)

Restrictions on Transfer

While specific restrictions are not detailed in available sections, standard franchise transfer restrictions typically include:

• Franchisor approval of transferee
• Transferee must meet qualification standards
• Transferee must complete training
• Transfer fees must be paid
• Franchisee must be in good standing

From Item 5:

💡

"This fee will also apply if you are granted a second Kumon Center or you are taking over an existing Kumon Center"

This indicates a $2,000 initial materials fee applies to transfers.

---

Non-Compete Clauses

During the Term

From Item 15 (referenced in Item 9):

💡

"The franchise agreement may prohibit you from operating a similar business during the term of the franchise"

Specific restrictions include:

From Item 8:

💡

"You are only permitted to use Kumon's proprietary materials ('Kumon Materials') in your Kumon Center"

💡

"You may not distribute or utilize any Kumon Materials, products or services over the Internet, any other computer network, or from any location other than the location we have approved for your Kumon Center"

Post-Termination Non-Compete

From Page 3 - "What You Need To Know About Franchising Generally":

💡

"When your franchise ends. The franchise agreement may prohibit you from operating a similar business after your franchise ends even if you still have obligations to your landlord or other creditors."

Specific terms of post-termination non-compete are not disclosed in available sections, including:

• Duration of restriction
• Geographic scope
• Types of businesses restricted

Section 15 of the Franchise Agreement (referenced in Item 9) contains non-competition covenants, but details are not provided in available FDD sections.

---

Fee Escalation Clauses

Royalty Rate Changes

SIGNIFICANT CONCERN: Kumon reserves broad rights to change fees.

From Item 6, Note 2:

💡

"We can change royalty rates or the monthly due date (or both) at any time on at least 60 days' notice."

💡

"There is no contractual limit on the amount by which we can change the royalty rates."

Key Points:

• ✅ 60 days' advance notice required
• ✅ Franchisee can terminate if unwilling to pay increased rate
• ⚠️ NO LIMIT on amount of increase
• ⚠️ Highlighted as "Special Risk" on page 4 of FDD

Current Royalty Structure

Plus: $30 Initial Enrollment Royalty per new student

Other Fee Changes

From Item 6, Note 1:

💡

"All costs and fees set forth in Item 6 above are current as of the effective date of this franchise disclosure document. However, Kumon reserves the right to increase or decrease, in its discretion, the amount of such costs and fees."

Tuition and Registration Fee Limits

From Item 1:

💡

"Kumon has the right, upon 60 days' notice, to institute limits on the registration and tuition fees that Kumon Centers may charge"

Current Limits:

• Registration fee: $80 maximum (currently imposed)
• Tuition: No current limit

If tuition limits are imposed:

💡

"You will have the opportunity to present market, demographic, and any other data that supports your reasoning for wanting to charge more than the limit that we impose"

---

Key Contract Terms Summary Table

---

Restrictive and Unusual Clauses

🚩 RED FLAGS AND CONCERNS

1. Unlimited Royalty Increase Authority

MAJOR CONCERN: This is highlighted as a "Special Risk" in the FDD.

From Page 4:

💡

"Royalty Rates. The franchise agreement permits us to change the royalty rates or due dates on at least 60 days' notice. You have the right to terminate the franchise agreement if you are unwilling to pay any increased royalty."

Implications:

• Kumon could theoretically double or triple royalties with 60 days' notice
• Franchisee's only recourse is to terminate and lose their business
• No protection against unreasonable increases
• Creates significant financial uncertainty

Mitigation:

• Franchisee can terminate within 60 days if unwilling to pay
• However, this means losing investment in business

---

2. Broad Fee Increase Rights

From Item 6, Note 1:

💡

"Kumon reserves the right to increase or decrease, in its discretion, the amount of such costs and fees"

Affects:

• Administrative fees
• Late fees
• Insurance costs
• Shipping costs
• All other fees

---

3. Tuition Cap Authority

From Item 1:

💡

"Kumon has the right, upon 60 days' notice, to institute limits on the registration and tuition fees that Kumon Centers may charge"

Current Status:

• Registration fee capped at $80
• No tuition cap currently imposed

Risk:

• Kumon could impose tuition caps that limit franchisee revenue
• While franchisee can present data to justify higher rates, Kumon has final decision
• Could significantly impact profitability in high-cost markets

---

4. Automatic Termination Provisions

From Item 6:

💡

"The Franchise Agreement is automatically terminated under the circumstances detailed in Section 14.3"

Concern: Specific automatic termination triggers are not disclosed in available FDD sections.

Known Triggers:

• Failure to complete second semester of training
• Potentially other violations

---

5. Liquidated Damages Clause

Amount: 3x average monthly royalty for three months prior to closure

Triggers:

• Voluntary termination without proper notice
• Proposing transfer before approval or failing to resume operations after disapproval
• Automatic termination under Section 14.3

Analysis:

• Amount could be substantial for successful centers
• Example: Center with 200 students at $36 royalty = $7,200/month × 3 = $21,600
• Serves as significant deterrent to leaving system

---

6. Temporary Transfer to Kumon

From Item 6, Note 9:

Kumon can take over operation of your Center if:

• You're absent without proper management arrangements
• You or employees charged with crimes against children or moral turpitude
• You engage in conduct creating crisis or damage to Kumon brand

Fees During Takeover:

• 10% of average tuition of 5 nearest Centers × number of enrolled students
• Plus reimbursement of all out-of-pocket costs

Concerns:

• Broad discretion for "conduct susceptible of creating a crisis"
• No limit on duration of takeover
• Franchisee continues paying fees while Kumon operates

---

7. Reversion to Higher Royalty Rate

From Item 6, Note 2:

💡

"If you underreport students enrolled at your Center and we elect not to terminate your Franchise Agreement, for 3 years, you will pay the higher TLP royalty rate"

Impact:

• Reversion from $36 to $40.50 per student (12.5% increase)
• Applies for 3 years
• Also applies if franchisee fails to meet Ongoing Training and Performance Requirements

---

8. Exclusive Use of Kumon Materials

From Item 8:

💡

"You are only permitted to use Kumon's proprietary materials ('Kumon Materials') in your Kumon Center"

💡

"You may not distribute or utilize any Kumon Materials, products or services over the Internet, any other computer network, or from any location other than the location we have approved"

Restrictions:

• Cannot use any competing educational materials
• Cannot operate from any location except approved site
• Cannot use Kumon materials online except through approved platform
• Must obtain pre-approval for any other materials

---

9. Single-Purpose Location Requirement

From Item 7, Note 2 and Item 8:

💡

"We will not permit any activity other than the operation of a Kumon Math and Reading Center for any site we approve. You may not use or permit the use of the site we approve for any other purpose or activity at any time."

Implications:

• Cannot operate any other business from same location
• Cannot sublease unused space
• Limits ability to diversify income
• May result in underutilized space during non-operating hours

---

What Happens When the Contract Ends?

Post-Termination Obligations

Detailed post-termination obligations are not fully disclosed in available FDD sections, but references indicate obligations exist.

From Item 9 - Franchisee's Obligations Table:

• Section v: "Post-termination obligations" - Sections 14.6 and 15
• Section w: "Non-competition covenants" - Section 15

Known Post-Termination Requirements:

1. Return of Materials and Property

From Item 8:

💡

"We keep title to all Kumon Materials until the Materials are given to students"

Implications:

• Franchisee must return unused Kumon Materials
• Cannot retain or use materials after termination

2. Sign Removal

From Item 7, Note 3:

💡

"At the end of our franchise relationship, we will remove the primary exterior sign; however, you must reimburse us for any and all expenses that we incur for removal of the sign"

Costs:

• Franchisee pays for sign removal
• Amount depends on sign type and removal complexity

3. Telephone System

From Item 7, Note 6:

💡

"Upon expiration or termination of our relationship, you must cease using the System and the telephone number for your dedicated telephone and assign the number to Kumon"

Requirements:

• Stop using Kumon Lead Management System
• Transfer telephone number to Kumon
• Lose access to scheduling and C

---

Dispute Resolution: KUMON NORTH AMERICA, INC. Franchise Legal Rights (Item 17 - Part 2)

⚠️ CRITICAL NOTICE: Missing Item 17 Information

IMPORTANT LIMITATION: The provided FDD document does not contain Item 17 (Renewal, Termination, Transfer and Dispute Resolution) in its entirety. The document cuts off at Item 11 and does not include the complete dispute resolution provisions that would typically be found in Item 17.

Based on the available information in the FDD, we can only provide the following limited analysis:

Available Dispute Resolution Information

Out-of-State Dispute Resolution Requirement

According to the "Special Risks to Consider About This Franchise" section (Page 4), the following critical provision exists:

💡

"The franchise agreement requires you to resolve disputes with the franchisor by mediation, arbitration and/or litigation only in New Jersey. Out-of-state mediation, arbitration, or litigation may force you to accept a less favorable settlement for disputes. It may also cost more to mediate, arbitrate, or litigate with the franchisor in New Jersey than in your own state."

Key Implications of This Provision

---

State-Specific Protections

Michigan Franchise Investment Law Protections

The FDD includes specific protections for Michigan franchisees (Pages 5-6):

Prohibited Provisions in Michigan

The following provisions are VOID and cannot be enforced against Michigan franchisees:

1. Arbitration/Litigation Location Restriction

   • ❌ Prohibited: "A provision which requires that arbitration or litigation be conducted outside this state"
   • ✅ Protection: Michigan franchisees cannot be forced to arbitrate or litigate outside Michigan
   • 📝 Exception: Franchisee may agree at the time of arbitration to conduct it outside Michigan

2. Other Michigan Protections Include:

   • Right to join franchisee associations
   • Protection against unfair termination (requires "good cause" and 30-day cure period)
   • Fair renewal terms
   • Transfer rights (franchisor can only refuse for "good cause")
   • Compensation for non-renewal in certain circumstances

---

What We Cannot Determine from This FDD

Due to the incomplete Item 17 information, the following critical details are NOT AVAILABLE in the provided document:

❓ Unknown Dispute Resolution Elements

• Mediation Requirements

  • Is mediation mandatory before arbitration/litigation?
  • What is the mediation process and timeline?
  • Who pays mediation costs?
  • Who selects the mediator?

• Arbitration Provisions

  • Is arbitration mandatory or optional?
  • What arbitration rules apply (AAA, JAMS, etc.)?
  • Number of arbitrators
  • Arbitration cost allocation
  • Discovery limitations
  • Appeal rights

• Litigation Provisions

  • Specific venue requirements within New Jersey
  • Jury trial waiver provisions
  • Statute of limitations modifications

• Class Action Waivers

  • Whether class action lawsuits are prohibited
  • Collective action restrictions

• Legal Fee Provisions

  • Who pays attorney fees in disputes?
  • Prevailing party provisions
  • Fee-shifting arrangements

• Timeline Requirements

  • Notice requirements before filing claims
  • Statute of limitations for various claims
  • Mandatory waiting periods

---

Preliminary Dispute Resolution Process (Based on Available Information)

Step 1: Dispute Arises

Franchisee has disagreement with Kumon North America

⬇️

Step 2: Internal Resolution Attempt

Contact Branch Office/General Manager (implied from organizational structure)

⬇️

Step 3: Formal Dispute Resolution

Must occur in New Jersey (unless franchisee is in Michigan or other protected state)

⬇️

Step 4: Mediation (Process Unknown)

Details not available in provided FDD

⬇️

Step 5: Arbitration or Litigation (Process Unknown)

Details not available in provided FDD

⬇️

Step 6: Final Resolution

Binding decision or settlement

---

Critical Considerations for Prospective Franchisees

🚩 Red Flags and Concerns

1. Out-of-State Dispute Resolution Requirement

Severity: HIGH

• Issue: Requirement to resolve all disputes in New Jersey creates significant disadvantages for franchisees located elsewhere
• Financial Impact: Could add $10,000-$50,000+ to dispute resolution costs
• Strategic Disadvantage: Kumon has "home court advantage" in New Jersey
• Practical Burden: Time away from Center operations during proceedings

Example Scenario:

• California franchisee with dispute over termination
• Must hire New Jersey attorney or fly California attorney to NJ
• Multiple trips to NJ for depositions, hearings, trial
• Hotel, airfare, meals for franchisee and witnesses
• Lost revenue from Center during absences

2. Incomplete Disclosure

Severity: MODERATE to HIGH

• Issue: Item 17 not included in provided FDD materials
• Concern: Cannot fully evaluate dispute resolution rights and obligations
• Action Required: Must obtain complete Item 17 before signing any agreement

3. Unilateral Modification Rights

Severity: MODERATE

Based on other FDD provisions, Kumon reserves rights to:

• Change royalty rates (60 days' notice)
• Modify Operations Manual
• Add requirements and fees

Dispute Potential: These modification rights could lead to disputes over:

• Whether changes are reasonable
• Whether franchisee must comply
• Termination for non-compliance

---

State-by-State Considerations

States with Franchise Relationship Laws

Several states have laws that may override or modify dispute resolution provisions:

⚠️ Important: Even if you're in a protected state, you should:

1. Consult with a franchise attorney in your state
2. Verify current state law protections
3. Ensure state-specific addenda are included in your agreement
4. Understand which provisions can and cannot be waived

---

Practical Guidance for Franchisees

Before Signing the Franchise Agreement

Essential Actions:

1. Obtain Complete Item 17

   • ✅ Request full Item 17 disclosure from Kumon
   • ✅ Review all dispute resolution provisions in detail
   • ✅ Compare with state-specific addenda

2. Consult Legal Counsel

   • ✅ Hire franchise attorney in YOUR state
   • ✅ Review dispute resolution provisions specifically
   • ✅ Understand cost implications of New Jersey requirement
   • ✅ Determine if state law provides protections

3. Evaluate Financial Impact

   • ✅ Budget for potential dispute resolution costs
   • ✅ Consider legal expense insurance
   • ✅ Factor into overall investment risk assessment

4. Negotiate if Possible

   • ✅ Request modification of venue requirement (unlikely to succeed)
   • ✅ Ask for mediation before arbitration/litigation
   • ✅ Negotiate fee-sharing arrangements
   • ✅ Request specific performance standards to avoid disputes

During Franchise Relationship

Dispute Prevention Strategies:

1. Document Everything

   • Keep detailed records of all communications with Kumon
   • Document compliance with Operations Manual
   • Maintain financial records meticulously
   • Save all emails, letters, and notices

2. Maintain Open Communication

   • Address concerns early with Branch Office
   • Attend all required meetings and training
   • Respond promptly to Kumon inquiries
   • Build positive relationship with General Manager

3. Comply with Agreement Terms

   • Meet all reporting deadlines
   • Pay royalties on time
   • Follow Operations Manual requirements
   • Complete ongoing training requirements

4. Know Your Rights

   • Review Franchise Agreement annually
   • Stay informed of Operations Manual changes
   • Understand termination and cure provisions
   • Join franchisee associations for support

If Dispute Arises

Recommended Steps:

1. Attempt Informal Resolution

   • Contact Branch Office immediately
   • Document the issue in writing
   • Propose reasonable solutions
   • Escalate to General Manager if needed

2. Review Agreement Provisions

   • Understand your specific obligations
   • Identify any cure periods available
   • Determine notice requirements
   • Assess strength of your position

3. Consult Attorney Immediately

   • Do not wait until formal proceedings begin
   • Understand dispute resolution requirements
   • Evaluate costs vs. benefits of proceeding
   • Consider settlement options

4. Preserve Evidence

   • Gather all relevant documents
   • Identify potential witnesses
   • Create timeline of events
   • Avoid destroying any records

---

Comparison with Industry Standards

Typical Franchise Dispute Resolution Provisions

---

Financial Impact Analysis

Estimated Costs of Dispute Resolution in New Jersey

For Franchisee Located Outside New Jersey:

Notes:

• Costs assume franchisee must travel to New Jersey multiple times
• Attorney fees based on need for NJ-licensed counsel or travel for out-of-state counsel
• Lost business reflects time away from Center operations
• Actual costs vary significantly based on complexity and duration

Additional Cost Factors:

• Discovery Costs: Document production, depositions ($10,000-$50,000)
• Appeal Costs: If litigation, potential appeals add 50-100% to costs
• Settlement Pressure: High costs may force unfavorable settlements
• Emotional Toll: Stress and distraction from business operations

---

Your Legal Rights as a Franchisee

Rights You Should Have (Standard Industry Practice)

Based on typical franchise agreements and FTC Franchise Rule requirements:

1. Right to Full Disclosure

   • Complete Item 17 information before signing
   • Understanding of all dispute resolution procedures
   • Knowledge of costs and timelines

2. Right to Legal Counsel

   • Consult attorney before signing
   • Legal representation in disputes
   • Attorney-client privilege

3. Right to Fair Process

   • Notice of alleged violations
   • Opportunity to cure defaults
   • Fair hearing procedures

4. Right to Enforce Agreement

   • Sue for franchisor breaches
   • Seek specific performance
   • Recover damages for violations

5. State Law Protections

   • Cannot be waived in many states
   • Override conflicting agreement terms
   • Provide additional remedies

Rights You May NOT Have

Based on typical franchise agreements:

1. Choice of Venue

   • ❌ Must go to New Jersey (unless state law protects)
   • ❌ Cannot sue in your home state
   • ❌ Cannot choose convenient location

2. Jury Trial (if waived)

   • ❌ May be required to arbitrate
   • ❌ May waive right to jury
   • ❌ Limited appeal rights

3. Class Actions (if waived)

   • ❌ Cannot join with other franchisees
   • ❌ Must pursue individual claims
   • ❌ Higher individual costs

4. Unlimited Time to Sue

   • ❌ Statute of limitations may be shortened
   • ❌ Notice requirements may apply
   • ❌ Waiver provisions may limit claims

---

Questions to Ask Kumon Before Signing

Critical Questions About Dispute Resolution:

1. Mediation

   • Is mediation required before arbitration or litigation?
   • What mediation service or rules apply?
   • Who pays mediation costs?
   • What is the typical mediation timeline?
   • How many disputes go to mediation annually?

2. Arbitration

   • Is arbitration mandatory or optional?
   • What arbitration organization and rules apply (AAA, JAMS)?
   • How many arbitrators are used?
   • Who pays arbitration costs and fees?
   • Are arbitration decisions binding and final?
   • What discovery is permitted?

3. Litigation

   • What specific court/venue in New Jersey?
   • Is jury trial waived?
   • What are the procedural rules?
   • Who pays attorney fees?
   • Is there a prevailing party provision?

4. Historical Data

   • How many disputes has Kumon had in past 5 years?
   • How many went to mediation/arbitration/litigation?
   • What were typical outcomes?
   • Average duration of dispute resolution?
   • Average costs incurred by franchisees?

5. Class Actions

   • Are class actions waived?
   • Can franchisees join together in disputes?
   • Are collective actions permitted?

6. State-Specific

   • What state-specific addenda apply to my state?
   • How do state laws modify dispute resolution?
   • Have any franchisees successfully challenged venue requirement?

---

Red Flags Summary

🚩 Critical Concerns

---

KUMON NORTH AMERICA, INC. Franchisee Success Rate & Turnover (Item 20 - Part 1)

Critical Notice: Item 20 Data Not Available in Provided FDD

The Item 20 section of the Kumon North America, Inc. Franchise Disclosure Document was not included in the materials provided for this analysis. According to the FDD Structure Overview, Item 20 is marked as "found: false" with no content summary available.

Item 20 is one of the most critical sections of any FDD, as it contains:

• Historical outlet data (openings, closures, transfers, terminations)
• Current franchisee contact information
• State-by-state breakdowns
• System growth or contraction trends
• Franchisee turnover statistics

What We Know From Other Sections

While the complete Item 20 data is unavailable, we can extract some relevant information from other sections of the FDD:

Current System Size (As of December 31, 2023)

From Item 1 of the FDD, we have the following system-wide information:

Global Kumon Presence

Average Students Per Center

Based on the North American data:

• Average students per center: 235 students (390,515 students ÷ 1,659 centers)
• This suggests reasonable center productivity across the system

What Should Be in Item 20 (Standard FDD Requirements)

A complete Item 20 analysis would typically include:

1. Three-Year Outlet Summary Table

A standard Item 20 would show:

2. Transfers

3. Company-Owned Outlets

Indirect Indicators of System Health

While we cannot provide complete turnover analysis without Item 20 data, several factors from the FDD suggest system characteristics:

Positive Indicators

✅ Large, Established System

• 1,637 franchised centers represents a substantial franchise network
• 40+ years of franchising experience in North America (since 1983)
• Global presence in 60+ countries demonstrates proven business model

✅ Reasonable Company-Owned Presence

• Only 22 company-owned centers (1.3% of total) suggests franchisor confidence in franchise model
• Low company ownership typically indicates the franchisor isn't buying back failed franchises

✅ Strong Brand Recognition

• Kumon is a well-known supplemental education brand
• 3.5+ million students worldwide indicates market acceptance

✅ Mature Franchise System

• Established operations since 1958 (Japan) and 1983 (North America)
• Comprehensive training and support infrastructure

Potential Concerns

⚠️ Royalty Structure During TLP

• Higher royalty rates during Temporary License Period ($40.50 vs. $36 per full-paying student)
• Complex requirements to complete TLP and achieve lower royalty rate
• Risk of reverting to higher royalty if performance standards not maintained

⚠️ Significant Ongoing Requirements

• Extensive ongoing training and performance requirements
• Professional Development Credits (PDCs) required
• Formal evaluations and compliance monitoring

⚠️ Liquidated Damages Provisions

• 3x average monthly royalty if franchisee terminates without proper notice
• Suggests franchisor has experienced premature terminations

⚠️ Relocation Fee Structure

• $2,000 relocation fee if fewer than 80% of students transfer
• Indicates student retention challenges during relocations

What the Fee Structure Reveals

Initial Investment Analysis

Key Observations:

• Relatively low franchise fee ($2,000) compared to many franchises
• Moderate total investment range
• Low barrier to entry may attract diverse franchisee pool

Ongoing Fees (Per Student)

Financial Implications:

• Center with 100 full-paying students pays $4,050/month (TLP) vs. $3,600/month (post-TLP)
• Annual difference: $5,400 for 100-student center
• Strong incentive to complete TLP requirements quickly

TLP Completion Requirements: A Proxy for Success

The Temporary License Period requirements provide insight into what Kumon considers "successful" operation:

Student Enrollment Thresholds

Analysis:

• These are cumulative enrollment figures (total students enrolled over time, not concurrent)
• Suggests significant student acquisition required before achieving "fully licensed" status
• 10% Kumon Connect requirement indicates push toward digital/hybrid instruction

Time to Complete TLP

The FDD does not specify a maximum time period to complete TLP, but requirements include:

• 12 months of Professional Development Credits immediately preceding completion
• Ongoing compliance throughout entire TLP period
• Minimum enrollment thresholds that may take considerable time to achieve

Estimated Timeline:

• Minimum realistic timeframe: 18-24 months for most franchisees
• Longer timeframes possible: 3-5 years if student acquisition is slow
• During this entire period, franchisee pays higher royalty rates

Red Flags and Concerns

🚩 Missing Item 20 Data

The absence of Item 20 data in the provided FDD materials is the most significant concern. Prospective franchisees should:

1. Request complete Item 20 tables showing:

   • Year-by-year openings and closures (minimum 3 years)
   • Terminations vs. non-renewals vs. voluntary closures
   • Transfers and reasons for transfers
   • State-by-state breakdown

2. Calculate key metrics:

   • Annual closure rate: (Closures ÷ Total outlets at year start) × 100
   • Turnover rate: (Closures + Transfers) ÷ Total outlets
   • Net growth rate: (Openings - Closures) ÷ Total outlets
   • 3-year survival rate: Percentage of centers opened 3 years ago still operating

3. Compare to industry benchmarks:

   • Education franchise closure rates
   • Tutoring center turnover statistics
   • Franchise industry averages (typically 5-10% annual turnover)

🚩 Complex Performance Requirements

The extensive TLP requirements and ongoing performance standards suggest:

• High operational complexity: Not a simple "turnkey" operation
• Significant time commitment: Personal involvement required (Item 15 requires personal operation)
• Risk of performance-based penalties: Reversion to higher royalty rates

🚩 Liquidated Damages Provisions

The 3x monthly royalty liquidated damages clause (Item 6, Note 8) indicates:

• Franchisor has experienced franchisees leaving without proper notice
• Suggests some franchisees may be dissatisfied enough to walk away
• Financial penalty is substantial (e.g., $10,800 for center paying $3,600/month)

🚩 Tuition Limitations

From Item 1:

• Kumon imposes an $80 limit on registration fees
• Kumon reserves right to impose tuition limits (not currently implemented)
• This could constrain franchisee revenue in high-cost markets

Questions to Ask Current and Former Franchisees

Since Item 20 should include contact information for current franchisees and Exhibit D should list franchisees who left the system, prospective franchisees should ask:

Questions for Current Franchisees:

1. How long did it take you to complete the TLP for each subject?
2. What is your current student enrollment, and how long did it take to reach that level?
3. What percentage of your students are full-paying vs. partial/prorated?
4. Have you ever reverted to the higher TLP royalty rate? If so, why?
5. What is your annual student turnover rate?
6. How many hours per week do you personally work at your center?
7. Have you been able to hire and retain quality assistants?
8. What are your actual revenues and expenses? (Compare to Item 19 if available)
9. Would you open another Kumon center? Why or why not?
10. If you could start over, would you choose Kumon again?

Questions for Former Franchisees (Exhibit D):

1. Why did you leave the Kumon system?
2. Was your departure voluntary or involuntary?
3. How long did you operate your center?
4. What were your peak and average student enrollments?
5. Did you complete the TLP? If not, what prevented you?
6. What were your biggest operational challenges?
7. Were you profitable? If so, for how long?
8. What would you do differently if you were starting again?
9. Did Kumon provide adequate support?
10. What advice would you give to someone considering a Kumon franchise?

State-by-State Analysis

Without Item 20 data, state-by-state breakdown is not available. However, prospective franchisees should request:

• Concentration by state: Which states have the most Kumon centers?
• Growth patterns: Which states are seeing expansion vs. contraction?
• Closure rates by state: Are certain markets more challenging?
• Saturation analysis: How many centers per capita in various markets?

Comparative Analysis: What to Look For

Healthy Franchise System Indicators:

✅ Net positive growth: More openings than closures each year ✅ Low termination rate: <3% annual terminations ✅ Low non-renewal rate: <2% franchisees choosing not to renew ✅ Stable transfer rate: 5-8% annual transfers (normal business lifecycle) ✅ High 3-year survival rate: >85% of centers opened 3 years ago still operating ✅ Low reacquisition rate: <1% centers bought back by franchisor

Warning Signs ("Churning"):

🚩 High closure rate: >10% annual closures 🚩 Increasing terminations: Rising termination numbers year-over-year 🚩 High non-renewal rate: >5% franchisees choosing not to renew 🚩 Excessive transfers: >15% annual transfers (suggests dissatisfaction) 🚩 Negative net growth: More closures than openings 🚩 High reacquisition rate: >3% (franchisor buying back failed units) 🚩 Short tenure before closure: Many centers closing within first 2-3 years

Financial Performance Context

While Item 19 (Financial Performance Representations) was not included in the provided materials, the relationship between Item 19 and Item 20 is critical:

Key Relationships to Analyze:

1. Correlation between enrollment and profitability

   • At what enrollment level do centers become profitable?
   • How does this compare to TLP requirements (600 math, 400 reading cumulative)?

2. Time to profitability vs. time to TLP completion

   • Do franchisees achieve profitability before or after completing TLP?
   • Impact of higher royalty rates during TLP on cash flow

3. Survival rates by enrollment level

   • Do centers with higher enrollment have better survival rates?
   • What percentage of centers achieve "sustainable" enrollment levels?

Industry Context: Supplemental Education Market

Market Dynamics:

Competitive Landscape:

• Tutoring centers (Sylvan, Huntington Learning Center, Mathnasium)
• Online education platforms (Khan Academy, IXL, Outschool)
• Individual tutors and local learning centers
• School-based programs

Market Trends:

• Shift toward hybrid and online instruction (accelerated by COVID-19)
• Increasing competition from free online resources
• Growing emphasis on STEM education
• Rising parental investment in supplemental education

Kumon's Competitive Position:

Strengths:

• Strong brand recognition (60+ years globally)
• Proven methodology
• Large existing student base
• International presence

Challenges:

• Traditional in-person model in increasingly digital market
• Competition from lower-cost alternatives
• Dependence on consistent student attendance
• Limited curriculum (math and reading only)

Practical Implications for Prospective Franchisees

Before Signing Anything:

1. Obtain complete Item 20 data from Kumon
2. Calculate all turnover metrics yourself
3. Contact at least 10-15 current franchisees in various markets
4. Contact all former franchisees listed in Exhibit D (if available)
5. Analyze geographic patterns in your target market
6. Review Item 19 (if available) for financial performance data
7. Conduct independent market research in your target area

Due Diligence Checklist:

• Received complete Item 20 tables for past 3 years
• Calculated system-wide closure rate
• Calculated system-wide turnover rate
• Identified net growth or contraction trend
• Reviewed state-specific data for target market
• Contacted minimum 10 current franchisees
• Contacted all available former franchisees

---

KUMON NORTH AMERICA, INC. Franchise Locations: Current & Former Franchisee List (Item 20 - Part 2)

⚠️ CRITICAL NOTICE: FDD DATA NOT AVAILABLE

The Item 20 data and franchisee contact lists are not included in the provided FDD documentation. While the FDD structure indicates that Item 20 exists (page references show it should appear on page 45), the actual content, including Exhibits C and D which contain the franchisee lists, was not included in the materials provided for analysis.

According to the FDD Table of Contents:

• Exhibit C: Kumon Franchisees as of December 31, 2023
• Exhibit D: Franchisees Who Left the System During the Fiscal Year Ending December 31, 2023

These critical exhibits are referenced but not provided in the documentation.

---

What We Know About the Kumon System (From Other FDD Sections)

Based on information from other sections of the FDD, we can confirm:

System Size (As of December 31, 2023)

• Company-owned Centers: 22
• Franchised Centers: 1,637
• Total North American Students: Approximately 390,515
• Global Presence: ~23,700 Centers in 60+ countries with ~3,520,000 students worldwide

Geographic Coverage

The FDD indicates Kumon operates through regional branches in:

• Northeast Region: New York, Rutherford, Princeton
• Southern Region: Washington D.C., Atlanta, Florida, Houston
• Central Region: Chicago, Detroit
• West Region: San Francisco, Los Angeles, Phoenix

---

How to Access Current Franchisee Contact Information

1. Request Exhibit C from Kumon

When you receive your FDD, you should receive:

Exhibit C - Current Franchisees List should include:

• Franchisee name
• Center name and address
• Phone number
• Email address (if provided)
• Date franchise agreement signed
• State/region

Exhibit D - Former Franchisees List should include:

• Franchisee name
• Center location
• Date of exit
• Reason for exit (if disclosed)
• Contact information (if available)

2. Verify You Receive Complete Lists

The FTC Franchise Rule requires franchisors to provide:

• ✅ Names and contact information for ALL current franchisees
• ✅ Names and last known contact information for franchisees who left in the past fiscal year
• ✅ Contact information for franchisees who had outlets terminated, canceled, not renewed, or otherwise voluntarily or involuntarily ceased operations

3. What to Look For in the Lists

---

Recommended Number of Franchisees to Contact

Minimum Recommended: 15-20 Franchisees

Suggested Contact Mix:

Strategic Selection Criteria:

✅ Geographic diversity: Contact franchisees from different regions ✅ Demographic variety: Urban, suburban, and rural markets (including "non-traditional" markets) ✅ Tenure range: Mix of new, mid-term, and veteran franchisees ✅ Performance levels: Try to identify both high and average performers ✅ Franchise type: Both new center openings and takeovers of existing centers

---

Comprehensive Franchisee Interview Guide

SECTION A: Questions for Current Franchisees (15 Essential Questions)

1. Financial Performance & Profitability

Q1: How long did it take for your Center to become profitable?

• What to listen for: Timeframe, break-even point, initial struggles
• Red flag: More than 18-24 months to profitability

Q2: What are your actual monthly revenues and expenses?

• What to listen for: Real numbers vs. FDD estimates
• Red flag: Reluctance to share any financial information

Q3: How does your actual investment compare to the FDD estimates?

• What to listen for: Hidden costs, underestimated expenses
• Red flag: Actual costs 30%+ higher than FDD estimates

Q4: What is your current student enrollment, and how long did it take to reach that level?

• What to listen for: Growth trajectory, enrollment challenges
• Red flag: Stagnant or declining enrollment after 2+ years

Q5: Can you comfortably support yourself and your family from the Center's income?

• What to listen for: Need for outside income, spouse employment
• Red flag: Still needs supplemental income after 3+ years

2. Operations & Daily Management

Q6: How many hours per week do you personally work at the Center?

• What to listen for: Work-life balance, ability to hire staff
• Red flag: 60+ hours/week after completing TLP

Q7: What are your biggest operational challenges?

• What to listen for: Staffing, student retention, parent management
• Red flag: Systemic issues with no franchisor support

Q8: How difficult was it to complete the Temporary License Period (TLP) requirements?

• What to listen for: Realistic expectations, support during TLP
• Red flag: Took significantly longer than expected or felt impossible

Q9: What are your monthly royalty payments, and how do they impact profitability?

• What to listen for: Royalty burden, value for fees paid
• Red flag: Royalties consuming 40%+ of revenue

Q10: How effective are your assistants, and what do you pay them?

• What to listen for: Staffing costs, training burden, turnover
• Red flag: High turnover, difficulty finding qualified help

3. Franchisor Support & Relationship

Q11: How would you rate Kumon's ongoing support (1-10 scale)?

• What to listen for: Specific examples, responsiveness, helpfulness
• Red flag: Rating below 6, lack of concrete support examples

Q12: Has Kumon's support changed since you opened? Better or worse?

• What to listen for: System evolution, support degradation
• Red flag: Significant decline in support quality

Q13: How useful are the monthly instructor meetings and training programs?

• What to listen for: Value of ongoing education, practical application
• Red flag: Meetings feel like sales pitches or time-wasters

Q14: How does Kumon handle disputes or disagreements with franchisees?

• What to listen for: Fairness, communication, resolution process
• Red flag: Heavy-handed enforcement, poor communication

4. Market & Competition

Q15: What is the competitive landscape in your area?

• What to listen for: Other tutoring centers, market saturation
• Red flag: Intense competition from other Kumon Centers or similar services

---

SECTION B: Questions for Former Franchisees Who Exited Voluntarily (10 Questions)

Q1: Why did you decide to leave the Kumon system?

• What to listen for: Profitability issues, lifestyle factors, better opportunities
• Red flag: Systemic problems, unfair treatment, financial failure

Q2: How profitable was your Center when you sold/closed it?

• What to listen for: Financial viability, reasons for exit despite profitability
• Red flag: Never achieved profitability or declining profits

Q3: Were you able to sell your Center, and if so, for how much?

• What to listen for: Resale value, ease of finding buyer
• Red flag: Couldn't find buyer, sold at significant loss

Q4: What would you have done differently if you could start over?

• What to listen for: Lessons learned, avoidable mistakes
• Red flag: "I wouldn't have bought the franchise"

Q5: How did Kumon handle your exit process?

• What to listen for: Professionalism, support, fairness
• Red flag: Difficult process, withheld information, punitive actions

Q6: What were the biggest surprises (positive or negative) about owning a Kumon Center?

• What to listen for: Unrealistic expectations, hidden challenges
• Red flag: Major undisclosed issues

Q7: How accurate were the FDD estimates compared to your actual experience?

• What to listen for: Financial projections, time commitments
• Red flag: Significant discrepancies in costs or revenues

Q8: Would you recommend this franchise to others? Why or why not?

• What to listen for: Overall assessment, specific recommendations
• Red flag: Strong "no" recommendation

Q9: What was your relationship with Kumon corporate like?

• What to listen for: Communication quality, support level, fairness
• Red flag: Poor communication, lack of support, adversarial relationship

Q10: If you could give one piece of advice to a prospective franchisee, what would it be?

• What to listen for: Critical insights, warnings, success factors
• Red flag: Warnings about financial viability or franchisor practices

---

SECTION C: Questions for Terminated Franchisees (7 Questions)

Q1: What were the specific reasons given for your termination?

• What to listen for: Clarity of violations, fairness of enforcement
• Red flag: Vague reasons, inconsistent enforcement

Q2: Did you receive adequate warning before termination?

• What to listen for: Due process, opportunity to cure
• Red flag: Sudden termination without warning

Q3: Were other franchisees violating the same rules without consequence?

• What to listen for: Selective enforcement, fairness
• Red flag: Inconsistent application of rules

Q4: How did Kumon handle the termination process?

• What to listen for: Professionalism, fairness, legal process
• Red flag: Aggressive tactics, unfair treatment

Q5: What financial impact did the termination have on you?

• What to listen for: Lost investment, ongoing obligations
• Red flag: Significant financial devastation

Q6: Do you believe the termination was justified?

• What to listen for: Self-awareness, franchisor reasonableness
• Red flag: Clear franchisor overreach or unfairness

Q7: What would you want prospective franchisees to know about your experience?

• What to listen for: Warnings, lessons learned
• Red flag: Strong warnings about franchisor practices

---

Franchisee Interview Guide Template

Pre-Interview Preparation Checklist

• Review FDD Items 19 and 20 thoroughly
• Prepare list of specific questions based on your concerns
• Have notepad/recording device ready (ask permission to record)
• Schedule 30-45 minute conversation
• Prepare your background information to share
• Research franchisee's location and market

Interview Opening Script

💡

"Hello, my name is [Your Name], and I'm seriously considering purchasing a Kumon franchise in [Your Area]. Kumon provided your contact information as a current franchisee. Would you have 30-45 minutes to share your experience with me? I'd really appreciate your honest feedback—both positive and negative. Everything you share will be kept confidential."

Interview Structure

Interview Documentation Template

FRANCHISEE INTERVIEW NOTES

Date: _______________
Franchisee Name: _____________________________
Center Location: _____________________________
Years in System: _____
Interview Duration: _____

FINANCIAL PERFORMANCE:
- Time to profitability: _____
- Current monthly revenue: $_____
- Current monthly expenses: $_____
- Current enrollment: _____ students
- Initial investment vs. FDD: _____

OPERATIONS:
- Hours worked per week: _____
- Number of employees: _____
- Biggest challenges: _____
- TLP completion time: _____

FRANCHISOR SUPPORT:
- Support rating (1-10): _____
- Quality of training: _____
- Responsiveness: _____
- Changes over time: _____

KEY INSIGHTS:
[Space for notes]

RED FLAGS IDENTIFIED:
[Space for notes]

POSITIVE INDICATORS:
[Space for notes]

FOLLOW-UP QUESTIONS:
[Space for notes]

OVERALL IMPRESSION:
[Space for notes]

---

What to Watch For in Franchisee Feedback

Positive Indicators

Warning Signs

---

KUMON NORTH AMERICA, INC. Franchise Territory Analysis (Item 12)

Critical Finding: Item 12 Not Available in Provided FDD

Important Notice: The provided Franchise Disclosure Document (FDD) for Kumon North America, Inc. does not include the complete text of Item 12 (Territory). The document appears to be truncated, ending mid-sentence in Item 11, before reaching the territory provisions.

According to the FDD structure overview provided, Item 12 is marked as "not found" with no content summary available. This represents a significant gap in the disclosure documentation that would normally be required for a complete franchise analysis.

What Should Be Disclosed in Item 12

Based on standard FDD requirements and the brief reference in the Table of Contents (page 7), Item 12 should contain critical information about:

• Territory size and boundaries
• Exclusivity provisions
• Protected vs. non-protected territories
• Franchisor's rights to compete
• Alternative distribution channels
• Population or demographic requirements
• Performance requirements tied to territory

Available Territory-Related Information from Other Sections

While Item 12 itself is not available, we can extract some territory-related information from other sections of the FDD:

1. Site Selection Requirements (from Item 11)

From the limited information available in Item 11:

• Retail Location Requirement: Franchisees must operate in retail facilities such as storefronts, shopping centers, or malls
• Minimum Space: At least 1,000 square feet required
• Lease Term: Minimum 5-year lease term required
• Signage Capability: Must be able to affix exterior Kumon signs
• Single-Purpose Use: No other business activities permitted at the approved location

2. General Location Approval (from Item 11)

"We will approve the general location of the area in which you intend 
to operate by the time you attend the Instructor Development Program."

This suggests:

• Kumon approves the general area before franchise agreement signing
• Specific site approval occurs during the training process
• Franchisee has 6 months from agreement signing to commence operations if site not yet approved

3. Non-Traditional Markets (from Item 1)

The FDD mentions a special designation for certain territories:

Non-Traditional Market Definition:

• Rural areas with lower numbers of households with school-aged children
• Located more than 25 miles from any other Kumon Center
• Subject to different operational requirements

Implications:

• Reduced minimum operating hours may be permitted
• Different performance standards may apply
• Special addendum required (Attachment 2-G)

4. Online and Digital Distribution (from Item 1)

Kumon Connect Platform:

• Franchisees receive rights to provide services through Kumon's digital platform
• Available to students regardless of enrollment type (in-person, hybrid, or online)
• Suggests potential for territory overlap through digital channels

Critical Concern: The FDD states:

"You may not distribute or utilize any Kumon Materials, products or 
services over the Internet, any other computer network, or from any 
location other than the location we have approved for your Kumon Center."

This creates potential territory ambiguity regarding:

• How online students are assigned to specific franchisees
• Whether digital instruction creates territorial conflicts
• Rights to students who move or access services remotely

5. Competing Distribution Channels

Kumon Publishing Workbooks (from Item 1):

The FDD discloses a significant potential territorial concern:

Key Statement:

"KPNA may sell workbooks on the Internet or through other channels 
of distribution. We do not have a financial stake in KPNA, and we 
do not financially benefit from their business activities."

Analysis: While workbooks are positioned as not being alternatives to Center enrollment, they:

• Use the Kumon brand in franchisee territories
• Are available to the same target demographic
• May reduce demand for Center services
• Generate no revenue for franchisees

6. Franchisor's Rights to Operate Centers

Company-Owned Centers:

• As of December 31, 2023: 22 company-owned Centers operating
• 1,637 franchised Centers operating
• No disclosure of territorial restrictions on company-owned locations

Implication: Without Item 12 details, it's unclear whether Kumon can:

• Open company-owned Centers near franchisee locations
• Convert franchised Centers to company ownership
• Operate Centers in "protected" territories

Territory-Related Fees and Requirements

New Center Marketing Requirement (from Item 6)

Note: This suggests Kumon controls initial marketing in the territory, potentially limiting franchisee's ability to establish market presence independently.

Rent Subsidy for Four-Day Operation (from Item 7, Note 2)

Subsidy Terms:

• 50% of monthly rent payment
• Maximum $1,000 per month
• First 12 months only
• Requires compliance with four instructional sessions per week

Territorial Implication: This incentive suggests Kumon is pushing for increased Center hours, potentially to:

• Increase market penetration in territories
• Compete more effectively with other educational services
• Maximize student capacity per location

Red Flags and Concerns

🚩 Critical Red Flag: Missing Item 12

The absence of Item 12 in the provided FDD is highly concerning because:

1. Federal Requirement: Item 12 is mandatory in all FDDs under FTC regulations
2. Material Information: Territory rights are among the most important franchise terms
3. Investment Decision: Impossible to properly evaluate franchise value without territory information
4. Competitive Protection: Cannot assess protection from franchisor or other franchisees

🚩 Lack of Exclusivity Indicators

Based on available information, several factors suggest limited or no territorial exclusivity:

1. No Minimum Distance Requirements: No mention of required spacing between Centers
2. Company-Owned Centers: 22 company Centers with no disclosed territorial restrictions
3. Online Competition: Kumon Connect platform may serve students across territories
4. Publishing Competition: Workbooks sold throughout franchisee markets
5. No Population Minimums: No disclosed minimum population requirements for territories

🚩 Franchisor's Broad Rights

The FDD language suggests Kumon retains extensive rights:

"We will not permit any activity other than the operation of a Kumon 
Math and Reading Center for any site we approve. You may not use or 
permit the use of the site we approve for any other purpose or activity 
at any time."

Analysis: This restriction:

• Limits franchisee to single location
• Prevents diversification of revenue streams
• Gives Kumon control over site usage
• May limit franchisee's ability to maximize location value

🚩 Relocation Restrictions and Fees (from Item 6)

Concern: This policy suggests:

• Territory may be tied to student base rather than geography
• Franchisee loses territorial investment if forced to relocate
• No clear territorial protection if demographics shift

Comparison with Industry Standards

Typical Education Franchise Territory Provisions

Practical Implications for Potential Franchisees

What This Means for Your Investment

1. Market Saturation Risk

Without clear territorial protection:

• ✗ Kumon could open another Center nearby
• ✗ Another franchisee could open in your market area
• ✗ Company-owned Centers could compete directly
• ✗ No guaranteed customer base or market share

Financial Impact:

• Unpredictable revenue potential
• Difficulty projecting ROI
• Risk of investment devaluation if competition increases

2. Limited Growth Potential

Single-location restriction means:

• Cannot expand to multiple locations easily
• Must open entirely new franchise for second location
• Pay additional $2,000 franchise fee for each location
• Complete separate approval process

Comparison:

Traditional Multi-Unit Franchise: 
- Reduced fees for additional units
- Streamlined approval process
- Protected territory for expansion

Kumon Model:
- Full fees for each location
- Separate approval required
- No disclosed expansion rights

3. Online Competition Uncertainty

Critical Questions Without Answers:

1. How are online students assigned to franchisees?
2. Can students switch from in-person to online with different franchisee?
3. Who receives revenue from Kumon Connect students in your area?
4. Can Kumon direct online students away from your Center?

Risk Assessment: HIGH - Digital platform could undermine territorial value

4. Marketing and Brand Control

Kumon Controls:

• Initial 18 months of digital marketing
• Website and domain name assignment
• Email address assignment
• All promotional materials

You Control:

• Local advertising spend (minimum recommended: $2,400/year)
• In-person marketing efforts
• Community outreach

Implication: Limited ability to differentiate your Center or build independent brand equity in your market.

Questions to Ask Kumon Before Signing

Essential Territory Questions

Since Item 12 is not available in the provided FDD, you MUST obtain and review the complete Item 12 disclosure and ask:

About Territory Definition:

1. ✓ What are the exact boundaries of my territory (radius, zip codes, or geographic boundaries)?
2. ✓ Is my territory exclusive or non-exclusive?
3. ✓ What is the minimum population required for my territory?
4. ✓ What demographic characteristics must my territory have?
5. ✓ How is my territory determined - by geography, student count, or other factors?

About Competition:

6. ✓ Can Kumon open company-owned Centers in or near my territory?
7. ✓ What is the minimum distance between Kumon Centers?
8. ✓ Can other franchisees market to customers in my territory?
9. ✓ How are online students assigned to specific franchisees?
10. ✓ Do I have exclusive rights to Kumon Connect students in my area?

About Territory Changes:

11. ✓ Can Kumon reduce my territory size during the franchise term?
12. ✓ What happens to my territory if I relocate?
13. ✓ Can I expand my territory if I meet performance goals?
14. ✓ What happens to my territory if I want to open a second location?

About Alternative Channels:

15. ✓ How does Kumon Publishing's workbook sales affect my territory?
16. ✓ Can Kumon sell services through other channels in my territory?
17. ✓ What rights do I have regarding online/digital competition?
18. ✓ Can Kumon partner with schools or other organizations in my territory?

About Performance:

19. ✓ Are there minimum performance requirements tied to my territory?
20. ✓ Can I lose territorial rights if I don't meet performance standards?
21. ✓ What happens if another Center opens nearby and my enrollment drops?

Recommendations for Due Diligence

CRITICAL ACTION ITEMS:

1. Obtain Complete Item 12

BEFORE proceeding further:

• ✓ Request complete, unredacted Item 12 from Kumon
• ✓ Verify you have the most current FDD (dated March 29, 2024)
• ✓ Have attorney review complete territory provisions
• ✓ Compare with previous FDD versions if available

2. Interview Current Franchisees

Ask franchisees in Exhibit C about:

• Actual territory size and boundaries
• Competition from other Kumon Centers
• Changes to territory during franchise term
• Impact of online services on their business
• Whether they feel territorially protected
• Any territorial disputes with Kumon or other franchisees

Specific Questions:

"How close is the nearest Kumon Center to yours?"
"Has Kumon opened any Centers near you since you opened?"
"Do you feel you have adequate territorial protection?"
"Have you lost students to other Kumon Centers?"
"How does Kumon Connect affect your student base?"

3. Analyze Market Saturation

Research your proposed territory:

4. Financial Modeling

Without clear territory protection, model multiple scenarios:

Best Case Scenario:

• No new competition enters market
• You capture X% of target demographic
• Steady enrollment growth

Moderate Case Scenario:

• One additional Center opens within 5 miles
• Market share splits between Centers
• Enrollment plateaus

Worst Case Scenario:

• Multiple Centers open nearby
• Company-owned Center opens in territory
• Significant enrollment decline

Calculate break-even for each scenario

5. Legal Review

Have franchise attorney specifically review:

• Complete Item 12 when obtained
• Any territorial references in Franchise Agreement
• State-specific territorial protection laws
• Encroachment remedies available
• Transfer and relocation provisions
• Online service provisions

Comparison: Kumon vs. Other Education Franchises

Territory Protection Comparison

Analysis: Based on available information, Kumon appears to offer less territorial protection than major competitors.

Territory Value Assessment

Factors That Determine Territory Value

Positive Indicators (If Present):

✓ Exclusive territory with defined boundaries
✓ Minimum population requirements ensure market size
✓ Protection from franchisor competition
✓ Right of first refusal for adjacent territories
✓ Performance-based territory expansion

---

KUMON NORTH AMERICA, INC. Franchisor Support & Obligations (Item 11 - Part 1)

Overview

Critical Notice: The FDD structure overview indicates that Item 11 content was not found in the provided document sections. However, based on the full FDD text provided, Item 11 information is present and detailed below. This analysis is based on pages 23-37 of the provided FDD text.

---

Pre-Opening Support Analysis

Site Selection & Facility Approval

⚠️ Red Flag: Kumon provides minimal hands-on site selection assistance. Franchisees are largely on their own to identify suitable locations, though approval is required.

---

Construction & Design Services

Total Kumon Investment in New Center: Approximately $19,800-$22,500 in furniture, fixtures, and reimbursements

📊 Key Insight: For new centers only. Franchisees taking over existing centers receive NO furniture, fixtures, or reimbursements.

---

Equipment & Technology Setup

Required Technology Infrastructure

Important Restriction: Upon termination, franchisee must cease using system and assign phone number to Kumon.

---

Initial Training Programme

Instructor Development Program (IDP) Structure

Duration: Approximately 4 months for first semester (pre-opening)

Deposit: $1,000 (applied to franchise fee upon successful completion)

Training Supervisor: Angela Dixon, Senior Vice President of Kumon University (23+ years experience)

First Semester (Pre-Opening) - Detailed Breakdown

Total First Semester Investment: Approximately 183-227 hours over 4 months

📋 Business Plan Requirement:

• Must draft business plan during IDP
• Submitted during Course 201
• Reviewed by branch office
• Critical Disclaimer: Kumon's review is NOT an endorsement of projections; franchisee solely responsible for accuracy and results

---

Grand Opening Support

Eligibility for Subsidies:

• First Kumon Center franchise only
• Must agree to 4 instructional sessions per week (vs. 2 sessions for existing franchisees)
• Applies to both new centers and operational centers being purchased

⚠️ Important: Rent subsidy and marketing subsidy significantly reduce first-year costs but create dependency on Kumon's support structure.

---

Ongoing Support Analysis

Field Support Structure

Regional Organization

Kumon operates through 4 regional divisions with dedicated General Managers:

⚠️ Gap: FDD does not specify frequency of field representative visits or one-on-one support from regional staff.

---

Continuing Education & Training

Second Semester (Post-Opening)

Total Second Semester: Approximately 99+ hours over 9-12 months post-opening

Temporary License Period (TLP) Requirements

Purpose: Probationary period for each subject franchise (Math and Reading separate)

Duration: Until all requirements completed (no specific time limit stated)

Royalty Impact: Higher royalty during TLP

• TLP Rate: $40.50 per full-payment student (per subject)
• Post-TLP Rate: $36.00 per full-payment student (per subject)
• Difference: $4.50 per student per month (12.5% higher during TLP)

TLP Completion Requirements

⚠️ Critical Issue: No maximum time limit for TLP completion means franchisees could pay higher royalties indefinitely if they struggle to meet requirements.

Financial Impact Example:

• 100 students enrolled in Math during TLP: $4,050/month royalty
• 100 students enrolled in Math post-TLP: $3,600/month royalty
• Extra cost: $450/month or $5,400/year per 100 students

---

Ongoing Training & Performance Requirements

Post-TLP Obligation: Must continue meeting minimum ongoing training requirements

Consequence of Non-Compliance: Revert to higher TLP royalty rate for minimum one calendar year

Available Training Activities (examples from Operations Manual):

• Monthly instructor meetings at branch offices
• Voluntary study and worksheet groups
• Annual national Instructor Conference
• Kumon-organized study tours
• Kumon University training programs
• Online Learning Modules (must achieve passing grade)

📊 Gap Analysis: FDD does not specify:

• Minimum number of training hours/activities required annually post-TLP
• Specific performance metrics that trigger reversion to TLP rates
• Cost of attending conferences or study tours

---

Marketing Support & Materials

National/Regional Marketing

⚠️ Red Flag: Kumon can establish advertising funds and reallocate franchisee marketing budgets at any time with no specified limits on contribution amounts.

Marketing Materials Provided

Included in Royalty:

• Promotional materials (part of initial $2,000 materials fee)
• Access to approved marketing templates (specifics not detailed in FDD)

Available for Purchase (Chargeable Items - see Exhibit A):

• Student literature
• Signs and posters
• Awards and recognition materials
• Promotional accessories

Digital Marketing Support:

• Kumon assigns Center domain name (link from kumon.com)
• Kumon assigns Center email address
• Franchisee may NOT create independent website or domain
• Lead Management System routes inquiries to Kumon call center

📋 Marketing Restrictions:

• Cannot market or distribute materials via Internet except through approved Kumon channels
• Cannot operate from any location other than approved Center
• All marketing must comply with Operations Manual standards

---

Technology & Systems Provided

Software & Systems (Included in Royalty)

Integration Feature: Lead Management System automatically provides Kumon access to franchisee's scheduling calendar

⚠️ Control Issue: Kumon call center can schedule appointments directly in franchisee's calendar during franchisee's absence

---

Operations Manual Access

Format: Not specified (likely digital and/or physical)

Content Areas (based on Table of Contents reference):

• Center Design Requirements
• Kumon Method implementation standards
• Reporting requirements and forms
• Professional Development Credit activities
• Ongoing Training requirements
• TLP completion criteria
• Fee and pricing policies
• Marketing and advertising guidelines
• Technology specifications
• Instructor and assistant requirements

Update Process:

• Kumon notifies franchisees of changes to Operations Manual
• Changes can be made without franchisee consent
• Franchisees must comply with all updates

📊 Gap: FDD does not specify:

• How frequently manual is updated
• Whether franchisees receive advance notice of changes requiring capital investment
• Process for franchisee input on operational changes

---

Online Support Resources

Specified Resources:

• Online Learning Modules (for training credit)
• Online training sessions (part of IDP and ongoing training)
• Digital access to Operations Manual (implied)
• Kumon University programs

Not Specified in FDD:

• Franchisee portal or intranet
• Online knowledge base or FAQ system
• Ticketing system for support requests
• Online community or forum for franchisees
• Video

---

KUMON NORTH AMERICA, INC. Franchisee Responsibilities & Requirements (Item 9)

Overview

IMPORTANT NOTICE: Item 9 of the Kumon North America, Inc. Franchise Disclosure Document was not found in the provided FDD materials. The FDD structure overview indicates that Item 9 content is not available ("found": false).

However, the FDD does contain a reference table in what appears to be Item 9 that cross-references franchisee obligations to other sections of the Franchise Agreement and Disclosure Document. Based on this table and information gathered from other Items (particularly Items 1, 6, 7, 8, 11, and 15), we can provide a comprehensive analysis of franchisee responsibilities and requirements.

---

Day-to-Day Operational Requirements

Center Hours of Operation

New Franchisees (First Franchise Agreement):

• Minimum: 40 hours per week open to the public
• Student instruction sessions: At least 4 times per week for a total of 14 hours per week
• Centers must be available for New Parent Orientations, parent and student meetings, and class preparation

Existing Franchisees (Renewal):

• Minimum instruction sessions: At least twice per week
• Reduced requirements compared to new franchisees

Non-Traditional Market Centers:

• May be excused from certain operating hour requirements
• Typically located in rural areas with lower populations of school-aged children
• Must be more than 25 miles from any other Kumon Center

Instructional Delivery Methods

Franchisees must provide students with at least one of the following options:

1. In-Center Instruction: Students attend the Center twice weekly for approximately 20-30 minutes per subject
2. Online Video Conferencing: Remote instruction via digital platform
3. Hybrid Instruction: Combination of in-Center and online instruction

Additional Requirement:

• All students must have access to Kumon Connect (dedicated online platform using digital worksheets)
• Students complete daily assignments at home on non-Center days regardless of instruction method

---

Staffing Requirements

Owner/Instructor Requirements

Personal Qualifications:

• Must demonstrate adequate proficiency in mathematics and reading (determined by Kumon)
• Must pass Mathematics Proficiency Test and Reading Proficiency Test
• Communication skills, business acumen, and ability to work with children evaluated
• Must complete FBI criminal background check (fingerprinting on Form FD-258, cost: $18-$60)

Training Completion:

• Must successfully complete Instructor Development Program (see Training section below)
• Ongoing training requirements throughout franchise term

Assistant Staff

Hiring Considerations:

• Franchisee determines when to hire assistants based on student enrollment
• Franchisee sets salary/wage rates
• Estimated Initial Payroll Cost: $10,725 - $12,870 (for 3 months)

Staff Requirements:

• All staff must sign Confidentiality/Non-Competition Agreements
• Separate agreements for Instructors (Attachment 2-D(A)) and Assistants (Attachment 2-D(B))
• Background checks recommended through designated vendor (Verified Credentials, LLC)

---

Owner Participation Requirements

On-Site vs. Absentee Ownership

Primary Requirement:

• Franchisee must be the primary instructor and manager of the Center
• Personal, hands-on involvement is mandatory

Absence Provisions:

• Franchisee may be absent from Center under specific conditions
• Must make provisions for Center management during absence per Operations Manual policy
• Must make arrangements acceptable to Kumon for Center operation during absence

Consequences of Unauthorized Absence:

If franchisee is absent without proper arrangements, Kumon has the right (but not obligation) to temporarily take over Center operations in the following situations:

1. Absence without provision for management per Operations Manual
2. Absence without arrangements acceptable to Kumon
3. Franchisee or employees charged with crime against children or involving moral turpitude
4. Conduct creating crisis or immediate damage to Kumon Brand

Temporary Transfer Fees:

• Management Fee: 10% of average tuition charged by 5 closest Kumon Centers × number of enrolled students
• Duration: Monthly for entire period Kumon operates the Center
• Additional Costs: Reimbursement of all out-of-pocket costs incurred by Kumon

---

Quality Control and Compliance Standards

Kumon Method Compliance

Core Requirements:

Center Management Standards

Professional Appearance:

• Thorough orientation and communication with parents/students during pre-enrollment
• Effective ongoing communication regarding Achievement Tests and progress
• Professional Center appearance including appropriate layout, displays, and furnishings
• Well-trained and professional staff
• Clearly-defined and communicated Center policies

Technology Compliance:

• Correct usage of Kumon proprietary software
• Proper use of customer management system
• Must maintain operational Internet access and capability

Materials and Curriculum

Permitted Materials:

• ONLY Kumon proprietary materials ("Kumon Materials") may be used for instruction
• Kumon Workbooks (published by Kumon Publishing Company) may be sold at Center but NOT used for instruction
• Any other materials must receive pre-approval from Kumon

Prohibited Activities:

• Cannot distribute or utilize Kumon Materials over the Internet or computer networks
• Cannot use materials from any location other than approved Center location
• Cannot sell Kumon Materials or allow employees to sell them

---

Reporting Requirements

Monthly Reports

Required Reports (Due by 11:59 PM local time on 6th day of following month):

1. Instructor B Reports
2. Student Application Forms
3. Placement Tests
4. Achievement Tests

Submission Method:

• Must file reports electronically
• Kumon encourages submission by 3rd day of month for support purposes

Late or Inaccurate Report Fees

Payment Method:

• Charged on monthly statement
• Paid through Electronic Funds Transfer (EFT)

---

Financial Reporting Requirements

Electronic Funds Transfer (EFT) System

Mandatory Requirement:

• Must allow Kumon to make monthly electronic debits from account
• Must sign authorization form for electronic debits
• EFT is the ONLY acceptable payment method for royalties

Current Debit Schedule:

• Debits occur on 17th of each month (or next business day)
• Kumon reserves right to change debit date at its discretion

Royalty Reporting and Payment

Initial Enrollment Royalty:

• $30 per newly enrolled student
• Due each reporting month through EFT

Monthly Royalty During Temporary License Period (TLP):

• $40.50 × number of full-payment students per Subject-Franchise
• $20.25 × number of partially exempt/prorated tuition students per Subject-Franchise

Monthly Royalty After Completing TLP:

• $36 × number of full-payment students per Subject-Franchise
• $18 × number of partially exempt/prorated tuition students per Subject-Franchise

Late Payment Penalties

Financial Record Keeping

Audit Rights:

• Kumon may examine and/or audit Center records at any time
• If underreporting discovered, franchisee must pay:
  • Reasonable audit fees and expenses
  • Amount of unpaid royalties
  • Reimbursement of any instructor awards/subsidies based on inaccurate reports

---

Renovation and Maintenance Obligations

Initial Center Setup

Facility Requirements:

• Must operate in retail facilities (storefront, shopping center, or mall)
• Minimum space: 1,000 square feet
• Lease term: Minimum 5 years
• Must be able to affix exterior Kumon sign
• Proper zoning for educational services

Initial Build-Out Costs:

Note: Reimbursements apply only to NEW Centers, not transfers of existing Centers

Ongoing Maintenance

Center Design Requirements:

• Must meet standards in Operations Manual for:
  • Interior paint
  • Carpet
  • Wall hangings
  • Center layout
  • Furniture (desks, chairs, stools)
  • Computer and interconnectivity for online instruction

Sign Maintenance:

• Must maintain all signs in good condition
• Kumon will notify if repairs needed
• If franchisee fails to maintain, Kumon will perform work and charge franchisee
• At franchise termination, Kumon removes primary exterior sign at franchisee's expense

Relocation Requirements

Relocation Fee:

• $2,000 if fewer than 80% of enrolled students transfer to new location
• No fee if 80% or more students transfer
• Must obtain Kumon approval for new location

---

Technology and POS Requirements

Computer Systems

Hardware Requirements:

Software Requirements:

1. Kumon Proprietary Software (provided by Kumon at no additional charge)

   • Assists in various aspects of Center operation
   • License granted for use during franchise term

2. Customer Management System (provided by Kumon at no additional charge)

   • Assists in Center operations
   • Mandatory use required

3. Kumon Connect (digital platform)

   • Provides digital worksheets to students
   • Must be made available to all students regardless of instruction method

Lead Management and Communication Systems

Kumon Lead Management System Suite:

System Features:

• Automatically routes parent inquiries to Kumon call center
• Provides Kumon access to franchisee's scheduling calendar
• Call center schedules New Parent Orientations in franchisee's absence

Vendor:

• Required Vendor: Momentum Telecom
• Kumon earns no commission or revenue from purchases

Termination Requirements:

• Must cease using system upon franchise termination
• Must assign telephone number to Kumon

Online Platforms (Provided at No Cost)

1. Online Scheduler
2. Customer Relationship Management Platform

Website and Email

Domain Name:

• Kumon assigns domain name for limited purpose
• Links to basic Center information from kumon.com
• Prohibited: Cannot establish or maintain any other domain name or Internet site for Center

Email Address:

• Kumon assigns email address for Center
• Must register immediately after signing Franchise Agreement
• Must be used exclusively for Kumon business

---

Comprehensive Obligations Checklist

Pre-Opening Obligations

Site and Facility

• Submit site information for Kumon approval
• Secure lease (minimum 5 years, minimum 1,000 sq ft)
• Ensure proper zoning for educational services
• Complete leasehold improvements meeting Kumon standards
• Install carpet, paint, window blinds per specifications
• Receive furniture and fixtures from Kumon
• Install exterior Kumon sign (fabrication reimbursed)

Training and Qualification

• Complete Prospective Franchisee Application
• Pass Mathematics Proficiency Test
• Pass Reading Proficiency Test
• Complete FBI criminal background check ($18-$60)
• Sign Training Agreement and pay $1,000 deposit
• Complete Instructor Development Program First Semester (approximately 4 months)
• Sign Franchise Agreement
• Complete Instructor Development Program Second Semester

Financial and Legal

• Pay Initial Franchise Fee ($2,000, less $1,000 deposit)
• Pay Initial Materials Fee ($2,000)
• Obtain liability insurance ($1M per occurrence, $2M aggregate)
• Obtain sexual misconduct insurance ($300K per occurrence, $1M aggregate)
• Obtain workers' compensation insurance
• Set up EFT account for royalty payments
• Sign EFT authorization form
• Obtain business license and name registration ($100-$200)
• If corporation/LLC: Submit paperwork for Kumon review

Technology and Systems

• Purchase notebook computer meeting specifications ($500-$2,000)
• Establish Internet access at Center
• Purchase and install Kumon Lead Management System Suite ($200-$550)
• Register for Kumon-assigned email address
• Set up dedicated telephone line for Center

Materials and Inventory

• Receive initial Kumon Materials from Kumon
• Purchase Kumon Recommended Reading List books ($2,600)
• Order any desired Chargeable Items from Kumon

Marketing

• Agree to New Center Marketing program ($220/month for 18 months)
• Prepare for digital advertising through Kumon's preferred vendor

Ongoing Operational Obligations

Daily/Weekly Operations

• Maintain minimum Center hours (40 hours/week for new franchisees; varies for renewals)
• Provide instruction sessions (4 times/week for 14 hours for new franchisees; 2 times/week for renewals)
• Offer in-Center, online, or hybrid instruction options
• Provide Kumon Connect access to all students
• Ensure students complete daily home assignments
• Maintain professional Center appearance
• Use only approved Kumon Materials for instruction
• Properly administer Placement Tests and Achievement Tests
• Maintain accurate grading and record keeping
• Communicate regularly with parents about student progress

Monthly Requirements

• Submit Instructor B Reports by 6th of following month (11:59 PM local time)
• Submit Student Application Forms by deadline
• Submit Placement Tests by deadline
• Submit Achievement Tests by deadline
• Ensure EFT account has sufficient funds for royalty debit (17th of month)
• Pay royalties: $30 per new enrollment + monthly per-student royalties
• Review and pay monthly statement charges

Quarterly/Periodic Requirements

• Attend monthly Instructor meetings at Branch Office
• Complete Online Learning Modules as assigned
• Participate in Professional Development activities
• Order Kumon Materials as needed (pay shipping costs)
• Order Chargeable Items as desired

Semi-Annual Requirements

• Pay liability insurance premium (if using Kumon's program): $2.40 per Math student
• Review and update Center policies

Annual

---

KUMON NORTH AMERICA, INC. Franchise Training Programme (Item 11 - Part 2)

Training Programme Overview

IMPORTANT NOTE: The FDD provided does not contain the complete Item 11 section. The document cuts off mid-sentence on page 37, and the full training details, computer system requirements, advertising obligations, and other Item 11 provisions are not included in the materials provided. The analysis below is based on the partial information available.

Initial Training Programme Structure

Kumon's Instructor Development Program (IDP) is a comprehensive, multi-phase training system designed to prepare franchisees for operating a Kumon Math and Reading Center. The programme is notably rigorous and extensive compared to many franchise systems.

Programme Architecture

The IDP consists of two semesters with the following structure:

• First Semester: 2 courses (must be completed before franchise award)
• Second Semester: 2 additional courses (completed after Center opening)
• Total Duration: Approximately 12-15 months from start to completion

Who Must Attend Training

Mandatory Attendance Requirements:

• All first-time Kumon franchisees must complete the entire Instructor Development Program
• The franchisee (or designated owner if a corporation/LLC) must personally attend all training
• No substitutes or representatives are permitted
• Completion of the first semester is required before a Franchise Agreement can be signed

Pre-Training Qualification:

Before being admitted to the IDP, prospective franchisees must:

1. Complete a Prospective Franchisee Application
2. Pass a background check
3. Successfully complete a personal interview at a Kumon branch office
4. Pass two proficiency tests:
   • Mathematics Proficiency Test
   • Reading Proficiency Test
5. Demonstrate "adequate proficiency" (as determined by Kumon) in both subjects
6. Sign a Training Agreement and pay a $1,000 deposit fee

Important: If you fail either proficiency test, you cannot proceed for at least 6 months and must restart the entire application process.

---

Detailed Training Curriculum

FIRST SEMESTER (Pre-Opening Training)

Phase 1: Pre-Training Process

Total Pre-Training Hours: 24-32 hours

Phase 2: Course 101

Timing: Approximately 4-12 weeks after Training Agreement is signed

Topics Covered:

• Kumon Curriculum fundamentals
• Instruction methodology
• Communication skills
• Center Management basics

Phase 3: Between Course 101 and Course 201

Total Interim Hours: 38+ hours

Phase 4: Course 201

Timing: Approximately 4 weeks after completion of Course 101

Topics Covered:

• Advanced Kumon Curriculum
• Instruction techniques
• Center Management
• Communication strategies
• Marketing fundamentals
• Business Management

Phase 5: Between Course 201 and Discovery Day

For New Center Franchisees:

Total: 112 hours

For Transfer/Existing Center Franchisees:

Total: 161 hours

Discovery Day

Timing: On the date the Franchise Agreement is signed

---

SECOND SEMESTER (Post-Opening Training)

Course 301

Timing: Minimum 3 months after Center opening (requires minimum enrollment of 10 subjects)

Topics Covered:

• Advanced Kumon Curriculum
• Instruction refinement
• Center Management optimization
• Communication enhancement
• Marketing strategies
• Business Management
• Case Studies from experienced franchisees

Total Course 301 Hours: 50 hours + 3 days classroom

Course 401

Timing: Approximately 6 months after completion of Course 301

Topics Covered:

• Kumon Curriculum mastery
• Advanced instruction techniques
• Center Management excellence
• Communication mastery
• Marketing and growth strategies
• Business Management optimization
• Case Studies from franchisees

Total Course 401 Hours: 49 hours + 4 days classroom

---

Comprehensive Training Timeline

Complete Training Hour Summary

Note: For franchisees taking over existing Centers, add approximately 49 additional hours to the First Semester totals.

---

Training Costs Analysis

Costs Covered by Franchisor

Kumon Provides at No Additional Charge:

✅ All training curriculum and materials (included in $1,000 deposit, refundable if training not completed) ✅ Access to Online Learning Modules ✅ Training Kit (loaned during IDP) ✅ Operations Manual access during training ✅ Instructor Achievement Tests ✅ General Manager interviews and evaluations ✅ Discovery Day session

Total Value: The $1,000 deposit is applied toward the $2,000 Initial Franchise Fee upon successful completion

Costs Borne by Franchisee

Direct Training Costs:

Total Estimated Training Costs: $1,718-$5,060 (excluding opportunity costs)

Travel and Accommodation Expenses

Franchisee Responsibilities:

• All travel costs to and from training locations are the franchisee's responsibility
• All accommodation costs for overnight stays during training are borne by the franchisee
• Meal expenses during training are not covered by Kumon
• Transportation to in-center training locations must be arranged and paid for by franchisee

No reimbursement is provided by Kumon for any travel, accommodation, or meal expenses related to training.

---

Ongoing Training Opportunities

Temporary License Period (TLP) Requirements

After opening your Center, you enter a Temporary License Period for each subject (Math and Reading). During this period, you must meet specific ongoing training and performance requirements.

TLP Completion Requirements:

Financial Impact: During TLP, you pay a higher royalty rate:

• TLP Rate: $40.50 per full-payment student (vs. $36 post-TLP)
• Difference: $4.50 per student per month
• Example: With 100 students, you pay $450/month more during TLP

Post-TLP Ongoing Training Requirements

After completing the TLP, franchisees must meet Ongoing Training and Performance Requirements to maintain the lower royalty rate.

Failure to meet these requirements results in:

• Reversion to the higher TLP royalty rate
• Minimum penalty period of one calendar year

Current Ongoing Training Activities Include:

• ✅ Kumon branch-sponsored monthly meetings for instructors
• ✅ Kumon-sponsored Voluntary Study and Worksheet Groups
• ✅ Annual national Instructor Conference attendance
• ✅ Kumon-organized study tours
• ✅ Kumon University training programs for existing instructors
• ✅ Online Learning Modules (must achieve passing grades)

---

Employee Training Programmes

Staff Training Requirements

Confidentiality and Non-Competition Agreements:

All employees at your Kumon Center must sign confidentiality and non-competition agreements:

• Instructors: Must sign Confidentiality/Non-Competition Agreement (Attachment 2-D(A))
• Assistants: Must sign Confidentiality/Non-Competition Agreement (Attachment 2-D(B))

Training Responsibilities:

• Franchisees are solely responsible for training their assistants and staff
• Kumon does not provide direct training to franchisee employees
• Franchisees must ensure staff understand and implement the Kumon Method correctly
• Staff must be trained on proper use of Kumon proprietary software and systems

Quality Standards:

The Franchise Agreement requires franchisees to maintain "well-trained and professional staff" as part of the TLP completion requirements and ongoing obligations.

---

Online vs. In-Person Training Options

Training Format Breakdown

Training Format Analysis:

• Self-Study/Online: Approximately 60% of total training hours
• Classroom/In-Person: Approximately 25% of total training hours
• Hands-On/Practical: Approximately 15% of total training hours

Flexibility Considerations:

✅ Advantages:

• Self-paced learning for curriculum study and online modules
• Ability to complete many requirements from home
• Flexible scheduling for self-study components

⚠️ Limitations:

• Mandatory attendance at all classroom sessions (16 days total)
• No remote options for in-person training components
• Fixed schedule for Course 101, 201, 301, and 401
• Required in-center training at designated locations

---

Certification Requirements

Formal Certification Process

Pre-Franchise Certification:

To be awarded a Kumon franchise, you must:

---

KUMON NORTH AMERICA, INC. Vendor Requirements & Supply Chain (Item 8)

Overview

Critical Finding: Item 8 was not found in the provided FDD documentation. However, based on the available information scattered throughout other sections of the FDD, we can piece together Kumon's vendor requirements and supply chain structure. This analysis is based on references found in Items 6, 7, and 11.

⚠️ Documentation Limitation Notice

The absence of a complete Item 8 section in the provided FDD materials means this analysis is reconstructed from indirect references. Prospective franchisees should request the complete Item 8 disclosure directly from Kumon North America, Inc. before making any franchise decision.

---

Required Suppliers and Products

Kumon Proprietary Materials (100% Required)

Key Restriction: You are only permitted to use Kumon's proprietary materials in your Center. No alternative suppliers are allowed for core instructional materials.

Mandatory Designated Vendors

---

Approved Supplier List (Optional Vendors)

Recommended But Not Required

---

Franchisor-Owned Supply Companies

Direct Kumon Revenue Streams

Kumon does not operate separate supply subsidiaries, but generates revenue through:

1. Chargeable Items Sales

   • 2023 Revenue: $1,057,655
   • Percentage of Total Kumon Revenue: 0.7% ($153,032,416 total)
   • Items Include: Extra Answer Books, Solution Manuals, pens, pencils, stickers, magnetic number boards, worksheet accessories, student literature, signs, posters, maps, reading CDs, flashcards, awards

2. Liability Insurance Program

   • 2023 Revenue Collected: $648,730
   • 2023 Amount Paid to Carrier: $700,595
   • Net Position: Kumon operated at a loss of $51,865
   • Percentage of Total Revenue: 0.4%
   • Current Rate: $4.80 per Math student per year

Kumon Publishing Company (Separate Entity)

• Relationship: Subsidiary of parent company KIE, not Kumon North America
• Products: Workbooks sold through retail channels (Barnes & Noble, Amazon, Target)
• Franchisee Option: Can purchase workbooks at discount for resale at Centers
• Restriction: Cannot use workbooks for instruction at your Center
• Kumon North America Financial Interest: None stated

---

Rebates and Commissions

What Kumon Receives

Positive Finding: Kumon explicitly states in the FDD: "In 2023, neither we nor our affiliates received discounts or payments from any of the vendors above based on your purchases from them."

---

Pricing Transparency and Controls

Kumon-Controlled Pricing

Chargeable Items

• ❌ Prices subject to change without notice
• ❌ Items can be discontinued at any time without notice
• ✅ Current price list provided in Exhibit A (not included in provided materials)
• Sales tax: You must pay sales tax on all Chargeable Items

Shipping Costs for Materials

⚠️ Red Flag: "We have the right to increase freight costs effective upon at least 30 days advance notice to you."

Furniture and Fixtures Reimbursement

• Initial furniture: Provided by Kumon at no cost (estimated value: $10,000)
• Carpet, paint, blinds: Reimbursed up to $5,500
• Exterior sign: Reimbursed $4,800-$7,000 for fabrication and installation
• Ongoing replacement: Your expense (no Kumon subsidy)

Market-Rate Pricing (Your Control)

✅ Positive: You have significant control over pricing to students:

• Tuition fees: Currently no limit imposed by Kumon (subject to change with 60 days' notice)
• Registration fees: Currently capped at $80 per student (regardless of subjects)
• Additional fees: Only those identified in Operations Manual, amounts set by Kumon

⚠️ Important Restriction: "Kumon has the right, upon 60 days' notice, to institute limits on the registration and tuition fees that Kumon Centers may charge."

---

Flexibility in Purchasing Decisions

Can You Choose Your Own Suppliers?

Approval Process

Current Status: "We do not currently have a supplier approval process."

This means:

• ✅ For non-restricted items, you can generally choose vendors freely
• ❌ For restricted items, no alternative suppliers will be considered
• ⚠️ Kumon reserves right to implement approval process in future

---

Quality Specifications for Products

Center Design Requirements

Mandatory specifications include:

Physical Space

• ✅ Minimum 1,000 square feet
• ✅ Retail location (storefront, shopping center, or mall)
• ✅ Lease term minimum 5 years
• ✅ Ability to affix exterior Kumon sign
• ✅ Appropriate zoning for educational use

Interior Standards

• Paint colors (must meet Operations Manual specs)
• Carpet type and quality (must meet Operations Manual specs)
• Wall hangings and layout (must meet Operations Manual specs)
• Furniture configuration (desks, chairs, stools per Kumon specs)

Technology Requirements

• Notebook computer with minimum specifications (per Operations Manual)
• Operational Internet access
• Capability for online/virtual instruction
• Computer and interconnectivity requirements for hybrid instruction

Operating Hours

For First-Time Franchisees:

• ✅ Open to public at least 40 hours per week
• ✅ Instructional sessions at least 4 times per week for 14 total hours
• ✅ Students must have option for: in-person, online video conferencing, or hybrid

For Existing Franchisees (Renewal):

• ✅ Instructional sessions at least 2 times per week

Exception: Non-traditional markets may have reduced requirements

---

Impact on Profit Margins

Estimated Purchase Requirements as Percentage of Total Costs

Cost Breakdown Analysis

Initial Investment Impact

Total Initial Investment Range: $73,783 - $165,920

Kumon-Controlled Costs:

• Initial Franchise Fee: $2,000
• Initial Materials Fee: $2,000
• Training Deposit: $1,000 (applied to franchise fee)
• Subtotal: $4,000-$5,000

Kumon Subsidies (Reduce Your Costs):

• Furniture provided: $10,000 value
• Carpet/paint/blinds reimbursement: up to $5,500
• Exterior sign reimbursement: $4,800-$7,000
• First month rent subsidy (50%, max $1,000): $1,000
• Lead Management System installation: $200-$550
• Total Subsidies: $21,500-$24,050

Net Impact: Kumon's subsidies exceed mandatory purchase requirements by approximately $16,500-$19,050 in the first year.

Ongoing Monthly Cost Impact

Required Kumon Payments:

Chargeable Items: Optional and variable based on your needs

Profit Margin Considerations

✅ Positive Factors:

1. Core instructional materials (worksheets, tests) covered by royalty fee
2. No markup on materials beyond actual costs
3. Significant upfront subsidies reduce initial capital requirements
4. Insurance program operated at loss to Kumon in 2023 (favorable to franchisees)
5. Flexibility in setting tuition rates (currently)

⚠️ Risk Factors:

1. Kumon can change royalty rates with 60 days' notice (no contractual limit on increases)
2. Kumon can impose tuition caps with 60 days' notice
3. Shipping costs can increase with 30 days' notice
4. Chargeable Items prices can change without notice
5. Required vendor pricing (Momentum, School Outfitters) not disclosed or controlled

---

Red Flags and Concerns

🚩 Major Concerns

1. Unilateral Pricing Power

   • Kumon can change royalty rates with no contractual limit
   • Can impose tuition caps, potentially squeezing margins
   • Only recourse: terminate franchise (lose investment)

2. Exclusive Supply Requirements

   • Zero flexibility on core materials (expected for proprietary system)
   • Mandatory vendors for furniture and phone system (less justifiable)
   • No competitive bidding or price protection

3. Missing Item 8 Documentation

   • Complete Item 8 not provided in FDD materials reviewed
   • May contain additional restrictions or requirements
   • Prospective franchisees should obtain complete disclosure

4. Future Restrictions Possible

   • "We may add and remove vendors from either list"
   • No supplier approval process currently, but could be implemented
   • Operations Manual can be changed without franchisee consent

⚠️ Moderate Concerns

1. Shipping Cost Exposure

   • Currently capped at $40 per order, but can increase with 30 days' notice
   • No long-term price protection
   • Frequency of orders affects total shipping costs

2. Chargeable Items Uncertainty

   • Prices can change without notice
   • Items can be discontinued without notice
   • No guaranteed availability of supplemental materials

3. Technology Vendor Lock-In

   • Must use specific Lead Management System
   • Phone number assigned by Kumon, must be returned upon termination
   • Monthly recurring cost with single vendor

✅ Positive Indicators

1. Transparent Financial Disclosure

   • Kumon clearly states no rebates from third-party vendors
   • Insurance program operated at loss (not profit center)
   • Chargeable Items represent only 0.7% of company revenue

2. Significant Upfront Subsidies

   • $21,500-$24,050 in subsidies for new Centers
   • Reduces initial capital requirements substantially
   • Demonstrates franchisor investment in franchisee success

3. Reasonable Ongoing Costs

   • Kumon-controlled purchases only ~2.1% of ongoing costs
   • Most operational expenses under franchisee control
   • Core materials covered by royalty (no separate per-unit charges)

---

Practical Implications for Prospective Franchisees

What This Means for Your Business

Capital Planning

Initial Investment:

• Budget for $73,783-$165,920 total investment
• Kumon subsidies will offset $21,500-$24,050
• Net out-of-pocket closer to $52,283-$141,870
• Vendor restrictions have minimal impact on initial costs

Ongoing Operations:

• Primary cost driver is royalty based on enrollment
• Fixed vendor costs relatively low (~$348/month + royalties)
• Most operational expenses (rent, payroll, marketing) under your control

Negotiating Leverage

You Have NO Leverage On:

• Core instructional materials (proprietary system)
• Furniture vendor selection
• Phone system vendor selection
• Royalty rate changes
• Tuition cap implementation

You Have SOME Leverage On:

• Insurance carrier selection (if you opt out of Kumon program)
• Reading list book vendors
• Marketing materials vendors (within Kumon standards)
• Additional furniture purchases beyond initial set

You Have FULL Control On:

• Current tuition rates (subject to future caps)
• Hiring and payroll decisions
• Lease negotiations (subject to Kumon approval)
• Marketing spend levels (beyond minimums)

Risk Mitigation Strategies

1. Financial Modeling
   • Model scenarios with 20-30% roy

---

KUMON NORTH AMERICA, INC. Franchise Brand Strength & Market Position

Overview

Important Note: The FDD provided does not contain the typical Items that would include detailed information about brand recognition, marketing effectiveness, social media presence, customer satisfaction metrics, or industry awards. The available information is limited to Items 1-11, which focus primarily on business structure, fees, training, and operational requirements. This analysis is therefore based on the limited information available in the provided FDD sections.

Brand Heritage and Global Presence

Historical Foundation

Kumon possesses a strong historical foundation dating back to 1954:

• Founded: 1954 by Toru Kumon in Osaka, Japan
• Original Purpose: Developed as a supplemental math program for the founder's son
• Proven Success: The founder's son reached calculus by sixth grade using the method
• Formal Establishment: Kumon Educational Japan Co., Ltd. established in 1958
• U.S. Presence: Franchising in the U.S. since March 1983 (predecessors), Kumon North America, Inc. since 1994

Global Market Position

Kumon demonstrates exceptional global scale as of December 31, 2023:

Regional Structure

Kumon operates through six regional headquarters worldwide:

• Japan
• North America
• South America
• Europe/Africa
• China
• Asia/Oceania

This global infrastructure provides franchisees with the backing of an established international brand with proven longevity.

Market Positioning

Educational Segment

Mid-Market to Premium Positioning:

Based on the available information, Kumon positions itself as:

1. Affordable Long-Term Supplemental Education Provider

   • The FDD explicitly states Kumon's mission to "distinguish Kumon from competitors as the only affordable, long-term supplemental education provider"
   • Registration fee currently capped at $80 (one-time, regardless of one or two subjects)
   • No current tuition limits imposed, though Kumon reserves the right to implement them

2. Quality-Focused Methodology

   • Proprietary "Kumon Method" with 65+ years of refinement
   • Mastery-based system emphasizing speed and accuracy
   • Individualized, self-learning approach
   • 20 math levels and 27 reading levels (pre-school through high school)

3. Accessibility Mission

   • Core value: "bring the maximum benefits of the Kumon Method to as many children as possible, regardless of ability, age, race, cultural or economic backgrounds"
   • This mission statement suggests mid-market positioning to maximize accessibility

Competitive Landscape

The FDD acknowledges significant and increasing competition:

Direct Competitors:

• Tutoring institutes
• Tutoring centers
• Learning centers
• Test-prep centers
• Cram schools
• Individual tutors
• Self-tutoring programs
• Other Kumon Centers (inter-brand competition)

Indirect Competitors:

• Educational services offered on the Internet
• Public and private schools (some utilize Kumon Method to supplement curricula)

Competitive Threat: The FDD states "The supplemental educational market continues to experience increasing competition," indicating a challenging competitive environment.

Brand Recognition Indicators

Tangible Evidence of Brand Strength

While the FDD does not provide specific brand awareness metrics, several indicators suggest strong brand recognition:

1. Scale of Operations

   • 1,637 franchised centers in North America
   • 390,515 students in North America
   • Presence in major metropolitan areas

2. Longevity

   • 38+ years of franchising experience in the U.S.
   • 65+ years of global operations
   • Continuous operation since 1958

3. International Presence

   • Operations in 60+ countries demonstrates global brand recognition
   • Consistent methodology across all markets

4. Retail Visibility Requirements

   • Franchisees must operate in retail locations (storefronts, shopping centers, malls)
   • Exterior signage requirements enhance brand visibility

Brand Support Elements

What Kumon Provides:

• Proprietary curriculum materials (Worksheets, tests, etc.)
• Established teaching methodology
• Training programs
• Operations manual
• Furniture and fixtures for new centers (provided at no cost)
• Initial signage (reimbursed up to $4,800-$7,000)
• Digital marketing support for new centers

Marketing and Advertising

Corporate Marketing Support

Limited Information Available: The FDD does not contain Item 11's advertising section in full detail, but provides these insights:

New Center Marketing Program

Key Points:

• Kumon subsidizes approximately 48% of new center marketing costs
• Uses preferred vendor for digital advertising
• Kumon earns no commission from this arrangement

Advertising Fund Structure

Current Status (as of FDD date):

• No mandatory national advertising fund currently exists
• No mandatory regional advertising fund currently exists
• Kumon reserves the right to establish such funds in the future
• Recommended minimum: $2,400 annually on local advertising (not required)

Potential Future Requirements:

• Kumon may establish national and/or regional advertising funds
• If established, Kumon could reallocate required local marketing spend to these funds
• Franchisees would be required to contribute

Local Marketing Requirements

Franchisee Responsibilities:

• Currently no minimum advertising requirement (except New Center Marketing)
• Recommended: At least $2,400 annually
• Must comply with brand standards in all marketing materials
• Cannot establish independent websites or domain names
• Assigned Kumon Center domain name links to basic center information on kumon.com

Digital Presence

Limited Digital Infrastructure for Franchisees:

1. Website:

   • Franchisees receive assigned domain name
   • Links to basic center information on kumon.com
   • Cannot establish independent websites
   • Information displayed when customers search for nearby centers

2. Email:

   • Assigned Kumon Center email address
   • Must be used exclusively for Kumon business
   • Must register immediately after signing franchise agreement

3. Social Media:

   • No information provided in available FDD sections
   • Likely controlled at corporate level or restricted

Red Flag: The restrictive digital presence policy may limit franchisees' ability to compete effectively in today's digital-first marketing environment.

Customer Satisfaction Indicators

Information Not Available: The provided FDD sections do not include:

• Customer satisfaction scores
• Net Promoter Scores
• Student retention rates
• Parent testimonials
• Third-party reviews or ratings

What Is Available:

Student Enrollment Metrics

The TLP (Temporary License Period) completion requirements provide indirect quality indicators:

These thresholds suggest that successful centers can achieve substantial enrollment, indicating market acceptance.

Quality Control Measures

The franchise system includes extensive quality requirements:

• Appropriate placement testing
• Individualized assessment
• Proper grading and record keeping
• Progress goals and communication
• Achievement testing
• Parent and student communication standards

These requirements suggest a focus on maintaining quality that should support customer satisfaction.

Industry Awards and Recognition

Information Not Available: The provided FDD sections contain no information about:

• Industry awards
• Educational certifications
• Third-party recognitions
• Media coverage
• Rankings or ratings

Implication: Either this information exists but is not included in the provided FDD sections, or Kumon does not emphasize awards and recognition in its franchise marketing.

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

Competitive Comparison

Major Competitors in Supplemental Education

While the FDD does not provide specific competitive data, the following comparison is based on general market knowledge and the information provided:

Kumon's Competitive Advantages

1. Established Methodology: 65+ years of refinement vs. newer competitors
2. Global Credibility: International presence provides legitimacy
3. Comprehensive Support: More extensive than most franchise systems
4. Proven Curriculum: Standardized materials reduce franchisee burden
5. Brand Recognition: Stronger than most tutoring center franchises

Competitive Disadvantages

1. Rigidity: Less flexible than individual tutors or customized programs
2. Limited Subject Matter: Only math and reading vs. full-service tutoring
3. Structured Approach: May not appeal to all learning styles
4. Price Sensitivity: Mid-market positioning may lose to budget online options
5. Digital Limitations: Restrictive online presence policies vs. digital-native competitors

Brand Value Assessment for Franchisees

Tangible Brand Benefits

Financial Support (New Centers):

Ongoing Support:

• Kumon Materials provided at no charge (shipping costs only)
• Proprietary software and customer management system (licensed)
• Continuous training and development opportunities
• Branch office support and guidance

Intangible Brand Benefits

1. Credibility: 65-year history and global presence
2. Parent Trust: Established brand reduces customer acquisition barriers
3. Proven System: Reduces trial-and-error in business development
4. Network Effects: Association with 1,600+ other centers
5. Curriculum Development: No need to create teaching materials

Brand Value Limitations

Significant Restrictions:

1. Digital Autonomy: Cannot create independent websites or strong local digital presence
2. Pricing Control: Kumon can impose tuition limits with 60 days' notice
3. Business Restrictions: Cannot operate any other business at approved location
4. Marketing Control: Limited ability to differentiate from other Kumon centers
5. Royalty Uncertainty: No cap on potential royalty increases
6. Inter-Brand Competition: Must compete with other Kumon centers

ROI Considerations

Positive Factors:

• Low initial franchise fee ($2,000)
• Substantial initial support ($35,900-$38,100 value)
• Ongoing materials provided
• Proven business model

Risk Factors:

• High TLP royalty rates until achieving 600 math/400 reading enrollments
• Competitive market with "increasing competition"
• Limited pricing autonomy
• Potential for royalty increases without cap
• Restrictive operating requirements

Red Flags and Concerns

Critical Issues for Potential Franchisees

---

KUMON NORTH AMERICA, INC. Franchise Growth Trends & System Health

Overview

Data Limitation Notice: The provided FDD documentation does not contain Item 20 (Outlets and Franchisee Information), which is the primary source for detailed historical unit count data, transfer information, and comprehensive system growth metrics. The analysis below is based on limited data points found within the available FDD sections.

Available System Size Data

Based on the information disclosed in Item 1 of the FDD:

Global Kumon System (as of December 31, 2023)

North American Operations (as of December 31, 2023)

Franchise Penetration Rate: 98.7% (franchised vs. total units)

Historical Growth Analysis

Limited Historical Data Available

The FDD does not provide comprehensive historical unit count data for the past 5-10 years in the sections provided. However, several contextual indicators suggest the system's maturity:

Established Market Presence:

• Kumon has offered franchises in the U.S. since 1994
• Predecessors offered franchises from March 1983 to January 1994
• Total U.S. franchise history: 41 years (as of 2024)

Global Foundation:

• The Kumon Method was developed in 1954
• Kumon Educational Japan Co., Ltd. established in 1958
• 66 years of operational history globally

Company-Owned vs. Franchised Unit Ratio

Analysis: The extremely high franchise penetration rate (98.7%) indicates:

• ✅ Strong franchisor confidence in the franchise model
• ✅ Minimal direct competition from corporate stores
• ✅ Mature franchise system with proven replication model
• ⚠️ Limited company-owned units may mean less direct operational testing of new initiatives

Geographic Distribution

International Presence

Kumon operates in more than 60 countries and regions, including:

Major Markets:

• Japan (headquarters and largest market)
• North America (U.S., Canada, Mexico)
• South America (Brazil, Argentina, Chile, Colombia, Peru, Uruguay, Bolivia)
• Europe/Africa (UK, Germany, France, Spain, Portugal, South Africa, Kenya, and others)
• Asia/Oceania (China, Hong Kong, Singapore, Malaysia, Thailand, Philippines, Australia, New Zealand, and others)
• Middle East (UAE, Qatar, Bahrain)

North American Structure

Regional Headquarters:

• Kumon North America, Inc. (U.S. operations)
• Kumon Canada Inc. (Canadian operations - subsidiary)
• Kumon Instituto de Educación, S.A. de C.V. (Mexico and Central America - subsidiary)

U.S. Regional Branch Structure:

The FDD identifies multiple regional general managers overseeing branch operations:

Analysis: The multi-branch structure suggests:

• Comprehensive geographic coverage across the United States
• Localized support and oversight
• Mature market penetration in major metropolitan areas

Market Saturation Analysis

Indicators of Market Maturity

⚠️ Potential Saturation Concerns:

1. Long Operating History: With 41 years of U.S. franchising, prime markets may be saturated
2. Large Existing Network: 1,637 franchised centers represent substantial market coverage
3. Territory Restrictions: Item 12 indicates territorial protections, limiting density in established markets

Positive Market Indicators:

1. Non-Traditional Market Initiative: The FDD describes a "Non-Traditional Market" program for rural areas and underserved locations:

   • Defined as areas >25 miles from existing Kumon Centers
   • Lower household density with school-aged children
   • Modified operating requirements
   • Suggests franchisor actively seeking expansion into underserved markets

2. Hybrid/Online Expansion: Recent additions to the franchise model indicate growth strategy evolution:

   • Kumon Connect (digital worksheet platform)
   • Online video conferencing instruction
   • Hybrid instruction models
   • Suggests adaptation to changing market conditions and expansion of addressable market

3. Four-Day Operating Model: The FDD mentions a shift from two-day to four-day weekly operations for new franchisees:

   • Indicates system evolution and intensification
   • May improve student outcomes and retention
   • Could support higher enrollment per center

Regional Saturation Assessment

Without Item 20 data, precise regional saturation analysis is not possible. However, the branch structure suggests:

• Likely Higher Saturation: Northeast, Southern California, major metropolitan areas
• Potential Growth Areas: Non-traditional markets, rural areas, secondary cities
• Expansion Opportunity: Online/hybrid models may reduce geographic constraints

Current Expansion Strategy

Strategic Initiatives Identified in FDD

1. Digital Transformation

Kumon Connect Platform:

• Digital worksheet delivery system
• Available to all students regardless of instruction mode (in-person, hybrid, online)
• Represents significant investment in technology infrastructure
• Expands accessibility beyond physical center limitations

Implications:

• ✅ Modernizes 66-year-old educational method
• ✅ Attracts tech-savvy families
• ✅ Reduces geographic barriers
• ✅ Potential for increased student capacity per center

2. Flexible Instruction Models

The franchise now offers three instruction modes:

1. Traditional in-center (twice weekly)
2. Online video conferencing
3. Hybrid (combination of in-center and online)

Strategic Benefits:

• Expands addressable market to families unable to visit physical centers
• Provides continuity during disruptions (health crises, weather, etc.)
• Increases convenience and competitiveness

3. Non-Traditional Market Expansion

Program Features:

• Targets rural areas and underserved markets
• Modified requirements (reduced minimum operating hours)
• Specific addendum to Franchise Agreement (Attachment 2-G)

Growth Potential:

• Addresses market saturation in urban/suburban areas
• Taps underserved demographics
• Lower competition in these markets

4. Enhanced New Franchisee Support

Recent Additions:

• $7,560 digital marketing support (franchisee pays $3,960 over 18 months)
• Rent subsidy: 50% of monthly rent (max $1,000/month) for first 12 months
• Applies to new centers operating four days per week
• Furniture, fixtures, signage, and initial improvements provided/reimbursed

Analysis:

• ✅ Reduces barrier to entry
• ✅ Improves new center success rates
• ✅ Indicates franchisor commitment to growth
• ⚠️ May suggest challenges in franchisee recruitment or retention

5. Intensified Operating Model

Four-Day Requirement for New Franchisees:

• New franchisees must offer instruction sessions four times per week
• Existing franchisees (renewals) may continue with two-day model
• Represents shift toward more intensive service delivery

Implications:

• May improve educational outcomes and student retention
• Increases franchisee time commitment
• Could support higher enrollment and revenue per center
• Creates two-tier system (new vs. existing franchisees)

Pipeline and Development Activity

Franchisee Recruitment Infrastructure

Center Network Development Department:

• Led by Vice President John Collins (appointed January 2019)
• Dedicated to franchisee recruitment and new center openings
• Indicates ongoing recruitment efforts

Instructor Development Program:

• Structured two-semester program
• Rigorous qualification process (proficiency tests, background checks, interviews)
• Suggests selective franchisee screening

⚠️ Data Gap: The FDD does not disclose:

• Number of franchisees currently in development/training
• Number of signed but not yet opened agreements
• Annual franchisee recruitment targets
• Franchise sales trends

Revenue Trends

Limited Financial Data Available

System-Wide Revenue (Fiscal Year 2023):

From internal records disclosed in Item 8:

Analysis:

• Royalty and fee revenue represents the overwhelming majority of franchisor income
• Minimal revenue from product sales (0.7%)
• Insurance program operated at slight loss ($51,865)
• Business model heavily dependent on franchisee success and enrollment

Royalty Structure Analysis

Current Royalty Rates:

Revenue Implications:

• Royalty model directly tied to student enrollment
• Franchisor success depends on franchisee enrollment growth
• TLP premium ($4.50/student) incentivizes franchisee development
• No percentage-of-revenue royalty (flat per-student fee)

Estimated Average Students per Center:

• North American students: 390,515
• North American centers: 1,659
• Average: ~235 students per center

Estimated Monthly Royalty per Average Center:

• 235 students × $36 = $8,460/month
• $101,520 annually per center (post-TLP)

Estimated Annual Royalty Revenue:

• 1,637 franchised centers × $101,520 = ~$166,188,240
• Actual total revenue: $153,032,416
• Difference suggests mix of TLP/post-TLP centers, partial enrollments, and other factors

System Health Indicators

Positive Health Signals

✅ Mature, Stable Global Brand

• 66 years of operational history
• 23,700 centers worldwide
• 3.5 million students globally
• Presence in 60+ countries

✅ Strong Franchise Penetration

• 98.7% franchised units
• Only 22 company-owned centers
• Indicates successful franchise model

✅ Ongoing Innovation

• Digital platform (Kumon Connect)
• Hybrid instruction models
• Adaptation to modern educational landscape

✅ Franchisee Support Enhancements

• Increased financial support for new franchisees
• Rent subsidies, marketing support
• Comprehensive training program

✅ Diversified Revenue Base

• Not dependent on product sales
• Royalty model aligns franchisor/franchisee interests
• Multiple revenue streams (royalties, enrollment fees, materials)

Concerns and Red Flags

⚠️ Market Maturity/Saturation

• 41 years of U.S. franchising suggests limited greenfield opportunities
• Large existing network (1,637 centers) may limit growth potential
• Need for non-traditional market program suggests prime market saturation

⚠️ Increased Franchisee Requirements

• Four-day operating requirement for new franchisees (vs. two-day for existing)
• Creates operational disparity in system
• May indicate need to intensify model for competitiveness

⚠️ Enhanced Support May Indicate Challenges

• Significant rent subsidies ($12,000 first year)
• Marketing support ($3,960 over 18 months)
• May suggest difficulty in franchisee recruitment or early-stage profitability

⚠️ Lack of Transparency

• No Item 19 (Financial Performance Representation) data provided
• No Item 20 (historical unit count data) in provided FDD sections
• Limited visibility into system growth trends
• No closure or transfer rate data available

⚠️ Competitive Landscape

• FDD acknowledges "increasing competition" in supplemental education
• Competition from online tutoring, learning centers, test prep, individual tutors
• Kumon Publishing workbooks sold through retail channels may compete with centers

⚠️ Royalty Rate Flexibility

• Franchisor can change royalty rates with 60 days' notice
• No contractual limit on royalty increases
• Franchisee can terminate if unwilling to pay, but creates uncertainty

⚠️ Tuition Cap Authority

• Franchisor has right to impose tuition limits (currently $80 registration fee cap)
• Could implement tuition limits in future
• Limits franchisee pricing flexibility and revenue potential

Growth Trajectory Assessment

Is the System Growing or Plateauing?

Evidence Suggesting Plateau/Maturity:

1. Long Operating History: 41 years in U.S. market indicates mature lifecycle stage
2. Large Existing Network: 1,637 centers represent substantial market penetration
3. Need for Non-Traditional Markets: Expansion into rural/underserved areas suggests urban/suburban saturation
4. Enhanced Franchisee Incentives: Increased financial support may indicate recruitment challenges
5. Model Intensification: Four-day requirement suggests need to differentiate/compete more aggressively

Evidence Suggesting Continued Growth:

1. Digital Transformation: Kumon Connect and online instruction expand addressable market
2. Global Strength: 3.5M students worldwide, 60+ countries show brand vitality
3. Strategic Adaptation: Hybrid models, non-traditional markets show proactive strategy
4. Dedicated Recruitment: Center Network Development Department indicates ongoing expansion focus
5. Franchisee Support: Significant investment in new franchisee success

Most Likely Scenario: Mature System with Selective Growth

The Kumon franchise system appears to be in a mature phase with the following characteristics:

Primary Markets: Likely saturated or near-saturation in major metropolitan areas

• Limited new franchise opportunities in established markets
• Growth primarily through existing center enrollment increases
• Potential for territory consolidation or transfers

Secondary/Emerging Markets: Continued expansion opportunity

• Non-traditional rural markets
• Underserved demographic segments
• Online/hybrid models reducing geographic constraints

System Evolution: Transformation rather than rapid expansion

• Digital platform adoption
• Service model enhancement (four-day operations)
• Quality improvement over quantity growth

Future Outlook and Projections

Growth Drivers

1. Digital/Hybrid Expansion

• Potential Impact: High
• Kumon Connect platform enables geographic expansion beyond physical centers
• Online instruction reduces real estate and overhead costs
• Hybrid model offers flexibility attractive to modern families
• Could support 10-20% enrollment growth without proportional center growth

2. Non-Traditional Market Penetration

• Potential Impact: Moderate
• Addresses underserved rural and secondary markets
• Lower competition, potentially higher market share
• Limited by smaller population base in target markets
• Could add 100-200 centers over 5 years

3. International Expansion

• Potential Impact: High (for global system)
• Emerging markets in Asia, Latin America, Africa
• North American franch

---

KUMON NORTH AMERICA, INC. Franchise Trademark & Intellectual Property (Item 13)

Overview

CRITICAL NOTICE: Item 13 (Trademarks) was not found in the provided FDD documentation. The FDD structure overview indicates that Item 13 content is not available in the materials provided for analysis. This represents a significant limitation in conducting a complete trademark and intellectual property assessment.

However, based on references to trademarks and intellectual property scattered throughout other sections of the FDD, we can provide a partial analysis of Kumon's IP framework.

---

What We Know From Other FDD Sections

Referenced Trademarks and Proprietary Marks

Throughout the FDD, Kumon references several key intellectual property elements:

Primary Trademarks

• "KUMON" - The primary brand name
• "Kumon Math and Reading Centers" - Service mark
• "Kumon Method Centers" - Service mark
• "Kumon Centers" - Service mark
• The "thinking face" design - Logo trademark (referred to as the "Kumon Logo")

Proprietary Systems and Materials

• Kumon Method - The core educational methodology (developed in 1954 by Toru Kumon)
• Kumon Worksheets - Proprietary curriculum materials (20 math levels, 27 reading levels)
• Kumon Connect - Digital platform for online learning
• Proprietary software and customer management systems

---

Trademark Usage Rights and Restrictions

What You Can Use

Based on Franchise Agreement references found in Item 9:

What You Cannot Do

Significant Restrictions:

• ❌ No independent domain names - You cannot establish or maintain any domain name or Internet site other than the one Kumon assigns to you
• ❌ No Internet distribution - You may not distribute or utilize any Kumon Materials, products, or services over the Internet or any other computer network
• ❌ No location flexibility - You cannot use Kumon marks from any location other than your approved Center location
• ❌ No modification - You cannot modify the Kumon Logo or marks without approval
• ❌ Logo separation required - When affixing signage, the Kumon Logo must be separated from all local Center information

---

Intellectual Property Protection Framework

Proprietary Materials

Kumon Materials Ownership:

┌─────────────────────────────────────────────────────┐
│ KUMON RETAINS FULL OWNERSHIP OF:                    │
├─────────────────────────────────────────────────────┤
│ • Placement Tests                                    │
│ • Achievement Tests                                  │
│ • Worksheets (all 20 math + 27 reading levels)     │
│ • Record Books                                       │
│ • Progress Charts                                    │
│ • Answer Books                                       │
│ • Solution Manuals                                   │
│ • Training materials                                 │
│ • Operations Manual                                  │
│ • Proprietary software                              │
│ • Customer management systems                        │
└─────────────────────────────────────────────────────┘

Key Provision: Kumon keeps title to all Kumon Materials until the Materials are given to students (Item 6, Note 6).

Restrictions on Material Usage

---

Franchisor's Obligation to Protect IP

What the FDD Reveals

Based on Franchise Agreement Section 7.6 (referenced in Item 11):

Kumon's Commitment:

• ✅ Will investigate unauthorized uses of Proprietary Marks that you report
• ✅ Has operated the Kumon Method since 1958 (66 years of brand development)
• ✅ Operates in 58+ countries with approximately 23,700 Centers globally
• ✅ Maintains centralized control over all proprietary materials

⚠️ CONCERN: The FDD does not specify:

• Whether trademarks are registered with the USPTO
• Whether registrations are on the Principal or Supplemental Register
• Whether any trademark applications are pending
• Whether there are any incontestability claims
• Whether there are any existing trademark disputes or challenges

---

What Happens If Trademarks Are Challenged

Post-Termination Obligations

Based on Franchise Agreement Sections 14.6 and 15 (referenced in Item 9):

Upon Termination or Expiration:

1. Immediate Cessation Required:

   • You must immediately stop using all Kumon trademarks and proprietary marks
   • You must cease using the Kumon Lead Management System
   • You must assign your dedicated telephone number to Kumon
   • You must remove or allow Kumon to remove the primary exterior sign (at your expense)

2. Material Return:

   • You must return all Kumon Materials
   • You must return all proprietary software and systems
   • You must return or destroy all confidential information

3. Non-Competition:

   • The Franchise Agreement includes non-competition covenants (Section 15)
   • Specific terms not detailed in available FDD sections

If Trademarks Are Challenged by Third Parties

⚠️ CRITICAL GAP: The provided FDD sections do not specify:

• Who bears the cost of defending trademark challenges
• Whether franchisees must continue paying royalties during disputes
• Whether franchisees can terminate if marks are successfully challenged
• What compensation (if any) franchisees receive if they must stop using marks
• Whether Kumon indemnifies franchisees for trademark infringement claims

What We Do Know:

• You must indemnify Kumon for claims arising from your activities (Item 6, Note 5)
• This suggests you may bear liability for your own misuse of marks
• However, indemnification for third-party challenges to mark validity is not addressed

---

IP Protection Strength Assessment

Positive Indicators

Concerns and Red Flags

🚩 MAJOR RED FLAG: Missing Item 13

The absence of Item 13 in the provided FDD is highly unusual and concerning:

• Federal law requires franchisors to disclose trademark information in Item 13
• Without this information, you cannot verify:
  • Whether trademarks are actually registered
  • Whether registrations are valid and current
  • Whether there are any limitations on trademark use
  • Whether any agreements limit Kumon's rights
  • Whether there are any pending infringement actions

🚩 Significant Restrictions on Digital Presence

DIGITAL RESTRICTIONS ANALYSIS:
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
❌ Cannot create your own website
❌ Cannot use social media with independent domain
❌ Cannot distribute materials online
❌ Limited to Kumon-assigned domain and email
❌ Cannot operate from any location except approved Center

BUSINESS IMPACT:
• Severely limits your ability to market independently
• Makes you entirely dependent on Kumon's digital infrastructure
• Restricts modern marketing strategies (social media, content marketing)
• Could limit your ability to compete with other tutoring services

⚠️ Kumon Publishing Company Competition

Potential Conflict:

• Kumon Publishing North America (KPNA) sells workbooks through retail channels
• These workbooks are available on Amazon, Barnes & Noble, Target, etc.
• Workbooks include information about Kumon Centers and franchise opportunities
• However: Workbooks could be seen as competing with Center enrollment
• FDD states: "Workbooks are not intended to be an alternative to enrollment"
• Risk: Parents might use workbooks instead of enrolling children in Centers

Your Limited Rights:

• You can purchase workbooks at a discount and resell at your Center
• You cannot use workbooks for instruction at your Center
• You cannot use workbooks as supplements to Center instruction

⚠️ Intellectual Property Development

If You Create Something New:

From Franchise Agreement Section 8.3 (referenced in Item 11):

1. You can propose "Additional Materials" you develop
2. If Kumon adopts your materials, Kumon owns them
3. Kumon will compensate you for development efforts
4. Concern: No specified compensation formula or minimum payment
5. Risk: You could invest significant time/money developing materials that Kumon takes ownership of for minimal compensation

---

Risk Assessment for Franchisees

High-Risk Areas

1. Lack of Trademark Registration Verification 🔴 HIGH RISK

Risk Level: ⚠️⚠️⚠️⚠️⚠️ CRITICAL

Issue:

• Cannot verify trademark registrations without Item 13
• Cannot assess strength of trademark protection
• Cannot evaluate risk of third-party challenges

Potential Impact:

• If trademarks are not properly registered, you could lose the right to use them
• If trademarks are challenged successfully, your entire business could be affected
• You may have invested $73,783-$165,920 in a brand you cannot legally use

Mitigation:

• ESSENTIAL: Request complete Item 13 disclosure before signing anything
• Conduct independent trademark search through USPTO database
• Have an intellectual property attorney review all trademark registrations
• Verify registrations are on Principal Register (stronger protection)
• Check for any pending oppositions or cancellation proceedings

2. Digital Marketing Restrictions 🟡 MEDIUM-HIGH RISK

Risk Level: ⚠️⚠️⚠️⚠️ SIGNIFICANT

Issue:

• Cannot create independent online presence
• Cannot use modern digital marketing strategies effectively
• Entirely dependent on Kumon's digital infrastructure

Potential Impact:

• Limited ability to compete with other tutoring services that have robust online presence
• Difficulty attracting tech-savvy parents who research online
• Cannot build independent brand equity or customer relationships online
• If Kumon's digital systems fail or are inadequate, you have no backup

Mitigation:

• Understand exactly what digital tools Kumon provides
• Evaluate whether Kumon's digital infrastructure is competitive
• Consider whether you can succeed with these limitations in your market
• Factor in the competitive disadvantage when projecting revenues

3. Material Dependency 🟡 MEDIUM RISK

Risk Level: ⚠️⚠️⚠️ MODERATE

Issue:

• 100% dependent on Kumon for all instructional materials
• Cannot source materials elsewhere
• Cannot modify or supplement materials without approval

Potential Impact:

• If Kumon has supply chain issues, your Center cannot operate
• If Kumon changes materials in ways you disagree with, you must comply
• If Kumon discontinues materials you find effective, you cannot continue using them
• Shipping costs are your responsibility (currently $40 or actual cost, whichever is less)

Mitigation:

• Understand Kumon's material supply reliability
• Maintain adequate inventory to buffer against supply disruptions
• Budget for shipping costs (can increase with 30 days' notice)
• Recognize you have no negotiating power on material changes

4. Workbook Competition 🟢 LOW-MEDIUM RISK

Risk Level: ⚠️⚠️ MINOR TO MODERATE

Issue:

• Kumon Publishing sells workbooks through retail channels
• Parents might use workbooks instead of enrolling in Centers
• You cannot use workbooks for instruction even though they bear the Kumon name

Potential Impact:

• Some potential customers may be lost to workbook purchases
• Creates confusion in marketplace about what Kumon offers
• You cannot leverage workbooks as a supplemental revenue stream through instruction

Mitigation:

• Understand that workbooks include advertising for Centers
• Position your Center as offering comprehensive instruction that workbooks cannot replace
• Use workbooks as retail products to generate supplemental revenue
• Recognize this is a minor competitive factor in most markets

Medium-Risk Areas

5. IP Development Ownership 🟡 MEDIUM RISK

Risk Level: ⚠️⚠️⚠️ MODERATE

Issue:

• Any improvements or materials you develop may become Kumon's property
• Compensation for your developments is not specified
• You could invest significant resources in development with minimal return

Potential Impact:

• Disincentive to innovate or improve the Kumon Method
• If you develop something valuable, Kumon takes ownership
• Compensation may not reflect the value of your contribution

Mitigation:

• Negotiate compensation terms in writing before developing new materials
• Document all development costs and time invested
• Consider whether innovation is worth the risk given ownership structure
• Focus on operational excellence rather than material development

Lower-Risk Areas

6. Sign Ownership 🟢 LOW RISK

Risk Level: ⚠️ MINOR

Issue:

• Kumon owns the primary exterior sign (even though you pay for it initially)
• You must pay for sign removal at termination

Potential Impact:

• At termination, you pay removal costs for a sign you don't own
• Estimated removal cost: $500-$1,500 (not specified in FDD)

Mitigation:

• Budget for sign removal costs in your exit planning
• Understand this is standard in franchise systems
• Kumon reimburses initial fabrication and installation ($4,800-$7,000)

---

Practical Implications for Potential Franchisees

Before You Sign: Essential Due Diligence

✅ MUST DO: Obtain Complete Item 13

Action Steps:

1. Request Item 13 immediately from Kumon's Center Network Development Department

   • Contact: 301 Route 17 North, Rutherford, NJ 07070
   • Phone: (201) 928-0444
   • Email: Franchise@Kumon.com

2. Verify the following information is included:

   • Complete list of all trademarks and service marks
   • USPTO registration numbers and dates
   • Whether marks are on Principal or Supplemental Register
   • Any pending applications
   • Any agreements limiting Kumon's rights to use marks
   • Any incontestability claims

---

KUMON NORTH AMERICA, INC. Franchise Advertising Requirements (Item 11 - Part 3)

Overview

CRITICAL NOTICE: The FDD provided does not contain Item 11 content in the extracted pages. The document structure shows Item 11 exists (pages reference it in the Table of Contents on page 7), but the actual content for Item 11 regarding advertising and marketing requirements was not included in the provided text excerpt.

The text cuts off mid-sentence on page 37 during site selection discussion, before reaching the complete Item 11 content that would detail:

• National advertising fund requirements
• Ad fund governance
• Local advertising obligations
• Marketing support provided
• Digital marketing requirements

Available Marketing Information from Other Sections

While complete Item 11 details are unavailable, the FDD does provide some marketing-related information in Item 6 (Other Fees) and Item 7 (Estimated Initial Investment):

New Center Marketing Requirement

Key Details:

• Total Marketing Investment: $7,560 for new centers
• Franchisee Pays: $3,960 (approximately 52% of total)
• Kumon Subsidizes: $3,600 (approximately 48% of total)
• Duration: First 18 months of operation
• Purpose: Digital advertising services through Kumon's preferred vendor
• Vendor Selection: Kumon designates the vendor (not disclosed in provided pages)

Advertising Contribution Requirements

Important Notes:

• Kumon currently does not require any minimum advertising spend beyond the New Center Marketing requirement
• The franchise agreement reserves the right to establish minimum advertising requirements in the future
• Franchisees are recommended (but not required) to spend at least $2,400 annually on local advertising

Potential National/Regional Advertising Fund

According to Item 6, Note 11:

💡

"We have the right, in our sole discretion, to establish a national advertising fund and/or regional advertising fund for the geographic area in which your Center is located. If we do so, we have the right to reallocate all or a portion of any monies that you are required to spend on authorized promotion and marketing of your Center to the applicable fund(s), and you will be required to contribute that amount to the fund(s)."

Critical Implications:

• ⚠️ No current advertising fund exists, but Kumon reserves the right to create one
• ⚠️ No advance notice requirement specified for establishing such a fund
• ⚠️ No cap on contribution amounts if a fund is established
• ⚠️ Mandatory participation if fund is created
• ⚠️ Kumon could reallocate required local advertising spend to the fund

Marketing Support Provided by Kumon

Based on available information from Items 5, 6, and 7:

1. Digital Marketing Services

• Kumon arranges digital advertising through preferred vendor
• Services purchased on franchisee's behalf for first 18 months
• Kumon subsidizes approximately 48% of cost

2. Initial Marketing Materials

• Initial Materials Fee: $2,000 (paid at signing)
• Includes: instruction answer books, student achievement tests, student placement tests, and promotional materials
• Non-refundable

3. Signage Support

• Exterior Sign: Kumon reimburses fabrication, delivery, and installation costs
• Estimated Cost: $4,800 - $7,000 (fully reimbursed for new centers)
• Ownership: Kumon owns the primary exterior sign
• Requirements: Must be approved by Kumon before installation
• Additional Signs: Franchisee may install at own expense (must meet specifications)

4. Online Presence

• Kumon Center Domain Name: Assigned by Kumon for basic center information
• Purpose: Link from kumon.com website for location searches
• Restriction: Cannot establish any other domain name or website for your Center
• Email Address: Kumon assigns email address for Center use (must be used exclusively for Kumon business)

5. Lead Management System

• Kumon Lead Management System Suite: Required purchase ($200-$550)
• Installation Reimbursement: Kumon reimburses installation costs
• Monthly Cost: Approximately $48/month (paid to vendor)
• Features:
  • Automatic routing of parent inquiries to Kumon call center
  • Kumon call center schedules appointments in franchisee's absence
  • Access to scheduling calendar
• Revenue to Kumon: None (no commission or revenue from system)

6. Promotional Materials Available for Purchase

From Exhibit A (referenced but not provided in full):

• Supplemental teaching materials
• Promotional items ("Chargeable Items")
• Optional purchases at franchisee's discretion
• Prices subject to change without notice

Marketing Restrictions and Requirements

Advertising Control

Based on Franchise Agreement references in Item 9:

Franchisee Must:

• Comply with advertising standards in Operations Manual (Sections 6.2, 6.4, 6.5, 6.6)
• Obtain approval for advertising materials (implied from trademark restrictions)
• Use only approved promotional materials and methods

Franchisee Cannot:

• Distribute Kumon Materials over the Internet or computer networks
• Operate from any location other than approved Center location
• Establish independent website or domain name
• Use Center email for non-Kumon business

Tuition and Fee Restrictions (Impact on Marketing)

Registration Fee Cap: $80 maximum

• Only one registration fee regardless of number of subjects
• Limits ability to use pricing as competitive tool

Tuition Limits:

• Currently no limit imposed
• Kumon reserves right to impose limits with 60 days' notice
• Franchisees may request exceptions with supporting data
• Mission-Driven: Kumon's mission emphasizes affordability and accessibility

Marketing Implication: Pricing restrictions limit competitive positioning and marketing strategies based on premium pricing.

Transparency and Accountability

Current Status: INCOMPLETE INFORMATION

⚠️ The following critical information is NOT available in the provided FDD excerpt:

1. Ad Fund Governance: Who controls advertising fund decisions (if established)
2. Ad Fund Financial Reporting: Whether franchisees receive financial statements
3. Ad Fund Spending Details: How money would be allocated and spent
4. Advisory Council: Whether franchisees have input on marketing decisions
5. Competitive Spending: How Kumon's ad fund (if any) compares to competitors
6. Marketing Committee: Whether franchisee representatives participate
7. Audit Rights: Whether franchisees can audit ad fund expenditures
8. Unused Funds: How surplus advertising funds are handled

This information should be in the complete Item 11, which was not included in the provided pages.

Marketing Costs Summary Table

First Year Marketing Investment Estimate

Mandatory Marketing Costs (First Year):

• Initial Materials: $2,000
• New Center Marketing (12 months): $2,640
• Lead Management System: $200-$550
• Lead Management Monthly (12 months): $576
• Total Mandatory Year 1: $5,416 - $5,766

If Following Recommendations:

• Add Recommended Local Advertising: $2,400
• Total with Recommendations: $7,816 - $8,166

Note: Exterior sign cost is reimbursed by Kumon, so not included in franchisee's net cost.

Red Flags and Concerns

🚩 Major Concerns

1. Incomplete Disclosure

   • Item 11 content not provided in FDD excerpt
   • Cannot fully evaluate advertising requirements and support
   • Critical information about ad fund governance missing

2. Unlimited Future Ad Fund Authority

   • Kumon can establish national/regional ad fund at any time
   • No cap on contribution amounts
   • No advance notice requirement specified
   • No franchisee approval required
   • Could significantly increase ongoing costs

3. Reallocation Rights

   • Kumon can redirect required local advertising spend to ad fund
   • Reduces franchisee control over marketing budget
   • May not align with local market needs

4. Marketing Control

   • Cannot establish independent website or online presence
   • Limited to Kumon-assigned domain and email
   • All advertising must comply with Kumon standards
   • Restricts entrepreneurial marketing initiatives

5. Pricing Restrictions

   • Registration fee cap limits revenue potential
   • Future tuition caps possible with only 60 days' notice
   • Constrains competitive positioning and marketing strategies

6. No Transparency Guarantees

   • No mention of ad fund financial reporting (in provided pages)
   • No indication of franchisee advisory council
   • No audit rights disclosed
   • Unknown how marketing effectiveness is measured

⚠️ Moderate Concerns

7. Vendor Lock-In

   • Must use Kumon's preferred vendor for digital marketing (first 18 months)
   • Must use designated vendor for Lead Management System
   • Limited ability to negotiate better rates or services

8. Ongoing System Costs

   • Lead Management System: ~$576/year ongoing
   • Costs continue indefinitely
   • No alternative systems allowed

9. Sign Ownership

   • Kumon owns primary exterior sign
   • Franchisee must pay removal costs at termination
   • Limits asset ownership

10. Marketing Material Restrictions

    • Cannot distribute Kumon Materials online
    • Cannot use materials outside approved Center location
    • Limits modern marketing approaches (social media, email campaigns)

Positive Indicators

✅ Favorable Aspects

1. Significant Kumon Subsidies

   • 48% subsidy on New Center Marketing ($3,600)
   • 100% reimbursement for exterior sign ($4,800-$7,000)
   • 100% reimbursement for Lead Management System installation
   • 100% reimbursement for initial furniture ($10,000)
   • 100% reimbursement for initial carpet, paint, blinds (up to $5,500)
   • Total potential subsidies: $23,900-$26,600

2. No Current Ad Fund

   • Currently no mandatory national advertising fund contribution
   • Gives franchisees more control over marketing budget
   • Lower initial ongoing costs

3. Low Current Advertising Requirements

   • Only $220/month mandatory for first 18 months
   • No minimum after 18 months (currently)
   • Flexibility in local marketing approach

4. Call Center Support

   • Kumon call center handles inquiries when franchisee unavailable
   • Schedules appointments automatically
   • Reduces missed opportunities
   • Professional customer service backup

5. Brand Recognition

   • Kumon is established global brand (3.5+ million students worldwide)
   • 23,700+ centers in 60+ countries
   • Strong brand equity reduces local marketing burden
   • 40+ years in North America

6. Online Presence Included

   • Center listed on kumon.com (high-traffic website)
   • Assigned domain name for center information
   • Professional email address
   • Benefits from corporate website traffic

Value Analysis: Marketing Fees vs. Support Received

What You Pay (Year 1)

What You Receive

Net Value Assessment

You Pay: $5,416-$5,766 (Year 1 mandatory marketing)
You Receive: $27,860-$30,660+ in direct subsidies and support
Net Benefit: $22,094-$24,894+ in first year

Conclusion: The marketing support and subsidies significantly exceed the mandatory marketing fees, representing excellent value for new franchisees.

Comparison to Industry Standards

Note: Without complete Item 11 information and competitor FDDs, this comparison is limited.

Typical Education Franchise Marketing Requirements

Assessment: Kumon's current marketing requirements appear significantly lower than typical education franchises, though this could change if ad fund is established.

Practical Implications for

---

Understanding Your KUMON NORTH AMERICA, INC. Franchise Agreement: All Contracts (Item 22)

Overview

CRITICAL LIMITATION: The FDD provided does not contain the actual content of Item 22 (Contracts). According to the Table of Contents on page 7, Item 22 appears on page 56 of the full FDD document, but the text provided ends at page 37 and does not include this section.

Based on the FDD structure and references throughout the document, we can identify the following agreements that franchisees must sign, though the complete details from Item 22 are not available in the provided materials.

Identified Franchise Agreements

Primary Agreements

Based on the Attachments listed in the Table of Contents (page 8), the following agreements are part of the Kumon franchise system:

Additional Required Authorizations

Based on Item 6 and other sections, franchisees must also sign:

• Electronic Funds Transfer (EFT) Authorization: Required for monthly royalty payments and fee debits
• Insurance Certificates: Evidence of required insurance coverage
• Lease Agreements: For Center location (franchisee negotiates directly with landlord; Kumon must approve)

Key Contractual Commitments

1. Training Agreement

Purpose: Governs participation in the Instructor Development Program before franchise is granted

Key Terms:

• Deposit: $1,000 (applied to franchise fee if successful)
• Training Kit: Provided on loan; must be returned if agreement terminates
• Return Period: 15 days after termination notice
• Deposit Refund: Only if training materials returned within 15 days
• No Obligation: Signing does not obligate either party to proceed with franchise

Critical Point: This is NOT a franchise agreement—it's a preliminary training contract. Neither you nor Kumon are obligated to proceed with a franchise after training.

2. Franchise Agreement

Purpose: Primary contract governing franchise relationship

Key Terms Identified (from various FDD sections):

Financial Obligations

• Initial Franchise Fee: $2,000 (non-refundable)
• Initial Materials Fee: $2,000 (non-refundable)
• Monthly Royalty During TLP: $40.50 per full-payment student per subject
• Monthly Royalty After TLP: $36 per full-payment student per subject
• Initial Enrollment Royalty: $30 per newly enrolled student
• Royalty Changes: Kumon can change rates with 60 days' notice (no contractual limit on increases)

Operational Requirements

• Center Hours: Minimum 40 hours/week open to public; 14 hours/week for instruction (first franchise) or twice weekly (renewals)
• Instruction Methods: In-person, online video conferencing, or hybrid
• Exclusive Use: Location must be used ONLY for Kumon Center operations
• Materials: Must use only Kumon proprietary materials
• Tuition Limits: Kumon can impose limits on registration and tuition fees (currently $80 registration fee cap)

Term and Territory

• Initial Term: Not specified in provided pages
• Territory: Protected territory provisions in Section 3.3 (details not in provided pages)
• Renewal: Governed by Section 13 (details not in provided pages)

3. Personal Guarantee (Attachment 2-B)

Purpose: Makes individual owners personally liable for franchise obligations

Critical Implications:

• If franchise is owned by corporation or LLC, individual owners must personally guarantee all obligations
• Personal assets at risk if franchise defaults
• Survives termination of franchise for certain obligations
• Referenced in Item 6 under "Indemnification"

⚠️ RED FLAG: Personal liability extends beyond business assets to your personal wealth.

4. Confidentiality and Non-Competition Agreements

For Instructors and Assistants (Attachments 2-D(A) and 2-D(B)):

Key Requirements:

• Must be signed by ALL instructors and assistants you hire
• Protects Kumon's proprietary information and methods
• Likely includes non-compete provisions
• You are responsible for ensuring compliance

Your Obligations:

• Obtain signed agreements from all staff
• Maintain copies
• Enforce provisions
• Potential liability if staff violate terms

5. Early Signing Addendum (Attachment 2-A)

When Required: If Kumon awards franchise after completion of Course 1 (first course of training) rather than after full first semester

Key Terms:

• Must still complete remaining Instructor Development Program courses
• Failure to complete training can result in termination (Section 14.2(e) of Franchise Agreement)
• Creates obligation to finish training while operating Center

Risk: Operating Center while still in training—potential for overwhelming workload.

6. Non-Traditional Region Addendum (Attachment 2-G)

When Applicable: Centers in rural areas, more than 25 miles from other Kumon Centers, with lower school-aged populations

Potential Benefits:

• Excused from certain standard requirements
• May have reduced minimum operating hours
• Recognizes different market conditions

Consideration: Reflects potentially more challenging market conditions.

Personal Liability Implications

Direct Personal Liability

You face personal liability through:

1. Personal Guarantee: Individual owners must guarantee corporate/LLC obligations
2. Indemnification Obligations: Must indemnify Kumon for claims arising from your Center operations
3. Lease Obligations: You sign lease directly (Kumon does not guarantee)
4. Insurance Requirements: Personal responsibility to maintain coverage

Financial Exposure

Ongoing Liability After Termination

Based on Section 14.6 and other provisions, you remain liable for:

• Outstanding fees and royalties
• Lease obligations (unless landlord releases you)
• Claims arising during your operation
• Return of Kumon materials and property
• Non-competition obligations (Section 15)

What You're Legally Committing To

Operational Control

Kumon maintains extensive control over your business:

• Location: Must approve site; can require relocation ($2,000 fee if <80% students transfer)
• Hours: Minimum operating hours mandated
• Pricing: Can impose tuition and fee limits with 60 days' notice
• Materials: Must use only Kumon materials; cannot use workbooks for instruction
• Methods: Must follow Kumon Method exactly as prescribed
• Staffing: Must hire assistants as needed; all must sign confidentiality agreements
• Training: Ongoing training requirements throughout franchise term
• Reporting: Monthly reports required; $200-$1,000+ fees for late/inaccurate reports

Financial Commitments

Upfront Costs

• Training deposit: $1,000
• Franchise fee: $2,000
• Initial materials: $2,000
• Total to Kumon: $5,000 (with $1,000 deposit applied to franchise fee = $4,000 net)

Ongoing Fees

• Monthly royalties (varies by TLP status and enrollment)
• New Center Marketing: $220/month for 18 months ($3,960 total)
• Insurance (if through Kumon): $4.80 per math student annually
• Shipping costs for materials
• Late payment fees: 1.5% monthly or $75 minimum
• Late/inaccurate report fees: $200-$1,000+ per occurrence

Contingent Fees

• Liquidated damages: 3× average monthly royalty (various triggers)
• Relocation fee: $2,000 (if applicable)
• Audit fees: Full cost if underreporting discovered
• Temporary transfer fee: 10% of average tuition × students (if Kumon operates Center)

Restrictions and Limitations

What You CANNOT Do:

• ❌ Use location for any purpose other than Kumon Center
• ❌ Operate any other business from approved location
• ❌ Use Kumon workbooks for instruction at Center
• ❌ Distribute materials over Internet or from unapproved location
• ❌ Sell Kumon Materials
• ❌ Establish your own domain name or website (beyond assigned link)
• ❌ Charge registration/tuition fees above Kumon's limits
• ❌ Purchase materials from anyone except Kumon (except specified items)
• ❌ Modify the Kumon Method
• ❌ Operate competing business during and after franchise term

What You MUST Do:

• ✓ Operate minimum hours (40 hours/week open; 14 hours/week instruction minimum for first franchise)
• ✓ Offer in-person, online, or hybrid instruction
• ✓ Use Kumon Connect digital platform
• ✓ Complete Temporary License Period requirements for each subject
• ✓ Meet Ongoing Training and Performance Requirements
• ✓ Maintain insurance coverage
• ✓ Submit accurate monthly reports by 6th of following month
• ✓ Allow electronic fund transfers for all payments
• ✓ Obtain criminal background checks (FBI fingerprinting)
• ✓ Have all staff sign confidentiality/non-compete agreements
• ✓ Follow Operations Manual (which Kumon can change at any time)
• ✓ Comply with all Kumon standards and specifications

Kumon's Rights to Change Terms

⚠️ CRITICAL RED FLAGS:

1. Royalty Increases: Kumon can increase royalties with 60 days' notice—NO CONTRACTUAL LIMIT on amount of increase

   • Your only option: Terminate franchise with 60 days' notice
   • Must still fulfill lease and other obligations

2. Operations Manual Changes: Kumon can modify Operations Manual at any time without your consent

   • Changes may require additional investments
   • Must comply or face termination

3. Tuition/Fee Limits: Kumon can impose or change limits on what you charge customers

   • Currently $80 registration fee cap
   • Can add tuition limits with 60 days' notice
   • Directly impacts your revenue

4. Required Purchases: Kumon can add required Chargeable Items or materials

   • Must purchase from Kumon
   • Prices subject to change without notice

Importance of Attorney Review

Why Legal Review is ESSENTIAL

Given the limitations in the provided FDD (Item 22 content not included), it is ABSOLUTELY CRITICAL that you have an experienced franchise attorney review:

1. The Complete Item 22: The actual contracts listing in the full FDD

2. All Attached Agreements: Particularly:

   • Complete Franchise Agreement (Attachment 2)
   • Personal Guarantee (Attachment 2-B)
   • General Release (Attachment 2-C)
   • All addenda that may apply to your situation

3. State-Specific Provisions: Exhibit G contains state addenda that may modify terms

Specific Issues for Attorney Review

Your attorney should specifically analyze:

Contract Terms

• Actual franchise term and renewal conditions (not provided in excerpt)
• Specific termination provisions (Section 14 - not fully provided)
• Transfer restrictions and fees (Section 17 - not provided)
• Territory protection details (Section 3.3 and Item 12 - not provided)
• Dispute resolution provisions (arbitration, mediation, litigation venue)

Financial Exposure

• Total potential liability under personal guarantee
• Indemnification scope and limitations
• Insurance adequacy for potential claims
• Lease obligations and personal liability

Operational Restrictions

• Non-compete scope (during and after franchise)
• Unilateral change provisions (Operations Manual, royalties, fees)
• Performance requirements and consequences of non-compliance
• Kumon's rights to operate your Center (temporary transfer provisions)

Exit Strategy

• Termination rights (yours and Kumon's)
• Post-termination obligations and restrictions
• Transfer process and limitations
• Liquidated damages and other exit costs

Red Flags Requiring Special Attention

1. Unlimited Royalty Increases: No cap on how much Kumon can raise royalties
2. Unilateral Operational Changes: Kumon can change manual requirements at will
3. Revenue Restrictions: Kumon can limit what you charge customers
4. Personal Guarantee: Individual liability for corporate obligations
5. Extensive Post-Termination Restrictions: Non-compete and other limitations
6. New Jersey Dispute Resolution: Must mediate, arbitrate, or litigate in New Jersey (noted as special risk on page 4)
7. Temporary Takeover Rights: Kumon can operate your Center under certain circumstances
8. Mandatory EFT: All payments via electronic debit (no alternative payment methods)

Questions to Ask Your Attorney

1. Can I negotiate any terms, or is this a "take it or leave it" contract?
2. What is my total financial exposure under the personal guarantee?
3. What happens if Kumon raises royalties to an amount I cannot afford?
4. Can I sell the franchise if it's not profitable? What restrictions apply?
5. What are my obligations if I want to exit the franchise?
6. How enforceable is the non-compete provision in my state?
7. What protection do I have if Kumon changes the Operations Manual in ways that hurt my business?
8. What happens to my lease obligations if the franchise terminates?
9. Are the dispute resolution provisions (New Jersey venue) enforceable in my state?
10. What recourse do I have if Kumon fails to provide promised support?

State-Specific Considerations

Michigan Franchisees

Pages 5-6 contain specific Michigan provisions that VOID certain unfair provisions, including:

• Prohibitions on franchisee associations
• Certain releases and waivers
• Termination without good cause
• Refusal to renew without fair compensation (under certain conditions)
• Out-of-state arbitration requirements
• Unreasonable transfer restrictions

Michigan franchisees should specifically review these protections with their attorney.

Other States

Exhibit G (referenced but not provided) contains state-specific addenda. You must review the addendum for your state as it may:

• Modify contract terms
• Provide additional protections
• Impose additional requirements
• Affect dispute resolution provisions

Practical Implications

Before Signing Anything

DO:

• ✓ Obtain and read the COMPLETE FDD, including all 23 Items
• ✓ Review ALL attachments, especially the complete Franchise Agreement
• ✓ Hire an experienced

---

KUMON NORTH AMERICA, INC. Franchise: Red Flags & Warning Signs Checklist

Overview

When evaluating any franchise opportunity, it's critical to identify potential red flags that could indicate operational, financial, or legal risks. This comprehensive analysis examines the Kumon North America, Inc. Franchise Disclosure Document (FDD) for warning signs that prospective franchisees should carefully consider.

Important Note: The FDD provided for this analysis contains no actual content in Items 1-23, with all items marked as "found: false" and empty content summaries. This analysis is therefore based solely on the limited information available in the cover pages, table of contents, and preliminary sections of the document.

---

Red Flags & Warning Signs Checklist

---

Detailed Red Flag Analysis

1. Financial Red Flags

A. Variable and Increasable Royalty Structure ⚠️ HIGH CONCERN

Issue Identified:

• During Temporary License Period (TLP): $40.50 per full-payment student per subject
• After TLP Completion: $36 per full-payment student per subject
• Initial Enrollment Fee: $30 per newly enrolled student
• Critical Concern: Franchisor can increase royalty rates with only 60 days' notice, with no contractual limit on the amount of increase

Risk Assessment:

Current Monthly Royalty (100 students, post-TLP): $3,600
Potential After 20% Increase: $4,320
Potential After 50% Increase: $5,400
Annual Impact of 50% Increase: $21,600

Implications:

• Unpredictable long-term costs make financial planning extremely difficult
• Franchisees have termination rights if unwilling to pay increased rates, but this means losing their business investment
• This structure transfers significant financial risk to franchisees

B. Complex Fee Structure with Multiple Charges

Fees Beyond Standard Royalties:

Red Flag: The escalating late report fee structure ($200 → $500 → $1,000+) is particularly aggressive and could create significant financial pressure on struggling franchisees.

C. Tuition and Fee Limitations ⚠️ MODERATE CONCERN

Issue Identified:

• Franchisor can impose limits on registration and tuition fees with 60 days' notice
• Current registration fee limit: $80 (regardless of one or two subjects)
• No current tuition limit, but franchisor reserves right to implement one
• Franchisees can request exceptions but approval is at franchisor's discretion

Implications:

• Limits franchisee's ability to respond to local market conditions
• Could restrict revenue potential in high-cost areas
• Creates uncertainty about future revenue capacity

D. Missing Critical Financial Information ⚠️ CRITICAL CONCERN

Not Available in Provided FDD:

• Item 19: Financial Performance Representations (earnings claims)
• Item 21: Franchisor's audited financial statements
• Item 20: Complete unit count and turnover data

Why This Matters: Without Item 19 data, prospective franchisees cannot assess:

• Typical revenue ranges
• Profitability potential
• Performance benchmarks
• Success rates

Action Required: Prospective franchisees must obtain and carefully review the complete FDD with all Items before proceeding.

---

2. Legal Red Flags

A. Out-of-State Dispute Resolution ⚠️ HIGH CONCERN

Issue Identified:

• All mediation, arbitration, and litigation must occur in New Jersey
• Applies regardless of where franchisee's Center is located
• Explicitly highlighted as a "Special Risk" in the FDD

Cost Implications:

Implications:

• Creates significant financial barrier to dispute resolution
• Franchisees in distant states face disproportionate burden
• May discourage franchisees from pursuing legitimate claims
• Franchisor has "home court advantage"

B. Restrictive Contract Provisions ⚠️ HIGH CONCERN

Non-Competition Restrictions:

• Post-termination restrictions on operating similar businesses
• Applies even if franchisee still has lease obligations
• Duration and geographic scope not specified in available content

Transfer Restrictions:

• Franchisor must approve all transfers
• Liquidated damages (3x average monthly royalty) if transfer attempted without approval
• Significant control over franchisee's exit options

Operational Restrictions:

• Cannot use approved site for any purpose other than Kumon Center
• No other business activities permitted at location
• Must use franchisor's designated name for Center
• Cannot establish independent web presence beyond assigned domain

C. Unilateral Contract Modification Rights ⚠️ MODERATE CONCERN

Issue Identified: The FDD explicitly warns: "The franchise agreement may allow the franchisor to change its manuals and business model without your consent. These changes may require you to make additional investments in your franchise business or may harm your franchise business."

Implications:

• Franchisor can modify Operations Manual unilaterally
• Changes could require additional capital investment
• Franchisee has limited recourse if changes are detrimental
• Business model can evolve in ways franchisee didn't anticipate

D. Limited Litigation Disclosure

Issue Identified:

• Item 3 states: "No litigation is required to be disclosed in this Item"
• This doesn't mean no litigation exists—only that none meets FTC disclosure thresholds
• No information about settled cases or non-material litigation

What This Means:

• There may be litigation history not required to be disclosed
• Prospective franchisees should conduct independent research
• Check state and federal court records
• Contact current and former franchisees about their experiences

---

3. Operational Red Flags

A. Extensive Supplier Restrictions ⚠️ MODERATE CONCERN

Mandatory Purchases from Franchisor:

Designated Vendors (Mandatory):

• Momentum Telecom: Lead Management System Suite
• School Outfitters: Center furniture

Implications:

• Limited ability to shop for competitive pricing
• Dependent on franchisor's supply chain
• Franchisor derives revenue from required purchases (potential conflict of interest)
• Shipping costs ($40+ per order) add to expenses

Estimated Impact:

• Purchases from Kumon = ~0.9% of initial investment
• Ongoing purchases from Kumon = ~2.1% of operating expenses
• While percentages seem modest, lack of alternatives limits cost control

B. Rigid Operational Requirements ⚠️ MODERATE CONCERN

Center Hours Requirements:

• First Franchise: Minimum 40 hours/week open to public + 14 hours/week instruction (4 sessions)
• Renewal Franchises: Minimum 40 hours/week open to public + 2 sessions/week instruction
• Non-Traditional Markets: May receive exemptions (franchisor discretion)

Instruction Format Requirements:

• Must offer in-person, online video conferencing, or hybrid instruction
• Must provide Kumon Connect (digital platform) to all students
• Specific requirements for virtual/online/hybrid instruction in Operations Manual

Student Management Requirements:

• Specific placement testing protocols
• Mandatory achievement testing schedules
• Required record-keeping and grading procedures
• Progress goals and parent communication standards

Implications:

• Limited flexibility to adapt to local market preferences
• May require hiring staff to maintain required hours
• Rigid structure may not suit all teaching styles or markets

C. Temporary License Period (TLP) Requirements ⚠️ MODERATE CONCERN

What is TLP:

• Probationary period for new franchisees
• Separate TLP for Math and Reading programs
• Higher royalty rates during TLP ($40.50 vs. $36 per student)
• Must complete extensive requirements to exit TLP

TLP Completion Requirements:

Red Flags:

1. Enrollment Requirements Are Substantial: Achieving 600 Math and 400 Reading enrollments (with 10% on digital platform) could take years in some markets
2. Higher Royalty Burden: Paying $40.50 vs. $36 per student during growth phase increases financial pressure
3. Perfect Compliance Required: Any violation during TLP could extend the period or result in termination
4. Reversion Risk: Even after completing TLP, failure to meet "Ongoing Training and Performance Requirements" results in reversion to higher royalty for minimum one year

Financial Impact Example:

Scenario: 150 students during TLP
TLP Royalty: 150 × $40.50 = $6,075/month
Post-TLP Royalty: 150 × $36 = $5,400/month
Monthly Difference: $675
Annual Difference: $8,100

If TLP extends 2 years vs. 1 year: $8,100 additional cost

D. Technology and System Requirements ⚠️ LOW TO MODERATE CONCERN

Required Technology Investments:

Concerns:

• Locked into franchisor's technology choices
• If systems become outdated, franchisee has no alternatives
• Monthly costs for phone system add up ($576/year minimum)
• Must surrender phone number upon termination

Positive Note: Compared to many franchises, technology costs are relatively modest and some systems are included in royalty.

E. Marketing and Advertising Restrictions ⚠️ MODERATE CONCERN

Mandatory Marketing Expenses:

Red Flags:

1. Mandatory New Center Marketing: $3,960 over 18 months is non-negotiable
2. Future Ad Fund Risk: Franchisor reserves right to establish national/regional ad fund and reallocate franchisee marketing budgets to fund
3. Limited Control: $7,560

---

KUMON NORTH AMERICA, INC. Franchise: Green Flags & Positive Indicators

Overview

IMPORTANT NOTICE: The Franchise Disclosure Document (FDD) provided for Kumon North America, Inc. contains no substantive content in Items 1-23. All item fields show "found: false" with empty content summaries. This analysis cannot be completed as requested because the necessary data to evaluate green flags and positive indicators is not available in the provided FDD structure.

Analysis Limitation Statement

A comprehensive evaluation of franchise green flags requires access to specific information typically found in the following FDD Items:

• Item 1: Franchisor background and business experience
• Item 3: Litigation history
• Item 4: Bankruptcy history
• Item 5 & 6: Fee structures and ongoing costs
• Item 7: Initial investment requirements
• Item 19: Financial performance representations
• Item 20: Outlet and franchisee information (unit count, growth, retention)
• Item 21: Franchisor financial statements

Without access to this data, it is impossible to accurately assess:

• Franchisor financial stability
• Franchisee retention rates
• Unit growth trends
• Earnings potential
• Training quality metrics
• Support system effectiveness
• Territory protection details
• Fee reasonableness

What We Can Confirm from Available Information

Based on the limited cover page information visible in the FDD:

Basic Franchise Information

Operational Model

• Service Delivery: Children attend centers twice weekly for 20-30 minutes per subject
• Homework Component: Daily assignments completed at home on non-center days
• Subjects Offered: Math and Reading programs

Standard Green Flag Assessment Framework

While we cannot evaluate Kumon specifically due to data limitations, here is the framework that should be used when complete FDD information becomes available:

Financial Green Flags Checklist

Operational Green Flags Checklist

Market & Brand Green Flags Checklist

Legal & Compliance Green Flags Checklist

What to Look For: Detailed Green Flag Indicators

1. Financial Strength Indicators

Franchisor Financial Health:

• Positive net worth exceeding $1 million
• Consistent profitability over 3+ years
• Strong cash position to support franchisees
• Low debt-to-equity ratio (under 2:1 preferred)
• No going concern warnings from auditors

Franchisee Economics:

• Item 19 disclosure present (transparency indicator)
• Median franchisee profitability demonstrated
• Reasonable payback period (under 3 years preferred)
• Strong unit economics with healthy margins
• Low initial investment relative to revenue potential

System Growth:

• Net unit growth of 5%+ annually
• More openings than closures consistently
• Low closure rate (under 5% annually)
• High percentage of multi-unit owners (shows confidence)
• Strong same-store sales growth

2. Operational Excellence Indicators

Training Programs:

• Comprehensive initial training (2+ weeks)
• Hands-on operational training at functioning location
• Ongoing education programs available
• Online learning resources accessible
• Annual conferences for franchisee development
• Specialized training for staff

Support Infrastructure:

• Dedicated field consultants with reasonable franchisee-to-consultant ratios (under 30:1)
• Regular center visits (quarterly minimum)
• 24/7 support hotline availability
• Comprehensive operations manual regularly updated
• Technology support team for systems
• Marketing support department

Territory Protection:

• Defined exclusive territory with clear boundaries
• Population-based territories (not arbitrary)
• Protection from company-owned competition
• Right of first refusal for adjacent territories
• Reasonable development requirements

3. Fee Structure Reasonableness

Initial Fees:

• Franchise fee under $50,000 (for most concepts)
• No hidden initial fees or surprise costs
• Clear initial investment breakdown
• Financing options available (if needed)

Ongoing Fees:

• Royalty rate 4-8% of gross sales (industry dependent)
• Marketing fund 1-3% of gross sales
• No excessive technology fees
• Transparent fee increases with notice requirements
• Volume discounts for multi-unit owners

4. Market Position Indicators

Brand Strength:

• National or strong regional recognition
• Consistent brand messaging
• Active social media presence with engagement
• Positive customer reviews (4+ stars average)
• Media coverage and PR activity

Competitive Advantages:

• Proprietary systems or methods
• Unique value proposition
• Barriers to entry for competitors
• Strong vendor relationships
• Technology advantages

Industry Position:

• Growing market segment
• Recession-resistant business model
• Multiple revenue streams
• Recurring revenue components
• Low customer acquisition costs

5. Franchisee Satisfaction Indicators

Retention Metrics:

• Renewal rate above 90%
• Low transfer rate (under 5% annually)
• High percentage of renewals vs. non-renewals
• Multi-unit expansion by existing franchisees

Franchisee Relations:

• Active franchisee advisory council
• Regular franchisee surveys conducted
• Open communication channels
• Franchisee testimonials available
• Low litigation between franchisor and franchisees

Red Flags to Watch For (Absence Indicates Green Flags)

When complete FDD data becomes available, the absence of these red flags would be positive indicators:

Critical Red Flags

• ❌ Negative franchisor net worth
• ❌ Going concern opinion from auditors
• ❌ Significant pending litigation
• ❌ Bankruptcy history within 10 years
• ❌ High franchisee failure rate (over 10% annually)
• ❌ Net negative unit growth
• ❌ No Item 19 financial performance representation
• ❌ Excessive initial investment with low returns
• ❌ Royalty rates above 10%
• ❌ Frequent fee increases

Warning Red Flags

• ⚠️ High management turnover
• ⚠️ Inconsistent brand standards
• ⚠️ Poor franchisee-to-field consultant ratio
• ⚠️ Limited training programs
• ⚠️ Weak territory protection
• ⚠️ Restrictive transfer provisions
• ⚠️ Short franchise term (under 10 years)
• ⚠️ Aggressive earnings claims without substantiation
• ⚠️ Required purchases from franchisor at inflated prices
• ⚠️ Lack of franchisee input mechanisms

Industry Context: Supplemental Education Sector

Market Opportunities (General Industry)

Positive Trends:

• Growing parental investment in supplemental education
• Increased focus on STEM education
• Recognition of achievement gaps requiring intervention
• Dual-income households seeking structured after-school programs
• Technology enabling hybrid learning models
• International expansion opportunities

Market Size:

• U.S. tutoring market estimated at $8-12 billion annually
• Growing at 5-7% annually (pre-pandemic trends)
• Fragmented market with room for consolidation
• Recurring revenue model attractive to investors

Competitive Landscape

Advantages of Franchise Model:

• Established brand recognition
• Proven curriculum and methodology
• Training and support systems
• Marketing resources
• Purchasing power
• Technology platforms

Challenges:

• Competition from independent tutors
• Online learning platforms
• School-based intervention programs
• Economic sensitivity (discretionary spending)
• Staffing and retention challenges
• Regulatory requirements varying by state

Kumon-Specific Considerations (Based on Limited Information)

Potential Positive Indicators

Based solely on the cover page information and general industry knowledge:

1. Established Brand

• Kumon is a globally recognized brand in supplemental education
• International presence suggests proven business model
• Long operating history (founded 1958 in Japan)

2. Reasonable Initial Investment

• $73,783 to $165,920 range is moderate for education franchises
• Lower than many retail franchise concepts
• Suggests home-based or small retail footprint model

3. Low Initial Franchise Fee

• $4,000 franchise fee is very low compared to industry standards
• May indicate franchisor revenue comes primarily from ongoing royalties
• Lower barrier to entry for qualified candidates

4. Structured Training Program

• Mention of "Instructor Development Program" suggests comprehensive training
• Deposit structure ($1,000 applied to franchise fee) shows commitment to training investment

5. Proven Methodology

• "Kumon Method" indicates proprietary educational approach
• Structured curriculum with defined progression
• Twice-weekly attendance model creates recurring revenue

Questions Requiring Further Investigation

Critical Information Needed:

1. Financial Performance (Item 19):

   • What are actual franchisee revenues?
   • What is the profitability range?
   • What percentage of franchisees achieve profitability?
   • What is the typical enrollment ramp-up timeline?

2. Unit Economics (Item 20):

   • How many units opened vs. closed in past 3 years?
   • What is the franchisee retention rate?
   • How many franchisees own multiple units?
   • What is the average unit tenure?

3. Ongoing Costs (Item 6):

   • What is the royalty structure?
   • Are there marketing fund requirements?
   • What are technology fees?
   • What are typical operating expenses?

4. Support Structure (Item 11):

   • What is the field support ratio?
   • What ongoing training is provided?
   • What marketing support is available?
   • What technology systems are provided?

5. Territory Rights (Item 12):

   • How are territories defined?
   • What protection exists from competition?
   • Can franchisor open competing locations?
   • What are development requirements?

6. Legal History (Items 3 & 4):

   • Any significant litigation?
   • Any bankruptcy history?
   • Any regulatory actions?
   • Any franchisee disputes?

Opportunity Assessment Framework

When Complete FDD Data Becomes Available

Use this scoring framework to evaluate the Kumon franchise opportunity:

Financial Strength Score (Maximum 30 points)

---

KUMON NORTH AMERICA, INC. vs. Competitors: Franchise Comparison

Overview

IMPORTANT DISCLOSURE LIMITATION: The Kumon FDD provided does not contain complete information in Items 1-23, which significantly limits our ability to provide a comprehensive competitive comparison. The FDD structure shows all items as "not found" with no content summaries. However, we can extract some key information from the full text provided and compare it with typical competitors in the supplemental education franchise sector.

Identified Main Competitors

Based on Kumon's position in the supplemental education market, the primary competitors include:

1. Sylvan Learning Centers - Tutoring and supplemental education
2. Huntington Learning Center - Academic tutoring and test prep
3. Mathnasium - Math-focused learning centers
4. The Goddard School - Early childhood education (partial overlap)
5. Tutor Doctor - In-home tutoring services

Side-by-Side Comparison Table

Financial Investment Comparison

Operational Requirements Comparison

Detailed Kumon Financial Structure

Initial Investment Breakdown

Based on the FDD Item 7, here's Kumon's detailed investment structure:

Unique Kumon Royalty Structure

Kumon's royalty structure is fundamentally different from competitors:

Per-Student Royalty Model

During Temporary License Period (TLP):

• $40.50 per full-payment student per subject per month
• $20.25 per partially exempt/prorated student per subject per month

After Completing TLP:

• $36 per full-payment student per subject per month
• $18 per partially exempt/prorated student per subject per month

Initial Enrollment Royalty:

• $30 per newly enrolled student (one-time fee)

Comparison to Percentage-Based Royalties

Example Calculation:

• Center with 100 students
• Average tuition: $150/month per subject
• Gross monthly revenue: $15,000

Kumon Royalty (Post-TLP):

• 100 students × $36 = $3,600/month (24% of revenue)

Typical Competitor (8-10% of gross):

• $15,000 × 8-10% = $1,200-$1,500/month

⚠️ RED FLAG: Kumon's per-student royalty can result in significantly higher royalty payments as a percentage of revenue compared to competitors, especially at higher enrollment levels.

Qualitative Comparison Analysis

Brand Strength

Kumon Advantages:

• Global presence: Operating in 60+ countries with approximately 3,520,000 students worldwide (as of December 31, 2023)
• Long history: Founded in 1954 in Japan; operating in North America since 1983
• Proven methodology: The Kumon Method has 70 years of refinement
• Strong brand recognition: Well-established in Asian and Asian-American communities
• Academic focus: Emphasis on mastery-based learning and self-learning

Kumon Challenges:

• Perception as "worksheet-based": Some view the method as repetitive
• Competition from digital platforms: Khan Academy, IXL, and other online learning tools
• Limited subject offerings: Only math and reading (competitors often offer broader subjects)

Support Quality

What Kumon Provides:

Pre-Opening Support:

• Comprehensive 4-month Instructor Development Program
• Site approval assistance
• Initial furniture and fixtures ($10,000 value)
• Exterior signage reimbursement ($4,800-$7,000)
• Leasehold improvement subsidy (up to $5,500)
• First-year rent subsidy (50% up to $1,000/month for 12 months)

Ongoing Support:

• Unlimited Kumon Materials (worksheets, tests) included in royalty
• Proprietary software and customer management system
• Monthly instructor meetings
• Annual instructor conferences
• Kumon University training programs
• Online learning modules
• Branch office support structure

Technology Support:

• Kumon Connect digital platform
• Online scheduling system
• Customer relationship management (CRM) platform
• Lead Management System Suite

Support Limitations:

⚠️ CONCERNS IDENTIFIED:

1. High Training Requirements: The Temporary License Period (TLP) requirements are extensive and must be maintained to avoid reverting to higher royalty rates

2. Ongoing Performance Requirements: Franchisees must continuously meet minimum standards or face higher royalty rates for at least one year

3. Limited Flexibility: Strict adherence to the Kumon Method with limited ability to customize

4. Tuition Caps: Kumon can impose limits on registration and tuition fees (currently $80 registration fee cap) with only 60 days' notice

Growth Trajectory

Kumon North America Statistics (as of December 31, 2023):

• Total Centers: 1,659 (22 company-owned, 1,637 franchised)
• Total Students: Approximately 390,515
• Average Students per Center: ~235 students

Note: The FDD does not provide year-over-year growth data or historical trends, making it difficult to assess growth trajectory. Item 20 information is listed as "not found" in the provided FDD structure.

Franchisee Satisfaction

CRITICAL LIMITATION: The FDD provided does not include Item 19 (Financial Performance Representations) content or detailed Item 20 (Outlets and Franchisee Information) data, which would typically provide:

• Franchisee turnover rates
• Transfer rates
• Closure rates
• Franchisee testimonials or satisfaction surveys

What We Know:

• The FDD references Exhibits C and D for franchisee contact information
• Prospective franchisees should contact current and former franchisees directly
• The extensive training and support structure suggests a focus on franchisee success

Kumon's Competitive Position

Unique Advantages

1. Exceptionally Low Initial Franchise Fee

• $2,000 vs. $42,000-$55,000 for competitors
• Makes entry more accessible to prospective franchisees
• Reduces initial capital requirements significantly

2. Substantial Franchisor Subsidies

• Initial furniture and fixtures: $10,000 value
• Leasehold improvements: up to $5,500
• Exterior signage: $4,800-$7,000
• First-year rent subsidy: up to $12,000 (50% for 12 months)
• Total subsidies: $29,300-$34,500

3. Materials Included in Royalty

• Unlimited worksheets, placement tests, and achievement tests
• No per-student material costs beyond royalty
• Reduces variable costs as enrollment grows

4. Proven Global Methodology

• 70-year track record
• 3.5+ million students worldwide
• Standardized, research-based approach

5. Lower Space Requirements

• Minimum 1,000 sq ft (vs. 1,500-3,000 sq ft for competitors)
• Reduces rent and buildout costs

6. Flexible Instruction Models

• In-center instruction
• Online video conferencing
• Hybrid instruction
• Kumon Connect digital platform

Significant Disadvantages

1. Per-Student Royalty Structure Creates Higher Costs at Scale

Critical Analysis:

At 100 students with $150/month tuition:

• Kumon: $3,600/month royalty = 24% of revenue
• Competitors: $1,200-$1,500/month = 8-10% of revenue

Difference: Kumon franchisees pay $2,100-$2,400 more per month in royalties

At 200 students:

• Kumon: $7,200/month = 24% of revenue
• Competitors: $2,400-$3,000/month = 8-10% of revenue

Difference: Kumon franchisees pay $4,200-$4,800 more per month in royalties

⚠️ MAJOR RED FLAG: The per-student royalty model penalizes success. As enrollment grows, the royalty burden increases proportionally, while competitors' percentage-based royalties maintain consistent margins.

2. Royalty Rate Can Increase with 60 Days' Notice

From Item 6, Note 2:

💡

"We can change royalty rates or the monthly due date (or both) at any time on at least 60 days' notice... There is no contractual limit on the amount by which we can change the royalty rates."

⚠️ CRITICAL CONCERN: Unlimited ability to raise royalties creates significant financial uncertainty.

3. Tuition Cap Restrictions

From Item 1:

💡

"Kumon has the right, upon 60 days' notice, to institute limits on the registration and tuition fees that Kumon Centers may charge"

Current restriction: $80 registration fee cap

⚠️ CONCERN: Limits revenue potential and ability to respond to local market conditions.

4. Extensive and Ongoing Training Requirements

TLP Requirements Include:

• 600+ math student enrollments (10% via Kumon Connect)
• 400+ reading student enrollments (10% via Kumon Connect)
• 12 Professional Development Credits
• Worksheet study and achievement tests
• Formal evaluations
• Ongoing compliance monitoring

Consequence: Failure to maintain ongoing training requirements results in reversion to higher TLP royalty rates for at least one year.

5. Limited Subject Offerings

• Only math and reading
• Competitors offer broader curricula (writing, science, test prep, college counseling)
• Limits revenue diversification

6. Restrictive Operating Requirements

New Centers Must:

• Be open 40 hours/week for business
• Provide 14 hours/week of instruction (4 sessions)
• Maintain specific center design standards
• Use only Kumon materials and methods

Existing Centers (Renewal):

• Minimum 8 hours/week instruction (2 sessions)

7. Competition from Kumon Publishing

From Item 1:

💡

"Kumon Publishing North America, Inc. ('KPNA') publishes workbooks and has developed a web-app... KPNA currently distributes these Workbooks through the Internet, bookstores, toy stores, chain stores (such as Barnes & Noble, Amazon.com and Target)"

⚠️ CONCERN: The franchisor's parent company sells competing products directly to consumers, potentially cannibalizing franchisee enrollment.

8. No Territory Protection Specified

The FDD does not clearly specify exclusive territory provisions in the available sections. Item 12 content is listed as "not found."

9. Liquidated Damages for Early Termination

From Item 6, Note 8:

• 3x average monthly royalty if franchisee terminates without proper notice
• At 100 students: approximately $10,800 penalty
• At 200 students: approximately $21,600 penalty

Financial Performance Analysis

Critical Missing Information

⚠️ MAJOR LIMITATION: The FDD provided does not include Item 19 (Financial Performance Representations), which means:

• No earnings claims available
• No revenue data disclosed
• No profitability information provided
• No benchmarking data available

This is a significant disadvantage compared to competitors who typically provide Item 19 data.

What We Can Calculate

Based on the royalty structure and typical operations:

Break-Even Analysis Example

Assumptions:

• 100 students enrolled
• $150/month tuition per subject
• 1 subject per student average

Monthly Revenue: $15,000

Estimated Monthly Expenses:

Before:

• Instructor salary/draw
• Taxes
• Debt service
• Equipment replacement

⚠️ ANALYSIS: At 100 students, a Kumon center generates modest income, with 24% going to royalties—significantly

---

Your KUMON NORTH AMERICA, INC. Franchise Due Diligence Checklist

Overview

Purchasing a Kumon franchise requires thorough investigation and careful planning. This comprehensive due diligence checklist will guide you through the evaluation process, from initial research to final decision-making. The entire process typically takes 4-6 months from initial inquiry to opening your Center.

Note: While the FDD provided does not contain complete Item-by-Item disclosure information, this checklist is based on standard franchise due diligence best practices and the limited information available in the document structure.

---

Phase 1: Initial Research & Self-Assessment (Weeks 1-2)

Actions to Complete

Personal Assessment

• Evaluate your passion for education and working with children
• Assess your financial capacity (minimum liquid capital: $75,000-$170,000)
• Review your business management experience
• Determine your availability for full-time commitment
• Confirm you can pass FBI background check and fingerprinting
• Evaluate your math and reading proficiency (you'll be tested)

Preliminary Franchise Research

• Review this complete FDD thoroughly (allow 10-15 hours)
• Visit the Kumon website (www.kumon.com)
• Research Kumon's history and the Kumon Method
• Understand the global Kumon presence (23,700 centers in 60+ countries)
• Review competitor landscape (tutoring centers, online programs, test prep)
• Research local market demographics for school-aged children

Financial Preliminary Review

• Review Item 7 (Initial Investment: $73,783 - $165,920)
• Understand the fee structure:
  • Initial Franchise Fee: $2,000
  • Training Deposit: $1,000 (applied to franchise fee)
  • Initial Materials: $2,000
• Review Item 6 for ongoing fees and royalty structure
• Calculate your available capital vs. required investment

Resources Needed

• FDD document (provided by Kumon)
• Personal financial statements
• Credit report
• Time commitment: 15-20 hours

Estimated Cost

$0 (time investment only)

---

Phase 2: Application & Qualification (Weeks 3-6)

Actions to Complete

Formal Application Process

• Complete Prospective Franchisee Application
• Authorize background check
• Schedule personal interview at Kumon branch office
• Prepare for Mathematics Proficiency Test
• Prepare for Reading Proficiency Test
• Demonstrate communication skills and business acumen

⚠️ Critical Requirements:

• You must demonstrate adequate proficiency in BOTH math and reading
• If you fail either test, you cannot proceed for 6 months
• After 6 months, you must restart the entire application process

Financial Documentation Preparation

• Gather 3 years of personal tax returns
• Prepare personal financial statement
• Document liquid assets and net worth
• Obtain credit report
• Prepare bank statements (last 6 months)

Market Research

• Identify 3-5 potential locations in your target area
• Research local school districts and enrollment numbers
• Analyze household income demographics
• Identify competing tutoring/learning centers
• Assess local real estate costs and availability

Resources Needed

• Application materials from Kumon
• Financial documentation
• Study materials for proficiency tests
• Demographic research tools

Estimated Time

20-30 hours

Estimated Cost

• Background check: Included in Kumon's process
• Market research tools: $0-$200

---

Phase 3: Professional Advisor Consultation (Weeks 4-8)

Franchise Attorney Consultation

What to Bring:

• Complete FDD
• Franchise Agreement (Attachment 2)
• Training Agreement (Attachment 1)
• All addenda and exhibits
• Your questions and concerns

Key Items for Attorney Review:

⚠️ Red Flags to Discuss:

• Kumon can change royalty rates with 60 days' notice (no contractual limit on increases)
• Out-of-state dispute resolution (New Jersey)
• Automatic termination provisions
• Liquidated damages (3x average monthly royalty)
• Non-compete restrictions after termination

Expected Attorney Fees: $1,500 - $3,000

Franchise Accountant/CPA Consultation

What to Bring:

• FDD Item 7 (Initial Investment)
• FDD Item 6 (Other Fees)
• FDD Item 19 (Financial Performance Representations) - Note: Not available in provided FDD
• Your business plan draft
• Personal financial statements

Key Analysis Areas:

Specific Financial Modeling Exercises:

1. Enrollment Scenarios Model

   • Conservative: 50 students by month 12
   • Moderate: 100 students by month 12
   • Optimistic: 150 students by month 12

2. Royalty Cost Analysis

   • TLP Rate: $40.50 per full-payment student (Math or Reading)
   • Post-TLP Rate: $36 per full-payment student
   • Calculate annual difference based on enrollment projections

3. Revenue Projections

   • Research local market tuition rates
   • Note: Kumon limits registration fees to $80
   • Model monthly recurring revenue at different enrollment levels

Expected Accountant Fees: $1,000 - $2,500

Business Consultant (Optional)

When to Consider:

• No prior business ownership experience
• Unfamiliar with education/tutoring industry
• Need help with site selection
• Want independent validation of business model

Expected Consultant Fees: $1,500 - $5,000

---

Phase 4: Instructor Development Program (Weeks 9-24)

Pre-Training Requirements

Before Signing Training Agreement:

• Pass proficiency tests
• Complete interview process
• Receive approval from General Manager
• Pay $1,000 Training Deposit
• Complete FBI fingerprinting (Form FD-258)
• Sign Training Agreement

⚠️ Important Notes:

• Training deposit is refundable if you return materials within 15 days of cancellation
• FBI background check must be completed before training begins
• Signing Training Agreement does NOT obligate you to purchase franchise
• Kumon is NOT obligated to grant you a franchise

Training Program Structure

Total First Semester Training Time: Approximately 250-300 hours over 4-6 months

Training Evaluation Criteria

You Must Demonstrate:

• Mastery of Kumon Method principles
• Proper worksheet placement and progression
• Student assessment and grading techniques
• Parent communication skills
• Center management capabilities
• Record keeping and reporting accuracy
• Professional presentation and demeanor

Business Plan Requirement:

• Draft business plan before Course 101
• Submit during Course 201
• Receive Kumon feedback (not an endorsement)
• Revise as needed

⚠️ Critical Warning: Kumon's review of your business plan is NOT an endorsement of your projections. You are solely responsible for your business plan and actual results.

Actions During Training

• Attend all required training sessions
• Complete all homework and assignments
• Pass all knowledge checks and tests
• Complete required curriculum study hours
• Participate in in-center training at designated location
• Maintain communication with Kumon University staff
• Continue site selection and lease negotiation
• Begin developing marketing plan
• Network with other franchisees in training

Resources Needed

• Training Kit (provided by Kumon)
• Laptop computer for online modules
• Transportation to training locations
• Time away from current employment
• Study materials and workspace

Estimated Cost

• Training Deposit: $1,000 (applied to franchise fee)
• FBI Fingerprinting: $18-$60
• Travel/accommodation for training: $500-$2,000
• Lost wages (if applicable): Variable

---

Phase 5: Franchisee Validation Calls (Weeks 12-16)

Overview

Speaking with current and former franchisees is the MOST IMPORTANT part of your due diligence. Plan to contact at least 15-20 franchisees, including both successful and struggling operators.

Who to Call

Current Franchisees (Exhibit C)

• Contact 10-15 current franchisees
• Include mix of:
  • New franchisees (0-2 years)
  • Established franchisees (3-5 years)
  • Veteran franchisees (5+ years)
  • Multi-unit operators
  • Franchisees in your target region
  • Franchisees in similar demographics
  • Franchisees in different regions (for comparison)

Former Franchisees (Exhibit D)

• Contact 5-10 former franchisees
• Focus on those who left in past 2 years
• Understand reasons for departure
• Learn what they wish they'd known

⚠️ Strategic Approach:

• Don't only call franchisees Kumon recommends
• Call franchisees at random from the list
• Be wary of overly positive responses (may be coached)
• Former franchisees often provide most honest feedback

Franchisee Interview Questions

Financial Performance Questions

Operational Questions

Student Enrollment & Retention:

• How do you acquire new students?
• What's your student retention rate?
• How seasonal is enrollment (summer vs. school year)?
• What's your average student tenure?
• How many students drop out monthly?
• What enrollment level is needed to be profitable?

Time Commitment:

• How many hours per week do you work?
• Can you take vacations? How do you cover the Center?
• How many days/hours is your Center open?
• Do you work in the Center or manage remotely?
• How long until you could hire a manager?

Kumon Support:

• How responsive is Kumon corporate support?
• Quality of training and ongoing education?
• How helpful is your branch office?
• Do you feel supported or micromanaged?
• How useful are monthly instructor meetings?
• Quality of marketing support and materials?

Challenges & Surprises:

• What's the hardest part of running a Kumon Center?
• What do you wish you'd known before starting?
• What would you do differently?
• Any regrets about buying the franchise?
• What almost made you quit?

Kumon System Questions:

• How do you feel about the royalty structure?
• Is the TLP completion process fair and achievable?
• Thoughts on Kumon's ability to change royalty rates?
• How restrictive are Kumon's operating requirements?
• Do you feel you have enough operational flexibility?
• How do you feel about the tuition cap ($80 registration limit)?

Competition:

• Who are your main competitors?
• How do you differentiate from other tutoring options?
• Impact of online learning platforms?
• How do Kumon workbooks sold in stores affect your business?

Would You Do It Again?:

• If starting over, would you buy a Kumon franchise?
• Would you recommend Kumon to a friend?
• On a scale of 1-10, how satisfied are you?
• What's your 5-year plan with Kumon?

Former Franchisee Questions

Critical Questions:

• Why did you leave the Kumon system?
• Was the business profitable when you left?
• What were the main challenges you faced?
• How was the exit process?
• Did Kumon support you or create obstacles?
• Any legal disputes with Kumon?
• How restrictive was the non-compete?
• What would you tell someone considering Kumon?
• Would you buy a different franchise or go independent?

Documentation

Create a Validation Spreadsheet:

| Franchisee Name | Years Operating | Location | Students | Monthly Revenue | Break-even Month | Satisfaction (1-10) | Would Recommend? | Key Insights | |----------------|----------------|----------|----------|----------------|

---

Questions to Ask KUMON NORTH AMERICA, INC. Franchise Development Team

Note: Due to the limited FDD information available in the provided document, the following questions are based on standard franchise due diligence practices and the partial information visible in the FDD. Prospective franchisees should verify all details directly with Kumon and review the complete FDD carefully.

---

Financial Questions (Critical Due Diligence)

Initial Investment & Fees

1. What is the total all-in cost to open a Kumon Center in my specific market?

   • Context: The FDD shows a range of $73,783 to $165,920. Understanding where your market falls in this range is critical.
   • Follow-up: Can you provide examples of recent openings in similar markets and their actual costs versus estimates?
   • Follow-up: What percentage of franchisees exceed the high-end estimate, and by how much?
   • ⚠️ CRITICAL QUESTION

2. How does the royalty structure work during and after the Temporary License Period (TLP)?

   • Context: The FDD indicates $40.50 per full-payment student during TLP and $36 after TLP completion.
   • Follow-up: What is the average time to complete TLP requirements for both Math and Reading franchises?
   • Follow-up: What percentage of franchisees complete the TLP within the first year? Within two years?
   • Follow-up: If I fail to meet ongoing performance requirements, how long will I pay the higher TLP royalty rate?
   • ⚠️ CRITICAL QUESTION

3. What is the Initial Enrollment Royalty, and how does it impact my cash flow?

   • Context: The FDD shows a $30 fee per newly enrolled student.
   • Follow-up: In a typical first year, how many new enrollments should I expect, and what will this cost me?
   • Follow-up: How does student turnover affect this fee over time?

4. Can you provide Item 19 Financial Performance Representations?

   • Context: The FDD table of contents shows Item 19 exists but content was not provided in the excerpt.
   • Follow-up: What are the median gross revenues for Centers in their first, second, and third years?
   • Follow-up: What are the median operating expenses and net income figures?
   • Follow-up: What percentage of Centers achieve profitability in year one? Year two?
   • ⚠️ CRITICAL QUESTION

Ongoing Costs & Hidden Fees

5. What are all the ongoing monthly costs beyond royalties?

   • Context: The FDD mentions various fees including insurance ($4.80 per math student annually), shipping costs, and potential advertising contributions.
   • Follow-up: What is the average monthly total of all fees (royalties, insurance, shipping, technology, etc.) for a Center with 100 students? 200 students?
   • Follow-up: Are there any fees not listed in Item 6 that I should anticipate?

6. How often do you increase royalty rates, and by how much historically?

   • Context: The FDD states Kumon can change royalty rates with 60 days' notice, with no contractual limit on increases.
   • Follow-up: When was the last royalty increase, and what was the percentage change?
   • Follow-up: What is your policy on royalty increases—do you tie them to inflation or other metrics?
   • Follow-up: If I terminate due to a royalty increase, what are my obligations?
   • ⚠️ CRITICAL QUESTION - RED FLAG

7. What are the actual shipping costs for Kumon Materials?

   • Context: The FDD states materials are provided at no charge, but franchisees pay shipping (currently $40 or actual cost, whichever is less for initial monthly orders).
   • Follow-up: What is the average monthly shipping cost for a Center with 100 students? 200 students?
   • Follow-up: How frequently do shipping rates increase?

8. What financing options are available, and do you have relationships with preferred lenders?

   • Context: Item 10 states Kumon does not offer direct or indirect financing.
   • Follow-up: Do you have relationships with SBA lenders familiar with Kumon franchises?
   • Follow-up: What percentage of new franchisees finance their investment versus paying cash?

Profitability & Break-Even

9. What is the typical timeline to break-even and achieve positive cash flow?

   • Follow-up: What student enrollment level is typically needed to break even?
   • Follow-up: What factors most significantly impact time to profitability?
   • ⚠️ CRITICAL QUESTION

10. What are the primary reasons Centers fail to achieve profitability?

    • Follow-up: What support do you provide to struggling Centers?
    • Follow-up: At what point do you recommend a franchisee consider closing an underperforming Center?

---

Support Questions

Training & Onboarding

11. What exactly does the Instructor Development Program entail, and what is the failure rate?

    • Context: The FDD describes a two-semester program with specific hour requirements.
    • Follow-up: What percentage of applicants who start the IDP successfully complete it?
    • Follow-up: What are the most common reasons for not completing the program?
    • Follow-up: If I don't complete the IDP, is my $1,000 deposit refundable?

12. What ongoing training and support is provided after opening?

    • Context: The FDD mentions monthly instructor meetings, online training, and professional development requirements.
    • Follow-up: How many hours per month should I expect to dedicate to ongoing training?
    • Follow-up: Is this training mandatory, and what happens if I cannot attend?
    • Follow-up: What is the cost of attending the annual Instructor Conference?

13. What support do you provide during the critical first 90 days of operation?

    • Follow-up: Will I have a dedicated support person or mentor?
    • Follow-up: How frequently will someone from Kumon visit my Center during this period?

Marketing & Student Acquisition

14. What marketing support do you provide, and what is my responsibility?

    • Context: The FDD mentions a $3,960 New Center Marketing requirement (paid over 18 months) and digital advertising services.
    • Follow-up: What exactly does the $7,560 digital marketing program include, and what results should I expect?
    • Follow-up: Beyond the required New Center Marketing, what should I budget for ongoing marketing?
    • Follow-up: Do you provide marketing materials, templates, and guidance?
    • ⚠️ CRITICAL QUESTION

15. Is there a national or regional advertising fund, and what are the contribution requirements?

    • Context: Item 6 states Kumon has the right to establish such funds and reallocate required marketing spend.
    • Follow-up: Are there current plans to implement such a fund?
    • Follow-up: If implemented, what would be the likely contribution amount?

Technology & Systems

16. What technology systems am I required to use, and what are the costs?

    • Context: The FDD mentions proprietary software, customer management systems, Kumon Connect, Lead Management System Suite ($200-$550 initial, ~$48/month ongoing).
    • Follow-up: What is included in the monthly $48 technology fee?
    • Follow-up: How often are technology systems updated, and is there additional cost for upgrades?
    • Follow-up: What happens if the technology fails—what is your response time and backup plan?

17. How does Kumon Connect work, and what are franchisee obligations related to digital/online instruction?

    • Context: The FDD mentions Kumon Connect as a digital platform using digital worksheets.
    • Follow-up: What percentage of my students should I expect to use Kumon Connect?
    • Follow-up: Does online instruction generate the same royalty as in-person instruction?
    • Follow-up: What equipment and internet requirements are needed for hybrid/online instruction?

---

Territory Questions

Territory Protection & Competition

18. What territory protection do I receive, if any?

    • Context: Item 12 content was not provided in the FDD excerpt.
    • Follow-up: Is my territory exclusive, protected, or non-exclusive?
    • Follow-up: How is territory defined—by radius, zip codes, or other boundaries?
    • Follow-up: Can Kumon or other franchisees market to customers in my territory?
    • ⚠️ CRITICAL QUESTION

19. How many Kumon Centers currently operate within a 5-mile radius of my proposed location?

    • Follow-up: What is Kumon's policy on market saturation?
    • Follow-up: How do you determine if a market can support an additional Center?

20. Can I open additional Centers, and what is the process?

    • Context: The FDD mentions fees for second Centers and taking over existing Centers.
    • Follow-up: Do multi-unit owners receive any fee discounts or preferential treatment?
    • Follow-up: What is the typical profile of a successful multi-unit franchisee?

21. What happens if Kumon opens a company-owned Center near my location?

    • Context: The FDD states Kumon operated 22 company-owned Centers as of December 31, 2023.
    • Follow-up: Under what circumstances does Kumon open company-owned Centers?
    • Follow-up: Do I have any recourse or compensation if this occurs?

Market Conditions

22. What demographic and market conditions are most important for Center success?

    • Follow-up: What is the ideal population density and household income range?
    • Follow-up: How important is proximity to schools, and what types of schools (public, private, etc.)?

23. How does my proposed location compare to your most successful Centers?

    • Follow-up: Can you provide examples of Centers in similar markets and their performance?

---

Legal Questions

Contract Terms & Conditions

24. What is the term of the Franchise Agreement, and what are renewal conditions?

    • Context: Item 17 content was not fully provided in the excerpt.
    • Follow-up: How many franchisees have been denied renewal, and for what reasons?
    • Follow-up: What fees are associated with renewal?
    • Follow-up: Can terms change significantly upon renewal?
    • ⚠️ CRITICAL QUESTION

25. Under what conditions can Kumon terminate my Franchise Agreement?

    • Context: The FDD mentions automatic termination under certain circumstances and liquidated damages.
    • Follow-up: What are the most common reasons for termination?
    • Follow-up: How many franchisees were terminated in the past three years, and why?
    • Follow-up: What is my financial exposure if terminated?

26. What are the dispute resolution procedures?

    • Context: The FDD states disputes must be resolved in New Jersey through mediation, arbitration, or litigation.
    • Follow-up: What percentage of franchisees have been involved in disputes with Kumon?
    • Follow-up: What are typical legal costs for franchisees in dispute resolution?
    • Follow-up: Can you provide examples of recent disputes and their outcomes?
    • ⚠️ CRITICAL QUESTION - RED FLAG (out-of-state dispute resolution)

Transfer & Exit Strategy

27. What is the process and cost to sell my franchise?

    • Context: Item 17 addresses transfer provisions.
    • Follow-up: What is Kumon's right of first refusal, and how is valuation determined?
    • Follow-up: What transfer fees apply, and what conditions must be met?
    • Follow-up: How long does the typical transfer approval process take?

28. What are my post-termination obligations?

    • Context: The FDD mentions non-competition covenants and other post-termination obligations.
    • Follow-up: What is the duration and geographic scope of the non-compete?
    • Follow-up: What happens to my student base and materials upon termination?
    • Follow-up: Am I required to pay liquidated damages, and under what circumstances?

29. What happens to my lease obligations if I exit the franchise?

    • Follow-up: Does Kumon guarantee my lease, and if not, am I personally liable for the full term?
    • Follow-up: Can Kumon help me find a buyer to assume my lease?

Litigation & Bankruptcy History

30. What is disclosed in Items 3 and 4 regarding litigation and bankruptcy?
    • Context: The FDD states "No litigation is required to be disclosed" and "No bankruptcy is required to be disclosed."
    • Follow-up: Have there been any lawsuits or bankruptcies that didn't meet disclosure thresholds?
    • Follow-up: Are there any pending investigations or regulatory actions?

---

Operational Questions

Day-to-Day Operations

31. What are the minimum operating hour requirements for my Center?

    • Context: The FDD states Centers must be open at least 40 hours/week for business and provide instruction at least 14 hours/week (4 times/week) for first-time franchisees, or twice weekly for existing franchisees.
    • Follow-up: Can I operate with fewer hours if designated as a "non-traditional market"?
    • Follow-up: What flexibility do I have in setting my schedule?
    • Follow-up: How do successful franchisees structure their weekly schedules?

32. What is the required owner involvement and time commitment?

    • Context: Item 15 addresses participation requirements.
    • Follow-up: Can I operate as an absentee owner, or must I be the primary instructor?
    • Follow-up: What happens if I need to be absent for an extended period (illness, family emergency, etc.)?
    • Follow-up: Under what circumstances can Kumon take over operation of my Center, and what does that cost?
    • ⚠️ CRITICAL QUESTION

33. What is the typical student-to-instructor ratio?

    • Follow-up: At what enrollment level will I need to hire assistants?
    • Follow-up: What are typical assistant wages in my market?

Staffing & Human Resources

34. What are the requirements for hiring and training assistants?

    • Context: The FDD mentions Confidentiality/Non-Competition Agreements for instructors and assistants.
    • Follow-up: What qualifications must assistants have?
    • Follow-up: What training must I provide to assistants, and is there a cost?
    • Follow-up: What is typical assistant turnover, and how do I manage it?

35. What background check requirements exist for me and my employees?

    • Context: The FDD requires FBI fingerprinting and criminal background checks ($18-$60).
    • Follow-up: What disqualifies someone from operating or working at a Kumon Center?
    • Follow-up: How often must background checks be renewed?
    • Follow-up: Who pays for employee background checks?

36. What are my obligations regarding workers' compensation and other employment-related insurance?

    • Context: The FDD states workers' compensation is required regardless of state law.
    • Follow-up: What are typical workers' compensation costs in my state?
    • Follow-up: What other employment-related obligations should I anticipate?

Curriculum & Instruction

37. How much flexibility do I have in implementing the Kumon Method?
    • Context: The FDD emphasizes strict adherence to the Kumon Method and Operations Manual.
    • Follow-up: Can I supplement with additional materials or methods?
    • Follow-up: What happens if I disagree with a Kumon

---

Finding a KUMON NORTH AMERICA, INC. Franchise Attorney & Accountant

Why You Need Franchise-Specific Professionals

Investing in a Kumon franchise requires a significant financial commitment—ranging from $73,783 to $165,920 according to the FDD. Before signing any agreements or making payments, you should assemble a team of professional advisors who specialize in franchise transactions. This is not an area where general business professionals will suffice.

The Critical Difference: General Business Lawyer vs. Franchise Attorney

Why this matters for Kumon specifically:

• The Kumon Franchise Agreement includes complex royalty structures that change based on your Temporary License Period (TLP) status ($40.50 per student during TLP vs. $36 after completion)
• The agreement contains New Jersey dispute resolution requirements that could significantly impact your costs if disputes arise
• Kumon reserves the right to change royalty rates with 60 days' notice (with no contractual limit on increases)
• The agreement includes liquidated damages provisions equal to three times your average monthly royalty in certain termination scenarios

A general business attorney may not fully appreciate the long-term implications of these provisions or know which ones are negotiable versus standard in the franchise industry.

---

Finding a Qualified Franchise Attorney

Where to Search

Professional Organizations:

1. American Bar Association (ABA) Forum on Franchising

   • Website: www.americanbar.org/groups/franchising
   • Maintains a directory of attorneys who specialize in franchise law
   • Members typically have significant franchise experience

2. International Franchise Association (IFA)

   • Website: www.franchise.org
   • Supplier member directory includes franchise attorneys
   • Look for attorneys with "Certified Franchise Executive" (CFE) designation

3. American Association of Franchisees & Dealers (AAFD)

   • Website: www.aafd.org
   • Provides referrals to franchisee-focused attorneys
   • Particularly useful as they represent franchisee interests

4. State Bar Associations

   • Most state bars have lawyer referral services
   • Search specifically for "franchise law" specialists
   • Check for any disciplinary actions or complaints

Local Resources:

• Contact other Kumon franchisees in your area (see Item 20 and Exhibits C and D of the FDD for contact information)
• Ask for attorney recommendations from franchisees in other systems
• Attend franchise expos and speak with attorneys who exhibit there

What to Look For in a Franchise Attorney

Essential Qualifications:

✓ Minimum 5 years of franchise-specific experience

• Should have reviewed hundreds of FDDs
• Experience with education franchise systems is a plus

✓ Represents franchisees, not franchisors

• Avoid attorneys who primarily represent franchisors
• Look for someone who understands franchisee concerns

✓ Knowledge of your state's franchise laws

• Critical if you're in a registration state (CA, HI, IL, IN, MD, MI, MN, ND, NY, RI, SD, VA, WA, WI)
• Should understand state-specific addenda requirements

✓ Experience with educational services franchises

• Familiarity with supplemental education market
• Understanding of student enrollment-based royalty models

✓ Strong negotiation skills

• While franchise agreements are typically non-negotiable, some terms may be flexible
• Can identify which provisions might be modified

Questions to Ask Potential Franchise Attorneys

During Your Initial Consultation:

1. Experience Questions:

   • How many franchise agreements have you reviewed in the past year?
   • Have you reviewed any Kumon franchise agreements before?
   • What percentage of your practice is devoted to franchise law?
   • Do you represent franchisees, franchisors, or both? (Prefer franchisee-focused)
   • Have you worked with education or tutoring franchises before?

2. Process Questions:

   • What is your review process for an FDD and franchise agreement?
   • How long will the review take?
   • Will you review the agreement personally or delegate to an associate?
   • What format will your analysis take (written memo, phone consultation, in-person meeting)?

3. Specific to Kumon:

   • What concerns do you see with royalty structures that can increase with 60 days' notice?
   • How do you evaluate the Temporary License Period requirements?
   • What are the implications of the New Jersey dispute resolution clause?
   • How should I evaluate the liquidated damages provisions?

4. Cost Questions:

   • What is your fee structure (hourly, flat fee, or combination)?
   • What is your estimated total cost for FDD and agreement review?
   • What additional costs might arise?
   • Do you charge for follow-up questions after the initial review?

5. Red Flag Assessment:

   • What are the top 3 red flags you look for in franchise agreements?
   • Have you ever advised a client not to proceed with a franchise purchase?
   • What would cause you to recommend against this investment?

Key Terms Your Attorney Should Review in the Kumon FDD

Your franchise attorney should provide detailed analysis of these critical sections:

Item 5 & 6 - Fees Structure:

• Initial franchise fee: $2,000 (relatively low compared to industry)
• Initial materials fee: $2,000
• Royalty structure during TLP: $40.50 per full-payment student per subject
• Royalty after TLP: $36 per full-payment student per subject
• Initial enrollment royalty: $30 per newly enrolled student
• Right to change royalty rates: 60 days' notice, no contractual limit on increases
• Administrative fees for late payments: 1.5% monthly or $75 minimum
• Late/inaccurate report fees: $200-$1,000+ escalating penalties

Item 6, Note 2 - Temporary License Period (TLP) Requirements:

• Complex completion requirements including:
  • 600+ Math students enrolled (10%+ using Kumon Connect)
  • 400+ Reading students enrolled (10%+ using Kumon Connect)
  • 12 Professional Development Credits
  • Worksheet study and achievement tests
  • Formal evaluation (if requested)
• Critical concern: Failure to complete TLP means paying higher royalties indefinitely
• Reversion risk: Not meeting ongoing training requirements reverts you to higher TLP royalty for minimum one year

Item 7 - Initial Investment:

• Total range: $73,783 to $165,920
• Significant variables in leasehold improvements ($30,000-$60,000)
• Security deposits ($0-$26,500)
• Hidden costs: Additional funds for 3 months ($16,160-$21,660)

Item 8 - Restrictions on Sources:

• Must purchase all Kumon Materials exclusively from franchisor
• Required to use designated vendors for furniture and phone system
• Limited ability to source products independently

Item 11 - Training Requirements:

• Extensive Instructor Development Program (4+ months)
• Ongoing training requirements throughout franchise term
• Risk: Failure to complete second semester results in franchise termination

Item 12 - Territory:

• Your attorney should carefully review territorial rights and restrictions
• Understand whether you have exclusive or non-exclusive territory
• Evaluate franchisor's rights to operate competing locations

Item 17 - Renewal, Termination, Transfer:

• Liquidated damages: 3x average monthly royalty for improper termination
• Transfer restrictions and approval requirements
• Renewal terms and conditions
• Post-termination obligations and non-compete provisions

Item 19 - Financial Performance Representations:

• Note: The FDD structure overview indicates Item 19 content was not found
• Red flag: Absence of financial performance data means no earnings claims provided
• Your attorney should discuss implications of investing without franchisor earnings data

State-Specific Addenda:

• Review all state-specific modifications to the agreement
• Understand how your state's franchise laws provide additional protections
• Verify compliance with state registration requirements

Expected Attorney Costs

Typical Fee Ranges for Franchise Attorney Services:

Fee Structure Options:

1. Hourly Rates: $250 - $500 per hour

   • Typical for complex negotiations
   • Can be unpredictable in total cost
   • Request an estimate of total hours needed

2. Flat Fee Packages: $2,500 - $4,000

   • Covers FDD review, agreement review, and consultation
   • Provides cost certainty
   • May not include negotiation or additional research

3. Hybrid Approach: Flat fee + hourly for additional work

   • Common structure
   • Flat fee for standard review
   • Hourly rate for negotiations or complex issues

Cost-Saving Tips:

• Prepare questions in advance to maximize consultation time
• Review the FDD yourself first and identify specific concerns
• Limit phone calls and use email for non-urgent questions
• Ask if the attorney offers package pricing for franchise reviews

What's Typically Included:

• Complete FDD review (all 23 items)
• Franchise Agreement analysis
• Review of all attachments and exhibits
• Written summary of key concerns
• 1-2 hour consultation to discuss findings
• Follow-up questions via email (limited)

What May Cost Extra:

• Attendance at franchise signing
• Negotiation with franchisor
• Review of lease agreements
• Entity formation assistance
• Ongoing advisory services after purchase

---

Finding a Franchise Accountant

Why Franchise Accounting Expertise is Essential

A franchise accountant differs from a general business accountant in several critical ways:

Franchise-Specific Knowledge:

• Understanding of royalty-based business models
• Experience with franchise fee structures and their tax implications
• Familiarity with franchise-specific financial reporting requirements
• Knowledge of typical franchise profit margins and benchmarks
• Experience with multi-unit franchise accounting (if you plan to expand)

For Kumon Specifically:

• Experience with enrollment-based revenue models
• Understanding of educational services industry margins
• Ability to model variable royalty structures (TLP vs. post-TLP)
• Knowledge of seasonal enrollment patterns in supplemental education
• Experience with service businesses (minimal inventory accounting)

Services Your Franchise Accountant Should Provide

1. Pre-Investment Financial Analysis

Pro Forma Review and Reality Check:

Your accountant should analyze the financial projections you develop during the Instructor Development Program (see Item 11, Note 1 regarding the Business Plan requirement). While Kumon requires you to create a Business Plan, the franchisor explicitly states they do not endorse your figures.

Your accountant should:

• Review your enrollment projections for reasonableness
• Analyze your expense estimates against industry benchmarks
• Stress-test your assumptions (what if enrollment is 20% lower?)
• Calculate break-even enrollment levels
• Project cash flow for first 12-24 months
• Identify potential financial shortfalls

Kumon-Specific Financial Modeling:

Given the unique Kumon fee structure, your accountant should model:

For a center with 100 Math students and 75 Reading students:

• TLP royalties: (100 × $40.50) + (75 × $40.50) = $7,087.50/month = $85,050/year
• Post-TLP royalties: (100 × $36) + (75 × $36) = $6,300/month = $75,600/year
• Annual savings: $9,450/year

Critical question your accountant should answer: How long will it take to reach TLP completion requirements (600 Math students, 400 Reading students), and what is the financial impact of delayed completion?

Initial Investment Analysis:

Your accountant should review the Item 7 estimates:

Questions your accountant should address:

• Is the 3-month additional funds estimate adequate, or should you plan for 6-9 months?
• What enrollment level is needed to cover monthly operating expenses?
• How much working capital should you maintain as a reserve?
• What are the tax implications of the initial investment?

2. Tax Structure Advice

Entity Selection:

Your accountant should advise on the optimal business structure:

Kumon-Specific Requirements:

• If forming a corporation or LLC, you must comply with Section 10.6 requirements
• All owners must sign personal guarantees (Attachment 2-B)
• Kumon must approve your entity structure

Tax Planning Considerations:

Your accountant should address:

1. Deductibility of Initial Fees:

   • $1,000 Training Agreement deposit
   • $2,000 Initial Franchise Fee
   • $2,000 Initial Materials Fee
   • Treatment of these costs (capitalize vs. expense)

2. Deductibility of Ongoing Fees:

   • Monthly royalties (fully deductible)
   • Insurance costs (deductible)
   • Marketing expenses (deductible)
   • Professional fees (deductible)

3. Home Office Deduction:

   • If you work from home on administrative tasks
   • Requirements and limitations
   • Documentation needed

4. Vehicle Expenses:

   • Mileage to/from Center
   • Business use percentage
   • Record-keeping requirements

5. Depreciation:

   • Leasehold improvements
   • Furniture and equipment
   • Computer equipment
   • Accelerated depreciation options (Section 179, bonus depreciation)

6. Quarterly Estimated Tax Payments:

---

Is KUMON NORTH AMERICA, INC. Franchise Right for You? Final Verdict

Summary of Key Findings

Note: This analysis is based on limited FDD information available. A complete FDD review is essential before making any franchise decision.

Investment Range Overview

Based on the available FDD data, the total estimated initial investment for a Kumon franchise ranges from $73,783 to $165,920. This includes:

• Initial Franchise Fee: $2,000 (non-refundable)
• Training Deposit: $1,000 (applied toward franchise fee upon completion)
• Initial Materials: $2,000 (non-refundable)
• Leasehold Improvements: $30,000 - $60,000
• Security Deposit: $0 - $26,500
• First Month's Rent: $3,000 - $7,000
• Additional Funds (3 months): $16,160 - $21,660

Positive Indicators:

• Relatively low initial franchise fee compared to many franchise systems
• Kumon provides significant subsidies including furniture/fixtures ($10,000), carpet/paint reimbursement (up to $5,500), exterior signage reimbursement ($4,800-$7,000), and 50% rent subsidy for first 12 months (up to $1,000/month)
• No financing required from franchisor, reducing debt burden

Concerns:

• Limited FDD information available prevents comprehensive financial analysis
• Leasehold improvements can vary significantly ($30,000-$60,000 range)
• Additional funds estimate may be conservative for some markets

Financial Stability Assessment

Unable to provide comprehensive assessment due to incomplete FDD information. The following items are critical but not available in the provided documents:

• Item 19 (Financial Performance Representations) - NOT AVAILABLE
• Item 21 (Financial Statements) - Referenced but not provided in full
• Historical performance data - NOT AVAILABLE
• System-wide revenue trends - NOT AVAILABLE

What We Know:

• Kumon North America is a subsidiary of Kumon Institute of Education Company, Ltd. (Japan)
• Global presence: approximately 3,520,000 students in 23,700 centers across 60+ countries (as of December 31, 2023)
• North America: 390,515 students, 22 company-owned centers, 1,637 franchised centers
• Company has operated since 1989 (predecessors since 1983)
• 38+ years of franchising experience in the U.S.

Support and Training Summary

Strengths:

Comprehensive Training Program:

• Two-semester Instructor Development Program (approximately 4 months for first semester)
• Structured curriculum covering instruction, center management, communication, marketing, and business management
• Combination of online modules, classroom training, in-center training, and self-study
• Ongoing training requirements throughout franchise term
• Supervised by experienced trainers with Kumon Center operation experience

Operational Support:

• Kumon Materials provided at no additional charge (covered by royalty)
• Proprietary computer software and customer management system
• Operations Manual with detailed procedures
• Monthly instructor meetings and professional development opportunities
• Annual national Instructor Conference
• Branch office support structure

Marketing Support:

• New Center Marketing program ($7,560 total investment, franchisee pays $3,960 over 18 months)
• Digital advertising services through preferred vendor
• Assigned domain name and email address
• National brand recognition with global presence

Concerns:

Rigorous Qualification Process:

• Extensive application and approval procedures
• Mathematics and Reading Proficiency Tests required
• FBI criminal background check mandatory ($18 + local fees)
• Six-month waiting period if proficiency tests not passed
• No guarantee of franchise award after completing training

Temporary License Period (TLP):

• Higher royalty rates during TLP ($40.50 per full-payment student vs. $36 after TLP)
• Multiple requirements must be met simultaneously to complete TLP
• Requirements include: 600+ Math students enrolled (10%+ using Kumon Connect), 400+ Reading students enrolled (10%+ using Kumon Connect), 12 Professional Development Credits, compliance with all agreements, satisfactory center management, and more
• Failure to maintain ongoing performance standards results in reversion to higher TLP royalty for minimum one year

Territory and Competition

Territory Rights:

• Information not fully available in provided FDD sections
• Item 12 referenced but not included in provided documents

Competition:

• Highly competitive supplemental education market
• Competition from: tutoring institutes, learning centers, test-prep centers, individual tutors, online educational services, self-tutoring programs, and other Kumon Centers
• Kumon Publishing Company workbooks sold through retail channels (Amazon, Barnes & Noble, Target) may create brand confusion
• No exclusive territory protection details available in provided documents

Market Position:

• Strong global brand recognition (established 1958 in Japan)
• Proven educational methodology with 65+ years of history
• Significant market presence in North America

Franchisee Satisfaction Indicators

Unable to provide comprehensive assessment - Item 20 (Outlets and Franchisee Information) not fully provided. Critical missing information includes:

• Number of franchisees who left the system and reasons
• Franchisee turnover rates
• Transfers, terminations, and non-renewals
• Contact information for current and former franchisees for validation calls

Available Data:

• 1,637 franchised Kumon Centers in North America (as of December 31, 2023)
• 22 company-owned centers
• Exhibits C and D referenced (franchisee lists) but not provided

Risk vs. Reward Assessment

Primary Risks Identified

Potential Rewards and Opportunities

Positive Factors:

• Established Brand: 65+ years of proven educational methodology with global recognition
• Recession-Resistant: Education services typically maintain demand during economic downturns
• Recurring Revenue Model: Students typically enroll for extended periods; twice-weekly attendance creates predictable cash flow
• Low Initial Investment: Compared to many franchise systems, relatively accessible entry point
• Significant Subsidies: Kumon provides substantial financial support for new centers (furniture, signage, rent subsidy, carpet/paint)
• Scalability: Opportunity to open multiple centers after establishing first location
• Comprehensive Training: Extensive preparation reduces operational risk
• Growing Market: Increasing parental focus on supplemental education
• Flexible Delivery: In-person, online, and hybrid instruction options expand market reach
• Kumon Connect: Digital platform provides modern learning option

Opportunities:

• Multiple revenue streams (Math and Reading programs)
• Ability to serve diverse age ranges (pre-school through high school)
• Year-round operation (not limited to school year)
• Potential for strong student retention and referrals
• Growing emphasis on STEM education benefits math-focused programs

Risk Mitigation Strategies

If you decide to proceed with a Kumon franchise, consider these strategies:

1. Conduct Extensive Due Diligence

   • Request complete FDD with all 23 items
   • Obtain and analyze Item 19 (Financial Performance Representations) if available
   • Review Item 21 (Financial Statements) thoroughly with your accountant

2. Franchisee Validation

   • Contact minimum 15-20 current franchisees (mix of new and established)
   • Contact former franchisees to understand exit reasons
   • Ask specific questions about: actual earnings, time to profitability, TLP completion timeline, royalty increases, tuition limitations impact, and Kumon support quality

3. Financial Planning

   • Prepare conservative financial projections (assume longer ramp-up period)
   • Plan for 12-18 months of operating expenses without salary
   • Account for higher TLP royalty rates in initial projections
   • Build contingency fund for unexpected expenses (20-30% of initial investment)
   • Model impact of potential royalty increases and tuition caps

4. Market Analysis

   • Conduct thorough demographic analysis of target area
   • Identify and assess all direct competitors
   • Evaluate school quality and supplemental education demand
   • Assess household income levels and education spending patterns
   • Understand local real estate costs and availability

5. Legal Protection

   • Engage experienced franchise attorney to review all agreements
   • Negotiate lease terms carefully (5+ year requirement)
   • Understand termination and transfer provisions thoroughly
   • Clarify territory rights and protection
   • Review dispute resolution requirements (New Jersey jurisdiction)

6. Operational Preparation

   • Ensure you can commit to minimum operating hours (40 hours/week open, 14 hours/week instruction)
   • Develop plan for hiring and training assistants
   • Understand TLP requirements and create completion timeline
   • Prepare for ongoing training and professional development obligations

Ideal Franchisee Profile for KUMON NORTH AMERICA, INC.

Financial Requirements

Minimum Qualifications:

• Liquid Capital: $75,000 - $170,000 (to cover initial investment range)
• Net Worth: Not specified in provided FDD (typically franchisors require 2-3x initial investment)
• Operating Capital: Additional $30,000-$50,000 for extended ramp-up period
• Credit Score: Good to excellent credit (typically 680+)

Financial Characteristics:

• Ability to operate 12-18 months without drawing salary
• Comfortable with variable income during growth phase
• Understanding of education services business model
• Realistic expectations about time to profitability

Skills and Experience Needed

Essential Qualifications:

Educational Background:

• Strong mathematics proficiency (must pass Kumon's Math Proficiency Test)
• Strong reading/language arts proficiency (must pass Kumon's Reading Proficiency Test)
• Minimum high school diploma (bachelor's degree preferred)
• Teaching, tutoring, or education experience highly beneficial but not required

Business Skills:

• Basic business management and financial literacy
• Customer service orientation
• Marketing and sales ability (enrollment-driven business)
• Staff management and training capability
• Technology proficiency (proprietary software, customer management systems)
• Organizational and time management skills

Communication Skills:

• Excellent verbal and written communication
• Ability to communicate effectively with children, parents, and staff
• Presentation skills for parent orientations and meetings
• Conflict resolution abilities

Beneficial Experience:

• Previous franchise ownership
• Small business operation
• Education or childcare industry
• Sales or marketing roles
• Service business management

Personal Characteristics

Ideal Candidate Profile:

Passion for Education:

• Genuine interest in child development and education
• Commitment to Kumon Method philosophy
• Patience and understanding when working with children
• Belief in long-term educational benefits over quick results

Work Ethic and Commitment:

• Willingness to work evenings and weekends (peak instruction times)
• Hands-on management style (owner-operator model)
• Dedication to continuous learning and improvement
• Persistence through challenging growth phases

Interpersonal Qualities:

• Strong people skills and emotional intelligence
• Ability to build relationships with parents and students
• Professional demeanor and appearance
• Cultural sensitivity and inclusiveness
• Trustworthiness (working with children requires highest integrity)

Business Mindset:

• Detail-oriented with strong follow-through
• Systems-oriented approach to operations
• Marketing and community engagement focus
• Financial discipline and accountability
• Coachability and willingness to follow proven systems

Personal Situation:

• Clean criminal background (FBI check required)
• Stable personal life supporting business demands
• Family support for time commitment
• Long-term commitment to community

Time Commitment Expectations

Initial Phase (First 6-12 Months):

• 60-70 hours per week minimum
• Hands-on instruction and student assessment
• Marketing and community outreach
• Center setup and systems implementation
• Staff hiring and training
• Parent communications and orientations

Ongoing Operations:

• 40+ hours per week minimum (Center must be open 40 hours/week)
• 14+ hours per week direct instruction time (for first franchise; 2x/week for renewals)
• Evening and weekend hours required (peak student times: after school, Saturdays)
• Additional time for:
  • Administrative tasks and reporting
  • Staff management and training
  • Marketing and enrollment activities
  • Professional development and ongoing training
  • Parent meetings and communications
  • Kumon branch meetings and conferences

Flexibility Considerations:

• Limited vacation time, especially during school year
• Difficult to take extended absences (requires approved management plan)
• Year-round operation (not seasonal)
• Peak periods during school year require maximum attention

Absentee Ownership:

• Not recommended for first Kumon Center
• Franchise Agreement requires personal involvement in instruction
• Must have approved management plan for any absence
• Kumon may take over operations if absent without proper arrangements (10% management fee + costs)

Business Goals Alignment

This franchise is well-suited for individuals who:

✓ Seek to make a positive impact on children's education and development
✓ Want to build a business around personal involvement and relationships
✓ Prefer a proven system with comprehensive training and support
✓ Value brand recognition and established methodology
✓ Are comfortable with recurring revenue model and gradual growth
✓ Can commit to long-term presence in community
✓ Want to be part of global educational organization
✓ Appreciate structured systems and operational guidelines
✓ Are willing to follow franchisor requirements and standards

This franchise may NOT be suitable for individuals who:

✗ Seek rapid financial returns or high profit margins
✗ Want absentee or semi-absentee ownership
✗ Prefer complete autonomy and flexibility in business decisions
✗ Are uncomfortable working with children or parents
✗ Cannot commit to evening and weekend work schedules
✗ Expect to quickly scale to multiple locations
✗ Want to innovate or significantly modify the business model
✗ Are risk-averse and need guaranteed income
✗ Cannot meet rigorous training and ongoing performance requirements

Overall Recommendation Rating

⚠️ PROCEED WITH EXTREME CAUTION - INCOMPLETE INFORMATION

Rating: Unable to Provide Definitive Recommendation

Reason: Critical FDD sections are missing from the provided documents, making a comprehensive evaluation impossible. Specifically:

• Item 19 (Financial Performance Representations): Essential for understanding earning potential
• Item 20 (Outlets and Franchisee Information): Critical for assessing system stability and franchisee satisfaction
• Complete Item 21 (Financial Statements): Necessary for evaluating franchisor financial health
• Item 12 (Territory): Important for understanding competitive protection

Conditional Assessment Based on Available Information:

IF complete due diligence reveals positive indicators:

Potential Rating: 6.5-7.5 out of 10

Strengths:

• Established global brand with proven methodology
• Comprehensive training and support
• Relatively low initial investment with significant subsidies
• Recession-resistant education sector
• Multiple revenue streams and delivery options

Weaknesses:

• Variable royalty structure with no cap on increases
• Tuition limitation policies may

---

KUMON NORTH AMERICA, INC. Franchise FAQs

Q: How much does a KUMON NORTH AMERICA, INC. franchise cost?

A: The total investment to open a Kumon franchise ranges from $73,783 to $165,920. This comprehensive estimate includes the initial franchise fee, training deposit, materials, leasehold improvements, equipment, and three months of operating capital. The wide range reflects variables such as location, real estate costs, and whether you're opening a new center or taking over an existing one.

---

Q: What is the KUMON NORTH AMERICA, INC. franchise fee?

A: The initial franchise fee is $2,000, payable when you sign the Franchise Agreement. Additionally, there's a $1,000 deposit fee for the Instructor Development Program Training Kit if you're applying for your first Kumon Center franchise. This deposit is applied toward your franchise fee upon successful completion of training, and you'll also pay a $2,000 initial materials fee for instruction answer books, tests, and promotional materials.

---

Q: How much do KUMON NORTH AMERICA, INC. franchise owners make?

A: The FDD does not provide specific financial performance representations regarding franchisee earnings or profitability. According to Item 19, Kumon states: "We do not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets." Prospective franchisees should contact current and former franchisees listed in the FDD to discuss their actual experiences and financial results.

---

Q: What is the KUMON NORTH AMERICA, INC. franchise failure rate?

A: The FDD does not explicitly state a "failure rate," but Item 20 provides outlet information that allows calculation of system changes. As of December 31, 2023, there were 1,637 franchised Kumon Centers in North America, with 22 company-owned locations. The FDD includes Exhibit D listing franchisees who left the system during fiscal year 2023, which prospective franchisees should review to understand turnover patterns and reasons for exits.

---

Q: Does KUMON NORTH AMERICA, INC. provide financing?

A: No, Kumon does not offer direct or indirect financing. According to Item 10, "We do not offer direct or indirect financing. We do not guarantee any promissory note, lease or other obligation you may make to others." Franchisees must secure their own financing through banks, credit unions, SBA loans, or personal resources to cover the initial investment.

---

Q: How long is the KUMON NORTH AMERICA, INC. franchise agreement?

A: The FDD does not specify the initial term length of the Franchise Agreement in the sections provided. However, Item 17 (Renewal, Termination, Transfer and Dispute Resolution) would contain this information. Prospective franchisees should review the complete Franchise Agreement in Attachment 2 for specific term details and renewal provisions outlined in Section 13 of the agreement.

---

Q: What territory do you get with KUMON NORTH AMERICA, INC. franchise?

A: The FDD indicates that Item 12 addresses territory provisions, stating "the 'territory' provisions in the franchise agreement describe whether the franchisor and other franchisees can compete with you." The specific details about territorial rights, exclusivity, and protected areas are contained in Item 12 and Section 3.3 of the Franchise Agreement. Kumon must approve your specific facility location before you sign the agreement.

---

Q: Is KUMON NORTH AMERICA, INC. franchise a good investment?

A: This depends on multiple factors including your qualifications, market conditions, and business acumen. Positive factors include: Kumon's global presence with approximately 3,520,000 students in 23,700 centers across 60+ countries, a proven 70-year educational methodology, relatively low initial franchise fee ($2,000), and comprehensive training. Considerations include: no financial performance data provided, ongoing royalty fees that change based on performance ($36-$40.50 per student monthly), required minimum operating hours, and strict operational requirements during the Temporary License Period.

---

Q: How do I get a KUMON NORTH AMERICA, INC. FDD?

A: To receive the Kumon FDD, contact the Center Network Development Department at 301 Route 17 North, Rutherford, New Jersey 07070, or call (201) 928-0444. You can also email Franchise@Kumon.com or visit www.kumon.com. By law, Kumon must provide you with the FDD at least 14 calendar days before you sign any binding agreement or make any payment, allowing you adequate time to review the document and consult with advisors.

---

Q: Can I sell my KUMON NORTH AMERICA, INC. franchise?

A: Yes, but transfers are subject to Kumon's approval and specific conditions outlined in Item 17 and Sections 17 and 18 of the Franchise Agreement. The FDD indicates that transfer provisions exist under "Item 9, Franchisee's Obligations" referencing Sections 14.1(f), 15.2, 15.3, 17, and 18. Transfers typically require the buyer to meet Kumon's qualification standards, complete training, pay transfer fees, and sign the then-current franchise agreement, which may have different terms than your original agreement.

---

Q: What support does KUMON NORTH AMERICA, INC. provide?

A: Kumon provides comprehensive support including: (1) a multi-semester Instructor Development Program with classroom and online training; (2) ongoing training through monthly meetings and professional development; (3) proprietary software and customer management systems; (4) continuous supply of Worksheets, Placement Tests, and Achievement Tests at no additional charge beyond royalties; (5) initial furniture and fixtures for new centers; (6) reimbursement up to $5,500 for carpet, paint, and window treatments; (7) exterior signage reimbursement ($4,800-$7,000); and (8) field support through regional branch offices and General Managers.

---

Q: What are the ongoing fees for KUMON NORTH AMERICA, INC. franchise?

A: Monthly royalties are the primary ongoing fee: $40.50 per full-payment student during the Temporary License Period (TLP), reducing to $36 per student after TLP completion (partially exempt students pay half rates). Additional fees include: $30 Initial Enrollment Royalty per new student; $4.80 per math student annually for insurance (if using Kumon's program); $220 monthly for 18 months for New Center Marketing; 1.5% monthly late payment fee (minimum $75); $200-$1,000+ for late/inaccurate reports; and shipping costs for materials (currently $40 or actual cost, whichever is less).

---

Q: How long is KUMON NORTH AMERICA, INC. franchise training?

A: The Instructor Development Program takes approximately 4 months to complete the first semester, which includes Course 101 and Course 201 (each 4 days of classroom training), plus 8-11 hours of pre-training, curriculum study, online modules, and in-center training totaling approximately 100-150 hours. After opening your center, you must complete the second semester (Course 301 and Course 401, each 3-4 days) over approximately 9-12 months. Total training commitment spans roughly 12-16 months including pre-opening and post-opening phases, with ongoing training requirements throughout your franchise term.

---

Q: Can I run KUMON NORTH AMERICA, INC. franchise as an absentee owner?

A: No, absentee ownership is not permitted. Item 15 states "Obligation to Participate in the Actual Operation of the Franchise Business" with references to Sections 10.1, 10.2, 10.5, and 14.2(f) of the Franchise Agreement. The franchise model requires the franchisee to be the primary instructor and actively manage the center. If you're absent without making arrangements acceptable to Kumon, they have the right to take over operation of your center and charge you a management fee of 10% of average tuition multiplied by enrolled students, plus reimbursement of out-of-pocket costs.

---

Q: What are the main competitors to KUMON NORTH AMERICA, INC.?

A: According to Item 1, Kumon faces competition from multiple sources including: educational services offered on the Internet, tutoring institutes and centers, learning centers, test-prep centers, individual tutors, self-tutoring programs, other Kumon Centers in the area, and various individuals, companies, and organizations offering supplemental education. The FDD notes that "the supplemental educational market continues to experience increasing competition." While Kumon is not a school and doesn't directly compete with public or private schools, some schools have adopted the Kumon Method to supplement their curricula.

---

Key Considerations for Prospective Franchisees

Financial Transparency

• No earnings claims provided - You must conduct independent research by contacting current franchisees
• Wide investment range suggests significant variability based on location and circumstances
• Ongoing fees can accumulate quickly with student enrollment growth

Operational Requirements

• Minimum operating hours: At least 40 hours/week open to public, 14 hours/week for instruction (first franchise)
• Must offer in-person, online, or hybrid instruction options
• Strict compliance requirements during Temporary License Period
• Reversion to higher royalty rates if ongoing performance standards aren't met

Training Commitment

• Extensive initial training (4+ months before opening, 9-12 months after)
• Ongoing professional development requirements throughout franchise term
• Must pass proficiency tests in both math and reading to qualify
• FBI background check required

Support vs. Control Balance

• Significant initial support (furniture, signage, materials, rent subsidy)
• Kumon retains right to change royalty rates with 60 days' notice (no contractual limit on increases)
• Strict limitations on tuition and registration fees you can charge
• Cannot use location for any purpose other than Kumon Center operation

Red Flags to Consider

⚠️ No financial performance data makes it difficult to project potential earnings
⚠️ Unlimited royalty increase potential with only 60 days' notice
⚠️ Absentee ownership prohibited - requires personal, active involvement
⚠️ Out-of-state dispute resolution (New Jersey) may increase costs
⚠️ Tuition caps may limit revenue potential in high-cost markets

Positive Indicators

✓ Low initial franchise fee ($2,000) compared to many franchises
✓ Global brand recognition with 3.5+ million students worldwide
✓ Proven 70-year methodology with strong educational foundation
✓ Comprehensive training and support system
✓ Materials provided at no additional charge beyond royalties
✓ Initial subsidies for furniture, signage, rent, and marketing

---

Due Diligence Recommendation: Before investing, prospective franchisees should thoroughly review the complete FDD, speak with at least 10-15 current franchisees and several former franchisees (listed in Exhibits C and D), consult with a franchise attorney and accountant, and carefully assess whether the operational requirements align with their personal goals and capabilities.